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Oral Answers to Questions

Volume 455: debated on Thursday 25 January 2007

Treasury

The Chancellor of the Exchequer was asked—

Personal Debt

1. What assessment he has made of the potential impact of levels of personal debt on the macro-economy. (111020)

With debt repayments as a proportion of income at 8.9 per cent., in contrast to 15 per cent. at the peak in 1990, the International Monetary Fund and the Bank of England have both said that the impact on macro-economic policy is small. However, to protect the most vulnerable citizens subject to illegal money lenders, I can announce that, as part of our financial advice and inclusion programme, we will extend to every region of the country projects to improve advice, and to expose and secure higher prosecutions of people who are illegally charging exorbitant rates of interest.

I thank the Chancellor for his answer, but I find it hard to believe that this issue does not have an impact on the macro-economy. According to Credit Action, total personal debt in 2006 was a staggering £1.25 trillion—a figure that has doubled in the last 10 years. Why has the Chancellor failed over the last 10 years to address this very real personal and economic problem? Also, can he tell us why it has taken so—

The Bank of England survey on household finances says that debt problems

“are unlikely to have large implications for monetary policy because any effect they might have had on aggregate consumer spending is likely to have been relatively small”.

As for the issue of debt, there are 1.8 million more home owners in this country with mortgages, but I see that as one of the Government’s achievements, not something that we should be criticised for.

Is it not time that some balance was restored on this issue? Are not total household assets in this country worth £7 trillion, and have not real incomes increased by 65 per cent. since 1997, allowing for personal debt? The big issue is about those who are excluded from the financial community. I know that the Government are hoping to tackle the problem in their 10-year programme for financial inclusion, but can the Chancellor provide some comfort this morning that the part of the community that is excluded financially—and also socially—will be incorporated in the coming years?

I know that my right hon. Friend has taken a big interest in these matters. We must do more to help people who are either subject to illegal money lending or lack the advice and expertise that they need to help them make their personal decisions. That is where the resources are going. We are providing more resources for help with financial inclusion, more help with money advice and more support to organisations that provide such advice. The crackdown on illegal money lenders, which started in two areas of the country and was extended to another three, making five, will now be extended to every region. With the local authority working with the police for higher prosecutions, we can send out a signal that we are not going to tolerate illegal money lenders charging exorbitant rates of interest, often running into hundreds of per cent. We will continue that crackdown, but I have to say that the economy’s success over the last 10 years is such that people’s real living standards have risen, with wages going up by 48 per cent. over the last 10 years and consumer price index inflation by only 18 per cent.

Measures to tackle predatory loan sharks are obviously welcome across the political spectrum, but will the Chancellor tell the House why average levels of household indebtedness are so much higher in Britain than in almost all our European neighbours?

I have just given the House the figures. As a proportion of income, debt in this country is something in the order of 8.9 per cent. In the early 1990s, it was in the order of 15 per cent. Mortgage lending as a proportion of household incomes is around 15 per cent., whereas in the early 1990s it was something in the order of 30 per cent. The situation as a proportion of household incomes is far better now than it was, so the hon. Gentleman should be congratulating us on our economic performance.

Will my right hon. Friend share with the House his views on what would happen if personal financial services products were deregulated, which is an idea going around the City at the moment?

One issue raised by both illegal money lending and certain instances of people having been given bad advice is the need for proper regulation of the financial services industry. I had hoped that there was an all-party consensus that that should happen. Unfortunately, the Conservative report on financial services and economic competitiveness says that we should

“allow people to buy and sell products that are not regulated if they have signed to do so”.

That would be a recipe for more people falling into debt, more people being exploited and more people being subject to unregulated behaviour that would lead them into being far worse off than they are now.

Has the Chancellor had the opportunity to make any assessment of the impact on personal debt of tax credit overpayments? Given that during his time in India, the right hon. Gentleman compared himself not only to Gandhi but to Lady Thatcher and Winston Churchill, could he use those great abilities, before he becomes Prime Minister and moves on from the Treasury, to resolve the outstanding problems in the tax credit system?

The hon. Gentleman will know that as a result of the rises in child benefit and child tax credit, 700,000 children have been taken out of poverty. As a result of the changes that we have made, poverty among children—which trebled under the Conservative Government—has been falling under this Government. The hon. Gentleman should be applauding us for our policy on tax credits, which is taking more and more people out of poverty, instead of criticising us.

Personal debt can be either secured or unsecured. Will my right hon. Friend tell the House whether there are significant differences in the overall growth of the two kinds of debt?

Consumer debt—consumer credit—is rising a lot faster than it was, and I am concerned enough about some of the arrangements that individual consumers and citizens enter into to look at what more we can do in relation to financial advice, to giving people specific help through the different agencies that are available, and to cracking down on illegal moneylenders. It is true that the overall level of personal debt has had a limited effect on the macro-economic management of the economy, but it is also true that when people fall into difficulty, they need more help. I hope that there will be consensus that we should do more to help people in that position.

The Institute for Fiscal Studies has said this week that the rising cost of living and stagnating real incomes are causing personal debt problems for the poorest families. Will the Chancellor confirm that inflation in Britain is now double the average of the developed world, and double the level that he inherited? A simple “yes” will do.

Inflation is 3 per cent. Average inflation under the Conservatives was 6 per cent. Inflation in the United States of America has risen as high as 4.3 per cent., and it has been above 3 per cent. in the euro area. In another G7 country, Canada, it has been above 4 per cent. Our record of keeping inflation low throughout the past 10 years is the reason why we have had lower interest rates than other countries, along with 10 years of unparalleled sustained growth. The hon. Gentleman should be congratulating us on that.

The Chancellor talks about the previous Government, then goes round telling newspaper editors how much he admires Margaret Thatcher—along with Mahatma Gandhi, who presumably taught him all about peaceful non-co-operation with the rest of the British Government. The facts are that inflation is double the level that he inherited, the real cost of living is rising even faster, personal debt is at record levels, unemployment has been rising in Britain but falling in the rest of the world, and real living standards for millions of families are now falling. The Chancellor blames the Prime Minister for everything else that is going wrong under this Government, but who is to blame for this?

We are about to enter the 40th quarter of sustained economic growth under this Government. No other Government in the industrial history of this country have achieved that. If the hon. Gentleman wishes to list facts, that should be the first one. The second is that there are now 2.5 million more people in work. The third, as far as living standards are concerned, is that wages have gone up by 48 per cent. under this Government, and inflation under the consumer price index has gone up by less than 20 per cent. As for the record of the Conservative party, the hon. Gentleman should read out his own speeches to the House, because he told the City, but has not yet told the House:

“We still lag a long way behind the Labour party when it comes to public confidence in our ability to manage the economy.”

That is the truth.

Personal Inflation Calculator

2. If he will include school and university fees in the Office for National Statistics personal inflation calculator. (111021)

The specifications for the Office for National Statistics personal inflation calculator have been, and continue to be, matters for the national statistician, although I checked last night and there are already 23 categories of spending in the calculator, with education costs included in the “other” category.

Will the Minister confirm that even on his preferred measure of inflation—which does not reflect the reality faced by many families, whose experience is much worse—inflation is at its highest for 15 years, double the OECD average and double what it was when the Government came into office?

It is true that inflation has been going up across the world. It has been driven by energy prices, a hot summer and food prices. If the hon. Gentleman studies the economic data rather than the briefs that he has been handed, he will see that the peaks, and the instability, in inflation have been higher in other countries, and that we have had low stable inflation here. Inflation is now historically low and stable here compared with the levels under the Conservative Government, which averaged more than 6 per cent. and peaked at more than 20 per cent.

Will my hon. Friend not only include data on university fees but trumpet the success of variable fees, which have delivered to universities a new stream of income and made it possible to employ university teachers and pay them well? They have been an absolute success story, which is admired by countries all over the world.

As Chairman of the Education and Skills Committee, my hon. Friend analyses such policy areas closely. Like me, he will find it interesting that Conservative Members are not raising questions about inflation and cost pressures for families in relation to the price of fuel, and they are not noting the recently falling prices of clothing, mobile phones and consumer electronics. Instead they are talking about school fees, which are paid by fewer than 1 in 100 of the population covered by the retail prices index.

Obviously, as student fees rise, student debt rises too. The Chancellor will be well aware that many students pay their way through university via part-time work. Has he estimated how many might be at risk of not being able to pay their way through university via work if growth falters in the coming months?

It is right in principle that people who benefit from the university education system should contribute to the cost of that education. More people are going through university than at any time before, and some of them choose to work to help to pay their way. That has always been the case. The proof of the policies in place is whether more people are going to university and getting the training and opportunities that increasingly they need in the modern economy and the modern world—and the short answer to that is yes.

Economic Growth

As was confirmed yesterday, growth in 2006 was, as the Government forecast, 2.7 per cent. Exports are rising at a rate of 4.5 per cent. a year, investment by 5 per cent. a year and business investment by more than 8 per cent. I call on work forces in the public sector to recognise that discipline on pay settlements, founded on our inflation target of 2 per cent., will be central to stable and sustained growth in the future.

Do not those figures illustrate the underlying and long-term strength of the British economy, in sharp contrast to the predictions of the Conservative party? Whether they are giving us doom and gloom or boom and bust, the Conservatives have demonstrated once and for all that they cannot be trusted with the reins of government.

My hon. Friend is just repeating what the shadow Chancellor himself has said, which is:

“The Labour party had become in the public’s mind the party of economic competence.”

We would all say that the economic growth figures are positive. In large part, however, they are due to the effect of migration. Given the skills gap and increasing unemployment among the UK’s indigenous population, what does the Chancellor suggest to ensure that not just the 50 per cent. who go to university but, perhaps more importantly, the many who will never aspire to go to university, have proper skills so that they can do the jobs that are being taken by Poles, Lithuanians and the like, and get back into the workplace at the earliest opportunity?

I agree with the hon. Gentleman that we should invest more in education and skills in the economy. We have doubled expenditure per pupil in our schools and achieved higher standards, and we have now published the Leitch report on adult skills. I think that he is really referring to vocational skills, which we can expand, first through the national employer training programme, and secondly through other measures to help people at school get apprenticeships and vocational qualifications. The dividing line between the two parties is that we are prepared to make the investment, but the Conservatives’ third fiscal rule would mean a cut in investment in education. That is the difference.

May I praise my right hon. Friend for doing a great job? He is one of the greatest Chancellors ever, and he has ensured that my region has benefited from great policies, unlike the boom and bust polices of the Conservative party. May I tell him the good news that manufacturing industry in the north-east, which accounts for 20 per cent. of employment, has increased its output by 2.5 per cent. in 2006? What policies does he have in the pipeline to ensure that that growth continues in 2007 and for many years to come?

The answer is the stable economic growth into an 11th and a 12th year that we have achieved under this Labour Government. I am glad that my hon. Friend said what he did. He was simply repeating what the Conservative higher education spokesman said only a few days ago—that young people

“have no trouble getting a job…We have almost full employment in this country, and they will go on to do fantastic things in this vibrant low-inflation economy.”

That means that those on the Front Bench of the Conservative party, as well as those on the Back Benches, disagree with the shadow Chancellor.

When the Chancellor was in India, did he notice that one thing we have in common with that country—apart from steady and respectable rates of economic growth—is an utterly abysmal infrastructure, as we were all reminded yesterday? How do the Government and the Chancellor propose to achieve the very high level of investment in British transport infrastructure that will be required, given that the debt-to-GDP ratio he has set is already very close to the 40 per cent. limit?

By the hon. Gentleman’s party acquiring a sensible economic policy that is line with ours, so that we can support sensible levels of investment in infrastructure and the economy. When we came to power in 1997, public sector net investment was 0.7 per cent. of GDP. It is now nearly 2¼ per cent. of GDP, it has risen every year, and it will continue to rise in the next few years. Investment in infrastructure and transport is running at £18 billion, investment in schools is running at £6 billion, and investment in the health service is running at more than that. It is possible to produce such figures only by achieving the right balance between tax, spending and borrowing, and by having a sensible economic policy. I urge the hon. Gentleman to go back to the drawing board with his.

My right hon. Friend will be aware that the very same people who opposed the policies that have led to this economic growth now believe that the economic growth in India is a threat. Leaving aside an unhealthy interest in “Big Brother”, what opportunities does the economic growth in India give the United Kingdom?

I said in India that we wished to double our exports to the country in the next few years and quadruple them by 2020, and I believe that that is possible. We signed a number of agreements in India, including public-private partnership agreements. As my hon. Friend suggests, by investing in infrastructure India will benefit from the expertise that we have built up in the United Kingdom. Greater collaboration between India and Britain on science and technology and universities, and, I believe, the strength of the relationship that we are building with India again, will serve both economies well—but both countries realise that economic strength can only be built on a basis of stability. And my hon. Friend is absolutely right: the Conservative party opposed the independence of the Bank of England.

As the Chancellor is no doubt aware, while the Treasury is right to measure aggregate growth rates, growth is not uniform throughout the United Kingdom. It is highly likely that growth in the Dundee economy will be seriously dented by the recent announcement of more than 1,100 job losses. Is the Chancellor prepared to undertake an assessment of the impact on growth of job losses in the Dundee economy, and in other economies that are blighted in a similar way, to establish what targeted measures might be introduced in such circumstances?

If any redundancies happen, as they have at NCR, it is to be regretted, but I think the hon. Gentleman is giving us only one side of the picture. Unemployment in Dundee has more than halved under this Government, and in recent years there has been a phenomenal expansion in jobs created around the university, in life sciences and in new technology. Dundee is benefiting from winning money from United Kingdom research councils and United Kingdom research budgets. The policy that would be most damaging for Dundee is the hon. Gentleman’s policy of separating Scotland from the rest of the United Kingdom, which the leader of his party now believes could happen without the need for a Scottish pound. That is completely unrealistic. I think the that hon. Gentleman, like the Liberal Democrats, should go back to the drawing board and think again.

Gold Reserves

4. How much was realised from the sale of 395 tonnes of gold from the reserves between 1999 and 2002; and what the market value would be of that gold at 2006-07 prices. (111023)

Three hundred and ninety-five tonnes of gold were sold from the reserves between July 1999 and March 2002. The proceeds were in three tranches of $1.1 billion, $1.3 billion and $1.1—$3.5 billion in total. The purpose was a restructuring of the foreign currency and gold reserves aimed at achieving a better balanced portfolio—something that other countries are also achieving. The sterling value of the gold sold has risen to $4.2 billion, but a one-off reduction in risk of approximately 30 per cent. was achieved, as measured by value at risk, and the independent National Audit Office concluded that the sale had achieved value for money.

As the Chancellor obviously has great difficulty in admitting the scale of this fiasco, will he confirm the Treasury’s own figure that the average price obtained during those gold sales was $275 an ounce, whereas the price today is $642 an ounce? That amounts to a total loss to the Treasury of more than $4.5 billion. As the Chancellor was warned at the time about the recklessness of those sales, does he agree that the depths of incompetence reached in that fiasco rule him out of being considered for further office?

What the right hon. Gentleman fails to tell us is that we restructured the portfolio, and what causes him most grief is the fact that one of the items that we bought was euros, which have increased in value since the purchase, at greater benefit to the Treasury. I am not going to take any lectures from the right hon. Gentleman, who was a member—in fact, for a time he was Parliamentary Private Secretary to Lord Lamont—of the Government who were in office when £28 billion of our reserves were sold on Black Wednesday, a total of £40 billion of reserves were sold after that, and £3.3 billion was lost to the United Kingdom. That was the biggest fiasco in history, and the right hon. Gentleman should be ashamed of himself.

Will my right hon. Friend confirm that achieving the shrewd and successful management of the economy over the past 10 years has required more than looking at three years of gold reserve prices? Will he further confirm that he has absolutely no intention of introducing a third fiscal rule that will wipe £22 billion from this country’s public spending?

The most damaging thing we could do in terms of the stability of the economy would be to adopt a fiscal rule that would require us to cut public expenditure by £18 billion tomorrow. Conservative Members would have to explain to their constituents about the schools and hospitals that they were closing and the nurses and teachers whom they were laying off. We will continue with our prudent management of the economy, and that includes restructuring the reserves of the economy in such a way that we are not dependent on one volatile item.

In his last months as Chancellor, will the right hon. Gentleman have the frankness to apologise to the British people for selling, despite my warnings at the time, almost half of our gold reserves at the lowest gold price for 25 years, and just before there was a sustained rise? I warn him that I intend to do my best to haunt him throughout his premiership by repeatedly reminding him of that folly.

I look forward to continuing interventions from the hon. Gentleman while I hold the position of Chancellor. Almost every other country has done exactly what we have been doing to restructure and rebalance our reserves. It is the right thing to do; it is right not to be dependent on one volatile currency. The results were tested by the National Audit Office and it said that it was the right decision, and represented value for money. If I had taken the hon. Gentleman’s advice, which he gave me very forcefully—indeed, even more forcefully in 1997—I would not have made the Bank of England independent; he said that that would lead to deflation, unemployment and ruin for the British economy. The opposite has happened.

Public Expenditure

5. What assessment he has made of the effect of levels of public expenditure on the economy; and if he will make a statement. (111024)

By borrowing only to invest and maintaining net debt at a prudent level, the Government have succeeded in delivering unprecedented economic stability and the longest period of economic expansion on record, while at the same time correcting the legacy of under-investment that we inherited 10 years ago.

The comprehensive spending review will be the next opportunity to demonstrate how increased investment and public service reform can strengthen our public services and the economy. Will the Minister meet a delegation from the black country to examine proposals for spending review investment that will boost skills, improve the transport network, reclaim brownfield sites and provide more housing, all of which support the Government’s economic priorities? Can I also ask him to confirm that—

I should be delighted to meet the delegation. We will certainly not adopt the Conservative party’s proposals, which would so badly undermine investment in exactly the priorities that my hon. Friend has highlighted—skills, transport and regeneration. We will maintain investment in those areas, which are crucial to the economy’s future, in the CSR announcements later this year.

It is undoubtedly true that the very dramatic increases in public expenditure have increased the inflationary pressures in the economy as well. Since the Chancellor has twice today reminded the House that we had reservations about the independence of the Bank of England, may I remind him that we had reservations about the proposals that he tabled in the Bank of England Bill because the Bank would not be independent enough? [Interruption.] Oh yes, it is true. We proposed longer-term limits for the Monetary Policy Committee. Is it not now time to strengthen its independence, so that it can no longer be interfered with by the Chancellor?

The hon. Gentleman has given us a very interesting rewriting of history. It sounds as though what he wants is a European central bank. We have an extremely good record on inflation, which is 3 per cent. and coming down. Of course, in 1997 our economy was the most unstable of all the developed countries regarding inflation; today, it is the most stable. That is a result of the success of this Government’s policies over the last 10 years.

Increased resources to schools in Salford in the last 10 years have resulted in an improvement in GCSE results. The number of pupils achieving good results has increased from 30 per cent. 10 years ago to 50 per cent. now. Among those schools is St. George’s, which achieved a 10 per cent. increase despite serving a disadvantaged area that is in the top 3 per cent. of the most disadvantaged areas in the country. Will my right hon. Friend underline his and the Treasury’s commitment to continuing to provide that level of resources, so that our pupils and teachers can continue to make such improvements?

I very much welcome the success in my hon. Friend’s constituency, and, indeed, across the country. Of course, that is a consequence of the fact that, whereas our education spending was among the lowest in the developed world 10 years ago, today it is among the highest. That is very good news for the future of our economy, and yes, I can confirm that we will maintain that priority in the years ahead. We will not be adopting a third fiscal rule, which would reduce spending this year by £28 billion and put all that progress at risk.

Might not different levels of public spending in different parts of the economy lead to a sense of grievance? Is the Chief Secretary aware that in the same edition of The Daily Telegraph in which the Chancellor argued the case for the Union, there also appeared an article setting out that the frail and elderly in England paid three times as much for their residential care as the frail and elderly in Scotland, on top of having to pay for the personal care that comes free in Scotland? Is this right?

I am not sure whether the hon. Gentleman is calling for more spending in that area. He may well be, and if he is, he is joining his Front-Bench colleagues in that regard, who, since I have been Chief Secretary, have called for more spending for more social workers, more nurses and twice as many school nurses—at the same time as calling for a third fiscal rule that would dramatically cut spending on all those services. I hope that the hon. Gentleman will support the framework that we have put in place and the economic success that that has achieved, which has allowed us to continue to invest across the board, including in social care.

In the next spending review, will my right hon. Friend ensure that the departmental public service agreements include a full analysis of how they will meet the new gender equality duty? At the moment, we are missing out on the skills, experience and potential contribution of a substantial part of the population, as identified in the Women and Work Commission report.

My hon. Friend is absolutely right. We do need to do better in that area, and on a number of other equality issues across the economy in the future. We shall indeed address all those issues in the delivery plans that will go with the public service agreement targets.

Yesterday the Home Secretary wrote to judges asking them to jail fewer people because of prison overcrowding. Does the Chief Secretary think that the Chancellor now regrets deciding last year to freeze the Home Office’s budget in real terms over the next spending round, before he settled other Departments’ budgets? Does the Chief Secretary agree with the Home Secretary that the Home Office is not fit for purpose?

My right hon. Friend the Home Secretary simply reminded judges and magistrates of the existing position. The reality is that spending on and investment in prisons has been rising, and will rise further. More places will be provided. If the hon. Gentleman is now calling for even more spending on prisons, he needs to explain to the House how that is compatible with also calling for a third fiscal rule that would dramatically reduce spending. There is a fundamental incoherence in the policy of Opposition Front Benchers that needs to be explained.

In my constituency, Thorn Lighting is developing a new technology—which will mean more jobs—through a partnership with Durham university. Does my right hon. Friend agree that it is record spending on science under this Government that will secure the long-term future of the economy?

I very much agree with my hon. Friend. The investment that we have made in science is fundamental to our future economic success. Durham has a great record in that area, and I pay tribute to the work that she has done and the interest that she has shown in that. We need to continue that investment in order to secure our long-term economic success and to maintain the record of stability that has been so important across the economy over the past decade.

Borrowing Requirement

6. What projections he has made of UK borrowing requirements in each of the next five years; and if he will make a statement. (111025)

As we set out in the pre-Budget report, total net borrowing will fall from £37 billion this year to £31 billion, and then to £27 billion, £26 billion, £24 billion and £22 billion, or from 2.3 per cent. of national income next year to 1.3 per cent. by 2011-12. Along with Canada, the UK is the only G7 country with net debt below 40 per cent.

Given that those are increases in the Treasury’s borrowing forecast, what analysis have the Chief Secretary and the Chancellor made of the effects of that on inflationary pressures and the ever-increasing value of the pound?

The key point is that we stick closely to the rules that we have set out. The sustainable investment rule is that net debt will be kept at a sustainable level—below 40 per cent.—and it will be. It is below that at the moment and it will stay below. It will stabilise at about 38.5 per cent. I remind the hon. Gentleman that total net borrowing reached 7.8 per cent. of GDP under the last Government and will be 2.3 per cent. next year. However one looks at it, this Government’s record has been far better.

Does my right hon. Friend agree that the UK’s borrowing requirement is affected by the strength of the UK car manufacturing industry, and does he further agree that the tax regime underpinning the manufacture and sale of 4x4 cars has a big impact on that sector? Would he or my right hon. Friend the Chancellor care to visit the very successful Land Rover plant on Merseyside, which produces both the Freelander 2 and the Jaguar X-type vehicles on the same production line at the same time—

I congratulate the company and the plant on those achievements. We will, of course, ensure through our commitment to stability in the economy that that success can continue.

If borrowing has been under such wonderful control, how does the Chief Secretary account for the fact that over the last decade sterling interest rates have been so much higher than dollar rates, yen rates and euro rates, including areas that are growing much faster than Britain?

Let me remind the right hon. Gentleman that the International Monetary Fund said that “macroeconomic stability remains remarkable”. I suggest that he look at what interest rates were when he was a member of the Government. They were sky high, repossessions took place on an enormous scale and unemployment was also high. The claimant count has fallen for three months in a row and growth is at a higher level than we and others were expecting. We are determined to ensure that that impressive record continues.

My right hon. Friend will realise that borrowing is driven by expenditure. Before the Government borrow any more money, will they look at their public expenditure and the waste of money spent on raising economic understanding of the issues under discussion today? I am thinking particularly of the Short money.

I sympathise with my hon. Friend’s concern—he makes a very fair point. My right hon. Friend the Chancellor announced at the time of the pre-Budget report that during the years of the comprehensive spending review, every Department would achieve value-for-money savings of 3 per cent. year on year, with 5 per cent. savings in spending on administration. That shows that we are continuing to improve value for money in Government spending across the board, if not in the particular area to which he referred.

Tax Credits

7. What estimate he has made of the level of overpayments of tax credits reclaimed by the Government in the last three years. (111026)

10. What estimate he has made of the level of overpayments of tax credits reclaimed by the Government in the last three years. (111030)

Her Majesty’s Revenue and Customs’ trust statement and the Comptroller and Auditor General’s standard report on its accounts for 2005-06 show that, in total, £1 billion of overpayments had been recovered by 5 April 2006.

What would the Minister say to my constituent Mr. Roy Taylor, whose tax credit payments were stopped in August following a typing mistake by officials? He was told about the mistake but still received a repayment demand for more that £1,000. Is the system so flawed that officials send out repayment demands even when they know that they have made a mistake? That has caused enormous distress to my constituent, and to many other people in similar circumstances.

I am sure that the hon. Gentleman has written to me about this case, but if he has not I shall be happy to deal with any correspondence. However, I remind the House of what I have said many times—that many thousands of families in this country, including in his constituency, benefit from tax credits. They get the right money, at the right time. If that money were taken away, thousands of his constituents would find it very difficult to balance paid work and child care. It is about time that the hon. Gentleman recognised the benefits of the system, instead of concentrating on individual cases.

Does the Minister recall that I have written to her about people in my constituency being required to repay overpayments, even though HMRC has admitted that it was at fault, not my constituents? Will she think about this matter again? Is it not inherently unfair to require people to repay overpayments for which they are not responsible, but which the HMRC has admitted were caused by its own mistake?

As the hon. Gentleman knows, the operational rules that apply when an error is entirely the fault of the Department, and when the person involved could have had no knowledge of it, are the same as those in the tax system. He will know, too, that the system has always worked that way and that similar rules applied under the previous Conservative Government. When claimants give the details of their income, those details are played back to them in an award notice. They are asked to check that notice and confirm that the information is correct. The procedures that have been put in place have increased the accuracy of the notices enormously. The rules are perfectly fair, and they have worked for decades in the tax system.

In my constituency, tax credits have played a vital part in taking thousands of families out of poverty, and they have enhanced the position of children in particular. However, one or two well-publicised mistakes by officials have undermined that success. Will my right hon. Friend assure me that everything is being done to refine the processes involved, so that the enormous benefit that tax credits offer is not brought into discredit?

Yes, I can absolutely assure my hon. Friend about that. The accuracy rates for processing have risen to 97.7 per cent., which means that the vast majority of people get their tax credits on time, and at the correct amount. He is right to point out that the system has contributed to lifting 700,000 children out of poverty and to helping families to care for their children while taking part in paid employment.

In answer to an earlier question, my right hon. Friend the Chancellor said that tax credits had brought a lot of children out of poverty. Of course, they have also given women a great opportunity to get into work. However, there are issues concerning the clawback of overpayments. Can my right hon. Friend give me advice that I can pass on to my constituents on how they can appeal against an overpayment decision?

I am happy to advise my hon. Friend. The obligations of his constituents are to check that the information that they have given to the Department is correct and to notify the Department if their circumstances change. Where they dispute an overpayment, they can dispute it initially with the Department, then with the adjudicator and, if they are still dissatisfied, with the ombudsman.

Like other hon. Members, many of my constituents continue to suffer because of overpayment difficulties. I wish to raise one specific area. Does the Paymaster General agree that where a couple in an overpayment situation have separated and one has paid their share of what is due, it is invidious to pursue that person for the dues owed by their ex-partner, who has often separated in difficult circumstances?

The hon. Gentleman raises an important point relating to particularly difficult circumstances that can occur when there was a joint assessment of two partners and one of them continues to receive tax credits when they are not entitled to. I agree that I need to look at that and I assure the hon. Gentleman that I am doing so. However, when people make an application for tax credits, they do so jointly and accept joint responsibility for what is paid.

I have to admit that I am not clear what backlog of overpayments my hon. Friend is talking about. I presume that he is referring to the arrangement made to pay out at either 10 per cent., 25 per cent. or 100 per cent. and the arrangement for the hardship test to ensure that those who would suffer serious hardship as a result receive additional payments. That is proceeding well.

I must press the Paymaster General on the point raised about couples who split up. Recently, she admitted that the Treasury was pursuing 250,000 claims for tax credit overpayment against couples who have separated since the overpayments were made. That leaves thousands of women not only holding the baby, but struggling with their ex-partner’s tax credit overpayment debt as well. Are not some of the most vulnerable people in our community paying the price for the Chancellor’s chaotic tax credit system?

No. I am not sure what message the hon. Lady wants to send out. Is it that if a couple are overpaid and do not want to pay back their tax credits, they should split up? [Hon. Members: “No.”] There is a serious question about the application for tax credits when it is made by a couple. Some circumstances warrant further attention on policy grounds. I confirmed that I was doing my best to look at that. The hon. Lady has a cheek to raise a question on joint and several liability when her party, when in government, introduced it for the poll tax. Let us remember that two signatures go on the forms, the application is jointly made and the tax credits are jointly paid. If they are overpaid, they must be recovered.

May I point out the important linkage between the tax-credit-paid child care, the higher level child trust fund and Healthy Start vouchers, which have been well received. Whatever the problems of overpayment, they are vastly outweighed by the important practical help that tax credits and their link benefits have provided to some of my most needy constituents.

I agree with my hon. Friend. What the Opposition always refuse to recognise is the fact that 20 million people—6 million families, including 10 million children—are benefiting from tax credits. Four in 10 families pay no net tax as a result of tax credits. A family with two children on a single earner salary of £21,800 would have no tax liability until their income reached £420 a week. Those are the benefits of tax credits, but the Opposition do not want to recognise them because they are not committed to eradicating child poverty.

The Prime Minister told the House that people who had been overpaid tax credits would not have to repay them. The Revenue and Customs code of practice said that people would have to repay if it was their fault—Revenue and Customs always says it is their fault. The adjudicator says that Revenue and Customs is abiding by its code of practice, so that is all right. The ombudsman says that the adjudicator is right, so that is all right. So when the Paymaster General gets to question 9, will she just say yes?

When I get to question 9, I shall answer question 9. I draw to the hon. Gentleman’s notice the parliamentary ombudsman’s press release, issued on 13 July 2006, in which she commented on the

“positive way in which HM Revenue and Customs had worked constructively with her office on the issue of tax credits”.

She noted that

“substantial changes to the administration system”

had been agreed. They are progressing, and she is happy with that progress.

Children with Disabilities

The Treasury and the Department for Education and Skills are jointly reviewing how improved services can improve the life chances of disabled children and their families. We published an interim discussion paper on 9 January. The review will report in the spring, with recommendations to inform the comprehensive spending review.

I am grateful to the hon. Gentleman for that reply. Given that in 2002 the Audit Commission identified a shortfall of specialist provision to meet low incidence needs, which tend to be severe, complex and even multi-faceted, will he make it a priority to increase specialist provision through more units attached to mainstream schools, the use of specialist regional centres and the imposition of a new duty on local education authorities and primary care trusts to work together, so that children with disabilities receive all the help that they so desperately need?

I am very happy to give the hon. Gentleman the assurance for which he asks. In the review, we shall look hard at the issues he raises. Anybody who heard his speech in the debate on those issues on Tuesday will know that he speaks with authority from both his personal experience and his work as head of the all-party group on speech and language difficulties. We are working hard on the review. We shall need to improve capacity and we need more early intervention and better respite care. We need better co-ordination of services and support for parents, and we need to make sure that there is greater consistency across the country. We also need to do more to help children with multiple needs and the severest disabilities, of whom there are now more in our society. I want better working between local authorities and primary care trusts across the country. In my constituency, the process works well—but there are many examples of it not working as well as it should, and I assure the hon. Gentleman that we shall do everything we can to meet the needs of children and families that he has raised today.

I thank my hon. Friend for his encouragement for the all-party review of the issues, which reported in October. Given the input from parents, professionals and others, will he confirm that the recommendations of the review will be fully considered before the Government reach their conclusions? As it has been said that the review was transparent, evidence-based and ground-breaking, does he agree that it could be taken as a model for further parliamentary activity?

I am happy to do that. My right hon. Friend has worked on the issues over many years, especially with our hon. Friend the Member for Blackpool, North and Fleetwood (Mrs. Humble) on the parliamentary hearings, which were innovative and pioneering and involved Members on both sides of the House, as well as parents. Some important stories were told during those hearings and they gave rise to some important policy recommendations.

I can assure my right hon. Friend that when it comes to the final publication of the review, we will set out clearly in our document every recommendation he makes and show case by case and issue by issue how we will respond. I hope that we will able to respond to a number of recommendations made in the hearings in a way that gives hope and some certainty of improved services in the future to the families of disabled children.

What can the Economic Secretary offer in terms of hope or advice to my constituent, Mrs. Liz Brunt, who was very encouraged by the Government’s document “Every Child Matters”, but who finds that now that her learning-disabled son has left school, there are no opportunities for meaningful activity or work because the services are not there to provide them?

I understand the hon. Lady’s point. I am very proud to be associated with the “every disabled child matters” campaign. It is very important that disabled children form part of the wider work of the strategy.

The hon. Lady is also right to point to what happens on the transition to adulthood. As more children with complex disabilities survive into adulthood, it becomes an issue that we need to address. Indeed, it was raised by families and parliamentarians in the hearings, and it is a priority for the review. Such children go suddenly from the comfort of a school environment at the age of 15 or 16 and into the adult world at the age of 18. For the children and their parents nothing has changed, but they find that the services provided have changed profoundly and often in a way that is destabilising. I know from my experiences of talking to parents that we need to do better and I assure the hon. Lady that this issue is a priority for the review.

Tax Credits

9. Whether he plans to give tax credit claimants the right of appeal to an independent tribunal on overpayment issues. (111029)

Claimants can appeal to the independent tribunal if they think their entitlement was incorrect and they should have been paid more than they were awarded. HMRC’s handling of a disputed overpayment can be reviewed by the adjudicator or through the parliamentary ombudsman. HMRC is exploring with the adjudicator whether she can go further and provide a fast-track review of disputed overpayment cases. There are plans to run a pilot test, and arrangements for that are being discussed.

I thank my right hon. Friend for that reply. The tax credit system has brought huge benefits to my constituents and I support it strongly. However, does she agree that the right of appeal to an independent tribunal over the recoverability of overpaid tax credits would make the system much fairer and much more acceptable to our constituents? Does she also agree that the suggestion is supported by the recent European ruling on the adequacies of judicial review as the only recourse where the issues are simply matters of fact and the credibility of witnesses? The right of appeal would give our constituents a chance to put their case.

I have to tell my hon. Friend that tax credits fully satisfy article 6 of the European convention on human rights. The details of the specific case that she has raised are set out in my written statement of 24 January 2007. People can appeal to an independent tribunal if they disagree with HMRC’s decision on entitlement, and that has always been the case.

Is it not disgraceful that, nearly two years after the ombudsman’s report, that is one of her recommendations that has still not been implemented? Will the Paymaster General explain why she has not yet implemented that recommendation? When will she implement it and all the other recommendations that are needed to give confidence to the low-income families who are suffering because of overpayments in the tax credit system?

As I said earlier, the Department stays in very close contact with the parliamentary ombudsman. Indeed, in her press release of July 2006 she complimented the Department both on its close working with her and on the progress made on her recommendations. If the hon. Gentleman cares to look at that in the Library, he will see that the ombudsman has also commented on the cases that she will take in future.

Air Passenger Duty

11. Whether he plans to offset the increase in air passenger duty in February with a reduction in revenue elsewhere in the tax system. (111031)

The changes to air passenger duty will secure resources in the coming spending round for our priorities on the environment and on transport.

I am grateful to the Financial Secretary for those comments. Given that this morning’s Treasury Select Committee report shows that there is legal uncertainty regarding the duty, will he confirm that proper legal advice was sought and obtained? In the interests of open and transparent government, will he publish that advice?

The announcement was made on 6 December, the duty point is take-off and the charge increase will come into effect on 1 February. It is perfectly normal to announce such tax changes in advance, and the way in which we have done that is perfectly legal. From 1 February, the change will have the full force of the law.

The Treasury Committee said definitively today:

“the liability to pay Air Passenger Duty at the new higher rates will effectively be incurred before the House of Commons has authorised the increase”.

The Chancellor is evidently too busy working out whether he supports England or Scotland in the World cup to bother with the conventions of the House. Will the Minister guarantee unequivocally that the APD increase on 1 February will be lawful?

The way in which we have announced and are implementing the rise is totally in line with the conventions of the House. It is precisely what we did when we announced in the 2005 pre-Budget report an increase in the rate of the supplementary charge on North sea oil, which was introduced with effect for accounting periods from 1 January 2006. The Budget resolutions were laid alongside the Budget that followed and that was legislated for in the Finance Bill. We are following precisely the same precedent and procedure with the proposals for the increase in air passenger duty.