25 Mar 2015 : Column 1453

Do the changes outlined in clauses 26 and 27 undermine the original anti-avoidance intentions of the late interest rule? Could these provisions be rendered in any way redundant by the ongoing BEPS—base erosion and profit shifting—process? Will the capping of group interest deductions be covered? Labour Members want to hear that proper attention has been paid to this international process and that we are not unduly jumping the gun.

We have questions about the clause 28 restrictions on research and development relief, whereby the costs of materials incorporated in products that are then sold commercially will not be eligible for that relief. Have the Government considered any exemptions for companies selling items that they had not intended to sell—for cash-flow reasons, for example? What will be the impact on liquidation of a company? Would its R and D credit-containing assets be devalued?

Before leaving my assessment of the anti-avoidance measures, I want to draw the House’s attention particularly to part 3 on diverted profits tax, which tries to deal with artificially contrived arrangements. Opposition Members want arrangements to work effectively, but we worry about the haste and laxity of the drafting. In his opening remarks, the Minister introduced this new tax on diverted profits through counteracting arrangements by which foreign companies exploit the permanent establishment rules and prevent companies from creating tax advantages by using transactions or entities that lack economic substance. We were told that the draft clauses published in December would be replaced, but the first we saw of the new iteration of the provisions was when the Bill was printed yesterday. That provides insufficient time to scrutinise and assess such a large number of highly complex and potentially important measures. This, I fear, is a direct result of the rushed timetable with which we have been presented today.

These are my questions to the Minister. What is the expected impact on the base erosion and profit shifting process? What challenges is he expecting on the basis of EU law and how will he address them? Why is it still showing such a low yield in the Red Book, given that the UK turnover of the multinational tech giants is so significant? What research has the Department undertaken into the effectiveness of the proposed enhanced civil penalties for offshore tax evasion and will the increase improve compliance?

We welcome the measure on country-by-country reporting and common reporting standard issues, but the Office for Budget Responsibility has labelled the costings and related aspects as “highly uncertain”. I understand that the wording in the draft clause that we have seen would enable public disclosure of the country-by-country reporting rules, if the OECD updated its guidance to allow for it. Is that still the case for the clause before us today? Will the Government push for public disclosure or is the Minister trying to allow the disclosure only secretly for the Revenue authorities? Public disclosure is where we should be; if not, why not?

The clauses that extend capital gains tax arrangements to foreign individuals when they dispose of UK residential properties are welcome, but again the way in which the Government have brought them forward at the last minute means that we have little opportunity for proper scrutiny. It is worrying to those outside this place to see attempts to pass such provisions in this way. We understand

25 Mar 2015 : Column 1454

that the Treasury might have further legislative proposals, but can the Government address the concerns raised by the Chartered Institute of Taxation about the complexity of the new rules and the perceived unfairness in how they apply to people temporarily on assignments overseas who would not normally be required to pay a CGT charge on their main residence?

On the simplification measures, there are questions about the correct penalty regime for the new reporting requirements in the Finance Act 2014. Removing the need for a tribunal process is one such arrangement, but there might be consequences from rushing through this legislation.

My shadow DEFRA colleagues would certainly want to ask the Government why they have not done more on flooding and flood prevention. The tax change to encourage private investment in flood prevention is certainly welcome, but is it not more of a fig leaf to cover the Government’s failures properly to support flood defences? The de-prioritising of flood defence investment that we saw at the start of this Parliament will be a legacy that many communities will not forget.

On the new tax reliefs for film, TV programmes and video games, the Minister will know of the history of scams, tax shelters and bogus arrangements that have been exploited in the past. Some have been convicted of abusing those arrangements. Will he assure us that proper due diligence has been done to prevent some of those abuses from happening again?

Finally, let me deal with the measures relating to the oil and gas industry. My hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood) wrote to the Minister about the impact of the Bill on the safeguarding of the future of the North sea oil industry. The recent fall in global oil prices has put a number of jobs at risk in the sector, which is one of Scotland’s greatest success stories, and its current predicament requires a long-term solution.

We welcome the measures that will cut the supplementary charge and petroleum revenue tax, which were outlined in Labour’s “oil industry roadmap” in January. However, we have also consistently called for greater certainty for the sector, particularly because of the long-term nature of much of its investment. A simpler investment allowance should be delivered, as long as the industry can be assured that the transition from the current regime will not cause any interruption in investment.

The Finance Bill should be establishing a mechanism for joint reporting by the Treasury and the finance directorate to the United Kingdom and Scottish Parliaments on the fiscal risks of volatility, and how they will be managed in the future to maximise recovery from the UK continental shelf. I also urge the Minister to consider the need for a full assessment, in the round, of the impacts of tax reliefs and rates

My hon. Friend the Member for Birmingham, Ladywood will shortly have an opportunity to talk about other changes that we feel are necessary. Let me say now, however, that we should like to see a review of the impact of the rise in VAT in recent years, and of the changing of the top rate of tax from 50p to 45p. I hope that we can extract some more data and information from the Treasury. We should be finding ways of helping small firms with a cut in business rates, rather than always prioritising a small number of larger companies,

25 Mar 2015 : Column 1455

as the Government are doing. Their priority is reducing corporation tax rather than cutting business rates in 2015-16 and freezing them in 2016-17, which we think would be preferable.

We should have had a Finance Bill that deals in the round with many of the problems that our country faces: the living standards that have been squeezed, and the fact that wages have been surpassed by prices for such a long time during the present Parliament. Our public services require revenues to help them to serve our constituents—particularly the national health service, which we have to conclude is at risk because of the Government’s extreme plans for cuts. Those plans go way beyond simply focusing on the deficit, as the Government have also done. The Office for Budget Responsibility have talked of

“a sharp acceleration in the pace of implied real cuts to day-to-day spending on public services”.

At the general election in, I believe, 43 days’ time, the country will have a clear choice between the failing plans, the failing Budget and the failing Finance Bill that we are debating today, and a better plan to put working people first and to save our national health service. We will raise living standards by increasing the minimum wage to £8 an hour, and we will try our best to fund 25 hours of free child care for working parents with three and four-year-olds by means of changes in the bank levy. Our plan will help to transform our NHS with a “time to care” fund, which we will support by asking those who are fortunate enough to live in properties that are worth at least £2 million to chip in a little more, and it will ensure that we balance the books fairly by reversing the approach of the Government parties. That would be a better Finance Bill and a better Budget, and I look forward to seeing it under a future Labour Government.

2.3 pm

Ian Swales (Redcar) (LD): For someone who did not feel that we had been given enough time today, the hon. Member for Nottingham East (Chris Leslie) made an incredibly long speech.

I welcome the measures in the Budget, especially those benefiting business, and I am not the only one. At a lunch event on Friday, I spoke to members of the North East Chamber of commerce, and they also welcomed the Budget—particularly the measures involving oil and gas, which are very important for manufacturing industry and contractors in the north-east. The moves on corporation tax and support for business are clearly welcome. I do, however, agree with the hon. Gentleman that there is concern about the speed with which the diverted profits tax is being introduced. I congratulate the hon. Member for Amber Valley (Nigel Mills)—who has just left the Chamber—on triggering a Westminster Hall debate on the subject, during which we scrutinised it a little further.

Mr Love: There is significant concern, indeed alarm, out there among some of the tax professionals and accountancy bodies about the lack of adequate scrutiny. Does the hon. Gentleman share that concern?

25 Mar 2015 : Column 1456

Ian Swales: As I said a moment ago, I do share some of that concern. The new diverted profits tax is quite complicated, and I agree that introducing it after so little time is risky. However, I also think that it is a very necessary tax. Far too much of our economic activity in the United Kingdom has been booked elsewhere, and too many of our profits are being shoved elsewhere. I therefore welcome the overall measures, and hope that they can be made to work.

I welcome the increase in the bank levy. It is clearly more sensible than taxing bank bonuses at a total rate of 115%, which is what I understand the Opposition to be proposing. That clearly would not work, and I think that their proposal shows a lack of competence. I welcome the fact that the rich are paying more. The hon. Member for Nottingham East used the emotive word “obscenity”. I think that there was something of an obscenity in the fact that people on the minimum wage were having to pay about £1,000 a year in tax under the last Government. The Liberal Democrats’ priority is to change that, and to raise the tax threshold. Our original target was £10,000, but I am delighted to say that it is now on the way to £11,000 as a result of our work in this Government.

The rich are paying much more in tax. Their income tax rate was held at 40% for 13 years by the last Government. When we came to office, the rate of capital gains tax was 18%, lower than even the basic rate of income tax; it is now 28%. People are allowed to put a quarter of a million pounds a year into pension schemes and receive full tax relief on them: the allowance is now £40,000. The lifetime allowance has been reduced again, to £1 million. I welcome all those measures. I am not going to become involved in a long debate about VAT, but it is worth noting that the VAT on a new Ferrari is £50,000. The idea that it is all paid by pensioners is clearly not right when we take account of the goods that are not subject to the standard rate of VAT.

The Budget raised stamp duty on property, and introduced yet more measures to deal with avoidance. Of course, there was industrial-scale avoidance under the last Government, and many cases are still coming to light, having arisen before 2010. I welcome the moves on the cost of living and on alcohol taxes, which support many of our important industries. I must declare an interest, as a cider drinker who greatly welcomes the reduction in cider duty. Overall, there is an inconvenient truth for the Opposition. Inequality has narrowed under this Government, whereas it widened under the last Government. People are better off than they were in 2010, and the Institute for Fiscal Studies has been saying so since January. The £1,600 figure was never about the total; it was about average incomes, which have, of course, been affected by the huge fall in youth unemployment, the huge rise in the number of apprenticeships, and the huge fall in bank bonuses. The Opposition’s stance does not bear scrutiny.

I have been asked to be brief. Let me end by saying that my part of the world has gained huge benefits under the present Government. We have benefited from the regional growth fund, from the local enterprise partnership—which is highly successful—and from the fact that this Government have spent five times more on capital investment in the Tees Valley than the last

25 Mar 2015 : Column 1457

Government did in five years. In the last year, unemployment in my constituency has fallen by 781. It is still too high, but we are heading in the right direction.

My party will support the Bill today.

2.9 pm

Chris Evans (Islwyn) (Lab/Co-op): Let me begin by expressing my disappointment that there is to be no Public Bill Committee. I have served on every single one in the present Parliament. I do not know what I did wrong in the Whips Office, but I feel that I am missing out on something.

I congratulate the hon. Member for Redcar (Ian Swales), who is, of course, a Liberal Democrat. Following the embarrassment of the Chief Secretary standing on the steps of the Treasury with his Fisher-Price lunch box, announcing a Liberal Democrat Budget the day after the real one that he said he had signed off, I admire any Liberal Democrat who can stand up now and defend the Government’s policies.

I want to say something about the Finance Bill and the Budget. This is the truth as I see it: for one hour, the Chancellor, simply because a general election is on the way, changed his tune from that of the Conservative party conference in October, when he told us swingeing cuts were on the way and we should prepare for an age of austerity. Now, 44 days before a general election, he tells us, like a latter-day Harold Macmillan, that we’ve “never had it so good.”

Those of us who are historians remember what happened after the complacency of that Conservative Government of the 1950s and the eventual devaluation of the pound in the 1960s. The problem is that for vast swathes of constituencies like mine across the country which are trying to deal with the post-industrial age the Government did not offer any hope or optimism for the future. Families in my constituency are £1,600 worse off than they were five years ago; that is the truth, and I challenge any Government Member to come to Islwyn, walk down the streets with me and go to the food bank in Risca where I was taken the other day. I could not get through the front door because so many people there were in need. Some might say they were there for kicks, but so many of them just needed help with benefits or the health service—they were there because there was nowhere else to go. That is a sad indictment of this Government’s policies.

Islwyn is a constituency dealing with the post-industrial age. Under the last Labour Government we attracted investment, but the problem is that this Conservative- led Government have created two Britains. There is the Britain of the affluent, who are enjoying a tax cut because we are in the grip of an economic theory that failed and only brought about deficits in the ’80s. That continues with the tax cut from 50p to 45p. We also see a different kind of Britain, however: a Britain of people gathered around the kitchen tables worried about paying the bills—about how they are going to pay the mortgage, how they are going to pay the rent. These are the people who deserve the tax cut.

It is all very well the Prime Minister committing today at Prime Minister’s questions not to put VAT up. He made that commitment before the last general election, yet VAT went up. It is only ever the Tory party that puts VAT up. VAT is regressive because everybody has to pay

25 Mar 2015 : Column 1458

it, whatever goods they buy; whether they are a pensioner, a student, in work, a lord or a duke, they have to pay VAT. It does not matter what they earn. That is why VAT is a regressive tax.

The Government have forgotten who pays the bills around here. It is not the millionaires. It is not the business people. It is the people on the ground. I have nothing against anybody earning big money; I have no problem with success or aspiration, or ambition or achieving anything. However, if we give a tax cut to the very rich in society, they will employ accountants who will hide the money, but if we give a tax cut to people in the middle, they will spend it in the shops and businesses and get the high streets moving. That is not what is happening. That is not the reality on the ground.

We can talk all we want, but the simple fact is there is a problem with the word “conservative”. It means preserve or conserve—to conserve a way of life that never existed. If we want examples of how the Conservatives constantly look back to a golden age that never existed, we need only listen to the references to Agincourt. This is what I say: if we are looking back constantly, we are not moving forward.

The NHS is in crisis but the Budget says nothing about that most important public service in Britain. The Tories last week confirmed plans for extreme spending cuts in the three years after the election, which will put our NHS at risk.

Ian Swales: I always enjoy listening to the hon. Gentleman’s speeches, but he ought to note that the Budget included a huge £1.25 billion for mental health spending in the NHS.

Chris Evans: I welcome any money that goes towards mental health, and I think anybody suffering from a mental health issue would welcome that as well, but I have to say this to the hon. Gentleman: I am fed up, especially as a Welsh MP and a Welshman, at the way the Welsh NHS has been attacked by this Government. It is a shame because when the Government attack the NHS in Wales, they are attacking the nurses, the doctors, the cleaners, the porters—everybody who works so hard to provide the best possible health care to our patients.

Charlie Elphicke: The hon. Gentleman is making a passionate and powerful speech highlighting why it is such a travesty that he is not at the forefront of the Leader of the Opposition’s team, as he should have been. Does he join me in regretting the fact that the Leader of the Opposition seems to be planning a jobs tax were Labour to get elected at the general election?

Chris Evans: I thank the hon. Gentleman for his kind comments, and I have to say that over the years that we have served together in this House he has always been courteous to me and I count him as one of my friends from the other side.

Jake Berry: The dark side.

Chris Evans: Yes; I thank the hon. Gentleman for that, and admire his cheek in trying to get me into trouble. I shall move on quickly.

25 Mar 2015 : Column 1459

Working people know they are worse off than they were five years ago.

Jake Berry: The hon. Gentleman must accept that five years ago the personal allowance was just over £5,500, and after this Budget it will be in excess of £10,000. That is an enormous tax break, putting money into the pockets of all our constituents, some of them on the minimum wage, some of them on the lowest pay. Surely he must welcome that when he talks about working people.

Chris Evans: I would welcome it had VAT not been hiked up from 17.5% to 20%, which has affected many people and squeezed their wages down.

I do not have long left—[Interruption.] I hope I have longer in this place, but I do not have long left in terms of my speech. The people I speak to did not want the Chancellor to present an image of something that they were not experiencing. The statistics may speak differently, but for the many families I speak to who are worried about their job security and jobs being offshored, that was not their reality.

I want to end my last speech in this Session by thanking everybody on both sides of this House whom I have come to know for their various kindnesses and friendships. I have been immensely proud and honoured to represent the Welsh valleys that I was born in and grew up in, and I thank everybody for their help and advice over the years.

2.18 pm

Mr Andrew Love (Edmonton) (Lab/Co-op): I want to make some brief comments on a number of issues that have come up in the debate so far: tax simplification, where the impression is being given that these measures will simplify taxation; avoidance and evasion, where there are major problems in delivering on the commitments the Government have given; welfare reform, where the Government’s track record is appalling; and the impact on income distribution, where it is being suggested that those on the top incomes are most affected by the Budgets over recent years, when actually it is quite different.

First, let me join in the chorus of concern about the lack of scrutiny under this wash-up process. There have been many comments in the media today from various experts—taxation bodies, chartered accountants and others—all expressing concern that, given the level of complexity involved in this Finance Bill, we simply will not get adequate scrutiny by rushing through all its stages in one day. I share that concern, and I am pleased to see that it is a concern that is recognised across the House. I would have preferred a much simpler Bill that included only a limited number of provisions. When we return and there is a Labour Government, we can have a Finance (No. 3) Bill, enacting proper measures to deal with the problems in this country.

I wish to discuss four issues and the impact this Budget and previous Budgets since 2010 have had. The first issue is tax simplification. It would be wrong to suggest that our taxation code is not getting more

25 Mar 2015 : Column 1460

complex, and this Bill will add significantly to the complexity. I put it down simply to the way in which Whitehall operates; our bureaucracy is geared to the creation of legislation and of taxation measures. To take a perfect example, the Treasury is full of people who are there to guide and advise the Government on the latest taxation measures. Up against them we have a tax simplification project that consists of three nominated officials and a few civil servants. It is an unfair game; it is impossible for the tax simplification project to counter the further moves being undertaken towards complexity in our taxation system. It requires government—I include government on both sides—to address the real need, look carefully at whether all the taxation measures in our code are necessary, and take appropriate steps to reduce the number of codings and to make our taxation system simpler.

The second issue is avoidance and evasion. The Chancellor has said that his way of saving money over the next Parliament, should the Conservatives be re-elected, is to pencil in £5 billion-worth of reductions in avoidance and evasion. The first thing that has to be said is that that is an incredibly ambitious target. HMRC’s projection for the tax gap is currently about £35 billion, out of which about £4 billion is avoidance and £3 billion is evasion. So the total for avoidance and evasion, according to HMRC, is about £7 billion, yet we are being asked to believe that the Chancellor can deliver £5 billion through tackling evasion and avoidance in the next Parliament. That is a very tall order and we need to look very carefully at his proposals. The Office for Budget Responsibility has looked carefully at the suggestions being made, both in the Budget and in the consultation document released the day afterwards, and it can find only just over £3 billion-worth of savings. It has attached to those £3.1 billion savings either a “very high risk” or a “high risk” as to whether there will be delivery. So a gap is already opening up between what the Chancellor has promised and what he can deliver, and the OBR is suggesting that the task may be very difficult for the Government because of the high-risk nature of this. We can all recall the Swiss bank fiasco; it was suggested that £3 billion to £4 billion would be raised, but we now have a much more realistic figure, much below that. In order that that does not happen again, we ask that the Chancellor be much more ruthless and realistic in his appraisals about what can be saved by tackling avoidance and evasion—it certainly is not the £5 billion that he has suggested in this Budget.

Similarly, on welfare reform the Chancellor is suggesting that he wishes to save £12 billion. I will discuss how he is suggesting it will be saved later, but first let me indulge a little in recent history. Over the past five years the Chancellor has instituted policy changes that he said would deliver £21 billion-worth of savings, yet according to the Institute for Fiscal Studies the actual reduction in the welfare bill—the actual cash saved—was £2.5 billion. So there is an enormous hole in his accounting. He is suggesting he will save £12 billion between now and 2020, but he has indicated only where £3 billion of that will be saved—there is another £9 billion to go. We hope that over the period of the general election he will give the electorate some idea of how he is going to save such an enormous sum, recognising his total failure to save the money in this Parliament. His track record is not good. Given all the other imponderables—the things

25 Mar 2015 : Column 1461

that are not under Government control that can affect the welfare budget—it is difficult to see how he can save that amount of money.

That leads us to the elephant in the room: if the Chancellor does not save money from avoidance and evasion or from welfare reform, where is he going to make up the difference in order to deliver the £30 billion-worth of savings? That is where we come back to VAT. That is where the Conservatives’ track record shows from the past, and that is where we will be scrutinising carefully the comments that are made. Tax rises are on the horizon. I am being asked to cut my remarks short so I do not have time to deal with the distributional impact, but let me just say that the Budget will not affect the highest paid but will affect those in the two lowest deciles of payment more than anyone else. It is a regressive, retrograde Budget, as previous Budgets have been.

This is my last speech in the Chamber. The experience has been great and I have met a wonderful group of people, on both sides of the House. I have enjoyed it immensely, and I retire having said my piece on this Budget.

2.27 pm

Geraint Davies (Swansea West) (Lab/Co-op): It is a great pleasure and privilege to follow my hon. Friend the Member for Edmonton (Mr Love), who has been a distinguished Member of the House, particularly through his service on the Treasury Committee, which has added enormous insights into the deliberations of successive Governments. It is a great joy to follow my good friend and colleague.

I just want to make a few remarks. The budgetary process in the immediate run-up to the election has been very much a political stunt. The first thing to deal with is the illusion—or delusion—that there has been economic success and turnaround under the Conservatives. That is simply not the case; it is simply not borne out by the facts. The national debt is about £1.4 trillion—up 44%. Reference is made to the deficit and how much the debt is going up, but of course the current Government have borrowed more in five years than Labour did in 13 years—and we had to bail out the banks. The Government have lost the triple A rating. As I pointed out earlier, the number of people earning more than £20,000 is down by 800,000. There is a reliance on a fudging of the facts; this is a “fudge it” Budget, to make up for the fact that we have more and more low-paid people who cannot make a contribution towards the revenues in a sustainable way. Meanwhile, the Government continuously put up the tax threshold and say, “Who’s going to disagree with that?”, knowing everyone is scared to disagree. But that is the management of irresponsibility, because the money simply is not coming in to pay the bills.

So what we need is not a spat about tax and spend, but a serious consideration of how we generate productivity and growth, in order to have higher wages and a more sustainable plan for the future. Obviously, part of that was the debate about tuition fees and about enabling people to go, without fear, to university, so that we could get higher productivity and the students would not be hobbled by massive debt throughout their lives. Such debt can mean that they cannot get a credit rating

25 Mar 2015 : Column 1462

and cannot get a house, and are scared of moving into a higher pay bracket because it pushes up their repayments.

Sadly, the Tories are creating a two-nation Britain. One nation will be the better off, who, lucky for them, own their own house, can get their sons and daughters into university and pass on money for them to put down a deposit on a property. There are others who may be equally or even more capable of going to university and of boosting the productivity in our collective economy but who are being stopped from getting houses in the future. We are at a turning point now. The party that gets elected will determine whether we have a more unequal or a less unequal future. I very much want us all to pull together as one nation to invest in the future.

The Conservatives have this massively political Budget profile, which has been described as a “rollercoaster”. Deep and savage cuts were going to take us back to the 1930s, but because that was pointed out by the BBC, the Office for Budget Responsibility and the Institute for Fiscal Studies, an adjustment was made. Bank shares were sold off and oil prices went down so that the public service time machine was moved back only to the year 2000. None the less, we all saw the Tories in their true oils. They were happy to make those savage cuts until the BBC highlighted what they were doing. Then they said, “Oh no, we’re not going to do that.” But there will still be savage cuts until the final year of the next Parliament, 2019-2020, when there will be a sudden acceleration in public spending—the biggest spending increase for 10 years—presumably to try to get Boris Johnson elected as the next Tory Prime Minister. That is probably what will happen in the unfortunate event of the Tories getting in again in some strange alliance with the UK Independence party, which would be a disaster for Britain.

We must strike a balance between trying to achieve economic growth and having to balance the books, instead of scrabbling around trying to decide which poor people to clobber. As my hon. Friend the Member for Edmonton pointed out, welfare cuts such as the bedroom tax raised only £400 million, which is small change compared with the numbers that we are talking about. Two thirds of the people hit by that tax are disabled. The cuts to tax credits are hitting people with children who are trying to work. It is ridiculous to try to squeeze more and more out of the poorest to make ends meet. Clearly, it is right that the richest pay more, whether those with more than £2 million pay the mansion tax—

Mark Garnier (Wyre Forest) (Con): They do pay more.

Geraint Davies: They need to pay lots more, not a bit more. Of course some of the very rich are paying more, but that is because they are getting richer and richer on massive pay awards. They are earning so much more than anyone else, and the situation is getting out of control

Charlie Elphicke rose—

Geraint Davies: I will not give way to the rover from Dover, thank you very much. He is known as the Dover soul. [Laughter.] Obviously, that was the highlight of my speech.

25 Mar 2015 : Column 1463

Finally, I wish to comment on the rabbits that have been pulled out of the hat. Today, we were told, “Oh, there will be no VAT increases.” Is the Prime Minister going to commit himself to that in his five-year plan? A couple of days ago, we heard that another £46 billion was being spent on various railway connections in the north. There seems to be a desperate attempt to make things up on the hoof.

I do not necessarily disagree with this devolution of economic and service power to the north—to Manchester. We did that in Wales, but it was done on the back of an Act of Parliament and a referendum. In their haste to generate higher ratings at the polls, the Government are doing anything, including undermining the constitution and the economic balance and fragmenting the NHS in the process. Their recent track record, therefore, has not been impressive. The future looks bleak. I very much hope that we can focus on increasing growth. We should consider tuition fees, a cast-iron promise to stay in the EU, which is so important for inward investment, and procurement. The reality is that when it comes to procurement we should look at favouring, if we can, small British companies that pay British tax—corporation tax and income tax—rather than giving the work to foreign companies that do not pay our tax and do not contribute towards growth.

Charlie Elphicke rose—

Geraint Davies: I will finally give way to the hon. Gentleman.

Charlie Elphicke: I thank the hon. Gentleman for being so generous in giving way to the rover from Dover. I gently point out that the reason why we cannot show a preference towards our own businesses in matters of procurement is to do with the European Union, which he loves so much.

Madam Deputy Speaker (Dame Dawn Primarolo): Order. Believe it or not, that discussion is outside the scope of the Budget resolutions. But given that the hon. Gentleman had just acquired a nickname—although I will not be addressing him as such—I decided to allow him to intervene. Mr Davies, I should be grateful if you returned to the Finance Bill.

Geraint Davies: Clearly, I accept the ruling on the rover from Dover. I was simply making the point that, in our growth strategy, we should be encouraging small businesses. In Wales, something like 60% of procurement goes to small businesses, half of which are based in Wales. In England, the comparable figure is something like 25%. I am suggesting that, through encouragement rather than breaking EU rules on competition, we should make things easier for small businesses in order to help growth, tax, and supply chains. We should do that, rather than just say, “What can we do?” Labour increased this economy by 40% in the 10 years to 2008, before the banking crisis.

Madam Deputy Speaker: Order. Mr Davies, you are way out of scope now, so we will go to the concluding remarks of this debate, because we are running out of time.

25 Mar 2015 : Column 1464

2.36 pm

Shabana Mahmood (Birmingham, Ladywood) (Lab): I have only a short time in which to speak, so let me start by saying that we have heard some very good speeches today. The debate was opened powerfully by the shadow Chief Secretary, my hon. Friend the Member for Nottingham East (Chris Leslie). My hon. Friends the Members for Islwyn (Chris Evans), for Edmonton (Mr Love) and for Swansea West (Geraint Davies) all spoke well. The rover from Dover will live long in our memories and trumps, I think, “Dover soul”, which is not really up to the mark in quite the same way.

I pay tribute to my hon. Friend the Member for Edmonton who made his valedictory speech today. I am sorry that he had to cut his remarks short, but I wish to put it on the record that he has had a very distinguished period of service in this House. It has always been a pleasure to sit in debates on Treasury matters and to hear him speak. I have learned a huge amount from him. His service on the Treasury Committee has been to his credit, and he has a record of which he can be proud. The House and his constituents will miss him greatly.

As my hon. Friend the shadow Chief Secretary said in his opening remarks, the Budget is as fundamental as it gets when it comes to the business of the Government, and the Finance Act—the legislation that enacts most of that Budget—is also fundamental. But, effectively, the vast majority of this Bill will go through without debate. I confess that the negotiations into which I entered with the Financial Secretary last week was my first experience of the wash-up. Although I acknowledge the hard work done by his officials and even by him in terms of the tenor with which he approached those discussions, neither of us can pretend that this is a satisfactory way in which to make very complex taxation legislation. In particular, we know that outside commentators have an eye today on the diverted profits tax. The Opposition have to make a judgment call based on often very little, or last minute.com, information. For example, we have to judge whether blocking something now so that we can do it better later would give a signal that it will not happen at all and so cause uncertainty or whether an appropriate reassurance can be made.

I know about the lively discussions outside the House about the diverted profits tax. Let me just say that we support the thrust of what the Government intend to do, but the Bill was being drafted at the end of last week, when the Minister and I were trying to conclude our negotiations. That is unsatisfactory, because the Bill is complex. In our first Finance Bill when we are in government, we will seek to remedy any defects that prevent that measure from being both effective and strong. I am happy to let it through not because I think that it is a completely 100% foolproof bit of work, but because I fear that the Tories in opposition might not be quite so keen to see the measure on the statute book. I wanted to ensure that we got it passed, and then we could fix any issues later.

Although we will support many of the measures now going through—later we will debate the measures that we think are missing—we think that the Bill is a missed opportunity, as my three hon. Friends who spoke from the Back Benches all said. The Government could and should have taken the opportunity really to start making a difference to the lives of our constituents across the

25 Mar 2015 : Column 1465

country, but they failed to do so. Only a Labour Government and a Labour Finance Bill immediately after the general election will start putting those matters right.

2.40 pm

The Exchequer Secretary to the Treasury (Priti Patel): It is a great pleasure to close this debate on Second Reading. I would like to thank everyone who has spoken for their contributions, particularly the hon. Member for Edmonton (Mr Love), who has served this House with such distinction. I wish him well. We have had an interesting debate. I should like to set it in the context of the Chancellor’s Budget last week.

A number of points about living standards have been raised. I reiterate that living standard will be higher in 2015 than they were in 2010, real household disposable income per capita will grow at its fastest rate since 2001 and, according to the Institute for Fiscal Studies, families are now set to be £900 better off this year than they were previously. That is all in line with our plan to fix the British economy, take us out of the dreadful mess we inherited back in 2010 and, quite rightly, give the British public the recovery they deserve.

The Bill marks the next step in that plan. It puts more money in people’s pockets, delivers further growth and puts fairness, which has been mentioned, at the heart of our recovery. We continue to put fairness at the heart of the recovery through our increase in the personal allowance. We will take people on the national minimum wage and working up to 30 hours a week out of income tax altogether by 2017. That is about rewarding work and raising living standards, which is what this Government stand for.

I will address a number of points that have been raised. The hon. Member for Edmonton spoke about £5 billion in tax avoidance. To answer his question, yes, it is a realistic achievement to bring in the revenue that has been spelt out. There is no reason to doubt that the Government can raise the figures we have already announced, so we will proceed with that. On the point about the tax code, we established the Office of Tax Simplification in 2010, and the Bill includes a number of measures that build on its recommendations.

Points were also raised about oil and gas. The Bill introduces radical measures to support the oil and gas industry, giving investors long-term certainty. We have been working very constructively with the industry to ensure that the package will provide it with the right fiscal environment.

On clause 12, which the hon. Member for Nottingham East (Chris Leslie) mentioned, the exemption will not apply where expenses are paid under a salary sacrifice

25 Mar 2015 : Column 1466

arrangement. That will stop employers artificially lowering their national insurance contribution bills by replacing some of their employees’ salaries with expenses.

Clauses 13 and 14 implement recommendations set out by the Office of Tax Simplification. On clause 20, which relates to gift aid, more details will be set out in regulations, which of course will improve donor understanding of tax to cover. On clause 28, I should like to reassure the hon. Gentleman that it applies to expenditure on consumable items only if the item is transferable in the ordinary course of the relevant person’s business.

Flooding was mentioned. In the spending review the Government committed an unprecedented £2.3 billion to tackle flooding and coastal erosion. In addition, clause 35 supports business contributions to alleviate the impact of flooding.

The hon. Gentleman also mentioned clause 29, which sets out film tax relief opportunities. The structure of the current relief is completely different from that introduced under the previous Government’s scheme, which was prone to abuse, so there are no issues of avoidance in this case. He also mentioned zero-emission bands. Stakeholders have asked for rates to be announced four or five years ahead, and the Government have been committed to announcing rates three years in advance, which is why we have done so.

Let me move on to the whole issue of tax avoidance. The UK is demonstrating further leadership by implementing the diverted profits tax, which is also consistent with the principle of aligning taxing rights to economic activity. The Bill quite rightly ensures that everybody contributes fairly to the Government’s long-term economic plan. During this Parliament, Her Majesty’s Revenue and Customs has secured £100 billion in additional revenue, thanks to this Government’s avoidance and evasion policies. Over a third of the Bill’s provisions will enact measures that go even further in tackling avoidance and evasion, including new measures on corporation tax and offshore evasion and avoidance and, of course, increases in the bank levy. That will raise nearly £8 billion more over the next five years, helping to reduce the deficit and strengthen the country’s economic recovery.

The Bill will help households up and down the country with the cost of living, make the country even more competitive internationally and, through the tax avoidance and evasion measures that we are putting in place, ensure that everyone pays their fair share of tax. The Bill marks the next step forward in our long-term economic plan, and I commend it to the House.

Question put and agreed to.

Bill accordingly read a Second time; to stand committed to a Committee of the whole House (Order, 24 March).

25 Mar 2015 : Column 1467

Finance (No. 2) Bill

Considered in Committee (Order, 24 March)

[Dame Dawn Primarolo in the Chair]

Clause 66

VAT: refunds to certain charities

Question proposed, That the clause stand part of the Bill.

The Second Deputy Chairman of Ways and Means (Dame Dawn Primarolo): With this it will be convenient to discuss the following:

Clause 67 stand part.

New clause 1—Report on impact of value added tax—

“(1) The Chancellor of the Exchequer shall, within three months of the passing of this Act, publish a report on the impact of the increase in the standard rate of VAT which took effect from 4 January 2011.

(2) The report must estimate the impact of the increase in the standard rate of value added tax on—

(a) living standards;

(b) small businesses;

(c) the fairness of the taxation system; and

(d) economic growth.”.

2.47 pm

The Financial Secretary to the Treasury (Mr David Gauke): Before speaking to clauses 66 and 67 and new clause 1, may I first say what a great pleasure it is to serve under your chairmanship, Dame Dawn? This is the last of a great number of Finance Bills in which you have played one role or another, and I have had the privilege of serving with you on a number of those occasions. This is the last afternoon on which you will be dealing with tax matters, having done so for an unconscionably long period, so I thank you for all that you have done over many years and for your service as Deputy Speaker and wish you a very happy retirement.

Clauses 66 and 67 set out the Bill’s provisions on VAT. Clause 66 refunds VAT to charities involved in co-ordinated search and rescue operations, air ambulance charities, hospice charities and blood bike medical courier charities. Clause 67 refunds the same levels of VAT to the strategic highways company—from 1 April it will take over the functions of the Highways Agency—as are paid to the Highways Agency itself. It is largely a tidying-up matter.

It is worth pointing out that refunding VAT will benefit around 400 charities that work alongside the emergency services, provide palliative care to terminally ill patients or support the national health service. The Hospice of St Francis in Berkhamsted in my constituency is very appreciative of the measure and thinks that it will make a significant difference to the service it can provide to my constituents in South West Hertfordshire. I suspect that clauses 66 and 67 will not cause great controversy in Committee, but I will of course be happy to take any questions on them.

Ian Lucas (Wrexham) (Lab): I am sure that we all welcome the clauses relating to VAT relief for hospices, which do such a tremendous job. Can the Financial Secretary help me by explaining how charities are selected and how VAT exemptions are secured? I have previously

25 Mar 2015 : Column 1468

raised the case of a charity dealing with disabled people in Wrexham that provides transport services, which are subject to VAT under the current arrangements. The process of securing exemptions seems easier for ski lifts, for example, than for disabled people in my constituency, so I would be interested to find out how on earth one secures exemptions for worthy charities.

Mr Gauke: I have heard the hon. Gentleman make both points in the past, and if I remember correctly, I responded to an Adjournment debate on those matters. There are significant benefits in our tax system for charities, but the Government look at cases partly depending on the demands on the public finances and what is affordable. We have looked in particular at hospices. There is a particularly strong case there, and to some extent they are put at a disadvantage compared with parts of the NHS because of the irrecoverable VAT that they pay. This is a matter that any Government would keep under review. I am sure that the hon. Gentleman, as a persistent Member, will raise the matter again if he has the opportunity to do so in future.

In new clause 1, the Opposition ask us to publish a report on the impact of the increase in the standard rate of VAT in 2010. No doubt, the hon. Member for Birmingham, Ladywood (Shabana Mahmood) will set out her thinking on that, but let me make a pre-emptive strike, if the Prime Minister has not already done so. Before I turn to the details and the imposition of VAT in 2010, I shall briefly set out the context for that decision.

Let us be clear that we increased the standard rate of VAT in 2010 as a consequence of the mess that the Opposition left the public finances in and the fact that, although the previous Government had left a mess, they had not left behind a plan to clear it up. Of course, a tax impact information note was published by HM Revenue and Customs at the time of the June 2010 Budget, but let us look at the situation that we inherited. At that time, the independent Office for Budget Responsibility’s pre-Budget 2010 forecast revealed that the structural deficit—the part of the deficit that will not go away with the recovery—was higher than previously thought: around £9 billion or 0.6% of GDP higher in 2010-11. Debt repayments were forecast to reach more than £67 billion by 2014-15, more than was spent on defence or on schools in England. The UK had one of the highest deficits of any advanced economy, so this Government had to take urgent action to eliminate the bulk of the structural deficit, which is a necessary precondition for sustained economic growth.

Sheila Gilmore (Edinburgh East) (Lab): The Minister referred to the Prime Minister’s pre-emptive strike, but he will be well aware that similar statements were made before the last election. Does not the whole VAT issue illustrate the difference between the parties? The Labour Government’s response to an economic recession was to stimulate the economy by reducing VAT. The response of the incoming Government was to deflate the economy by increasing VAT.

Mr Gauke: The previous Government brought VAT back up. We know from his memoirs that the then Labour Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), believed

25 Mar 2015 : Column 1469

that a Labour Government after 2010 should increase VAT. A Budget document was even published showing VAT going up to, I believe, 18.5%. I know that that was published by mistake, but it clearly shows that serious consideration was given to that. The previous Labour Government recognised that taxes would have to increase. They had proposals to increase employers national insurance contributions, or the jobs tax. Given that there is such uncertainty about the Opposition’s plans for what they would do in government, the question is whether they would rule out increasing employers national insurance contributions.

Shabana Mahmood (Birmingham, Ladywood) (Lab) rose—

Mr Gauke: I give the hon. Lady an ideal opportunity to do that.

Shabana Mahmood: I am grateful to the Financial Secretary. As we have been in the Chamber, he may not be aware that we have ruled out any rise in national insurance.

Mr Gauke: Well, there we go. I am struck by the fact that the Leader of the Opposition was very reluctant to say that earlier, but I am pleased that he has been bounced into providing that clarification. [Interruption.] I noticed that he did not answer questions earlier today. [Interruption.] Indeed, he will never have the chance to answer questions at Prime Minister’s Question Time.

Julie Hilling (Bolton West) (Lab): It has taken me five years to learn that Prime Minister’s questions is about the Leader of the Opposition and us asking questions and the Prime Minister not answering them. It is not Leader of the Opposition’s questions; it is Prime Minister’s questions. We do not answer questions; the Government are supposed to.

Mr Gauke: I notice that the hon. Lady does not answer questions. I am glad we finally got some clarification on that point, but as I say, I do not think the right hon. Member for Doncaster North (Edward Miliband) will ever have the opportunity to answer Prime Minister’s questions.

David Wright (Telford) (Lab): Does the hon. Gentleman agree that VAT is a regressive tax in principle? Can he tell us why the Government chose to use an increase in VAT as a tool for bringing down the deficit?

Mr Gauke: I will turn to that question in a moment, but before I do so, I shall say a little about this Government’s record.

High public debt can lead to a loss of market confidence and higher market interest rates, raising the cost of borrowing for families and businesses and discouraging investment and consumer spending. So what has our long-term economic plan delivered? Today public sector net borrowing as a percentage of GDP is forecast to have halved between 2009-10 and 2014-15. Latest data from the IMF show that this Government also reduced the structural deficit by more than half between 2010 and 2013. In fact, the UK’s structural deficit fell by 4.6% of GDP over 2010 to 2013—a larger reduction than any other country in the G7.

25 Mar 2015 : Column 1470

Since the autumn statement last year, the UK’s fiscal position has improved right across the forecast period, with higher receipts and lower debt interest. This Government have restored stability, put the public finances on a sustainable path and are about to put public sector net debt on to a declining path as a share of GDP.

Ian Lucas: Will the Minister give way?

Mr Gauke: Let me make a little more progress.

The previous Government failed to take decisive action to get our country moving again. Our record speaks for itself. Employment is now at its highest ever level. Economic growth is now firmly in place and at the Budget the OBR revised up its forecasts. The UK economy is forecast to grow by 2.5% in 2015, 2.3% in 2016, 2.3% in 2017, rising to 2.4% in 2019.

Ian Lucas: Is it not correct that in June 2010, when the Chancellor increased VAT, he said that he would eliminate the deficit by the end of this Parliament but has not done so? Despite the increase in VAT that he imposed, he failed in that aim. Why is that?

3 pm

Mr Gauke: I suggest that the hon. Gentleman look at the analysis by the Office for Budget Responsibility of why its forecasts on deficit reduction were not met. It has been very clear that the three reasons it did not happen were the eurozone crisis; the after-effects of the financial crisis being greater than it or, indeed, other independent observers had expected; and higher commodity prices than had been expected. That made deficit reduction harder than it would otherwise have been.

The critique of Labour Members is sometimes to say that we have rigidly stuck to our plans to reduce spending, and on other occasions to say that we have failed to reduce the deficit as fast as we said we would. As regards our spending plans, the departmental and welfare spending reductions that we set out have been delivered. The automatic stabilisers came into effect; we have shown the flexibility to allow that to happen. As a consequence, we have delivered what we set out in terms of reducing spending, although we have faced more difficult circumstances. Labour Members are all over the place in this debate. Sometimes they say that we have stuck rigidly to plans that we should not have stuck to, and at other times they say that we have let the deficit rise.

We must remember that Labour Members opposed every single measure that we took to reduce the deficit. Had they been in power and had they been consistent in what they said—at least in their rhetoric—in opposition, we would have seen borrowing at a substantially higher level over the past few years, leaving our public finances in an unsustainable position, putting our recovery at risk, and damaging the economic credibility of the United Kingdom. Thankfully, they did not have the opportunity to crash the car, having done so once already.

Geraint Davies (Swansea West) (Lab/Co-op): Does the hon. Gentleman not accept that the deficit targets were not satisfied because the growth projections went down, and that is because consumption went down, and that is because VAT went up? I appreciate what the

25 Mar 2015 : Column 1471

Prime Minister said earlier, but does the hon. Gentleman accept that if VAT went up now, when we have 0% inflation, that would spiral the economy down, and that it would be better to reduce VAT than to reduce tax thresholds in order to stimulate growth to balance the books?

Mr Gauke: Is the hon. Gentleman saying that we should reduce VAT?

Geraint Davies: I am saying that given a choice between lower VAT or lower tax thresholds, does the hon. Gentleman accept that lower VAT would give higher growth and help to reduce the deficit—or is he a just a politician without any economic sense?

Mr Gauke: Well, there we go: another pledge from a Labour Member that would increase borrowing levels. I should remind the House that when VAT was increased, Labour Members did not vote against it.

Ian Swales (Redcar) (LD): Does the Minister share my surprise that a policy is being proposed whereby the biggest winners would be pop stars, premiership footballers and bankers, who spend the most?

Mr Gauke: My hon. Friend makes a good point. I will come back to that later.

Our long-term economic plan has delivered economic growth and record levels of employment, and it has put this country on a sustainable economic footing. Specifically on VAT, we have maintained the VAT registration threshold, which is now £82,000—the highest in the EU. That is of significant benefit to small businesses right across the country. While the bulk of the deficit reduction has come from spending, we chose to increase VAT from 2011. If it is necessary to raise large sums of money, as it clearly was in 2010 when we saw the structural deficit deteriorate—at least, the assessment made by the previous Government, and then by the independent OBR, showed a significant deterioration—then it is necessary to raise one of the bigger taxes.

Happily, we are no longer in that situation under the plans put forward by the Conservative party. I am afraid that Labour Members’ plans—not engaging in reducing the welfare budget and not committing themselves to controlling departmental spending in the way we would—mean that they will need to find a substantial tax increase. A Labour Government in 2010 would have put up the jobs tax—a different choice from ours. In those circumstances, it is hard to believe that we would have 1.9 million more people in work today than we had in 2010.

Fiona O’Donnell (East Lothian) (Lab): If the Conservatives’ plan was so brilliant, will the Minister explain why, even at the height of the global crash in the UK, under the Labour Government we did not lose our triple A credit rating, but on his watch we did?

Mr Gauke: We have retained the confidence of the markets, and we have retained very low long-term interest rates. When we came to power, we were on a par with the likes of Spain and Italy; now, we are seen very much

25 Mar 2015 : Column 1472

as a safe haven. The UK’s fiscal credibility has been maintained, and it would not have been had we stuck to Labour’s plans, even with a significant increase in the jobs tax.

Julie Hilling: Does the Minister not see that raising VAT and cutting benefits hits the most vulnerable in society? Does he think it is right that children in this country should lose weight over school summer holidays because their parents do not have enough money to feed them, that people are dependent on food banks, and that we have had people starve to death because of benefit cuts? Is that the way this country should be in this day and age?

Mr Gauke: Under this Government, child poverty has fallen, and pensioner poverty is at a lower level than it has ever been. Only today, we have seen numbers showing that there are 600,000 fewer workless households than there were in 2010. If we wish to deal with poverty, and we certainly do, the best way is to have a job-creating, growing economy, and that is precisely what the long-term economic plan is delivering.

To be fair to the hon. Member for Swansea West (Geraint Davies), he says that he would cut VAT, but I am not hearing that from Labour Front Benchers. I must remind Labour Members that, with a handful of exceptions, none of them voted against the increase in VAT in 2010. I note that one of the handful of exceptions is sitting on the Opposition Benches, but Labour Members did not vote against it.

Charlie Elphicke (Dover) (Con): On the subject of deficit reduction, does my hon. Friend recall a report from the IFS a little while ago that said that Labour’s plans would have resulted in about £200 billion more borrowing if the Labour Government had continued, given the change in circumstances? Does that not show that there is a massive black hole at the heart of Labour Members’ current plans that would be made worse by the out-of-the-blue, panicky pledges on tax that they are suddenly making on the hoof on the news after pressure at today’s Prime Minister’s questions?

Mr Gauke: My hon. Friend makes a good point that is very relevant to the debate we are having about VAT.

The three main parties in this House have agreed that we will deliver a cyclical current budget surplus by 2017-18; that is what the charter of fiscal responsibility states. The vast majority of Labour Members trooped through the Lobby to support that measure. Independent analysis, as well as the Treasury’s analysis, confirmed that that requires some £30 billion-worth of fiscal adjustments. From my party’s point of view, that would be made up of £13 billion from departmental spending, £12 billion from welfare spending, and £5 billion from anti-tax evasion and tax avoidance measures.

The Liberal Democrats have set out how they will get their £30 billion. Their plan has a different balance and make-up from the Conservative plan, but they have set it out. The Labour party has not set out how it will reach that £30 billion. If Labour is not going to cut welfare in the way the Conservatives are, and if it is not going to cut departmental spending as we are—as far as I can see, that, after all, is the heart of Labour’s election campaign—more money must come from tax. That is

25 Mar 2015 : Column 1473

why the question of who will raise taxes and what taxes will be raised is much more acute for Labour Members. They have questions to answer. There is a gap in their public finance plans, whereas we have set out plans that do not require us to put up taxes on hard-working people.

Sir Edward Leigh (Gainsborough) (Con): The Minister is being unfair to Labour Members. They will manage to reduce the deficit by not opening any more free schools, and by abolishing police and crime commissioners. That will undoubtedly solve the problem.

Mr Gauke: We must not forget that Labour will put up gun licences—that is also on the list.

I note that the shadow Secretary of State for Work and Pensions, the hon. Member for Leeds West (Rachel Reeves), announced yesterday that she will “abolish the bedroom tax” and use the savings for something else. I am not sure that I understand how there can be savings from that measure.

Ian Lucas: Will the Minister give way?

Mr Gauke: I will give way one more time; I ought to press on.

Ian Lucas: The Minister’s case is that, because of the savings that the Government plan to make, there is no need to increase VAT. Why did the Chancellor not say that in his Budget statement?

Mr Gauke: What I have said is consistent with what the Chancellor has said again and again. Our plans do not require us to increase taxes for hard-working people, which is why we can rule out putting up VAT—[Interruption]—or extending it. The point the hon. Gentleman must answer is that his plans require taxes or borrowing to go up. He wants to ask hard questions about filling in fiscal black holes by raising taxes. They are questions for Labour Front Benchers, not for me, because our plans clearly do not need it.

Several hon. Members rose—

Mr Gauke: I am spoilt for choice. It is important to share these things around, so let me give way to the hon. Member for Swansea West (Geraint Davies), who has been very patient.

Geraint Davies: The Minister assumes that the choice is between tax and spend. Does he accept that if the tax and spend options are made in one way rather than another they will promote more growth and therefore more revenues? If more money goes to poorer people who spend all their money, as opposed to rich people who hide it in tax havens—10% of UK wealth is offshore—and if we had a Labour Government and a fairer distribution, we would surely have more growth and fewer cuts.

Mr Gauke: I am deeply unpersuaded of the idea that, somehow, magically, growth will shoot up if we have a Labour Government.

Geraint Davies: It did last time.

25 Mar 2015 : Column 1474

Mr Gauke: The hon. Gentleman says growth shot up last time, but we had the biggest contraction of our economy in living memory under the Labour Government—[Interruption.]

The Temporary Chair (Mr Jim Hood): Order. I shall ask Members once not to shout across the Chamber at one another, and to listen to whoever is on their feet, which at this time is the Minister.

Mr Gauke: Thank you, Mr Hood.

When President Hollande took office, with the enthusiasm and support of the Labour party in this country, I have no doubt that he wanted growth to increase in France. The fact that our economy is growing something like seven times faster than France’s is not because of a lack of desire on the part of the French Government, but because some policies work better than others. The Labour party’s policies would not result in higher growth—it is so anti-business that it would drive investment from this country, and its tax policies seek to punish wealth creators. I question Labour’s supply-side policies.

3.15 pm

Simon Kirby (Brighton, Kemptown) (Con): Does not the latest Labour U-turn on the jobs tax—perhaps it was forced into it—create an even bigger black hole in its finances? How will Labour balance the books?

Mr Gauke: My hon. Friend makes a very good point. I confess that I am a little young to remember the 1959 election, but some hon. Members will recall it.

Stephen Pound (Ealing North) (Lab): Thank you.

Mr Gauke: I am looking at the hon. Gentleman. He may recall, as a very young lad, the 1959 general election.

Stephen Pound indicated assent.

Mr Gauke: He does. I am sure he was a very young man at the time. Under a great deal of pressure, Hugh Gaitskell ruled out all sorts of tax increases and at the same time made all sorts of promises about public spending. The British people rumbled the Labour party in 1959 and did not believe that that was a credible position. As a consequence, they returned a Conservative Government with an even bigger majority. Labour Members might want to be a bit careful about drawing parallels with 1959.

Mr Love: As we are talking about rumbling the Government, the election will be an opportunity to scrutinise the Chancellor’s claim about the £30 billion of savings. He has said there will be £12 billion savings from welfare reform but has indicated how only £3 billion will be found. He has said he will get £5 billion from anti-evasion and avoidance measures, but has indicated where only £3 billion of that will come from. There is still a huge credibility gap. Will the Minister help us with it?

Mr Gauke: I will tell the hon. Gentleman where the credibility gap is. Labour Members effectively voted for a £30 billion target. They then denied it. They now will

25 Mar 2015 : Column 1475

not indicate what adjustments they will undertake in 2016-17 and 2017-18. They have not said how they will reduce departmental spending, or how, or whether, they will reduce welfare spending. They have not said how much they will raise from tax. If they will not give us answers to those questions, we can only assume that it is because they intend to tax and borrow more. If they will not provide clarity on that, we will make that point time and again.

Charlie Elphicke: Speaking of Labour’s spending and tax commitments, how many times over have Labour Members spent the bank bonus tax? Is it 10 times, or more? I have lost count.

Mr Gauke: I thought it was 11 but I could be wrong. It may be 12 by now—who knows?—because that money may be being used to pay for Labour’s tuition fees policy.

Shabana Mahmood: For the avoidance of doubt, and for what feels like the 278th time in Treasury debates, I should tell the Minister that the bank bonus tax will pay for one policy and only one policy: the paid starter jobs—the compulsory jobs guarantee. Why do the Government not match us on that policy rather than harp on about their failed rhetoric on the bank bonus tax?

Mr Gauke: The Government have a very good record in delivering jobs—sustainable jobs—in this country.

Stephen Pound rose—

Mr Gauke: I will give way to the hon. Gentleman, who will no doubt enlighten the House about the 1959 general election.

Stephen Pound: I would be delighted to do so. I campaigned against Sir Oswald Mosley in Kensington North—admittedly, I was only 11 years old, but I did a fairly good job. He did not win.

I put it to the Minister that, in 1959, the Conservative party was very different—it was a much more consensual, nay Butskellite, Conservative party. One thing the Conservatives stood on was house building. They had a proud record. Does the Minister believe that the Bill will help house building in this country?

Mr Gauke: I share the view that we need to build more houses in this country, but I am pleased that last year housing starts were at a record high for seven years or so, that planning permissions are going up, and that we have reformed planning law to enable more houses to be built. In the Budget last week, there were details of 20 housing zones that could support something like 45,000 homes. That is consistent with a desire to ensure greater opportunity for people to acquire their own home.

It is also worth pointing out that in last week’s Budget we introduced Help to Buy individual savings accounts, which will enable people to acquire deposits so that they can enter the housing market. In terms of continuity, I would not necessarily be proud of everything

25 Mar 2015 : Column 1476

connected with the Conservative Government of the 1950s. I absolutely think we need to do more to get more people into the housing market, and this Government are delivering on that and we are definitely moving in the right direction.

Mr Love: I thank the Minister for being so good with his time. All the measures in this year’s Budget stoke up demand for housing. It has little or nothing to say about supply. Will that not result in higher house prices?

Mr Gauke: It should be noted that the Office for Budget Responsibility does not believe that any of the measures announced last week will feed through to higher house prices. We also announced supply-side policies and 20 housing zones last week. It is right that we take steps to support supply.

The hon. Gentleman said that I was being generous with my time, but I am conscious that I am also being generous with the Committee’s time, so let me make a little progress. To return to the point made by the hon. Member for Telford (David Wright), the VAT increase in 2010 applied only to the standard rate. Everyday essentials such as food and children’s clothing, as well as newspapers and printed books, have remained zero-rated throughout this Parliament, which protects those on low and middle incomes. On fairness, we have reduced income tax for more than 27 million individuals, with basic rate taxpayers £905 better off in cash terms compared with 2010.

There is no need to publish a report on the impacts of the rise in VAT announced in 2010—a rise that, after all, the Labour party did not oppose. The Government’s economic record speaks for itself: record employment in the UK against virtually record unemployment in France. By 2017, basic rate taxpayers will be £905 better off in cash terms compared with 2010, and 3.7 million individuals with low incomes will have been taken out of income tax altogether. The European Union’s own analysis describes UK living standards as the fourth highest in the EU, above those of France, Italy, Spain, Ireland and the Netherlands.

We have delivered sustainable economic growth while across the EU economies stagnate, but we recognise that the job is not finished. This Government continue to take the difficult decisions needed to secure a responsible recovery and stay on course to prosperity. I therefore hope that the Labour party will not press new clause 1 and that clauses 66 and 67 will stand part of the Bill.

The Temporary Chair (Mr Jim Hood): I have now to announce the result of the deferred Division on the question relating to the draft Infrastructure Planning (Radioactive Waste Geological Disposal Facilities) Order 2015. The Ayes were 277 and the Noes were 33, so the Question was agreed to.

[The Division list is published at the end of today’s debates.]

Shabana Mahmood: It is a pleasure to serve under your chairmanship, Mr Hood. New clause 1 stands in my name and those of my right hon. Friend the Member for Morley and Outwood (Ed Balls) and my hon. Friends the Members for Nottingham East (Chris Leslie) and for Kilmarnock and Loudoun (Cathy Jamieson). It requests the Treasury to commission

“a report on the impact of the increase in the standard rate of VAT which took effect from 4 January 2011.”

25 Mar 2015 : Column 1477

The report must estimate the impact of that increase on living standards, small businesses, the fairness of the taxation system and economic growth.

The House has debated issues relating to VAT on a number of occasions, which the Minister referenced in his opening remarks, and it was, of course, a hot topic of debate at Prime Minister’s questions today. If the Prime Minister or any Conservative Member thinks that they can put the issue to bed today, let me tell them that they will not find it that easy, and I will set out the reasons for that during the course of my speech. Frankly, to believe what the Prime Minister has said today about VAT would be rather like believing what the Deputy Prime Minister said about tuition fees before the last general election. The public are simply not going to buy it, and I think the whole House is well aware of that.

Our new clause asks for a review because Oppositions are limited in what they can call for in amendments to a Finance Bill, but no Member can be in any doubt about our argument about the consequences of the political choices that are being—and that have been—made by the Conservative party and signed up to by the Liberal Democrats, even though they have been desperately trying to pretend that they had nothing to do with the fiscal assumptions given to the OBR, on the basis of which it made its assessments of what is likely to happen in the next Parliament. I welcome to the debate the lone Liberal Democrat on the Government Benches, the hon. Member for Burnley (Gordon Birtwistle). Perhaps if I give way to him he can rule out raising VAT.

Gordon Birtwistle (Burnley) (LD): I thank the shadow Minister for inviting me to give my views on the fiscal situation. My constituency has seen unemployment fall from 7.5% to 2.5% and has received more than £50 million of Government money. I remember 1959, because I was 16 and had just started work. I canvassed for a guy called Arthur Davidson, who was a Labour Member, and he said the same old things that the Labour party always says: “Vote for us and there’ll be no problems. We’ll have full employment.” Well, I remember what happened after 1959, because I lived through it. It is very cruel of the hon. Lady to suggest that some of the thing we are agreeing to now are wrong—

The Temporary Chair (Mr Jim Hood): Order. The intervention is too long.

Shabana Mahmood: Thank you, Mr Hood. I am grateful for the hon. Gentleman’s intervention, during which he did not rule out a rise in VAT under the Liberal Democrats. Perhaps we will have to wait for others to comment on that.

David Wright: Will my hon. Friend give us a bit more detail about new clause 1? I would like the study to look at the impact of VAT on the poorest people in our community, who are hit disproportionately by increases in VAT. The Conservative party has form on VAT, so the poorest people will be very concerned that it will rise again after the election.

Shabana Mahmood: My hon. Friend is absolutely right. That is exactly what people across the country will be concerned about. The Conservative party has form, about which I will go into in detail during my

25 Mar 2015 : Column 1478

speech. History proves that what the Prime Minister said at Question Time today should not be believed, because it has all been said before and VAT has always gone up.

Charlie Elphicke rose—

Shabana Mahmood: I give way to the rover from Dover.

Charlie Elphicke: Would the hon. Lady rule out a Labour Government keeping VAT at the same level, or would they reduce it? The hon. Lady ought to tell the Committee.

Shabana Mahmood: I will come on to what we announced yesterday, but we are not going to raise VAT. That is as clear as it gets, and the hon. Gentleman knows that.

I remind the Committee that VAT is the tax that hits everyone, with the same rate paid by the pensioner as by the millionaire. For many pensioners and those on the lowest incomes, it is the biggest tax that they pay. It is also the tax that hits people every single day, whether they are buying a cup of coffee or filling up the family car. Everybody does that every single day. The Government’s decision to raise the standard rate of VAT has, without doubt, hit the living standards of millions of people. According to the Treasury’s own figures, it has cost families an average of £1,800 over the past four years. That is no small trifling sum of money, even if it is averaged over four years.

As I heard from constituents across Birmingham when I was there with the shadow Chancellor yesterday, £1,800 has had a huge impact on their ability to make ends meet and to do the basic things in life—putting food on the table and keeping a roof over their families’ heads, desperately hoping they will not have to go to a food bank, even though they have a job, just to put food in the bellies of their children. That £1,800 is a significant sum of money and, coupled with the other facts of this Government’s record, such as wages being down by an average of £1,600 a year and the combined impact of tax and benefit changes, families are on average more than £1,000 a year worse off.

3.30 pm

Those are significant sums of money and that is why I was proud to join the shadow Chancellor in Birmingham yesterday, when he made a crystal clear pledge to the British people that a Labour Government would not raise VAT or extend VAT to food, children’s clothes, books, newspapers and public transport fares. In their Budget, the Conservatives confirmed their intentions for extreme spending cuts in the next Parliament and we have heard about that in the debate this afternoon. We also know from the point made by my hon. Friend the shadow Chief Secretary to the Treasury that the Conservatives have made £10 billion-worth of unfunded tax promises. With five weeks left until the election, we are still waiting to hear how those promises on tax cuts will be paid for. I will happily give way to the Minister if he wants to shed some light on the matter, but he appears to be unwilling to intervene. That is a shame, because in his opening speech on this clause he talked with great flourish about credibility, credibility gaps and ensuring that people know what they are voting for. If people make an unfunded tax promise, their credibility will take a huge hit—and rightly so.

25 Mar 2015 : Column 1479

When the Chancellor of the Exchequer and the Prime Minister were in opposition, they were happy to talk up the fact that nobody believes an unfunded tax cut and they were absolutely right. Nobody believes them now. If they are going to deliver that we should at least hear how they will start paying for it. If they want to see off the charge that VAT will go up under the Tories if they win the next general election, regardless of what the Prime Minister said in questions today, they need to start answering some of the questions about the unfunded tax cuts that they have already promised.

Charlie Elphicke: Given that both parties have ruled out an increase in VAT and that the hon. Lady will not commit to a reduction in VAT, it is hard to understand Labour’s position. This debate is a theatre of the absurd.

Shabana Mahmood: I have a lot of time for the hon. Gentleman and we spend much time debating Finance Bills, but I must say to him as gently as I can that that was an absurd intervention. We have made a clear commitment to the British people on what will happen to VAT on our watch. It will not go up. We know that it will go up if his party wins the next general election. There are no two ways about it. It does not matter what the Prime Minister has said and it does not matter what the hon. Gentleman says now. We know that because of his party’s record and form on VAT. I shall give a lengthy exposition of that history and form very shortly.

Gordon Birtwistle: The hon. Lady says that the Conservative party will definitely increase VAT. What proof does she have of that? If she has proof, will she come clean about it today?

Shabana Mahmood: If the hon. Gentleman gives me a few minutes, I shall get on to that point very shortly. He will understand that the past performance and form of the people who sit opposite me today, the Conservatives, is the clearest and surest indicator. Unfunded tax cuts have already been promised and spending plans have been made that require a Government to cut further and faster in the early part of the next Parliament than they have in this Parliament, and that is the clearest indication we can get. They can do nothing else but put up VAT; that is their tax of choice when it comes to raising the tax revenues they are looking for.

As I have said, the independent Institute for Fiscal Studies has said that the Government’s Budget plans mean that spending cuts after the election will be twice as deep as anything seen in the past five years. The cuts will go deeper and be made faster in the early part of the next Parliament than we have seen during the past five years. In reality, that will translate into extreme cuts to our crucial front-line public services, such as the police, defence and social care. The cuts will be so deep that they will be almost impossible to achieve, first, without putting the NHS at risk, and secondly, without making a further rise in VAT on the Tories’ watch simply inevitable.

Not only do the choices that the Government, and the Conservatives in particular, have made about spending and deficit reduction make such a VAT rise inevitable, regardless of the Prime Minister’s bluster today they are

25 Mar 2015 : Column 1480

ingrained in their collective DNA. Before the 1979 general election, the then shadow Chancellor Geoffrey Howe said:

“We have absolutely no intention of doubling VAT.”

He specifically talked about doubling it. In his first Budget, however, he raised VAT from 8% to 15%. Conservative Members may take comfort from the fact that eight times two is 16, not 15, but they should not be proud of a seven percentage points rise in VAT or show off about its not being the eight percentage points rise that it might have been, given that such a rise had been absolutely ruled out and that there was no intention to double VAT. [Interruption.] Such a point brought no comfort to people who ended up paying the 15% rate of VAT, despite what the Financial Secretary, who is chuntering from a sedentary position, seems to think.

In 1991, Chancellor Norman Lamont increased VAT from 15% to 17.5%, claiming that his approach was “consistent” with the “strategy for tax reform” first set out by Geoffrey Howe in the 1979 Budget. Chancellor Lamont was correct that the approach was consistent: it was consistent with the approach of raising VAT rather than doing anything else. It seems that that approach may have slipped his mind, because just a year later, before the 1992 general election, Norman Lamont told Parliament that he

“again made it clear that the United Kingdom has no intention of changing our VAT rate.”—[Official Report, 13 June 1991; Vol. 192, c. 627W.]

That promise was reiterated by the former Prime Minister John Major, when he promised Parliament:

“There will be no VAT increase. Unlike the Labour party, we have published our spending plans and there is no need for us to raise VAT to meet them.”—[Official Report, 28 January 1992; Vol. 202, c. 808.]

He also said that year that he had

“no plans and no need to raise extra resources from value-added tax.”

The arguments then are almost exactly same as those we are hearing now.

Will Government Members remind us what happened after the 1992 election? There are no takers, because they know the answer: the Conservatives remember their consistent approach to raising VAT. The then Chancellor introduced VAT on domestic heating and fuel in the 1993 Budget, phasing it in at 8% from 1994. When he became Chancellor in 1993, the right hon. and learned Member for Rushcliffe (Mr Clarke) refused to reverse that increase saying that

“no one is going to die from VAT on heating.”

That is a very bad way of making a point, because people have in fact ended up dying from the cold. We know that people, the elderly in particular, often have to choose between heating their home and eating. Had it not been for a Labour defeat in the House of Commons, under the Conservatives we would have seen VAT on electricity and gas bills increase to 17.5% in April 1995.

Twenty years later we find ourselves listening to a familiar story. Before the last general election, the Prime Minister, the then Leader of the Opposition, said:

“We have no plans to put up VAT, it’s not part of our plans.”

I like the double emphasis: say it twice, and that might make it true. The Chancellor, the then Shadow Chancellor, said:

25 Mar 2015 : Column 1481

“The plans we set out involved around 80 per cent of the work coming from spending restraint”—

cuts—

“and about 20 per cent from tax increases. The tax increases are already in place, the plans do not involve an increase in VAT.”

So such a rise was ruled out by the Prime Minister and by the Chancellor when they were in opposition. However, just weeks after taking office, like all the former Conservative Chancellors before him, the current Chancellor increased VAT to achieve his plans of 20% consolidation coming from tax increases and 80% coming from spending cuts. He said:

“To achieve that additional tightening while maintaining the right ‘four-to-one’ balance between spending and taxation means that I have to announce further tax rises today. On 4 January next year, the main rate of VAT will rise from 17.5% to 20%.”—[Official Report, 22 June 2010; Vol. 512, c. 177.]

There is no doubt that such a rise has hit family budgets hard. Despite knowing that that would happen, and that there would be a huge impact on the economy as a whole, the Chancellor chose to do what every Conservative Chancellor has always chosen to do—put up VAT. That is why we can say so emphatically—I say this to Liberal Democrat Members in particular—that if the Tories are elected at the general election in just a few weeks’ time, they will do it again. It is in their collective DNA, and ruling it out but then doing it is precisely what they have form on. That is their history, and I believe that they will honour their history if they are elected.

Analysis produced by the Treasury in July 2010 showed the estimated impact of a one percentage point rise in the standard rate of VAT. That analysis means that we know, for instance, that in the past four years the Government’s VAT rise has cost a single pensioner £500, a one-parent family £900, a pensioner couple £1,100 and a couple with children £1,800.

Ian Lucas: I do not want my hon. Friend to be too charitable to the Chancellor of the Exchequer, so may I remind her that in addition to the 2010 increase in the standard rate of VAT, the Chancellor made proposals in 2012, in the middle of his disastrous economic policy, to extend VAT through the pasty tax and the caravan tax? Not only did he increase VAT in 2010, but he went back to the well in 2012 when the policy was collapsing.

Shabana Mahmood: I was just about to make exactly that point. My hon. Friend is absolutely right that in 2012, having already done what all Conservative Chancellors do and put up VAT, the Chancellor sought to expand it by applying it to pasties and caravans in the so-called omnishambles Budget. I have always thought that it was a bit of a shame that that term from “The Thick of It” was used, because if the sequence of events that unfolded following that Budget had been presented to the scriptwriters of “The Thick of It”, they would not have touched it. They would have said that even for “The Thick of It” it was an unbelievable series of events. Yet that is what the Chancellor delivered. My hon. Friend is absolutely right that the Chancellor tried to expand the scope of VAT, yet today the Conservatives wonder why nobody will believe what the Prime Minister said at Prime Minister’s questions.

We do not have to go back over the past 20 or 30 years. We can just look at the record of the current Chancellor and Prime Minister on VAT. They like to

25 Mar 2015 : Column 1482

put it up, and they sought to expand its application. I noticed that earlier the Financial Secretary appeared to rule out an expansion of VAT, but I was not entirely sure whether he had done that deliberately. Will he intervene on me to confirm that not only will VAT not go up—that is according to the Prime Minister, although I do not believe it—but it will not be expanded? I wonder why the Financial Secretary is not biting my arm off to intervene and confirm that.

Mr Gauke rose—

Shabana Mahmood: I am grateful.

Mr Gauke: The Prime Minister has been clear: we do not need to increase VAT or put VAT on essentials such as food and children’s clothes.

Shabana Mahmood: So basically, both those things are definitely going to happen if the Financial Secretary’s party is elected in a few weeks’ time.

Where are we today? The same old Tories and the same old story. Whatever the Prime Minister has said today simply will not answer the justifiable charge against the Government about why they should be trusted if we look only at their record and at what they have delivered in this Parliament. They broke their promise after the last general election and they will do the same after the next one. At the end of each Parliament since 1979 in which the Tories have been in government, they have raised an average of £13.5 billion from VAT changes. The electorate know that when it comes to VAT and the Tories, actions will always speak louder than words. People know that they cannot be trusted because they break their promises again and again. They broke their promises in 1979, 1992 and 2010, and they will break them in 2015.

3.45 pm

According to work by the Treasury, an additional 2.5% rise in VAT would cost a family with children an average of £450 a year and a pensioner couple £275 a year. From what they have shown us in government, it is not Tory party policy to ask those most able to contribute more to do so; in fact, it is their policy to give a tax cut to those earning more than £150,000 a year.

Charlie Elphicke: This debate seems to be based on a false premise. The Government have been clear that a rise in VAT is not necessary to balance the books because we do not have a hole in our plans for public finances. The Labour party does have a black hole and it cannot be trusted on anything it says about the jobs tax.

Shabana Mahmood: If the hon. Gentleman will allow me I will answer that by posing a simple question back to him, and then I will give way so that he can answer it. Where will the £12 billion of cuts to welfare come from? How will the £5 billion for tax avoidance be found? If he can answer those questions he will go further than those on his Front Bench have managed to do while making those promises. Perhaps he can shed some light on the issue for the British public.

Charlie Elphicke: The Government have been clear in setting out their plans in the Red Book, and they have been audited, considered and reviewed by the Office for

25 Mar 2015 : Column 1483

Budget Responsibility. What are not clear are the plans of the Opposition, although it is increasingly clear that there is a black hole in those plans and that they consistently make it up as they go along. I suggest to the hon. Lady that Labour’s so-called pledge on the jobs tax cannot be believed at all.

Shabana Mahmood: That was not even a valiant attempt to try to answer my questions, but the hon. Gentleman is not on the Front Bench and I suppose I am being a little uncharitable in suggesting that he cannot answer a question that his own Chancellor is not prepared to answer either.

We have numbers of £12 billion, £13 billion and £5 billion from the Chancellor, yet with all the might of the Treasury behind him and lots of officials to do the numbers we have no detail on how those figures will be found. The Government spent a whole Parliament trying to talk up their record on tax avoidance and they are saying that they will get £5 billion in the next Parliament, yet there is no detail on how those amounts will be made up and no guarantee that they will be delivered. I am not surprised that the hon. Gentleman cannot answer those questions if those on the Government Front Bench will not either.

The Conservative party’s plans for what they would like to do if elected in a few weeks’ time are extreme and go much further than deficit reduction. They are trying to deliver a surplus of £7 billion. That had to be changed from the previous desire to get a surplus of £23 billion, because the Government got spooked by recognition across the country of what that would mean for the size of the state. They have now come down to £7 billion, which still means that they have to go further and faster in the early part of the next Parliament than they have in the previous five years.

Those choices have to be paid for. Given that some budgets are protected and that commitments to international development and aid spending will not change, and given the scale of what the Conservative party wants to achieve with the country’s finances, it is physically not possible to do such things without putting the NHS at risk of cuts or potentially of charging, or without raising VAT. That is the charge being made—it is not just about the history and the record. The hon. Gentleman could have resiled from the Conservative party’s record, but he chose not to do so. The combination of the Conservative party’s history on VAT and its figures for the next Parliament tells us that if it is elected a VAT rise is coming. There can be no doubt about it, given the combination of those two factors.

The hon. Gentleman attacked our plans and commitments, but for every commitment that involves raising revenue, we have highlighted where that revenue will come from and we have made the figures public. It was the Labour party that called for the OBR to conduct an independent audit of all parties’ manifesto commitments. We could have avoided this debate if we had allowed the OBR to do so. I was very happy to submit my party’s plans to an independent audit. I wonder why the Government chose not to do so. Perhaps they had something to hide. Perhaps they did not want to be robbed of the ability to have a “tax bombshell”-type poster. The needs of the Conservative party’s election

25 Mar 2015 : Column 1484

marketing material should not have trumped the responsible thing to do: to allow the OBR independently to audit all parties’ manifesto commitments. I was very happy for that to happen.

The bankers bonus tax would pay for one policy and one policy alone: the compulsory youth jobs guarantee. [Interruption.] If the hon. Gentleman thinks the stubbornly high rate of youth unemployment is a laughing matter, he is mistaken. The Conservatives stole a few of our policies in last week’s Budget. Rather than laughing off the idea of the bankers bonus tax, I would have been happy for them to have stolen that policy, as it would have delivered jobs for the young people in my constituency who could find themselves on the jobs scrap-heap for many years to come. The Conservatives should have adopted it; it would have made a real and practical difference.

Stephen Pound: I am extremely grateful to my hon. Friend for her innate generosity in giving way. Does she not agree that new clause 1 would provide transparency and openness, and that the report would be immensely useful? Does she honestly think that any true democrat and believer in fiscal transparency could do anything other than support the Labour amendment?

Shabana Mahmood: My hon. Friend is absolutely right. We have been debating whether VAT will go up, but new clause 1 is pretty innocuous. It calls only for a review and an assessment of the impact the rise in VAT has had on living standards. If the Minister wanted us to believe what the Prime Minister said today in Prime Minister’s questions—that he is ruling out a rise in VAT—then what is the problem? Adopt the new clause, add it to the Bill and let us have the assessment. He would be able to show how VAT has had an impact and why the Conservatives are doing such a good job, if they are elected again, in not letting it go up.

Fiona O'Donnell: Given the lack of a response from Government Members, may I suggest that seeing the impact of the increase in VAT written down might make it harder for the Tories and the Liberal Democrats to break their promise the second time around?

Shabana Mahmood: My hon. Friend is absolutely right. That is the only conclusion we can draw from what the Minister and the Prime Minister have been saying today. If the Minister really wanted to back up the Prime Minister’s claims, and to give us a hint that he might be believed, he should have just accepted our new clause. It is straightforward, and adding it to the Bill would shine some light on the impact of VAT. We are very clear that we will not raise VAT. It may be that the Government do not want the facts out in the public domain because they plan to do so.

David Wright: Will my hon. Friend give way?

Shabana Mahmood: I am going to finish now, because I want to give time to everybody else who wishes to speak in the debate.

We all know what is coming if the Conservatives are elected at the next general election: VAT will go up. That is what their record tells us and that is what their plans require. If the Minister wants to be even a little bit

25 Mar 2015 : Column 1485

believable—even 1% believable—he should at the very least accept new clause 1 and set the cat among the pigeons, but I do not think he will take that opportunity today.

Fiona O’Donnell: It is pleasure to speak in this debate—I hope it will have been worth the wait—and to serve under your chairmanship, Mr Hood. I hope that we both have the opportunity to repeat the experience after 7 May.

I rise to support this excellent improvement to the Bill proposed by my hon. Friends on the Front Bench, because I would like to better understand the impact of the VAT increase in my constituency. The Tory long-term economic plan is a marketing con and a rebranding of a five-year failed economic plan—five years of broken promises on borrowing, the deficit and VAT. I do not know if Government Members have been watching a new programme—on ITV down here, but on STV in my constituency—in which hypnosis is used to shift people’s perception of reality. I am not sure if that is what they are doing, although there does not seem to be anyone asleep in the Chamber. We all seem to be wide awake—certainly Labour Members are wide awake to the impact of the Government’s failure to deliver on their economic promises. Simply saying, “We’ll now call it a long-term economic plan, because it has not quite worked out in the short term”, is not going to fool anyone.

On the increase in VAT, I remember meeting my local chamber of commerce. In East Lothian, we do not have large-scale manufacturing or large employers, apart from in the public sector, so the private sector is largely made up of small and medium-sized enterprises. When I asked them how they were coping with the changes in the economy they said that the single-biggest factor for them was the VAT increase. It had done the most damage to their businesses. Other Members have spoken about its impact on the poorest in our communities, but in East Lothian it has also had an adverse impact on entrepreneurs and businesses—the people who should be creating the jobs that could eradicate unemployment in my constituency.

David Wright: As my hon. Friend will have noted, the new clause states that the Chancellor should produce a report within three months of the passing of the Act. I suspect that the Treasury already have these figures and could probably move more quickly. If her point about businesses is right and businesses are complaining to Members, they must also be feeding this information back to the Treasury, so I suspect that it already has these figures and could publish the report any time it wanted.

Fiona O’Donnell: My hon. Friend has been doing this job much longer than me, so I suppose he has earned the right to be more cynical. I am still flush with the newness of this change of role in my life, and I would like to think that that was not the Government’s intention, but I shall bow to his longer service in this place and more expert analysis.

It was interesting to hear the Financial Secretary speak about the role that VAT had played in the Government’s short-term failed economic plan over the last five years. He talked about the mess the previous Labour Government had left, but the economy was growing when we left office, and, as other hon. Members have said, part of

25 Mar 2015 : Column 1486

the reason it reversed was the increase in VAT, which stifled confidence and the spending power of many in our communities. I would also like to hear from a Government Member whether a great deal of the deficit resulted from the decision by the then Chancellor, my right hon. Friend the Member for Edinburgh South West (Mr Darling), to bail out the banks. Would Government Members have bailed out the banks, or do they think we should have left them to fail? Is anyone going to jump up? Anyone? No, they are all hypnotised, it would appear, and unable to respond. Bailing out the banks was the responsible thing to do. It might have seemed unfair, but it was important to people in my constituency that when they went to the ATMs the next day they could still draw out their wages.

The Financial Secretary talked about the Government’s sustained economic growth agenda. I do not remember sustained economic growth following the increase in VAT. I seem to remember the worst recession that this country has ever had, following that intervention by the Government. That has hurt people in my communities and, I am sure, in communities right across the country.

4 pm

I urge the Government to think about the proposal put forward by my Front-Bench team because it is really important to understand how VAT interacts and impacts in various situations. Is increasing VAT the best way of increasing income to the Treasury or does it have a negative impact because what happens is that people lose jobs and have less money to spend in the high streets? Many of the small communities in my East Lothian constituency have seen falls in profits, and many people with their own businesses needed tax credits, thus taking more money out of the Treasury. If their businesses had been doing better, they would have paid more into the Treasury. That is why it is so important to gain an understanding of the impact of VAT so that future Governments will be better informed.

Ian Lucas: It is a pleasure to speak under your chairmanship, Mr Hood. I want to say first how much my hon. Friend the Member for Edmonton (Mr Love), who is no longer in his place, has been valued in our economic debates. His contribution will be missed, and we all wish him well for the future.

The new clause is eminently reasonable, and it should not be a matter of dispute between the parties in the House that such a report would make a valuable contribution to any decision the Government take on VAT. We have had an interesting day on VAT because it was raised in Prime Minister’s questions. As hon. Members know—certainly the Minister will know—VAT is a subject in which I have an interest. Throughout this Parliament, I have pressed not just the Government Front-Bench team but the Labour Front-Bench team on the issue of VAT.

The Prime Minister is an honourable man. He has made a commitment from the Dispatch Box today that is different from the position outlined by the Chancellor of the Exchequer to the Treasury Select Committee only yesterday. I am interested to see the Treasury Minister nodding to confirm that there has, in fact, been a change in Government policy since yesterday. When I woke up this morning, I heard on the “Today” programme my hon. Friend the Member for Bassetlaw (John Mann)

25 Mar 2015 : Column 1487

questioning the Chancellor on the issue of VAT. I heard the Chancellor set out the same mantra that there were no plans to extend VAT or increase its rate. My understanding of what the Prime Minister said today is that he has given a cast-iron guarantee—to use a phrase that the Prime Minister has used before—not to extend or increase the rate of VAT.

So the position has changed today, and it is a change that I welcome. For that reason, I think that the information requested under the new clause would be valuable. It is always better for us all to have more information about the impact of tax changes. We know, of course, that this Government introduced this tax change in June 2010 when they said that they would eliminate the deficit by 2015. The plan—the “long-term economic plan” then—was to eliminate it by 2015, and part of the plan was to increase the rate of VAT. It would be valuable to know what happened as a result of the raising of VAT in January 2011. In my constituency, people are under real financial pressure, and VAT affects all of us.

David Wright: When the Chancellor decided to increase VAT, he must have asked Treasury officials to produce projections on its likely impact on the economy at that point. It would be interesting, would it not, to compare the projections given to him by Treasury officials with an official report, which this new clause suggests should be commissioned, to see whether the two tally up?

Ian Lucas: Indeed. My hon. Friend has made a very valid point. I think that we should all be interested to know what was the impact of the last Tory-Liberal Democrat increase in VAT, which was introduced in January 2011, because it should inform future policy. It seems extraordinary to me that that should be resisted.

According to the Office for National Statistics, the median salary in my constituency, Wrexham, has fallen by 7.4% in the last year. The town centre is, unfortunately, populated—like many other town centres throughout the country—by too many empty shops, and part of the reason for the emptying of those shops over the past few years has been a decrease in consumer activity. What VAT does—and this is why I am passionate about VAT—is take money out of the pockets of consumers on the high street and send it straight to the Treasury. It has a massive impact on local businesses. Those of us who run local businesses and employ people want to ensure that we have the best and fairest type of tax system to develop local economies.

That is why I want to know the impact of the 2011 VAT increase. I think that the Minister is a reasonable man. I cannot for the life of me understand why he does not want to have that information, or, if he has that information, why he does not want to share it with the House.

We have made a lot of progress today. The Prime Minister has been dragged, kicking and screaming, to a point at which he has ruled out a VAT increase by the Conservatives in the next Parliament—if he is ever in a position to make such a decision. That is major progress. It is certainly a change, not just from the Prime Minister’s position earlier in the current Parliament, but from the position that the Chancellor outlined in his Budget statement last Wednesday, when he set out the spending and taxation plans that he expected to be implemented.

25 Mar 2015 : Column 1488

Why did he not tell us that the Tories were going to rule out a VAT increase in the next Parliament? That is what amazes me. What has happened between last week and this week? What happened yesterday?

What has happened, in my view, is that because the Labour party, in opposition, made a commitment not to increase VAT in the next Parliament, Lynton has been on the blower. He has said. “We are under pressure, Dave. We are under pressure, Prime Minister. We have to match the commitment that the Labour party has made. You have to rule out a VAT increase in the next Parliament.” So that is why the Prime Minister made his statement at the Dispatch Box today—a statement that I welcomed.

History will judge whether that promise will be kept. We heard from my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood) about the history of Conservative commitments on VAT: about what happens before elections, and about what happens after them. When I speak to my constituents over the next six weeks, I shall remind them of that record. I shall remind them of what the Conservative party and the Liberal Democrats said before 2010 and what they did afterwards, and I shall remind them of what this Chancellor tried to do in 2012 with the pasty tax and the caravan tax.

The tax of choice for the Conservative party is VAT. History tells us that. If the Conservatives want to increase taxes, they increase VAT. The country will have to judge whether the commitment that the Prime Minister has given today is one that will stand the test of time.

Sheila Gilmore: It is a pleasure to serve under your chairmanship, Mr Hood. I was also going to say that it was a pleasure to be in the company of so many Members who had participated in Finance Bill Committees during this Parliament, but one by one they have disappeared from the Chamber—even the hon. Member for Dover (Charlie Elphicke), who has been one of the most assiduous Committee members—which is a shame as I was looking forward to hearing the usually very robust views they express, when we are upstairs in Committee at least. Presumably they have something else on their mind today.

The period we are in, which spans one VAT increase to possibly another, is a very interesting one. One of the things that the Government are trying to say—interestingly, some of the other parties are trying to say the same—is that there is no difference between the policies of the Government and the Opposition and that we would all have to make the same decisions. However, the Institute for Fiscal Studies has clearly stated that there is a huge difference between the forward plans of the Government and those of the Opposition. Our policies involve a different attitude towards spending cuts and tax increases in order to reduce the deficit over a period. That is what we said back in 2010; we were clear that we would be following a different pathway. We were not deficit deniers, as was sometimes suggested, but we were clear that we had a different view on how this could best be handled and that there would therefore be fairness in our measures. That remains the case because, prior to the Budget, the IFS said that, given our forward plans and taxation proposals, in contrast to the £55 billion of spending cuts the Conservatives would have to find, the Labour Opposition would be looking to make only £4 billion of spending cuts. More recently the IFS has said that in

25 Mar 2015 : Column 1489

order to carry out our plans we would not need to make any further spending cuts in the forthcoming Government. So that is a very big difference in our policies. From that point of view, we are in a position to say not just that we would not increase VAT, but that we have a different and much fairer road to go down.

It is right for us to ask what the Government—whether the coalition or the Conservative party; it is not always clear—would be doing. Not only have they said that they need to find those spending cuts to carry out their deficit reduction proposals, but they have also suggested further tax reductions through the continued raising of the tax threshold. At no time since that announcement was made by the Prime Minister at the Conservative party conference has there been any clarity as to where that money would be coming from. So not only are they clearly tied to making substantial departmental spending cuts, but they have not shown us how they are going to close this financial gap. That is why people are saying, “We think it’s going to be VAT.” It is hard to tell where else it might come from. Of course, if it is coming from somewhere else, we would expect that to be said. So the Prime Minister stands up and says, “Oh no, we won’t be increasing VAT,” but the other half of that statement has not been made. We do not know how he is going to square this circle.

Andrew Gwynne (Denton and Reddish) (Lab): As we saw in 2010, what the Prime Minister says this side of an election is not necessarily the same as what then happens in future Conservative Budgets. Has my hon. Friend also pondered the quandary that they might stick to their pledge not to increase VAT this time, but they have not ruled out extending the scope of VAT to currently exempt items?

Sheila Gilmore: That is clearly another way the Conservatives might seek to close this gap they have opened up for themselves.

We need to know a lot more about this going forward, and so do the electorate. As hon. Members have said, VAT is a regressive tax. Even though those who have bigger spending power sometimes spend more and so may, in cash terms, spend more in VAT. It is a regressive tax, as are all these indirect taxes. Our position on this is clearly different: we do not believe it is right that people on low incomes should be taxed, in effect, to give other people tax cuts.

We have said a great deal about the 50p issue, which we will discuss later this afternoon, but one of my big concerns for some considerable time has been that low-paid workers already under the tax threshold were being offered nothing from the Government, who constantly talk about raising the tax threshold further. They have no plans to help those people any more. Those people face a real risk that if VAT is increased, they will end up paying the price of a reduction in income tax from which they will not benefit by one penny.

4.15 pm

Lyn Brown (West Ham) (Lab): Does my hon. Friend agree that a rise in VAT will not only have an impact on the living standards of millions, but do something to inflation? Does she think, as I do, that inflation may well rise with a VAT rise, again inflating the costs of ordinary, basic things for ordinary people?

25 Mar 2015 : Column 1490

Sheila Gilmore: I thank my hon. Friend for her intervention. Of course the position she sets out is exactly what we saw in the early part of this Parliament when VAT was increased and a number of other measures were put in place. At that point, inflation hit about 5.5%, which then allowed the Government to say, “Aren’t we wonderful? We have just put pensions up by the biggest ever amount.” But that increase would have come even under the old system—even under a system that was simply tracking pensions to inflation—because of the inflation rate. Pensioners were not getting some amazing extra increase that year; there was a simple tracking of what had happened, largely because of the VAT issue.

Not only have many of those low-paid people not got any further gain to get if the tax threshold keeps increasing, but they have actually lost out at the same time, because one thing that has helped to pay for all this has been the reductions in things such as tax credits. Many low-paid people lost more in tax credits than they gained in the rise in the tax threshold. The Government keep endlessly repeating that low-paid people are the ones who have benefited, but that has not been the case in practice for many of these people, particularly those with families and children—they have particularly suffered. For them, the Budget is a bit of non-event and it will continue to be so.

That is why the £12 billion of welfare cuts that have been pencilled in for some two years now in various statements by the Treasury, and by the Chancellor in particular, are very important. Part of that approach might be to cut away further the support given to people in work, perhaps through the tax credits system, at some future point. Tax credit is to be replaced by universal credit, but the issue remains much the same in terms of how it tapers off and where the losses might come.

We already know that in many respects universal credit will be less beneficial for a lot of people in work, as they increase the hours of work they do. So how much of this £12 billion will come from that source? Again, people may be given a little bit with one hand, through the increase in the tax threshold, but find that they lose as a result of what the other hand is taking. We just do not know because we have been given no detail; it has been deliberately withheld, although one suspects that someone, somewhere has a plan. It would be strange if they did not have a plan. If, under welfare cuts, we are taking away things such as support for people who are in work, it is extremely important.

The other area is housing benefit, because, again, that is increasingly being claimed by people who are in work, not just by people who are out of work. Those people who are in work will be hurt again if there are further attempts to reduce the housing benefit bill, by eroding the amounts that individuals get. Again, we have this lack of clarity and detail. It is understandable why some of us are extremely suspicious about the alacrity with which the Prime Minister wished to distance himself from a VAT increase. For all the talk about a long-term economic plan, we have a lack of any clear policy and detail about what the Conservatives will do if they are re-elected. I hope that they will not be in government, so perhaps they do not need to give any detail, but the people who will be voting in a few weeks’ time deserve to know such things.

25 Mar 2015 : Column 1491

We should not be in the position that we were in before the 2010 election when we were promised things, such as that there would be no VAT increase, that were undone very, very quickly. I do not think that people were told about the scale of the reductions that would be made.

Barbara Keeley (Worsley and Eccles South) (Lab): My hon. Friend is making a very good speech. She has returned to the point about the scale of the cuts. Is she as concerned as I am about that? My local council has been cut by 43% since 2010. We now have 1,000 people losing their social care packages this year. Is it not very frightening that what we face in the next couple of years are cuts that are deeper than anything we have seen before? I find that prospect frightening for social care and local services, which are already crippled, and for policing—for keeping our local community safe. Does she feel that way, too? We have already seen what has happened—

The Temporary Chair (Mr Hood): Order.

Sheila Gilmore: I thank my hon. Friend for her intervention. Clearly, those are the kinds of concern that people have.

On the VAT proposals, the changes and exemptions that the Government may wish to make for some worthy cause are welcome. I am talking here about the help for organisations such as hospices. But there is scope to go further. I will say something now that, although not Front-Bench policy, is perfectly legitimate to raise in Committee. As someone who has been very involved in housing, I know that the housing world is keen to see VAT relief on improving and restoring properties.

VAT can make refurbishing properties more expensive than rebuilding. Demolition and rebuild has become a cheaper option than preserving some of our properties. Having worked with many housing associations, I know that there have been times when they have wanted to do that kind of refurbishment and preservation work, but they had to do a massive upgrade behind that to bring the homes up to the required standard. Such a VAT exemption is something for which the housing world has campaigned for a long time. As we all want to increase sustainability, I hope that that is an issue that my own Front-Bench team will reconsider when they are in government.

Lyn Brown: I understand that we are not talking to a benevolent Government here, but as my hon. Friend is listing what she would like to see VAT removed from, I would like to include sanitary products. I know that many of my constituents think that, as those are not luxury goods, they should be exempt from VAT. I just thought that I would add that to the list of things that should have VAT removed.

Sheila Gilmore: I think that campaign has taken off again, having been going for a considerable number of years.

Lyn Brown: Decades.

Sheila Gilmore: Indeed. As the current campaigners have noted, there is no VAT on shaving cream, but there is on sanitary products, which suggests—

Lyn Brown: It suggests that men made the law.

25 Mar 2015 : Column 1492

Sheila Gilmore: Yes, it is gender-made law. We will all have received a considerable number of e-mails about that recently, and I am sure that the campaigners would be pleased to hear the Minister commit at least to reviewing the situation.

Fiona O'Donnell: On that issue, growing a beard is an option for a man, but being unhygienic is not an option for a woman. My local food bank is increasingly having to offer women sanitary products because they simply cannot afford them.

Sheila Gilmore: That is a very interesting piece of information, and it is something that people should bear in mind—

The Temporary Chair (Mr Hood): Order. It is very interesting, but we are straying a wee bit from what we are supposed to be debating.

Sheila Gilmore: Thank you for your guidance, Mr Hood. I am sure that you would not want me to stray on to the whole issue of food banks, which would probably take us to midnight.

In conclusion, new clause 1 would provide us with an opportunity to look at the impact of VAT changes over this Parliament. We believe that they have been regressive and that many of our constituents have been affected, and we are concerned about the future. We need to look very carefully at what has happened before any decisions are made on further increases. We are always taken to task for proposing new clauses to Finance Bills that would set up reviews, and I understand that there are technical difficulties. I am sure that current Government Members will have the same difficulty when they come to scrutinise a Finance Bill in opposition in the next Parliament. Perhaps we will then make the alternative criticisms.

It is important that we fully understand the impact of the VAT changes, and not just through some kind of impact assessment that is done theoretically, but through an assessment of what has actually happened; they are not always the same thing. However, such proposals have been turned down in every Finance Bill I have encountered in this Parliament. The hon. Member for Dover (Charlie Elphicke)—he has still not returned to his seat—and I are obviously similar; we are either terribly keen to serve on Finance Bill Committees, or we are such a soft touch that when our Front Bench teams or Whips ask, “Wouldn’t you like to serve on the Finance Bill Committee?”, we say, “Oh, all right then.” Some of us have certainly done our stints on Finance Bill Committees, and I am sure that we all hope to be able to do so again from a governmental position.

Mr Gauke: We have had a lively debate and heard contributions from a number of Members who could be described as Finance Bill recidivists. I am delighted that so many of them were able to participate on this, the last occasion to debate tax matters in this Parliament. The hon. Member for Edinburgh East (Sheila Gilmore) talked about VAT on sanitary products. Under EU law, we are permitted to have a reduced rate for sanitary products—indeed, it has been reduced to 5%—but they are not among the products for which we can have a zero rate under EU law. Consequently, without changes at EU level, it is not possible to reduce it further. I have a lot of sympathy with the argument that is made on that point, but it would need to be addressed at EU level.