Tom Blenkinsop:
As the hon. Gentleman knows, certain programmes, such as the Government’s rebuilding schools programme—which has been delayed for a year in one school in Guisborough in my constituency—are dependent on PFI arrangements, which raise capital from the bond market. We had a slightly different arrangement for the
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Building Schools for the Future project. We now have the sudden realisation that the cancellation of such capital projects, in the first two years of this Government, has sent the economy into a spiral.
The real issue for me, especially in the north-east, is connectivity. We want to develop our economic base, but rail electrification will go only as far as York. What we want is access to capital funds to get electrification done as soon as possible. I hope that that will yield some results, but it is already too late. We have already had nigh on three years with little investment, and now the situation is desperate. Capital is still very slow in coming from Whitehall, exacerbated by the lack of agencies in the region to assist businesses, even given the regional growth fund. How we solve that, given that those agencies have been dismantled, I do not know, but we need to do more.
Added to the Chancellor’s mood music and the deleveraging frenzy, we have a Government delaying the payment of bills to hide borrowing. The delaying of these payments—largely to big businesses—leads to deleveraging big businesses, with vast sums under the corporate mattress, using smaller businesses as an extra line of credit. Current unpaid bills to small and medium-sized enterprises total £36.4 billion, with some small businesses writing off bills to the tune of £10,000. An illustration of this is the 7% year-on-year contraction in construction, which has its lowest growth rate since 1987.
The Chancellor is aware of this issue. In the north-east, according to the regional Federation of Small Businesses, banks cannot apparently give a regional figure for the take-up of the funding for lending scheme for business. We need to hold banks to account for that. The north-east has 134,000 businesses—I mentioned two of the larger ones earlier. A thousand employ more than 50 people, while 96,000 are sole traders, who by and large do not pay corporation tax. This April, real-time information will be introduced, but apparently only 25% of FSB members know what RTI is. I suggest to Ministers that small businesses should be given a proper period of slack on the introduction of RTI. The Government have allowed six months, but extending this to 12 months might be necessary so that businesses can adapt properly. However, the closure of local HMRC tax inquiry offices in the north-east—a region with a large sole trader community—means that we will be far more exposed to transitional difficulties.
The sole traders, market town traders and small businesses on our high streets will not only have RTI to contend with. The national minimum wage is lower now, in real terms, than it was in 2004. It was raised by 1.9% today, but the consumer prices index is at 2.8%, so it is a real-terms cut. Small businesses and their customers in the north-east will see working tax credit freezes from this April, meaning those working under 30 hours will lose between £303 and £428. That is £303 to £428 less to spend. Benefits being capped at 1% rather than CPI will mean that small businesses’ customers lose up to £150. That is £150 less to spend. The bedroom tax—a housing benefit cut of between 14% and 24%—will mean they lose between £624 and £1,144. That is £624 to £1,144 less to spend. The benefit cap, to be rolled out nationally from September, will mean small businesses’ customers will lose on average £4,836, which is an average of £93 a
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week. That is £93 less per week for their customers to spend. The council tax benefit cut—the Tories’ new poll tax—will mean that 700,000 people in employment will lose between £250 to £600 each, meaning small businesses’ regular customers will have between £250 and £600 less to spend. This will no doubt compound an already obvious demand crisis.
After the mummy tax and the granny tax, the end of the pregnancy grant, and VAT being increased again by a Tory Government, there will be obvious consequences for sole traders and small business in general. How do the Government think these reductions in the disposable income of small businesses’ most frequent and dependable customers will resolve this country’s economic growth problems? In the autumn statement, private consumption was expected to be a crucial driver of Britain’s growth in the years ahead. The OBR expected growth in 2012 to come from private consumption. Indeed, it revised it up to 37.5% of all growth after last year’s omnishambles Budget. Of course, it did not happen. The promised—albeit simultaneously derided—consumer growth was not delivered. Page 100 of the Red Book assumes a jump of 0.7%, from 0.5% this year to 1.2% next year, in household consumption, even though it simultaneously predicts unemployment increasing in 2013-14 and the claimant count increasing from 1.58 million to 1.63 million in the same period. The Chancellor also failed to inform the nation that 400,000 disabled people on severe or enhanced disabled benefits will now have to pay council tax for the first time ever.
In conjunction with what I illustrated earlier, these are demand-sapping policies on a monumental scale. Are they being taken because the Government fear that their other policies will bring about inflation? Are they attacking demand deliberately in order to control inflation? We know that Mark Carney, the new Governor of the Bank of England, will be constrained by a 2% inflation target. However, we also know that inflation crept up to between 2.5% and 3%—around the 2.8% mark between January and February—this year. That inflation rise, at the same time as pay freezes, local real-terms pay cuts and benefits reductions, has seen families subject to an unprecedented cost of living crisis. According to uSwitch, Britons collectively owe £637 million to energy firms— £159 million more than last year’s projections. Some 20% of all energy customers surveyed are in debt, a figure that has risen by 14% since last year.
In conclusion, with falling disposal income levels and increasing household outgoings, the temporary retail or consumer growth we are currently seeing is very small. As well as being derided in the first place by Government Members as the wrong type of growth, given the Government’s other policies, it is unsustainable in the medium and long term. The Budget is fundamentally unfair: it does not address growth, it doubles the debt and it does not deal with the deficit—it actually makes it worse. It fails on all the original criteria set out by the Chancellor in June 2010.
7.31 pm
Stewart Hosie (Dundee East) (SNP):
May I start by making two observations? This ought to be the keynote debate on the Government’s annual flagship Finance Bill, but there are only five Government Members in the Chamber—two Ministers, a Whip, a Parliamentary Private Secretary and one solitary Liberal, who I suspect will
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leave at the earliest possible opportunity—none of whom is now standing to speak. It is a terrible indictment of the Government that even the normal cheerleaders are not here to back the Chancellor. That probably indicates that many Government Members consider the Budget to be as miserable as we do.
I was struck by the fact that the hon. Member for Redcar (Ian Swales) chose to defend the millionaire tax cut. One reason he gave rather explodes the “we’re all in it together” myth, which, as someone else has said, is rarely used by Government Members these days. Even if this year’s Red Book is right and the cost of the millionaires’ tax cut is only £500 million in the next five years, I think we would all argue that if £500 million is going spare it would be better to spend it on direct capital investment, capacity for the future, and job and GDP creation, rather than give it to people who are already wealthy.
The Finance Bill is a consequence of the March Budget. Apart from some measures I welcomed relating mainly to business tax, it was a pretty miserable Budget. It was miserable because, by and large, it merely continued with the Government’s failed policies. We know they have failed because the Chancellor told us that they have failed—they failed by every measure he set. The net borrowing requirement, which was due to fall to £92 billion, has gone up to £121 billion. The national debt, which was due to peak at 92.7% of GDP—£1.36 trillion—in 2014-15 on the treaty calculation, is now expected to peak, on the same calculation, at more than 100% of GDP. National debt on the treaty calculation is due to reach 100.8% of GDP, or £1.58 trillion, by 2016-17. Therefore, when we hear that the deficit is lower and debt will fall, it does not really bear any scrutiny, even by the Chancellor’s and the OBR’s own numbers. The Chancellor has failed to meet his own targets on his original time scale for his own fiscal rules: that the structural current deficit should be in balance in the final year of the five-year rolling programme, and that debt should fall as a share of GDP. Of course, according to the OBR those objectives were highly dependent on GDP growth, which, as we have seen in previous Red Books, was based on incredible, unbelievable, unmet and frankly unmeetable rates of business investment growth.
Let us remind ourselves that in 2010 the Government suggested that business investment had to grow by between 8.1% and 10.9% a year for five years. By the time we got to the OBR’s fiscal outlook the next year, growth in business investment had actually turned negative, which was extraordinary, and so it went on year after year after year. They were at it again this year, forecasting future business investment rates of between 6.4% to 10.2% from 2013 onwards. I suspect that nobody, even in Government, believes that those targets will be met. The Chancellor, or some other poor Minister, will be back at the Dispatch Box at some point in the near future explaining why this was all somebody else’s fault.
The Chancellor also failed because the Budget and the Bill continue down the path of deep cuts and tax rises. I am sorry that the hon. Member for Cities of London and Westminster (Mark Field) is no longer in his place. He gave a customary thoughtful speech, in which he suggested that perhaps we had all not been honest and that the cuts should be deeper. However, last year’s Red Book told us that the total cost of fiscal
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consolidation—discretionary consolidation; that is, tax rises and cuts—would be £155 billion a year from 2016-17 onwards. As I pointed out on Budget day, that 2016-17 figure of £155 billion of discretionary consolidation, tax rises and cuts had somehow been deleted from the Red Book, and there was no forecast for 2017-18.
It is fair to say that the Government have made a U-turn and that the fiscal tightening will continue to be the equivalent of approximately 7.5% to 8% of GDP stripped out of the economy in tax rises and cuts. It is extraordinary that they think they can cut their way to growth at the best of times, but that they think they can do so while pursuing a policy which, according to their own numbers, will see fiscal consolidation, discretionary tax rises and cuts of the equivalent of between 7.5% and 8% of GDP in demand stripped out of the economy. If they can cut their way to growth on the back of that, they should be given a Nobel prize. The problem is that none of us believes it will happen. Of course, the overall impact of 4:1 cuts to tax rises tells us exactly who will bear the brunt of these austerity measures.
I said at the beginning that I do not want to be wholly negative—there were some measures to be welcomed. Earlier, we discussed briefly one of the most potentially significant measures, which is the tenfold increase in the annual investment allowance to £250,000. That is for two years only, however, and the Government need to understand that even at this level investment decisions may take some time to be agreed before businesses are able to use the benefit. I therefore ask the Government to look again at the temporary nature of the increase. While we would certainly argue that it makes sense to have targeted tax allowances such as this—it makes sense for businesses to be allowed to keep more of their own money to invest, particularly when banks are still refusing to take the full share of the risk they should take—the real problem with the Budget, the Red Book and the Bill is that the Government continue to set themselves against direct capital investment when the economy needs it most, which is right now.
To understand just how damaging that is, let me give one example: the UK Government argue that they have given Scotland an additional £279 million in capital over the next two years. It is debateable whether that is true, as I will come to, but even if it is, it would still imply a 20% real-terms cut to the Scottish capital budget over the four-year spending review period. But it is not real capital expenditure: £266.5 million is classified as a financial transaction, meaning that it can be used only to fund loans or equity investments. That is a straitjacket. It is accompanied by £103.5 million cut in hard cash from the resource budget, half of which— £56 million—will be cut this year from already agreed budgets. This is not just daft; it is economically really, really silly. I despair that the Government think it makes sense to be putting administrations—public bodies of one sort or another—into a straitjacket, while removing hard cash and discretionary spending.
Pamela Nash (Airdrie and Shotts) (Lab): Before the hon. Gentleman moves too far on from capital spending, will he say why his party in Scotland is imposing even more draconian cuts on local government than the parties in government here, cutting public sector construction projects in Scotland and contributing to the 40,000 construction jobs lost in Scotland since his party took power?
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Stewart Hosie: The problem with that question is that it comes straight from the Labour party central office briefing note. The Scottish Government quite rightly re-profiled revenue spending into capital to make up for the capital cuts from the UK Government. We did that because we recognised that—I think there is unanimity on this—direct capital investment had a 1:1 impact multiplier in terms of GDP growth. That is extremely important, because the problem is that we do not have enough economic growth, so the Scottish Government were right to re-profile revenue into capital spending.
As I said earlier, the 4:1 ratio of cuts to tax rises under this Government, plus their smoke-and-mirrors approach to direct capital investment, shows just where their priorities lie, and it is not with people, jobs or growth. We can all probably agree that plan A has failed, and with the UK still teetering on the brink of a triple-dip recession the Chancellor seems to want to continue to do the impossible, which is to cut his way to growth. It has not worked and it will not work; and this Finance Bill will not help.
The Bill does, however, make provision for personal tax changes, and the increase in the basic rate threshold to £9,440 is welcome. The Government are right to try to take as many people as possible on low and modest incomes out of tax, and the savings from that increase, added to the £326 of savings from basic rate taxpayers, whose personal allowance has risen from £6,475 in 2010 to £8,105 last year, makes sense, but that is only part of the personal tax story. As I have said, the Government are also foolishly ploughing on with a tax cut for millionaires, which at their own conservative estimate will cost £500 million.
It is those in the middle who are really being squeezed. The tax relief in terms of the 40% band used to be £37,400, but that was decreased to £34,300 last year, so for every £326 changed up in the Budget, at 20p in the pound, people have had to shell out an extra £560 at the 40p rate, before this year’s changes. So although the change in this year’s basic threshold is welcome, we must recognise that the Chancellor pulled the same trick in the middle again by pre-announcing another cut to the 40% threshold down to £32,010 last year. That means that in three years the Government have taken the proportion of taxpayers paying the 40% rate from 10% to 13% of the total taxpaying public—up 670,000 in three years. Over 25 years, the proportion has doubled to 2.1 million extra people now paying a tax rate that was previously only for the rich. With hundreds of thousands of people now paying a 40p tax rate that was never designed for low and middle incomes, it is safe to say that the middle is not so much being squeezed by the Government as garrotted.
Ian Swales: Does the hon. Gentleman recognise that the first two changes in the 40p band were to ensure that 40% taxpayers only got the same amount out of the threshold increase as a basic rate taxpayer? In other words, it was a measure of fairness across the spectrum.
Stewart Hosie:
I recognise that an increase in the basic threshold from £6,400 to £9,400, which is a £3,000 rise, implies a saving of about £600, but a fall in the 40% threshold from £37,400 to £32,100, which is £5,000, implies a cost of £2,000. If one was paying 40% before, they still will be, while many hundreds of thousands
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more who were not, and who ought not to be, now will be. I do not see the fairness that the hon. Gentleman speaks of. I suspect that when we get to the next election, that might be part of the Liberal party’s campaign against their current Tory friends.
I want to turn to one of the most damaging small parts of the Finance Bill, which is the planned increase in air passenger duty. APD has become increasingly unpopular in the aviation industry and is now the most expensive in Europe. We know that standard rates vary from £13 for a short-haul flight to £94 for a long-haul flight. The rates were increased by RPI on 1 April this year, as announced in the 2012 Budget, and will be subject to a further increase by RPI next April, as announced in this Budget. We have consistently made the case for devolution as a means to improve connectivity and to give the aviation sector a competitive edge.
As the Minister will know, the Scottish Government Deputy First Minister wrote to the main airports in 2012 reaffirming our intention to press the UK Government to devolve APD as soon as possible. We do so because it makes economic sense. The study “The economic impact of Air Passenger Duty”, published only this February, confirmed that. It suggested that abolishing APD entirely could boost GDP by 0.46% in the first year, with benefits continuing to 2020, and that the GDP boost to the UK economy would amount to at least £16 billion in the first three years and result in almost 60,000 extra jobs over the longer term. We would argue, therefore, that the time for continually increasing APD has gone and that the time to devolve it is now.
We also welcome the support of Scotland’s four main airports for the devolution of APD. It is safe to say, however, that we have become increasingly frustrated with the UK Government’s continuing prevarication and the impact on Scotland and Wales of the further increases in rates from April this year and April 2014. To be fair, the Government have recognised, in devolving APD to Northern Ireland, that a one-size-fits-all policy might not be appropriate, but increasing APD throughout the rest of the UK and not devolving it demonstrates that the Government do not understand the differences in the UK aviation sector, the connectivity challenges faced by Scotland or the needs of passengers. This is a matter that we hope to return to in the Committee of the whole House.
The Finance Bill is utterly inadequate and ignores the pressing need for investment and growth. I am happy to say that the Scottish National party and Plaid Cymru will oppose it tonight.
7.49 pm
Frank Dobson (Holborn and St Pancras) (Lab): Whatever else can be said, it is quite clear that this Finance Bill will not sort out the public finances. As a result, we have got all sorts of efforts to distract people’s attention.
We have got the Work and Pensions Secretary going on about new punishments for people involved in benefit fraud. I am against benefit fraud, but I am against all fraud. Let us try to get things into perspective. In the last year for which figures are available, benefit fraud cost £1.2 billion. A recent study by Oxfam says that in the last year for which it has figures, tax fraud cost the taxpayer £5 billion. Needless to say, the Treasury said it did not recognise that figure, which is officialese for:
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“I can’t think what to say; I’ll have to find out what the boss says.” However, the Treasury has to acknowledge—because it produced this figure itself—that in the last year for which official figures are available, £4 billion was lost to tax fraud. It also produced figures for that year showing that tax avoidance—not tax evasion—cost the taxpayer £5 billion. There was a further loss of £4 billion for what is called “non-payment”—in other words, businesses making sure that when something went wrong, it was not the taxpayer who got any of the money. That makes a total of £13 billion lost in one year, mainly as a result of the desire and effective efforts by the rich and big businesses not to pay tax. That means that the taxpayer was swindled out of £13 billion in one year alone.
To be fair, that is partly because this House is notoriously bad at producing tax laws that actually work. That might be partly an effect of the fact that for years the Treasury has been advised on such matters by the very banks and accountancy firms that are doing the swindling in the first place. However, there is little real conviction in the idea that Her Majesty’s Revenue and Customs will do a good job of getting the money that we have voted should be taken. In fairness to HMRC, tax avoidance has become a major British industry. It is not a sideline of the big four banks or the big four firms of accountants; it is a major part of their industrial activity. They are not exactly big taxpayers themselves: in one year, Barclays paid just 1% of its profits in tax.
Then there is the massive and disgraceful involvement of the British financial sector in tax havens round the world, usually in British dependencies. When the British empire was at its zenith, the slogan was “Trade follows the flag”, and it still does, because the British dependencies, flying the British flag, are the major tax havens all over the world. The mighty British empire has been reduced to a scatter of sordid tax havens, where most of the fiddling is done by British banks and British firms of accountants. They are there helping the tax avoiders and helping the rich freeloaders to avoid the tax they should be paying here and in other countries. Let me give one or two examples. Barclays has just over 1,000 subsidiaries, 36% of which are located in tax havens. HSBC has 1,500 subsidiaries and, again, 36% are in tax havens. The Royal Bank of Scotland is slightly better—only 31% of its 1,300 subsidiaries are located in tax havens—while just 21% of Lloyds’s subsidiaries are located in tax havens.
Ian Swales: The right hon. Gentleman is making a powerful speech, but I am sure he is not suggesting that all this has arisen in the last three years. Can he remind the House of any steps that his Government took in this regard and does he welcome the steps that this Government are taking? They have resulted in, for example, Barclays closing down its structured capital markets department, which was basically about tax avoidance.
Frank Dobson:
I never said for a minute that it started recently. It has been going on for donkey’s years. I am not sure about the Lib Dems, but I cannot remember an organisation when Labour was in government called Tories in Favour of Stopping Tax Avoidance. Perhaps the minutes will be produced by someone, but it seems extremely unlikely, because everything the Tories ever said when they were in opposition was about Labour being too nasty to the finance industry and proposing
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things that might damage it. So we trundled on, until the finance industry damaged the rest of us. It is worth remembering that the banks’ wrongdoing has cost us £700 billion in lost production since the crash. That is what we have all lost.
These British banks and firms of accountants are not just organising tax avoidance in the tax havens for all the swindlers. We now know—from prosecutions and from agreements that they have come to with the American authorities—that they have been organising money laundering from massive drug dealing, gun running, people trafficking and busting sanctions on places such as Burma.
I think the British banks should be doing something a bit different. I think they might possibly have done a bit of investing in this country. In the past, small businesses all over the country could go and see their local bank managers at one of the big banks and talk to them about their problems. They knew one another and knew what their prospects were. People could borrow money that way, and it worked. Then the banks started centralising all the funds, so nothing is left with the local bank manager and local firms now have to be interrogated by an algorithm—that is what it boils down to—in the banks’ headquarters. They have not been investing in this country. We have to ask ourselves why a large proportion of the industries that were privatised are now owned by foreign owners, such as Électricité de France or the Australian outfit that owns Thames Water. Could the British banks not have invested in British businesses? Was there not enough profit for them? Does that mean that the profits in the tax havens and from all sorts of derivatives activities were going to raise them more money? That may be so, but what has happened demonstrates just how awful the performance of the British banks and finance industry has been.
I do not think this Finance Bill, any of the proposals the Government have put forward or even the one or two they have started implementing reflect the scale of wrongdoing that needs to be put right—the swindling that involved British companies and the damage that does to us as a trading nation with, until recently, a reputation for honesty and fair dealing. At its core—I say this with some care—this is a corrupt set-up. We have a banking industry and an accountancy industry that are involved in criminal and semi-criminal activity all over the world, yet we say to countries such as Bangladesh, “There’s too much corruption in your country.” If we are going to start trying to sort out corruption in other places, it is about time we did it here and where British companies are operating. We need transparency, and we certainly do not need tax havens, especially those that fly the British flag. Their objective is not transparency but the complete opposite: it is to be as obscure as is humanly possible in order to keep the tax authorities out.
Another point that is constantly made is that, if we were to change the rules on banking and accountancy, the very clever people in the City would simply get round them. That is unacceptable. Why should such behaviour be acceptable in the finance industry? We would regard it as totally unacceptable if the building industry said, “You can rely on us to get round the building regulations,” if the aviation industry said, “We can get round the safety rules,” or if the pharmaceutical industry said, “We won’t carry out the proper checks that
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are required. We can get round those rules.” We ought to regard it as totally unacceptable when people representing the finance industry say, “Whatever you do in the House of Commons, we’ll get round your rules.”
Kelvin Hopkins: The hon. Member for Redcar (Ian Swales) suggested that some people ought to go to prison for such behaviour. Does my right hon. Friend agree that that might concentrate a few minds?
Frank Dobson: It certainly should. I am astonished that no one in this country has yet been prosecuted for the fraud involved in the LIBOR rate-rigging, including the British Bankers Association, which was, after all, running the LIBOR system. People were defrauded, so why has no one been prosecuted? I do not know, but someone should be.
Another excuse for not sorting out the problems in our banking industry is that we must not go it alone because that would put the industry at a disadvantage compared with others. We are told, for instance, that we cannot possibly be the first country to introduce a financial transaction tax—a Tobin tax, a Robin Hood tax—because to do so would put our banks at a disadvantage. However, Germany and France have now proposed an EU-wide financial transaction tax, yet our Government still say no. What are they frightened of? The rate of tax proposed on derivatives transactions that the 11 countries led by Germany are establishing in Europe is 0.01%. Apparently, our financial services industry is so pathetic that it would be driven to ruin by a transaction tax rate of 0.01%.
In fact, we already have a transaction tax in this country: it is called VAT. Nearly every other business in this country is paying a transaction tax of 20%. If everyone else is deemed capable of paying 20%, why should the financial services industry be deemed incapable of paying 0.01% on its transactions, 85% of which are carried out within the industry, between its various constituent parts, rather than with anyone else. That is pathetic, and it is about time that we recognised that a substantial amount of money could be raised for the taxpayer in this country, even at a rate of 0.01%.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC): Will the right hon. Gentleman remind the House what the Labour party’s policy is on the so-called Robin Hood tax? My understanding is that the shadow Chancellor is opposed to introducing one.
Frank Dobson: That might be the case, but I live in hope.
Chris Leslie: Let me make it absolutely clear that we should have a Government who are arguing for a financial transaction tax. We need to ensure that we get New York, in particular, on board, but we now have evidence of what will happen in the European Union, and there is no doubt that there is a very strong case for such a tax.
Frank Dobson: Yes, indeed. I have been advocating such a tax for some time, and I shall continue to do so.
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I have asked Treasury Ministers several times how much money would be raised for the taxpayer by a 0.01% tax on financial transactions, but the great Treasury mandarins have always said that they have not worked out the figure. If that is the case, how can they possibly conclude that the money that would have to be paid out would damage the finance industry? If they do not know how much such a tax would raise, how can they know how much the industry would have to pay out?
We continue to find ourselves in the absurd situation in which the banks and their friends, and the big accountancy firms and their friends, are advising the Government on the taxation system that should be applied to them. We do not—as far as I know, anyway—have criminals advising the Home Office on criminal law, and I do not think that an industry with such a disreputable record should be advising the British Government on how it should be dealt with.
8.6 pm
David Rutley (Macclesfield) (Con): It is a pleasure to speak in today’s debate. This week, of all weeks, is an appropriate time to reflect on economic and fiscal policy, and particularly on the legacy of the free enterprise revolution led by the great Lady Thatcher. There is much in the Bill that will continue this Government’s work to revive the successes of Lady Thatcher’s approach to business, free enterprise and growth. I was fortunate enough to meet Lady Thatcher on the general election nights in 1983 and 1987. She inspired me and many others on this side of the House. She was a towering figure who was well respected across the world, and she richly deserved those election victories back in the 1980s. More than anything, she understood that individuals and Governments needed to live within their means, and that businesses were best placed to create jobs and deliver economic growth. She trusted them to do that, and created the right conditions for them to succeed. That is the proud legacy that the Bill seeks to build on. Indeed, there is a clear focus on freeing up small businesses from the burdens of tax.
Frank Dobson: Is the hon. Gentleman aware that the average economic growth during the time that Mrs Thatcher was Prime Minister was no higher than the average economic growth under Harold Wilson or Jim Callaghan?
David Rutley: The debate is about sustainable economic growth, and if we look at the record of the 13 years of the previous Labour Government and their promise of no return to boom and bust, the facts speak for themselves.
Andy Sawford: What is it about 63 consecutive quarters of economic growth that the hon. Gentleman does not recognise as a period of prosperity in this country?
David Rutley: As a member of the Treasury Select Committee, I have had the privilege of interviewing and putting to the test various former permanent secretaries. Lord Turnbull springs to mind. He worked in the Treasury under the Labour Government and supported Labour Ministers, and he is on record as saying that after those 63 successive quarters, what he called wishful thinking crept in—
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Andy Sawford: You can’t even get to two quarters of growth—
Mr Deputy Speaker (Mr Lindsay Hoyle): Order.
David Rutley: According to the permanent secretary at the time, wishful thinking was prevalent across the Labour Government, and it led to the hyperbole that it was possible to bring about an end to boom and bust. Of course that did not come to pass; none of that Government’s work did. We are about sustainable growth and putting forward the positive action plan that was included in the Budget—[Interruption.] If the hon. Member for Airdrie and Shotts (Pamela Nash) wishes to intervene, she should please do so.
Pamela Nash: The hon. Gentleman says that my party is guilty of wishful thinking. At the moment, there is no growth in this country; we had 63 quarters of consecutive growth. How can he possibly compare the two?
David Rutley: If the hon. Lady had listened, she would know that I did not say that. The phrase about wishful thinking came from Lord Turnbull—one of Labour’s permanent secretaries, speaking for himself. The groupthink that pervaded the Treasury at the time led to the tragic results that we are having to clear up, and the Bill is taking steps to do that.
The Bill is a fitting tribute. It will promote competition and reduce barriers to entry for the ambitious and aspirational people of this country, who simply want the chance to work hard, compete and get on. The Chancellor’s Budget speech made it clear that the Bill will be followed by future measures that continue these efforts to free enterprise and remove the roadblocks to economic growth. That is a clear commitment from the Government.
It is worth reflecting on what enterprise actually means. It does not mean that people are on their own as some critics allege. As John Donne wrote:
“No man is an island, entire of itself.”
He could have written the same thing about enterprise, because free-market economics is not an atomistic pursuit, but recognition that we all advance by pooling our comparative advantages in a common free economy. We should remind ourselves of the common value and purpose of enterprise as we lay the foundations for future growth. It is not about state intervention, as Opposition Members suggest.
Business transactions must involve at least two parties—the supplier and the consumer—and the very word “enterprise” is derived from joint undertakings: enter from the French “entre”, meaning “between”, and “prise” from “prendre,” to take. It is suggested, perhaps rather dubiously, that President George Bush once said, “The problem with the French is that they have no word for entrepreneur.” Forgive my French, Mr Deputy Speaker, but although we do not have a word for entrepreneur, we on the Government Benches understand the meaning of enterprise, which is literally the joint seizure of opportunity for mutual advantage. The Bill sets out how the Government will encourage it.
Enterprise is voluntary, and therefore it carries for suppliers involved in business the element, and excitement, of risk that consumers for the service or product may
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not be found. Suppliers need to be flexible to survive and thrive in competitive markets where consumers, even usually loyal ones, are free at any time to say no. That is why the Government need to ensure that there is the freedom to be flexible and the confidence to be bold for enterprise to thrive and succeed.
Andy Sawford: What specific measures in the Budget will give enterprise in my constituency the confidence to be bold?
David Rutley: The enterprise allowance, for example, enables—
Chris Leslie: It is not this year.
David Rutley: It will be coming forward.
David Rutley: In 2014. [Interruption.] We have to take a stepped approach to rectify the changes Labour put through. The allowance is important and will be welcomed, and the other measures we are taking on the supply side, such as the reduction in corporation tax, will all help to create a platform for economic growth.
Sheila Gilmore: Is the hon. Gentleman aware that the enterprise allowance will be partly funded by the substantial increase in national insurance contributions that employers and employees will pay as a result of the flat-rate pension? That has been brought forward by a year—even though the Select Committee was told that it would be logistically difficult—to produce that extra income. In fact, the Government are just moving things around and a lot of people will find themselves a lot worse off when those higher national insurance contributions kick in.
David Rutley: It is sad to see such gloomy faces on the Opposition side of the Chamber. I accused the shadow Minister of being a bit Eeyore-like and I think it is catching on the Opposition Benches. Labour Members should cheer up a little and look at the reaction to the Budget. The Federation of Small Businesses says that it
“asked for a budget for small businesses and this is what has been delivered. This Budget opens the door for small firms to grow and create jobs.”
Andy Sawford: Would the hon. Gentleman write me a letter, which I could circulate among the young people in my constituency who are desperately trying to find work and the people hit by the bedroom tax who face poverty and homelessness, advising them to “cheer up a little”? Would he write to me in those terms? I would gladly circulate it and we could see what my constituents think.
David Rutley: In a spirit of co-operation I suggest that for a change the hon. Gentleman leaves Croydon—[Hon. Members: “ It is Corby.”] Wherever it may be —beginning with a C. The hon. Gentleman should come up to Macclesfield and see what we are doing with apprenticeships and our local college to encourage young people to get into work. It is about human endeavour and getting on with the job, not moaning and groaning as the Opposition are doing.
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The Forum of Private Business speak of the Chancellor being “spot-on” with his “basic common sense” decision to freeze fuel duty. I hope Opposition Members at least welcome that. The Association of Convenience Stores welcomes measures that
“will benefit consumers and reduce some of the pressure on local shops.”
Barbara Keeley (Worsley and Eccles South) (Lab): What would the hon. Gentleman say to the convenience stores in my constituency who are going to lose £4 million from our economy in Salford when the bedroom tax hits? That is £4 million less that people will have to spend in convenience stores and local shops. That is the real hit.
David Rutley: We have to tackle the deficit that faces this country. We know that welfare payments have spiralled out of control and we recognise that there is huge demand for scarce rooms. We have to address those things. I will give the hon. Lady a chance to say what she would do to tackle the welfare budget, but I have heard nothing. Does she want to stand up and tell us what Opposition policy will be?
Barbara Keeley: I will happily respond. We would actually bring some growth to the economy and get some of our young people back to work. We would use a levy on bankers, not in the way that the Government propose in the Bill, but to build houses and to get young people back to work. We would guarantee work for young people who have been unemployed for 12 months or more. Going back a few years—I do not think the hon. Gentleman had been elected at that point—we had the future jobs fund in my constituency and in Salford. That gave hundreds of jobs for young people. Then there was a future and they had hope; now they have nothing.
David Rutley: Much as I enjoy going to Salford and the hon. Lady’s constituency, some honesty is required about how growth should be funded in the north-west. I am sure Mr Deputy Speaker has a view on that too, but he cannot express it in the Chamber. Under the previous Government, in the 10-year period to 2010, 100,000 jobs were created in the public sector in the north-west. During the same period, there was a net reduction of 25,000 jobs in the private sector. That is completely unsustainable. What we are trying to do in the north-west and throughout the whole economy is to have a more sustainable approach to job creation, which has led to the creation of more than 1 million jobs in the private sector. That is a far better record than anything from Labour when it was in power.
Julie Hilling: Will the hon. Gentleman give way?
David Rutley: No, I have given way enough. We have all enjoyed the debate, but I shall now finish my speech.
In Macclesfield, we have one of the highest rates of self-employment in the UK, and among women Macclesfield has the highest rate of self-employment in the north-west. This year, the Budget was above all for small businesses and entrepreneurs like them. The Bill is the first step to realising the series of measures that will
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be delivered by the Government, such as the widely welcomed—at least on the Government Benches—employment allowance.
Not just small businesses welcome the return to a solidly pro-enterprise, pro-competition, lower tax environment. The Institute of Directors and the CBI both welcomed the clear progress in the Chancellor’s continual, and continuing, efforts to lower corporation tax. Clause 4 of the Bill provides for a corporation tax rate of 21% in financial year 2014, which is the lowest in the G7. Perhaps it is part of Lady Thatcher’s legacy that these days clause 4 is something to be celebrated as useful to the economy and progressive for growth.
The Chancellor has gone one better. Under clause 6, we will see Britain’s main rate of corporation tax reduced to just 20% in financial year 2015, the lowest in the G20. This is a clear, determined agenda to incentivise business activity for jobs and growth. It is precisely that clarity and determination that gives businesses certainty and confidence that enterprise is worth conducting in the UK, and that, as the Chancellor said, Britain is once again open for business.
It is a mark of how vastly over-complicated our tax system has been allowed to become that there are far too many opportunities to avoid and even evade taxation, and that very complexity has made a general anti-abuse rule inevitable. Of course, the Government are well aware that they must take great care that such a rule does not undermine the certainty and confidence in the tax system that we need. It would be sad if the GAAR became an excuse for HMRC to become sloppy when drawing up future tax rules in the knowledge that, if it did not get the desired results, it could always apply the rule. I am sure that the Treasury is determined to avoid such a situation.
I am pleased by the Government’s commitment to simplifying the tax system at the same time that the anti-abuse rule is being planned. Fighting complexity with complexity is not a long-term solution, so I look forward to progress on simplification. It is encouraging, and to the Chancellor’s credit, that in just three years the Government have taken the UK from near the bottom of the KPMG league table of competitive tax regimes to the top. That is progress, and I applaud it. Ministers should also be praised for not only explicitly recognising that there is yet more to be done, but setting a path for getting that done, not least by increasing the personal allowance to £9,440 this tax year, with the clear target of hitting £10,000 next year.
The Bill includes a significant commitment under schedule 14 to research and development credits, even for those companies with no corporation tax liability. The Chancellor’s decision to increase to 10% the rate of credit for above-the-line R and D, as well as the new £700 million annual patent box, will help to tackle under-investment in knowledge-based industries. That is important for the life sciences sector, which is critical to Macclesfield’s local economy and vital for our national competitiveness. Those measures are in addition to the tenfold two-year increase in the annual investment allowance for qualifying investments in plant and machinery from £25,000 to £250,000, which will boost much needed business capital investment.
The global race is not a sprint, but a marathon, and the Government are wise to recognise that it will be easier for businesses to run without hurdles and barriers
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in their way. To be blunt, if we want businesses to thrive, we need to tax them less and minimise the bureaucratic burden. The result of that approach is real sustainable growth and new employment opportunities. This is not about Thatcherite dogma; it is actually happening and it is delivering positive results, such as by enabling private sector employment growth of more than 1 million jobs since 2010. That is a great achievement for the Government—
David Rutley: They are real jobs—not public sector jobs funded by taxpayers’ money, but ongoing and sustainable private sector jobs.
Glyn Davies (Montgomeryshire) (Con): I congratulate my hon. Friend on making a positive speech and recognising that we have a coalition Government who are determined to clear up the mess made by the previous Government. All we hear from Opposition Members is whingeing and whining, and talk of more borrowing and debt, but that would exacerbate the problems that they created.
David Rutley: I thank my hon. Friend for those comments. We may be hearing Eeyore noises from Labour Members, but at least we have now had a sense of Tigger.
Frank Dobson: Will the hon. Gentleman give way?
David Rutley: I cannot, because Mr Deputy Speaker is giving me dagger looks, so I need to make progress and finish my speech—[Interruption.] I know him well and he is not always like that.
The Bill meets the ambitions of those who want to work hard and get on. It cuts taxes and incentivises business to create jobs and economic growth. It is a plan of action and a signpost giving a clear direction of the work yet to be done. That work will be done by this Government, and I give the Bill my full support.
8.23 pm
Kelvin Hopkins (Luton North) (Lab): I cannot resist commenting on one of the points made by the hon. Member for Macclesfield (David Rutley). He suggested that businesses are somehow more competitive because we have a better tax regime, yet our trade deficit is in a terrible state, and getting worse. If everything is so brilliant, we should be doing better on international trade.
Frank Dobson: While my hon. Friend is commenting on the speech made by the hon. Member for Macclesfield (David Rutley), was he somewhat taken aback to discover that nurses, doctors, firefighters and police in Macclesfield are apparently not occupying real jobs?
Kelvin Hopkins: My right hon. Friend makes a good point: when we go to a hospital, we find that no one is there, because those in such jobs are not real people. Indeed, I might add Members of Parliament to that list.
The hon. Member for Cities of London and Westminster (Mark Field) was desperately trying to be positive about the Budget, but in the process he effectively damned
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the Chancellor with faint praise. If we had pressed him hard enough, I think he would have conceded most of our points.
The Bill will clearly do nothing to transform our economy. We are in a desperate state—an ongoing recession. The Chancellor says that his Budget is fiscally neutral, but when 2.5 million people are unemployed and we have low or negative growth, we do not want a fiscally neutral Budget. We should have had an expansionary Budget to promote growth, but of course even a fiscally neutral Budget could inject growth into the economy by raising taxes and spending more, rather than doing the opposite. If taxes on businesses and the wealthy are reduced, they tend to save their money—indeed, they put it in tax havens—whereas if ordinary people are given jobs, the first thing they do is to spend their money, and that money goes directly back into the economy and starts to generate demand through the multiplier.
The hon. Member for Cities of London and Westminster was right that forecasting is difficult. I remember that in 1990—I am older than everybody else in the Chamber—when The Sunday Times carried out a survey of forecasting organisations, it found that the London Business School was bottom of the league, scoring nought out of 10 for its forecasts, although of course that was the forecasting body adored by the Conservative Government under Mrs Thatcher. The best forecasts were by the Cambridge Economic Policy Group, a left-leaning Keynesian group, which got six out of 10 to come top of the league. The then Government were so annoyed by the Cambridge group that they took away its Government grant because they did not like people telling them that they were wrong, although they were.
Demand for the things that people produce is a crucial factor if an economy is to succeed, because although Governments can cut taxes for businesses and introduce all sorts of supply-side measures, if no one is buying anything, the economy will not grow. An equally crucial factor for sustaining that demand is an appropriate exchange rate. Successive Governments have ignored the exchange rate at their peril, but there have been times when the depreciation of our currency has had dramatic results, and I can cite three examples under a Conservative Government. Following Golden Wednesday and the collapse of the exchange rate mechanism, the economy grew strongly after a substantial depreciation. By the time that 1997 came along, the Conservatives were still being condemned for the collapse of the housing market and the people voted Labour—thank goodness for that—yet the Labour Government benefited from the strong demand generated by that depreciation. In 1979 Mrs Thatcher was praised for her economic policies, but the 1979 Budget, masterminded, if I can describe it like that, by Geoffrey Howe, resulted in a catastrophic collapse in demand. A fifth of manufacturing disappeared and unemployment soared to 3 million. It was only when those policies were reversed that there was a recovery, and on Nigel Lawson’s watch—I do not necessarily agree with everything he did—the pound depreciated by over 30%. Again, the economy grew strongly and unemployment came down.
Going back even further into history, in the 1931 crisis, a Labour Government mistakenly tried to sustain sterling on the gold standard, and tried to keep its parity up. The Government fell apart, and effectively a Conservative Government with a nominally Labour
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Prime Minister came in straight afterwards. The first thing they did was take the pound off the gold standard and depreciate, and the recovery began. That was only part of it; other factors were necessary to sustain recovery in the 1930s. We had to spend a lot of money, and towards the end of the ’30s the country built thousands—indeed, millions—of houses, and that was how we recovered. That is what we ought to do now.
In other countries, Germany built arms and autobahns; in America, there was the new deal—spending money on all sorts of public works, which created the demand in the economy that brought about recovery. It was not fiddling around with tax rates and supply-side measures. That did not work then, and it will not work now. The exchange rate is therefore absolutely crucial, and the exchange rate at this time is too high. Part of our recovery should depend on a significant depreciation. An erudite and informed book by my friend John Mills has been written about this, and I have quoted from it in the Chamber. It makes a detailed case for such measures.
The trade statistics are disastrous, and some of us have been worried about manufacturing for a long time. Our manufacturing sector is about half the size of the German manufacturing sector as a proportion of our economy, which is disastrous. We should be a similar economy to Germany in many ways. Historically, we have been very similar in all sorts of ways, but our manufacturing has collapsed. That was partly because in 1997, when Labour came to office, there was at the same time a substantial appreciation of the pound, which began to damage manufacturing. We were sustained by an asset price bubble, which carried on, and thank goodness, we had a relatively strong economy for some time. However, manufacturing did not do well, because of the relatively strong pound. It was only the crisis of 2008, when there was a significant depreciation, that saved us. Had we been stuck in the euro, we would be like Spain now—it would be absolutely disastrous—so we must applaud my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown) for keeping us out of the euro, despite pressure from the then Prime Minister. I was one of those who supported my right hon. Friend very strongly at the time.
Jonathan Edwards: I agree with a number of the hon. Gentleman’s points. The Government talk a good game about rebalancing the economy geographically and sectorally, and about an export-led recovery, but they will not achieve those objectives unless they tackle the exchange rate.
Kelvin Hopkins: Indeed. We have to use all the weapons and measures of macro-economic policy to make sure that we recover. Fiddling around with supply-side measures is no doubt the sort of thing that the London Business School talked about in 1990, but it will not solve our problems.
The macro-economic measures that we must take include, first, tackling the exchange rate. Secondly, we must inject demand through additional public spending, and we can pay for that in various ways without necessarily increasing the deficit. We could raise taxes on the rich very substantially. For example, we could begin seriously to close the tax gap and collect the tax that has been
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avoided or evaded, perhaps sending a few corrupt bankers to prison in the process. That would concentrate their minds, as I said earlier.
We need to begin to spend in areas of high labour intensity. If we can get people back to work quickly by spending in those sectors—construction and the public services, which have been cut by the Government—we can bring down unemployment. People pay tax when they are in jobs, they do not claim benefits, and the economy begins to recover. At the same time, we can build millions of houses that we need, particularly local authority houses, and we can provide all the nurses we need in hospitals. Hospitals are under stress because of a lack of staff on the wards. We can develop other areas too: local authority services, children’s services, and social services for the elderly, all of which are under stress and are things on which we should spend to generate more employment. We generate employment directly by spending money on areas with high labour intensity.
There is another great advantage of spending money in such areas. As my hon. Friend the Member for Swansea West (Geraint Davies), who has left the Chamber, said, the rich do not spend money: they put it in banks and tax havens. But ordinary people, especially if they have been unemployed, spend every single penny of their money on supporting their families, dealing with their debts and so on. They spend their money. They have what the economists call a high marginal propensity to consume. We should give as much money as possible to those who have that high marginal propensity to consume, not to those who stuff it in banks and foreign tax havens. That would help to regenerate the economy.
Another great thing about public services and construction is that they put demand into the domestic economy, not into the foreign economy. If I were given extra cash, which I do not need—I think I should pay a bit more tax—what would I do? I would have another foreign holiday. I might buy another case of French wine. That does not help our economy at all. But if construction workers have extra cash, they go out and spend it in the shops on food, their homes and their family. They spend it in the domestic economy. They do not, as far as I know, buy large quantities of French wine or have fancy foreign holidays, especially when they are just coming out of unemployment. They would spend their money in the domestic economy.
The great thing about construction is that it has a low import content. Most of what is used in construction comes from the domestic economy. Again, the demand goes into the domestic economy so the spending by construction workers in their new jobs becomes someone else’s income within the domestic economy. We get the multiplier effect of one person’s spending becoming another person’s income going around in a big circle and the economy is regenerated.
That is what we need—pure Keynesian reflation, but we have other measures to deal with that. If it necessitates some serious tax increases, so be it. The majority of the population have said in opinion polls, I understand, that they would prefer tax hikes to spending cuts. That is absolutely right. We are frightened of saying that we should have higher taxes. Francois Hollande in France decided to introduce a significantly higher tax rate for a substantial proportion of the population. Some people will squeal about it and no doubt the right-wing media
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in Britain would squeal about it, but there should be a bit more tax, even on MPs such as myself. I have suggested that the first tax rise should be the 50% rate not at £150,000, but at £60,000, so that I would pay a little more tax. I am talking about me as well as about other people. It is easy for us to make changes that affect other people, not ourselves.
Such a change could be made, if need be, but in the short term we do not need to do that. We need to collect the taxes that should be paid and which are the subject of tax avoidance and tax evasion. We need a radical economic strategy, including all the components that I have suggested, to get us out of the mess we are in—and we are in a mess. In his Budget speech, the Chancellor looked like a frightened man. He looked very worried. Clearly, his strategy is not working. He does not know what to do without doing a complete U-turn and adopting a completely different strategy—the kind of strategy that I am talking about—which would mean political humiliation for him. He should worry less about political humiliation than about doing the right thing by the country.
8.37 pm
Julie Hilling (Bolton West) (Lab): It has felt like a very long four weeks since the Chancellor delivered the Budget, not least because of the terrible tragedy of the death of Jade Lomas-Anderson by a dog attack in my constituency, so when I came to write my speech today, I had to wrack my brains to remember what the Budget was all about. My overwhelming memory is of the Chancellor sitting on the Front Bench looking like a little boy lost, with no idea what to do about the flatlining economy, no idea what to do to stop a triple-dip recession, what to do about the loss of our triple A status, or what to do about the level of borrowing, and no idea how to balance the books. So he delivered a Budget that did none of those things, sitting on his hands, hoping that things will just happen.
Of course, things are just happening. Unemployment in my constituency, Bolton West, is up. One in 10 people in Greater Manchester skip meals so that other family members can eat. Nationally, homelessness and rough sleeping are up by a third. Shelter says that every 15 minutes another family is made homeless. The economy may be flatlining, but people’s income and spending are not. The OBR has said that in 2015 people will be worse off than they were in 2010. Wages are £1,200 lower than in May 2010. This year a family with two children and one earner earning £20,000 a year will be at least £381 worse off, and next year will be £600 worse off. Inflation, of course, is still running at 2.8%. Behind those figures are real people having a desperately hard time—people who are losing their homes, having to choose between heating and eating and relying on food banks to feed themselves and their children.
Tinkering at the edges will not solve the problem, and neither will blaming the poor for the situation they find themselves in. According to the Joseph Rowntree Foundation, 6.1 million people living in poverty are in working households, 6.4 million people lack the paid work they want and 1.4 million part-time workers want full-time work, the highest figure in 20 years, and 100,000 of the so-called new jobs pay no wages whatsoever. The churn of people in poverty or out of work is substantial. While 18% of people are on a low income at any one
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time, 33%—one in three of us—experience at least one period on a low income in a four-year period, and 11% of people are on a low income for more than half of those four years.
In 2012, 1.6 million people were claiming jobseeker’s allowance at any one time and 4.8 million had claimed it at least once in the previous two years. Those figures show that the Government’s desperate efforts to categorise people as skivers or strivers are a travesty of the truth. Some 2.5 million people, including 1 million young people, are not shirkers or skivers; they are people who need the Government to take action to create jobs. But there was no mention in the Chancellor’s Budget speech of what he would do and there has been no action; he simply hopes that something will happen.
What do we get from the Government parties? We get a tax cut for millionaires, paid for by the poor. What excuse have they given for cutting tax for millionaires? They say that the millionaires were not paying it. If only we could all get a tax cut just because we did not want to pay tax. The Government failed to tell people that they do not actually know how much money the 50% tax rate would raise, because in the first year people brought forward their income and this year people will delay it, but HMRC has said that it could raise £1 billion. If people are avoiding paying tax, surely we need to shut down the avoidance schemes, not cut the tax rate in the hope that they will stop using the schemes now that they have found them. It is a shame that the Government have not shown the same concern for people earning £41,000, who, without any pay rise, will now find themselves in the 40% tax bracket. Hundreds of thousands of hard-pressed families will now be paying more tax, without a thought from the Government.
There were one or two promises of jam tomorrow, such as help with child care in two years’ time, a single-tier pension in 2016 and capped care costs in 2016. I was interested to read Age UK’s briefing after the Budget. It welcomed the earlier implementation of the care costs cap and the higher upper means-tested threshold from April 2016, but it said that that would do nothing to help the 800,000 older people who need help with everyday tasks but receive no formal state support. Since the Government came to power, £700 million in real terms has been cut from social care funding.
“The Chancellor may have confused”—
“in his speech by referring to raising ‘the threshold of the means test on residential care from just over £23,000 to £118,000’. He was in fact referring to the upper means test threshold and older people will have to make contributions based on a sliding scale towards the cost of their social care if they have assets between the two amounts.”
It went on to say that the Budget offered no proposals to improve pensions for current pensioners or to reduce pensioner poverty, which currently stands at 1.7 million people. It was also disappointed that the Government are not doing nearly enough to help tens of thousands of older people whose income, health and well-being are being affected by the cold weather.
Barbara Keeley:
My hon. Friend is making some great points about social care. Before she moves on, would she like to comment on the fact that, according to Carers UK, 1 million people in this country have
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given up work or cut the hours they work because of their caring responsibilities, which can have a real impact on the economy? She has laid out that social care has been cut and that that means a real struggle for many older people, with 800,000 people not even having enough care, but it is also a real hit for the economy. Some carers might still be struggling to keep employed, but does she agree that, as services disappear, life is getting much harder for them, too.
Julie Hilling: I absolutely agree. On Saturday, I met a couple; the husband was the carer, looking after his wife. They, of course, are about to be hit by the bedroom tax as well. He said to me on the street, “I’d love to be working. I gave up my job to look after my wife.” If he had not done that, the cost to the economy of residential care would have been far higher than the benefits that that couple are getting. We have to do much more for carers rather than keeping on punishing them as the Government seem to.
I go back to Age UK’s response to the Budget. It had much more to say, but on the question of whether the Chancellor had delivered for older people, its answer seemed to be a resounding no.
The Government did reduce tax on beer by 1p, which, of course, is welcome for the pub industry, although it probably would have preferred action on the tie, which the Government appear to have shelved. The Government’s increase in VAT actually put 5p on a pint, and I hope it will take a long time for beer drinkers to sup the 300-odd pints before they get their free one.
It is also good that the Government cancelled the planned rise in fuel duty, but again the VAT increase wiped out any benefit that that may bring. I get annoyed when Government Members talk about how much they have “saved” the motorist, given that fuel has gone up by at least 10% on their watch. They also ignore the truth that the previous Labour Government cancelled or postponed planned fuel duty rises on 13 occasions, depending on the cost of fuel at the time. They also cancelled any rises at the height of the global financial crash—note that it was a “global” financial crash, not one made in Downing street where recessions now appear to be made.
However, tinkering at the edges will not give my constituents a job or increase their incomes. The Government made great claims about their proposals to help people buy a home and the Prime Minister claimed last year that their NewBuy scheme would assist 100,000 people to buy their own homes. What happened? Instead of 100,000 people, just 1,500 people benefited.
What about this year’s proposals? Instead of welcoming them, experts believe that they will simply lead to house price inflation. The Government cannot say whether people will be able to use the scheme to buy a second home. Someone in social housing with a so-called spare room will pay the bedroom tax, but the state will help someone who wants a spare house to buy one—not a cheap one either, but one costing up to £600,000. I do not see too many people on the minimum wage being able to service that sort of loan, even with the paltry increase announced today.
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Why do the Government not get on and build homes? House building would do more for the economy than any of the gimmicks that they announced in their so-called Budget. Even their grandly announced increase in infrastructure spending of £2.5 billion does nothing to restore the cut of £7.7 billion to infrastructure spending that they have made over the past three years. Let us hope that they make progress this time by building something rather than making announcements that never seem to come to fruition.
The people of Bolton West are struggling. Many are more than struggling; they are finding it hard to survive day to day. The Government blame them and are hellbent on making the situation worse. They say that they have to cut the welfare budget but neglect to say that the majority of that budget is made up of pensions and in-work benefits. That does not fit the picture that they try to portray of the skivers who are ruining the economy. They forget to say that jobseeker’s allowance accounts for less than 5% of the budget and to tell us that cutting benefit not only forces people to food banks but harms the economy. They forget to tell us that the private rented sector is far more costly than social housing. They will do nothing to introduce fair rents and nothing to curb the cost of private rented accommodation—they simply cap benefits in the hope that that might just bring down those rents.
I am no economist, but even I know that if we cut jobs and benefits, we get into a downward spiral of more business failure, more people out of work and less money in the economy—on and on downwards. The only way to reverse that spiral is to invest in jobs and pay a living wage, to build houses for people to live in, and to take action to rebuild our economy. Instead, what do we get? A double-dip—thank heavens for the Olympics, because otherwise it would have been a triple-dip—recession, a doubling of debt, and a deficit that is not reducing. Instead of blaming the poor and giving a tax cut to millionaires, this Government—instead of sitting on their hands—should take action and not give us the non-Budget that they have given us this time.
8.50 pm
Andy Sawford (Corby) (Lab/Co-op): Members have been addressing two questions in this debate: first, where we find ourselves and why; and, secondly, what we should do about it. In 2008, 63 consecutive quarters of economic growth in this country came to an end with the onset of a global recession that started in America and spread quickly across the world. The Conservatives and their supporters at the Daily Mail like to blame the previous Labour Government for the global crash. Was it Labour that was selling the sub-prime mortgages in America? Of course not.
The response to that unprecedented crisis was to take very significant action, first to arrest it and then to bring some relative stability. Crucially, the previous Government chose to invest in our economy to keep businesses growing and to keep people in work.
Jonathan Edwards: Does the hon. Gentleman acknowledge that economic performance prior to the crash was based on unsustainable personal debt bubbles and asset price bubbles, with personal debt in the UK equivalent to 100% of gross value added—far higher than in any other modern democracy?
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Andy Sawford: The previous Labour Government’s record of 63 consecutive quarters of growth is absolutely unarguable. Of course, lessons must be learned by Members in all parts of the House, including those in my own party, about the economy at the time, and I will go on to say a little more about that.
The alternative to investing in our economy to keep businesses going and to keep people in work was to go back to the experiences of the recessions in the early 1980s and early 1990s. Twice, 3 million people were unemployed, with the country being told that unemployment was a price worth paying. My own family know that it was not. They were impacted when the steelworks at Corby closed in 1980 and 10,000 people were put on the dole. People from communities such as mine, where the films “Brassed Off” and “Billy Elliot” seem more like documentaries, know the effects of unemployment and know that it is a personal tragedy for families and communities and is never a price worth paying. This year alone, 126 more people in my constituency are claiming employment and support allowance.
Let us not forget that the Tories supported the measures that we took in the recession—the same Tories who had warned against more regulation of the banks. Now they want to rewrite history. They are convincing people that our investment and the borrowing that underpinned it was more like a credit card debt than a mortgage. One of those is short term, bad debt and irresponsible; the other is about investing in our future. It is about the decisions that responsible businesses make to borrow to invest—the decisions that responsible Governments all around the world, and the UK Government, made in the depths of that last recession.
To win an election, the Prime Minister claimed that he would “balance the books” by 2015. In 2010 he told the CBI that his Government had a plan that would secure the credit rating. So what has happened— what did they do? They cancelled the future jobs fund, which was really helping to get people back to work in my constituency. I know that was happening in Northamptonshire because I was close to that work. They stopped the Building Schools for the Future project, scrapping plans for 715 schools to have improvements, including Lodge Park in my own constituency. That affected not only the students and their parents and families, and future opportunities to develop skills in the town, but the people who were going to build the new unit at the school. The children are now in mobile classrooms, which I am ashamed to see in one of the wealthiest countries in the world.
This Government took all the life and confidence out of an economy that was growing when they inherited it from the previous Labour Government. They stopped housing developments such as Priors Hall in my constituency, on which a lot of our economic future rested. Tata Steel laid off people in my constituency in 2011, and when I asked why I was told not only that it was about operating in a challenging global environment and about energy prices, but that all of the tubes from Corby went into infrastructure projects around the country which had been hugely affected by the stopping of road-building programmes and Building Schools for the Future.
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Pamela Nash: My hon. Friend may know that we had a similar problem in my area, north Lanarkshire, with our Tata Steel site and public sector projects, so the steel was bought from abroad.
Andy Sawford: My hon. Friend is absolutely right. The story of the decision to close the steelworks in Corby in 1980 has now come full circle and been shown to be short-sighted, given that the steel is now coming from Port Talbot. Some of Tata’s steel is now coming from abroad, because it is so difficult for it to compete in this country. I called for measures in the Budget—I spoke about this in a recent Adjournment debate—to support the steel industry in the UK in order to mitigate the impact of high energy prices around the world. The contrast between this country and others is stark and instructive of this Government’s approach. Germany, where the economy is growing—it now has more than 3% growth—has a £5 billion mitigation package for energy intensive companies, while this country has a £250 million mitigation package and we are not even clear about its details.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op): My hon. Friend led a strong Adjournment debate recently and I was proud to join him in it. Does he not find it extraordinary that the Business Secretary admitted in the New Statesman in March that
“the fiscal consolidation achieved through reduced capital spending has had economic consequences”?
The Government’s lack of coherence is extraordinary: one side is arguing, like us, for increased infrastructure spending, while the others are doing little about it.
Andy Sawford: My hon. Friend is absolutely right and I will say more later about capital spending in this country.
It was not just Tata Steel that shed jobs in my constituency; Argos also did so and Aquascutum closed. Those companies were affected because nobody had any confidence and nobody was spending. That happened because the Government chose—they made a deliberate political choice—to talk our economy down. It was a political strategy without any real regard for the damaging effects it would have on our economy. When they got hold of the levers of power, they revealed their real purpose: an ideological attack on the state and on the poorest in our society.
The accumulative impact of the Government’s Budgets, including this one, will have an effect on individuals. The Institute for Fiscal Studies tells us that the average family will be £891 a year worse off, but that figure tells only part of the story. The other part is how the cuts to services will impact on all residents, particularly those who most rely on public services. Buses have been cut in my constituency, the ambulance station in Corby is due to close and children’s services, particularly for those with special educational needs and their families, have been decimated. Respite care has been lost and there are fewer police and police community support officers than when this Government came to office, and there is a real threat of cuts to my local hospital. The huge impact of those cuts to services on families means that they are worse off.
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The Government’s policies have impacted on those who most needed their help—the children plunged into poverty and the disabled people hit by the bedroom tax and the pernicious Atos reviews that this Government have failed to intervene in and stop. Those out of work and unemployed in my constituency have been stigmatised by this Government and left desperately chasing the few vacancies that exist.
The Government say that there are more people in work, but that is not true in my constituency. Moreover, what sorts of jobs are being created? They are part-time, low-paid jobs for underemployed people in my constituency —fragile employment for people working through agencies on zero-hour contracts and on the margins of the labour market, there to be exploited. And the Government say that that is okay.
Mr Russell Brown (Dumfries and Galloway) (Lab): In the last couple of weeks, I received an answer from the Cabinet Office on the private sector jobs that have been created. The Government now talk about 1.25 million private sector jobs and for a long time spoke about 1 million. Is my hon. Friend surprised to learn that, in fact, between June 2010 and September 2012, the figure is only 750,000?
Andy Sawford: I thank my hon. Friend for bringing the real figures to the House. He is right that the Government are grossly exaggerating the total number of private sector jobs that have been created and, crucially, the nature of those jobs.
Mel Stride (Central Devon) (Con): The hon. Gentleman is right to raise the huge problem of unemployment under all Governments. Is he aware that in his constituency, between 2005 and 2010—that is, under the last Government —the number of jobseeker’s allowance claimants rose by 103%, whereas the number has risen by just 8% for the duration of this Government?
Andy Sawford: If the hon. Gentleman is being honest, he knows that the figures that he is quoting reflect the impact of a huge global economic crash in 2008, which had a big impact on my constituency, not least because it is a manufacturing constituency. [Interruption.] The Economic Secretary is suggesting that because the figures go from 2005 to 2010, they reflect the Government’s record across the whole period. Government Members fail to say that the economy was growing for much of that time. We all acknowledge that a global crash happened in 2008 and that that caused unemployment. The critical thing is what we do about it.
Pamela Nash: Is the key point not that unemployment in this country is now higher than when the Government took office?
Andy Sawford: My hon. Friend is right. Of course, unemployment is also higher in Corby. My constituents will think that Government Members have a cheek to raise those figures in the way they have today.
My constituents will be appalled by the comments of the hon. Member for Macclesfield (David Rutley) and others, who have told them to stop whingeing and
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moaning. They are talking about people who are trying desperately to find work and whose situation has been made worse, not better, by this Government. The Tories do not understand the lives of those people. They do not understand the margins of the labour market or the margins that many of the poorest in our society live on. They understand the marginal impact of their millionaires’ tax cut, which is about £100,000—after all, many of them will get it—but they do not understand the marginal impact of their policies on people who have very little to live on. Fourteen pounds may be half a bottle of claret to the Chancellor, but for people in my constituency, it means choices about food, heating, fuel and new shoes for the kids.
The Government’s Budget was a chance to get back on track after three wasted years in which the UK went back into recession and lost its credit rating. The best that the Chancellor could do was to say that he hoped that we would not have another quarter of negative growth. He has his fingers crossed that he does not become the triple-dip Chancellor. Borrowing is going up not just this year, but next year and the year after. We are now told that there will be deeper cuts to services and the living standards of people in this country. While George and his friends get a tax cut, my constituents are told that things will get worse. Since the Chancellor’s spending review in 2010, the UK has been 18th out of the G20 countries in terms of growth. It is worse than the USA, Germany, France and Turkey, but the Government refuse to change course and recognise that we will get on track only if we get our economy growing.
I was incredibly disappointed that in the Finance Bill the Government rejected our proposals to use the 4G receipts to fund house building, for a proper tax on bankers’ bonuses to fund a jobs guarantee for young people and to bring forward infrastructure investment. Only 14% of the 576 projects in the Government’s national infrastructure plan have started.
In their first three years, the Government spent £12.8 billion less on infrastructure than the previous Government had planned to spend. The Chancellor has been told by the International Monetary Fund, the CBI, Sir John Armitt, some of his Back Benchers and Lord Heseltine that the Government should boost the economy with greater infrastructure spending. They make announcements such as that about the A14—part of which runs through my constituency—which is now not set to start until 2018. The electrification of east midlands trains to Corby was announced with great fanfare. What will fund it? It is the same amount of money in the next Parliament that the Government cut from what we would have spent on infrastructure in this Parliament to upgrade our railways.
In the previous Government’s plan for 2012-13, we were due to spend £48.4 billion this year on infrastructure. This Government say they will spend £41.7 billion on infrastructure. We were planning to halve the deficit during this Parliament, but this Government said that they wanted to go further and eliminate the structural deficit. What is the effect of that? They are spending £13 billion less on infrastructure—precisely what we need to get our economy growing—and £13 billion more on social security. It all sounds familiar to people in my constituency who remember that when Margaret Thatcher, the architect of this kind of trickle-down
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Reaganomics, came to office, 2 million people were on out-of-work benefits. When she left office, 6 million people were on out-of-work benefits and we see it all again. The rich are getting richer, the poor poorer, and many are paying the price of economic and social failure. Meanwhile, in countries such as America, which should be instructive to the Government if only they would raise their sights, the stimulus has been maintained and there has been growth of more than 4%.
What do I want now? If the Government will not listen to my hon. Friends as they present the way forward for our economy nationally, I want action locally. The south east midlands local enterprise partnership bid in my constituency is focused on housing, and at last money from the Government’s Get Britain Building fund has gone to meet some of the infrastructure gap, particularly as the council and others have had to renegotiate section 106 agreements, which became too expensive for developers to move forward. After three years, some of that money has just begun to trickle to my constituency. If the Government support the SEMLEP bid, there is a real opportunity to substantially reduce the gap in budgets for infrastructure, which we need now that we are renegotiating the section 106 agreements. We are not asking for additional money; we are asking for flexibility such as an increase in the borrowing cap.
I want help for local firms—I mentioned Tata Steel and I have invited the Minister to come and help—and I want targeted help for young unemployed people in my constituency. The City Minister, the right hon. Member for Tunbridge Wells (Greg Clark), for whom I have a great deal of time, has shown that, relative to his colleagues across Government, he is willing to take action and listen to local areas. He has taken action in cities around the UK to help fund social innovation. I would like the Government to talk to people in Corby about how we can help young people in the most difficult place in the country in which to get back to work.
I hope that the Government will listen and stop telling my constituents to stop whingeing. They must stop stigmatising those most affected by their wasted three years, and stop trying to divide people at a time when we need the country to come together with a Government who are backing our workers and businesses to get Britain growing again.
9.8 pm
Mr William Bain (Glasgow North East) (Lab): The Bill is a weak Finance Bill that matches the current depressed state of the UK economy. It fails the test of promoting increased demand now for cash-strapped households. It does not promote additional demand for Britain’s retail and services sectors, comprising three-quarters of our economic output, and neither does it sufficiently boost output in construction by adopting more immediate measures to increase the supply of housing—or any new infrastructure investment—now, rather than having to wait until 2015.
The Bill fails to reverse the impact of previous Finance Acts from this Parliament on the incomes of ordinary people, with the cumulative impact in Scotland of the Government’s prior measures on pay, tax and benefits being the removal of £1,488 a year by 2015 in the spending power of the average household. That is at a time when the Office for Budget Responsibility is expecting
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private and Government consumption to make up a larger share of GDP than it forecast in December. The pound is a fifth lower in value than in 2008, and exports are down by 7%. That is the scale of the failure over which this Government have presided .
The Government have not only presided over that failure, but the Bill fails the even greater test of rebalancing the economy more in favour of skilled service and manufacturing output. It also fails to recast the welfare state around pro-employment and growth-friendly policies such as extending child care provision or a jobs guarantee for the long-term jobless. That is badly needed in Scotland, where the employment rate is 3.2% below its pre-crisis peak of 2007, and 1.6% below the rate between October 2008 and September 2009. It is estimated that a further 850,000 jobs need to be created in the UK to match the employment rate of 2008.
The Bill does little to address the growing crisis of falling living standards, which are faced by millions of people across the country. The median wage is some £3,200 a year lower than it was in 2009. Real wages will fall more quickly this year than the OBR predicted just five months ago and will be stagnant next year. Business investment is forecast to be 1.5% lower on average than the December 2012 OBR forecast, despite the Exchequer Secretary lauding the effect of the corporation tax proposals earlier in the debate.
The truth is that the Bill is less than the sum of its parts, and even the OBR does not believe that its overall impact will be an increase in UK growth this year, next year or any year to the end of its current forecast period. The new US Treasury Secretary last week recommended that eurozone countries should ease fiscal policy to boost demand if they can. That call should resound in the UK Treasury too. The Obama Administration tackle wage stagnation and declining living standards, so we should not put up with the defeatism we have heard from the Government and, this morning, from the Secretary of State for Business, Innovation and Skills.
Before developing those points, let me address the individual clauses and schedules that deserve some degree of welcome—overall, the Bill is a deep disappointment to Scotland and the UK. I welcome the fact that the Treasury has listened to the strong campaign launched by the city of Glasgow council, Members of the House representing Glasgow constituencies, and the organisers of the 2014 Commonwealth games. Clause 9 provides that Glasgow’s Commonwealth games will have the same taxation treatment as the Olympic games in London and other major sporting occasions held in the UK. That concession will mean that the organisers can attract the very best athletes from the Commonwealth to participate, and make the games the sporting and economic success for Scotland and the UK that they will undoubtedly be. Procurement contracts already decided and in the process of being awarded are likely to benefit the economy in Scotland to the tune of £350 million.
The above-the-line R and D tax credits are strengthened by clause 34 and schedule 14, which is welcome, but it is revealing that UK R and D expenditure rates are still way below those of our international trading partners. According to the World Bank, the UK’s 2011 R and D expenditure, at 1.79% of GDP, and Scotland’s, at 1.56% of GDP, are way below the most recent OECD average of 2.44% and the 2011 EU average of 2.03%. We spend
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less than half the share of GDP that Finland or Sweden spend on R and D. That is a particular problem in Scotland, where business R and D spending is only 0.56% of national income, which is half that of the pathetic UK total. The Scottish Parliament could use powers in that area of policy for the benefit of Scottish business and the Scottish people. I also give a guarded welcome to the provisions on tax relief for television production and video games development in clause 35 and schedules 15 and 16, which will provide some boost to these industries in Glasgow, Dundee, and other parts of Scotland.
On living standards, the Bill will do nothing to counter the regressive effects of the Welfare Benefits Up-rating Act 2013 or previous Finance Acts, which have devastated household incomes among the working poor, who receive nearly 21% of the entire welfare budget. The poorest four deciles of the population in Scotland were hit three and a half times harder than the wealthiest two deciles by the introduction of the 1% benefit and tax credits cap last Monday. This measure alone will take £47 million out of the Glasgow economy every year, and will cost working-age adults in the city an average of £114 a year. Overall, 55,700 working-age households in Glasgow will lose on average £109 a year through the cumulative cuts to tax credits made during this Parliament, and nearly 16,000 Glaswegians will lose on average £24 a week because of the Government’s wicked and iniquitous bedroom tax.
By cutting tax credits, which sustained family living standards through financial crisis—with the UK spending the joint third highest share of GDP on family benefits in 2009—the Government will further reduce economic demand. The effects on the Glasgow economy alone will be to take away £269 million in demand a year, or £647 from the average household in the city. In terms of clause 1, four times as much will be taken away by higher VAT during this Parliament from the poorest people than will be handed back through raising the personal tax allowance, three quarters of the benefit of which will go to people in the upper half of the income scale. With the introduction of universal credit, two thirds of any benefit from a higher personal tax allowance will be lost through deductions in credit, which will be assessed on the basis of net income, not gross. The further squeeze on real wages in 2013, down by a further £200 on average over the course of the year, will cost ordinary families on average four times as much as the Government will hand back through the increase in personal allowance to £10,000 from next year.
The Government have been guilty of another offence in the preparation of the Bill. They have attempted to conduct a debate on welfare by arguing that a majority of benefit recipients are scroungers or layabouts, in a way that is deeply irresponsible, divisive, and corrosive of the social solidarity that exists in Glasgow, Scotland and communities the length and breadth of the United Kingdom. Some psychologists, such as Cass Sunstein, have referred to this phenomenon as an availability cascade, whereby a simple idea takes root and goes viral, quickly becoming the new received wisdom. One wonders whether the Chancellor had that at the heart of his thinking when he began his campaign against the poor. Others may be reminded of the work of George
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Lakoff when he said that framing an argument in the lived experiences of others is critical. One part of the coalition seemingly wants to turn neighbour against neighbour, and shift their focus away from the skyrocketing wealth of the super-rich, or from the role that the Government should legitimately fulfil in ensuring the conditions for greater equality in society, which is now seen in studies by the IMF as critical to lasting economic growth in any democracy. But the recent study by YouGov and Cambridge university shows that this campaign of vilification of welfare recipients is not having the desired outcome for the Chancellor, because it found that people in the UK were more likely to empathise with the suffering being inflicted on the poorest by these most regressive welfare cuts than voters in Germany, France or the US. We need facts to drive this debate, not simply assertion from the Treasury Bench or the peddling of prejudice. The constituents I meet, who struggle with low paid, part-time work in a weak jobs market, are being forced on to housing benefit because of high rental costs and declining real wages. That, and the fact that we have 2.5 million people officially unemployed but more than 6 million people desperately seeking full-time work, are the reasons why the benefits bill remains stubbornly high.
According to the OECD only last week, the UK is spending 5.9% of GDP on cash benefits, but we spent more in 1980—6.4% of GDP. In comparison with other major countries, the UK is neither a particularly large nor low spender on welfare. Only three of 19 major OECD states spent less than the UK on cash benefits in 2009 in the depths of the downturn.
We need to recast the debate on the welfare state, a debate that should have been recast in the Bill, in three main areas: full employment, higher pay and stronger family services. Simply to restore the employment rate to its pre-crisis levels, we need to create 850,000 additional jobs now. To reduce structural unemployment to 3%, we need active labour market policies, such as the jobs guarantee policy being promoted by Opposition Members, to help the long-term jobless—a plan that put Sweden back to work in the 1990s, at the same time as cutting its deficit too. A jobs guarantee, paid for by restricting pensions tax relief for higher rate taxpayers, would help 600 long-term jobless people in my constituency who have been out of work for two years or more to get the right to employment now. It would also begin to boost tax receipts, which are forecast by the OBR to be £55.2 billion lower between now and the end of its forecast period since its December projections, with £2.8 billion of that shortfall directly attributable to the Budget that the Bill seeks to enact. It is only by increasing the levels of participation in the jobs market that we will be able to generate the growth and the tax revenues required to restore our public finances.
The key to achieving that is to raise the number of women in employment. The biggest barrier to becoming economically active that as many as 1 million women face is the poor availability of affordable child care. Shifting resources into providing households with more extensive child care or early years education at an affordable cost should be a priority for a pro-growth and pro-equality welfare reform and finance Bill. We know that child care costs take up as much as a third of families’ after-tax income in the UK, compared with just 9% in Denmark. In 2009, the UK, under the
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previous Government, was spending the joint third highest amounts in the OECD as a share of GDP in terms of cash benefits to families, but the Nordic countries were spending much more on supporting child care. That is where policy on welfare will need to change.
On pay, nearly a third of my constituents earn less than the level for a living wage, leading nearly 10,000 households to need subsidies through the tax credit and housing benefit systems to reach any kind of an acceptable standard of living. The median wage is £3,200 lower in real terms now than it was in 2009. Welcome though the announcement today on the increase of the national minimum wage in October by 12p to £6.31 an hour is, that will represent the fourth successive year of a real-terms fall in the level of the national minimum wage. It will be returning to levels it was last at in real terms in 2004, and comes at a time when the coalition appears severely divided in its commitment to the national minimum wage. According to a study published by the Resolution Foundation this morning, the top 1% in our society are earning on average £60 a hour, taking home at least £123,000 a year on a 40-hour working week. Someone on the minimum wage would need to work 24 hours a day for 830 days in order to match the annual earnings of a person in the wealthiest 1% of our society. The failure to deal with that surging inequality under this Government means that the Finance Bill has to be opposed tonight.
In response to this growing crisis of low pay, the Bill could have considered giving the Low Pay Commission a wider remit to consider an affordable wage, sector by sector, bringing the living wage into those parts of the economy where it will work. The benefit would have been a boost to demand and reduced staff turnover. Our focus has to be on welfare and fiscal policies that reduce joblessness and inequality, not a politics of division peddled by the Chancellor and pitched at the very worst sentiments of human nature. As the Social Market Foundation reported just last week, cutting in-work benefits again and again impedes the operation of the automatic stabilisers, which is something the Chancellor promised he would not do in his early months in office.
This should have been a Finance Bill that properly taxed the bonuses and profits of the banks, instead of perpetuating the nearly £2 billion windfall they have received under this Government through corporation tax cuts. It should have been the Finance Bill that reversed the millionaires’ tax cut, which is handing 643 bank employees a tax cut of £54,000 a year, while 5.1 million working-age people are struggling with a 1% cap on in-work social security. It should have kick-started growth and increased demand, but it has instead cemented the reputation of this Government as the no-growth Government, setting a course for a lost decade in the British economy. There is another way, and Opposition Members will not rest until we have put it with conviction to the British people at the general election that this country so badly needs.
9.27 pm
Sheila Gilmore (Edinburgh East) (Lab):
The hon. Member for Macclesfield (David Rutley), who is no longer in his place, will be rather disappointed, because I cannot share his view that we have the best of all possible worlds. Perhaps his name is really Dr Pangloss. I hear an awful lot of Panglossian politics in Scotland,
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where it takes the form of, “If we were only independent and we waved our magic independence wand, everything would be wonderful,” but to get it here is astonishing.
The other surreal aspect of today’s debate, which would astonish anyone listening who cannot see the Chamber, is that we have heard from a grand total of three Government Back Benchers prepared to speak up for their own Government’s Budget. They were not so shy about coming forward last week to recall what were to them the glory days of Lady Thatcher’s Government. They were all very keen to come down here especially to talk about it. Many of my constituents thought we should have talked about that today, and perhaps we should have, since Government Back Benchers clearly did not think it worth debating the Finance Bill. Much effort and money could probably have been saved.
I was not one of those who came last week, because I spent most of the recess talking to my constituents. If this were the Government’s first Budget, not their fourth, we would be better placed to believe the words they keep using. We were told in 2010 that this would work—that we had a terrible financial crisis and that we all had to tighten our belts and get through it together, but that it would be worth it. Just how long do we have to wait? These Budgets and these Budget debates and debates on the Finance Bill are turning into groundhog day. The Government say all the same things and, I have to admit, they will no doubt say that Opposition Members all say the same things, but that is because the debate has not moved on. On this, the Government’s fourth Budget, we are indeed saying the same things. Perhaps that is why Government Back Benchers did not feel it worth coming—because they know perfectly well that there is no point in saying the same things because the Government’s approach is not working.
The Government’s answer to many of the criticisms of their policies—particularly their policies to reduce tax credits and benefits—is that people can get around those cuts by working more hours. In fact, they even defend a lot of their measures by saying that they will put a rod into people’s backs and get them out there working those extra hours. The assumption seems to be not just that unemployment is, as they allege, a lifestyle choice, but that under-employment is apparently a lifestyle choice too and that, really, people have to get up and go out there, and everything will be fine.
My constituent Joe—one of the many people I talked to in the recent recess—is affected by the bedroom tax because he was housed by the council in a two-bedroom house. It was not his choice; that is where he was given a house. He went to his supermarket employer to ask whether it would increase the 15 hours a week he works in his job to help to pay the extra amount. His employer said no. That might have been partly because, at 15 hours a week at the minimum wage, he is nicely underneath the threshold for paying national insurance. Doubtless his employer prefers to have another part-time employee at that level. However, even if his employer offered him more hours, at whose expense would that be? Would it mean that another employee got fewer hours or, if Joe was given full-time work, that somebody else would not have a job at all? Unless the supermarket wants to employ people to stand around doing nothing, one has to presume that it has calibrated its work force according to the work that needs to be done. It is not a charity. His employer is not there to give him a few extra hours so
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that he can pay his bedroom tax. It needs only the workers it needs. It is therefore a myth to assume that people such as Joe just have to get out there and everything will be fine. That sums up exactly what is wrong with this Government’s economic policy. Austerity reduces demand. Indeed, it has reduced demand all over Europe, which is one reason why we are not coming out of this recession through exports—one of the promises made to us in 2010—because everybody is in the same boat.
As Joe’s current employer will not give him the extra hours, he could, I suppose, find out whether there is another job out there. Perhaps he should see who else is hiring for his type of work in the city. I would stress that, compared with many other areas—such as that represented by my hon. Friend the Member for Glasgow North East (Mr Bain)—Edinburgh does not have high unemployment. In fact, the unemployment rate in my constituency is only 4.8%, which in a lot of people’s terms would be very low. I thought, “I’ll look at the Government’s great new innovation,” which is a website called Universal Jobmatch. I do not know whether any Member present has looked at Universal Jobmatch—I have, on several occasions—but I put in “shop assistant, Edinburgh area” to see what would come out the other end. If I had been Joe, things would have looked quite hopeful at first, because there appeared to be four pages of jobs. There were 25 on each page—I counted—so I thought, “Well that’s 100 jobs. That’s not bad.”
In fact, there turned out to be 76 job entries, because the last page had only one entry, so things were not quite as healthy as I thought, but when I looked, I saw that 57 of those 76 entries were for a firm offering jobs taking out catalogues and trying to sell things door to door—the archetypal job that people often have to take during a recession. In fact, we can read all about that from the 1930s, which is where we are again—it is not the 1980s; in fact, it is the 1930s. Most of those 57 entries were not even for jobs in Edinburgh, and in my view they were not proper jobs. Maybe Joe should see whether he can make the extra hours by selling whatever it is he would have to sell. It is absolutely extraordinary, however, that 57 of the 76 job vacancies advertised in the Edinburgh area—which, by the way, stretches to Fife and to Falkirk—were what most of us would probably describe as non-jobs. Of the others, only six were actually in the city. If Joe were to apply for a job just outside the city, he would have to take on board the fact that it would cost him money to get there, and that that might negate all or part of any extra income he might earn. So there were six jobs in retail in Edinburgh, a city in which, we are told, unemployment is really not too bad and we should not worry too much about the state of the economy. That is not a growing economy. It is not a healthy economy. It is, however, the reality for Joe and many others like him.
I also spoke yesterday to a constituent who clearly understood how economics should work. She told me that she and her husband had already lost £85 a month in tax credits; their income had gone down. Her husband is a self-employed taxi driver, and she told me that because people were pulling in their horns, spending less and having fewer nights out, he was getting less business. His earnings were dropping. He was out driving on Monday and Tuesday nights last week, for five or
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six hours each night, yet he took in only £55 a night, from which he would have to take off his costs. She reckoned that people were not spending because they did not have sufficient income, either because they had lost their jobs or because they were on shorter hours. That is what low demand means. It has a ripple effect through a local economy, and people like that taxi driver who are working and who want to earn more cannot do so. He cannot make people take his taxi if they do not want to.
Ben Gummer (Ipswich) (Con): Will the hon. Lady give way?
Sheila Gilmore: I will not give way to the hon. Gentleman, because he has not been here through all these hours or taken part in this important debate.
We have heard a lot about extra jobs being created in the economy. The Economic Secretary, who I understand is going to respond to the debate, tweeted during the recess that job creation in the three years of this Government was running higher than during 10 years of the Labour Government by a factor of 2:1. Those figures just are not true. They seem to have been plucked from a work of fiction. People are being told over and over again that that is what is happening, yet their own personal experience is very different. Joe cannot get extra hours in his job, and if he looked on Universal Jobmatch, which is where people are told to go to find jobs, he would find only six jobs in his field in his city. The numbers simply do not add up.
We know that some of the so-called jobs are unpaid jobs, and that some are jobs that have been translated from the public sector to the private sector. The real world is one of no growth. All the commentators have clearly stated that this Budget will not create more growth, as has the Office for Budget Responsibility, the organisation that we were told would be totally independent and correct. A Conservative Member even said earlier that he no longer believed in it. Actually, it is telling the truth.
9.39 pm
Geraint Davies (Swansea West) (Lab/Co-op): As you know, Mr Speaker, I took the time to pay my tribute to Baroness Thatcher last week. I asked whether she had lived up to her own terms of reference and brought harmony where there was discord and hope where there was despair. I came to the conclusion that she had not, and that she had created a more divided and unequal Britain. Given the contents of the latest Budget, I fear that that is the kind of Britain we are now hurtling towards again.
A man who came to my surgery on Friday told me that he had £20 a week to spend after paying his utility bills and bus fares. At that rate of disposable income, he could take 10,000 years to get to the alleged cost of Margaret Thatcher’s funeral. When the empty bedroom tax hits, he will be down to £2 a day, so he would have to keep going for 15,000 years. In the Budget, the very poorest are being squeezed hardest to give some money to the squeezed middle to encourage them to vote Conservative, while millionaires are being given tax breaks when the top 10% in Britain have seen their average income go up by 11% over the last two years alone, simply through the machinery of the marketplace.
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There were a few bright spots in the Budget. There were the mortgage deposit schemes, but according to people in the financial world, there is a real risk that they will generate the sort of sub-prime debt and irresponsible lending that banks are not supposed to be engaged in if we are not to encounter a problem, as we did in 2008. There was the 1p beer give-away. There was rejoicing in Swansea, because outside one pub, a sign said, “Buy 299 pints of beer and get one free.” People were very excited about that. However, the general situation is that we have no growth, as people have mentioned. The problem is the debt to GDP ratio. Debt as a proportion of the value of the economy was 55% in 2010, and it will be 85% in 2015. There are two ways of sorting that out: to increase GDP—the size of the economy—as Labour did in the 11 years from 1997 to 2008 when it went up by about 40%; and/or to attack the debt.
The total focus is on attacking the debt. In 2010, when the Chancellor announced that he was cutting half a million jobs, what happened? People, particularly in the public service, stopped spending. The savings rate went up, consumer demand went down, growth was flattened, so debt as a proportion of GDP is rising, and more and more people are doing less work. We hear about the extra million jobs, but they are producing no overall extra output, so average productivity is down.
We need to invest. People make a big joke about that. They say, “You’ve got to borrow to pay off your loans,” but there is a difference between investing in productive capability—in skills, infrastructure and marketing and in super-connectivity; I mentioned earlier that Swansea had put in a bid for super-connected city status—which would help the economy to grow, and simply spending and borrowing to pay people to do nothing and keep them on the dole. That was the old problem for the Tories pre-1997 and we are going back to that situation.
In other countries, there is enormous investment in research and development, particularly in emerging economies such as Brazil, China and India. When we study the behaviour of multinational companies, we see that they are drawn to R and D clusters, not just to ever-decreasing levels of corporation tax. Obviously that is one of the criteria, but reducing corporation tax from 21% to 20% and reducing the yield by 5% does not make much sense. The money would be better spent on super-connectivity for all our smaller cities, including Swansea. In Swansea, there is massive investment by the European Investment Bank in a second campus, which is creating an R and D cluster that is attracting the involvement of companies such as BP, Tata and Boots. That will create real international global value.
Aside from that, the focus has been on clobbering the poor. If money is cut for people who are already poor, growth will be cut overall. If cuts affect better-off people who are saving, they are not investing their earnings in the local economy either.
The bedroom tax is a cruel inefficiency. Housing benefit has doubled in the last 10 years, but 70% of the increase was caused by private sector rent growth. People are being put into the private sector because not enough council and social housing is being built. In Wales, 29,000 families are affected, but there are only 400 empty single-bedroom units of accommodation, so there is nowhere for them to go. Two thirds of the people affected are disabled. In Swansea, moving someone from a three-bedroom council house to a two-bedroom private sector
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house would cost 50% more, so housing benefit will go up again. A lot of these measures are counter-productive and destructive, but that particular one encourages people to have more children, even if they were not going to, to fill up the rooms. Meanwhile, the overall benefit cap encourages families to break up so that there are two units that can come up to the £400 threshold. The policy has not been thought out, and we are seeing an awful return to a Dickensian view of the worthy and unworthy poor, the shirkers and the workers, and the strivers and the skivers.
We need to refocus on growth, capacity, exports and jobs. Jobs and growth are the only things that are going to pull us back on the right track to balance the books and make Britain strong again. We want a Britain that cares and a future that works—a one nation strong and united, not a weak nation divided by the Conservatives.
9.45 pm
Catherine McKinnell (Newcastle upon Tyne North) (Lab): We have had a surprisingly good debate despite what was, frankly, a disappointing and lacklustre Budget. I use the word “surprisingly”, because the lacklustre nature of the Budget was no more evident than in the opening speech made by the Exchequer Secretary to the Treasury.
Hon. Members on both sides of the House have powerfully put the case for securing growth in our economy, and I especially want to commend several of the contributions made by Labour Members. My hon. Friend the Member for Islwyn (Chris Evans) made a powerful speech about aspiration that included a poignant reminder of the words of Harold Wilson that it does not matter what the rate of employment is because to a person who is unemployed, that rate is 100%.
My hon. Friend the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) made a characteristically forceful and insightful speech about the impact of the Chancellor’s failing plan on economic development in the north-east, which is a region close to my heart. He reflected on the double-dip, double-debt and double-downgraded Chancellor.
My right hon. Friend the Member for Holborn and St Pancras (Frank Dobson) reflected on the banks simply not paying their fair share, while my hon. Friend the Member for Luton North (Kelvin Hopkins) gave a colourful insight into the Bill’s historical context. My hon. Friend the Member for Bolton West (Julie Hilling) reflected on her memory of Budget day and a Chancellor who simply looked lost as to what to do about his flatling economy and failing plan.
My hon. Friend the Member for Corby (Andy Sawford) made a passionate speech about the real impact of the Chancellor’s failure. The amounts involved under the bedroom tax might be worth just half a bottle of claret to the Chancellor, but to the people affected, they make the difference between heating and eating.
My hon. Friend the Member for Glasgow North East (Mr Bain), like other hon. Members, talked insightfully about the Chancellor’s campaign against the poor and the divisive nature of his economic policies. My hon. Friend the Member for Edinburgh East (Sheila Gilmore), with her insightful wit, put Government Members to shame for their failure even to show up today to defend their Chancellor’s Budget. We have just heard my hon.
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Friend the Member for Swansea West (Geraint Davies) reflecting on the divisive nature of the Chancellor’s failing plan.
We heard good speeches from the few Government Members who bothered to attend the debate—[Hon. Members: “Three.”] I amreminded that we heard three speeches from Government Members, and I was surprised by how few of them turned out to support their Chancellor’s Bill. The Exchequer Secretary claimed in his lacklustre speech that the Bill will inject energy into our economy, but it has not injected any energy into Government Back Benchers, so it is even less likely to inject any energy into our bumbling economy that is staggering under the weight of the Chancellor’s complacency.
The emptiness of the Government Benches has been stark. For most of the time, we have seen only the Minister, his Parliamentary Private Secretary and a token Liberal Democrat. Are Government Members too ashamed to defend their downgraded Chancellor? Even the Chief Secretary to the Treasury has not shown up today.
It is a shame that the hon. Member for Cities of London and Westminster (Mark Field) is not in the Chamber because he made a compelling speech in which even he lamented, to use his words, the Chancellor’s “sleight of hand” in manoeuvring to bring his borrowing down to just under £121 billion. That represents a rate of deficit reduction of not 1%, nor even 0.1%; at that rate, it would take 1,000 years to reduce the deficit. He acknowledged that debt will not fall in this Parliament, so the Chancellor should at least focus on the long term, instead of quick-fix gimmicks. That was sound advice.
The hon. Member for Redcar (Ian Swales) defended the Government’s failing plan, and suggested that a VAT cut would simply benefit the well-off. Has he even noticed the Chancellor’s tax giveaway to millionaires? The hon. Member for Macclesfield (David Rutley) proudly declared that the Chancellor’s plan was a continuation of Thatcher’s legacy, and told people to cheer up and stop moaning. He should try telling that to the 2.5 million people who are unemployed.
Deep down—perhaps it is evident from their poor attendance—even Government Members know that the Chancellor’s Budget failed to deliver what is needed to get us out of this economic mess. Let us consider the situation facing the Chancellor as he composed his Budget last month. What were the key economic indicators to which any genuinely in-touch Chancellor would want urgently to respond? Before we consider the current economic situation and this year’s Budget, let me take the House back briefly to the Chancellor’s first Budget—the June 2010 so-called emergency Budget—which, according to him, was necessary to deal decisively with the country’s record debts and produce a credible plan to deal with the record deficit. Right hon. and hon. Members may recall that the Chancellor used that emergency Budget speech to predict that the UK economy would grow by 1.2% in 2010, 2.8% in 2012, and 2.9% in 2013. He was dreaming. As a result of his failure, we have had a double-dip recession and the economy is stagnating, with just 0.8% growth since the 2010 spending review, compared with 5.3% forecast at the time. He consistently
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blames factors beyond his control, but only three G20 countries have grown more slowly than the UK in the same period.
The independent OBR has halved its predictions for 2013, anticipating growth of just 0.6% this year, compared with the 1.2% forecast in December, a mere four months ago. The most recently published figures suggest that industrial production in February was down 2.2% on the year before, while the UK’s trade deficit has widened to £9.4 billion following a worrying 4.7% fall in exports to non-EU countries. Indeed, over the past two and a half years, lack of confidence created by the Chancellor’s failing plan has seen business investment fall by £3 billion, compared with the OBR’s forecast of a £24 billion rise. Of the G20 nations, only Italy and Saudi Arabia have experienced a sharper fall in investment in that period. As a consequence of the Chancellor’s economic failure, Government borrowing has risen, not fallen, with the coalition set to borrow £245 billion more than the forecast in autumn 2010. [Interruption.] I am astounded that Ministers shout that we would be borrowing more; they are borrowing more.
The Chancellor’s promise to balance the books by 2015 will not be met, and the national debt will not fall until 2017-18 at the earliest, which has resulted in the downgrading of Britain’s triple A credit rating by Moody’s. More recently, Fitch has put the UK on negative watch—the very cover that the Chancellor used for his accelerated spending cuts in 2010. What does that economic failure mean for ordinary people up and down the country? Who is paying the price for the downgraded Chancellor’s economic plan, which lies in tatters? The most recent figures, published on Budget day, show that unemployment has risen again, and the trends behind the employment figures are increasingly worrying. Long-term unemployment remains far too high, and the risks have become dangerously entrenched while youth and female unemployment is up again.
Ministers regularly claim—and Government Members have done so again this afternoon—that the coalition has helped to create more than 1 million private sector jobs, but about 200,000 of those were created as a result of the reclassification of further education and sixth-form colleges in the private sector. Half the jobs that have been created since 2010 are part time, and almost 1.4 million people who want full-time work can only find part-time work. People who are in work have found that their wages have simply not kept pace with inflation. There is also the deeply worrying phenomenon of falling productivity, with more people apparently producing less. Is it any wonder that we have seen a disturbing rise in so-called zero-hours contracts, with recent media reports suggesting that almost a quarter of larger employers are recruiting staff in that way?
This is the reality for many people in this country—not for the Chancellor’s millionaire pals, but for the millions of ordinary people in this country who are facing the reality of unemployment and, for those in work, squeezed living standards, under-employment and increasing insecurity. The truly startling but unsurprising reality, confirmed by the OBR, is that people will be worse off in 2015 than they were when this Government came to power.
What was the Chancellor’s response to this dire situation on 20 March? A package of measures genuinely and urgently to kick-start our flatlining economy, boost
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confidence, stimulate investment and create jobs? No. A recognition that his plan has completely and demonstrably failed? Again, wrong. What this country urgently needed was a Budget with the X factor. Instead, we have a one-direction Chancellor who clearly believes that it is impossible to admit that he got it wrong and to change course. We got a more of the same Budget from a more of the same Chancellor, who would rather continue down the same path no matter what long-term damage it does to our economy and to local communities than come clean with the British public.
Of course, there were some welcome measures. The Opposition have consistently called for a tax break for small firms taking on new workers and the Chancellor is now set to introduce a scheme. Let us hope that it has a better success rate than his previous policy which, at the last count, has created 70,000 jobs, which is to be welcomed, but which is just a little shy of the original prediction of 800,000. On tax avoidance, the Government are consulting on how to clamp down on abusive payroll services based in tax havens, as well as confirming their intention to strengthen the tax disclosure provisions introduced back in 2004 by the Labour Government. Again, those are both areas where the Opposition have been calling for urgent action for some time.
Despite all the tough talk on tax avoidance, we continue to get a series of mixed messages from the coalition and a lack of real action. We repeatedly hear the Chancellor and the Prime Minister claiming to be leading on international tax avoidance action at the G8, yet days ahead of the meeting the Exchequer Secretary boasted that the UK has moved ahead of Ireland, the Netherlands and Switzerland in “tax competitiveness”. I wholeheartedly agree with the sentiments expressed by the hon. Member for The Cotswolds (Geoffrey Clifton-Brown), who is not in his place at present. He rightly pointed out that the UK needs to be careful of promising competitive tax rates if companies get away with not even paying them. He also rightly pointed out that we need to analyse what impact tax avoidance has on developing countries. We will introduce amendments to that effect.
Perhaps the most mixed message of all is the coalition’s incredible decision, announced in last year’s omnishambles of a Budget and confirmed in this year’s Budget document, to give some of the wealthiest people in this country an average £100,000 tax cut this month. A Chancellor who claims that he finds tax avoidance “morally repugnant” is determined to carry on with his game of “Who wants to bung a millionaire?”, reducing the 50p rate of income tax because the “behavioural response” was “larger than expected”. No doubt he will have phoned a few friends last weekend to remind them of his good news. This means, in effect, that top earners have been so nifty at shifting their income to minimise their tax liability that this Government, who talk tough on tax avoidance, are rewarding them by cutting the rate. Liberal Democrat colleagues will be telling themselves that this indefensible decision does not matter and that everything is okay because of the much-trumpeted increase to the personal allowance. But they have not quite owned up to the fact that families on average will be £891 worse off in this tax year, and cuts to tax credits and benefits have been introduced since 2010.
Indeed, the small rise in the personal allowance is hugely outweighed by the cuts to tax credits and child benefit, the bedroom tax, the granny tax and the increase
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in VAT, which the Liberal Democrats campaigned against so vociferously before it was announced in June 2010. The straight fact is that the dire economic situation in which we find ourselves is of the Chancellor’s making and that of the coalition Government, but the brunt is being borne by millions of ordinary people and local businesses—
10 pm
Motion made, and Question put forthwith (Standing Order No. 41A(3)),
That, at this day’s sitting, Standing Order No. 41A (Deferred divisions) shall not apply to the Motion in the name of Mr Chancellor of the Exchequer relating to the Finance (No. 2) Bill (Carry-Over).—(Anne Milton.)
Question again proposed, That the Bill be now read a Second time.
Catherine McKinnell: The dire economic situation demanded an urgent response from the Chancellor. Indeed, the director general of the British Chambers of Commerce, John Longworth, said:
“We are at an unprecedented moment in our economic history, and the government should be doing everything in its power to get the economy moving. Many of the Chancellor’s measures are positive but may come too late, particularly for smaller and medium-sized companies. We need urgency, scale and delivery today.”
We agree, but what we got from the Chancellor and what we have before us this evening is a bit of tinkering around the edges and more of the same. It is just not good enough and Britain deserves better. That is why the Opposition will vote against this inadequate Budget from an inadequate Chancellor who is increasingly out of touch and totally out of his depth.
10.1 pm
The Economic Secretary to the Treasury (Sajid Javid): In debating the Finance Bill and the economy, one is reminded of the late noble Baroness Thatcher. As my hon. Friend the Member for Macclesfield (David Rutley) said, let us never forget that she rescued the country from a permanent sense of decline and restored economic strength and prosperity. She was our greatest peacetime Prime Minister. May she rest in peace.
We have had a lively and wide-ranging debate, with particularly thoughtful contributions from my hon. Friends the Members for Cities of London and Westminster (Mark Field), for Redcar (Ian Swales) and for Macclesfield. The best I can say about the contributions from the Opposition Benches is that we heard a lot of warm and fluffy talk about motherhood and apple pie but not a single idea on how to rescue our economy from the mess the Labour party created. This Government inherited a shocking legacy. The country will never forget the consequences of 13 years of Labour government: the largest deficit in the G20; the deepest recession since the second world war; and the world’s largest banking bail-out. We have taken action to cut the deficit, stimulate the economy and create a fairer and more efficient tax system. The Bill continues along that path.
Let me focus first on growth and competitiveness. The Bill builds on previous Bills by introducing a range of measures demonstrating the Government’s commitment to supporting growth and enterprise. Against
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the background of external challenges, such as the continuing crisis in the eurozone, it is vital that the UK tax system attracts investment to this country and does everything possible to ensure that UK businesses can compete in the global economy. The Government have already significantly reduced the tax burden on business. In 2013, corporation tax will be 23%, significantly lower than the 28% inherited from the previous Government.
Since we embarked on those reforms, we have seen a number of high-profile businesses returning to the UK or coming here for the first time, including WPP, Lancashire, Aon, Rowan and Seadrill. But we want to go further. The additional reductions set out in clauses 4 and 6 mean that the corporation tax rate will reach 21% in April 2014 and just 20% in April 2015, the lowest rate in the G20, and lower than any comparable EU member state.
But competitiveness is about more than just the rate of corporation tax. That is why the Bill also includes measures to give targeted support to the innovative sectors that will drive growth in the 21st century. Clause 34 delivers an above-the-line tax credit for large companies’ R and D expenditure, with an increased rate of support of 10%. That will provide a more visible and certain relief and greater cash flow support to the wide range of companies engaging in groundbreaking research in the UK.
Clause 35 legislates to bring in new tax reliefs for the UK’s world-leading creative industries, including animation and high-end TV. That will be among the most effective reliefs anywhere in the world.
The Bill also includes measures to support small and medium-sized businesses, which are the bedrock of our economy—points that were made very well by my hon. Friends the Members for Macclesfield and for Cities of London and Westminster (Mark Field). Clause 7 introduces a two-year increase to the annual investment allowance that has been in place since January. That will make it easier for firms to bring forward capital investment in plant and machinery, helping support businesses to grow and invest.
Clause 56 implements an extension of the successful capital gains tax holiday for the seed enterprise investment scheme, to support investment in new and early-stage firms to help give them the support they need to grow. Clause 63 enhances the tax advantages available under the enterprise management incentive, helping smaller, higher-risk companies to recruit and retain high-calibre employees. Low corporation taxes, support for innovation and help for small businesses—this Finance Bill sends the clearest possible signal that Britain is open for business.
We are also taking action to support the UK’s oil and gas industry. Clauses 77 to 90 support a new contractual approach to provide certainty over decommissioning relief on the UK continental shelf. The Government will sign contracts this year allowing the sector to unlock billions of pounds of additional investment, helping to create thousands of new jobs in Scotland and beyond.
Sir Malcolm Bruce (Gordon) (LD):
My hon. Friend is making an important point about the Government’s assistance to the oil and gas industry. Does he acknowledge
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that that has contributed this year to the biggest single investment in North sea oil and gas since they were discovered?
Sajid Javid: My right hon. Friend makes an excellent point. I am convinced that there will be further significant investment in that important industry because of the measures in the Bill.
I turn to fairness, which is at the heart of the Bill. The Bill helps families with the cost of living while making sure that the best off in our society pay their fair share. The increase in the personal allowance in clause 2, mentioned by my hon. Friend the Member for Redcar and others, will set the value at £9,440 for April this year, an increase of £1,335—the largest ever cash increase. It will save a typical basic-rate taxpayer £267 in cash terms and it is a tax cut for 24 million people. That is a major step towards the Government’s commitment to raise the personal allowance to £10,000 by the end of this Parliament. My right hon. Friend the Chancellor announced in the Budget that that goal will be reached next year, a whole year ahead of schedule.
Taken with previous increases in the personal allowance, the Government have taken 2.7 million people out of income tax altogether, providing real help for low and middle earners and rewarding work by enabling workers to keep a greater share of what they earn.
The Government also recognise the rising cost of fuel and the pressure that that puts on the finances of households and businesses. That is why we have decided to cancel the increase in fuel duty planned for September 2013. Clause 177 will freeze fuel duty at current levels, maintaining the longest freeze in fuel duty for 20 years. Under this Government, average pump prices are 13p per litre lower than if we had implemented the plans that we inherited from the previous Government.
When ordinary households are experiencing real pressure on their incomes, it is particularly important that tax reliefs are well targeted and cannot be used without limit by those on the highest incomes to reduce tax bills. Clause 16 legislates for a new cap on certain unlimited tax reliefs from this April to curtail excessive use of those reliefs. The cap will be set at £50,000 or 25% of the relevant person’s income, whichever is the greater, ensuring that the reliefs cannot be exploited unfairly. The cost of pensions tax relief is rising and has doubled in a decade since 2001. This Finance Bill therefore legislates to reduce pensions tax relief lifetime and annual allowances to £1.25 million and £40,000 respectively to limit the amount of relief available to the top 2% of pension savers.
Fairness is also about making sure that everyone plays by the same rules. The vast majority who pay their taxes will, rightly, not tolerate non-compliant individuals and businesses not paying the tax that they owe, and this Government agree. To that end, the Bill includes a major package of measures to crack down on tax avoidance by a small minority who refuse to pay their fair share. Clauses 203 to 212 and schedule 41 legislate for the UK’s first general anti-abuse rule, or GAAR. This is one of the most significant changes to UK tax law. It will have a strong deterrent effect on those concocting abusive tax avoidance schemes or considering using them, and where they persist it will give Her Majesty’s Revenue and Customs an effective new tool to tackle these schemes.