[Relevant Document: The Ninth Report from the Treasury Committee, on the 2008 Budget, HC 430.]
Order for Second Reading read.
I beg to move, That the Bill be now read a Second time.
The Finance Bill implements measures from the Budget 2007, the pre-Budget report last year and the Budget 2008. There are three central areas in the Bill that I want to highlight: support for the economy at a time of global economic turbulence; the changes to the personal tax system; and the long-term reforms for the future of our country, particularly those addressing climate change. I will take each of those three areas in turn.
The Bill supports the economy at a time of significant global pressures. As the Chancellor said in his statement a moment ago, a serious global credit squeeze is taking place, triggered by the problems in the US sub-prime mortgage market. At the same time, as families in Britain know well, world food and fuel prices are increasing, too. As a result, all economies across the world are likely to be affected this year.
The British economy is well placed to weather global storms. Inflation is lower here than in the US or the euro area. As the recent labour market figures show, claimant count unemployment is now at its lowest for more than 30 years. Product, capital and labour markets have become more flexible and responsive as a result of the skills and competition reforms that we have introduced. That is why the independent International Monetary Fund has forecast that the UK will be the joint fastest growing economy in the G7 this year.
However, resilience is not enough. We are doing more now to respond to the economic challenges that we face. So for a start, the Chancellor has today set out the steps that we are taking with partners across the world to help address the problems that have stopped banks from lending to each other. As well as the action to promote financial stability, supporting liquidity and monetary policy, the Budget sets fiscal policy to support the economy, too.
The overall approach set out in the Budget and implemented through the Finance Bill is deliberately to put more money into the economy this year. We are using the flexibility that our fiscal rules give us to support additional borrowing in a sensible and sustainable way when the economic pressures are greatest. That is the right thing to be doing now. The overall impact of the fiscal decisions is to put billions more into the economy this year, through the automatic stabilisers and the decisions on things such as delaying the increase in fuel duty until October, which is implemented in the Bill. That is the right thing to do within the fiscal framework at a time when the economy faces global challenges.
Thanks to our fiscal rules, we are able to protect investment at the same time. Previous Governments often slashed capital investment when economic pressures grew. We are protecting it, however, which means protecting investment for the future in our vital transport infrastructure, in our schools and hospitals, and in the underpinnings of the economic growth that we have sustained for so long.
The Opposition have set out a rather different fiscal judgment—in fact, they have set out several, depending on their audience. First they say that borrowing is too high; then they set out ways to increase it further. In the past 12 months, they have set out £10 billion of unfunded tax promises. On Budget day alone, the shadow Chancellor set out proposals for borrowing an extra £5.4 billion, cutting inheritance tax except for millionaires, changing stamp duty and more. Six days later, after the Budget debates, the Opposition voted for an extra £10 billion in borrowing on top of that and against all the revenue-raising measures—on alcohol, on vehicle excise duty and so on—but for none of the tax cuts. Funny that. The Opposition have never told us where the money would come from or how they would make up their black hole—a black hole that just gets bigger and bigger.
The Budget and the Finance Bill also support the economy in other ways, confirming corporation tax at 28 per cent. for this year and next—the lowest rate in the G7 and the lowest rate since the tax was introduced. The Bill also makes changes to the small companies rate to create a more level playing field, and introduces a new annual investment allowance to support capital investment.
The Bill also increases research and development tax credits and makes the enterprise investment scheme—a tax scheme that supports small businesses—more generous. It restructures capital gains tax, creating a single rate of 18 per cent. with a new entrepreneurs relief. It implements more than 20 business tax simplification measures that were announced in the pre-Budget report and the Budget. So, the Bill supports the economy, simplifies the tax system to help businesses and provides overall support for the economy at a time of global pressures, while retaining a sustainable and responsible approach to the public finances.
I want to turn now to the personal tax measures in the Bill. It sets out a major package of reforms to run alongside the changes made by the National Insurance Contributions Bill last year and the changes made to the tax credit system. These include the cut in the basic rate by 2p to 20p, its lowest rate for 75 years. They also include the removal of the 10p starting rate. They include increases in the tax allowance for pensioners, increases in the working tax credit for those in low-paid work, increases in child tax credits and, next year, child benefit to help families with children, and changes to the national insurance upper earnings limit.
As the independent Institute for Fiscal Studies has set out, the poorest third of the population will benefit most from this package because of what we have done for pensioners, for families with children and for low-paid workers through allowances and tax credits. Indeed, the impact of the two Budgets and the pre-Budget report is to raise more than 500,000 children out of poverty. We should not underestimate the immense impact of this. When children grow up in poverty, it can disadvantage them for the whole of their lives. Lifting them out of poverty now could help them not only in the year to come but for decades into the future. As a result of these measures, households with children in the poorest fifth of the population will be on average £340 a year better off, and that will make a very big difference to them.
Pensioners will benefit too—600,000 pensioners will be taken out of tax altogether—and the increases to the working tax credit will help low-paid workers without children. The working tax credit increases will mean that a single-earner household without children earning, say, £14,000 a year will be about £180 a year better off as a result of the Bill.
I want to say more about those who will not benefit from this year’s package. These are major reforms, and the majority of households will be better off or remain the same, although some will pay more as a result of the package. It is hard, in any one Budget, to help everyone, and those who lose in any one year might have benefited in previous years or might benefit in the next. If we look at the Budgets as a whole since 1997, we see that even those who are paying more in this year’s Budget have still benefited significantly overall since 1997. So, on average, those who will pay more this year are still about £500 a year better off than they would have been under the 1997 personal tax and benefits system that the Conservatives left us with.
As the right hon. Lady has already cited the Institute for Fiscal Studies, will she remind the House what the institute’s estimate is of the number of people who will be losers as a result of this package? Will she also remind the House of the Treasury’s own estimate, as reported to the Select Committee?
We have set out the figures. Four out of five households will be better off or see no change. One in five will pay more as a result of this year’s personal tax package, but that does not take into account measures such as the extra given on the winter fuel package or the increases to the minimum wage. For example, the increases to the minimum wage over the past two years alone are worth about £13 a week to those on the lowest pay. We want to do more to help many of those who will not benefit from this year’s package and we have already been working to achieve that.
Does my right hon. Friend accept that Labour Members in general fully support the Budget and the direction in which it is going, but that there are 5.3 million workers—including some in my own constituency and that of the Exchequer Secretary to the Treasury, my hon. Friend the Member for Wallasey (Angela Eagle)—who are worse off? Before we reach clause 3, as I think we will do next week, I hope that the Government will be able to find their way not to unstitch the Budget—nobody is asking that—but to bring forward specific proposals to ensure that those in work who are on the lowest pay are not made worse off by a Labour Budget.
I welcome my right hon. Friend’s support for the overall Budget and the fact that he is not asking the Government to reopen the Budget. I hope that he will understand quite how impractical that would be when people already have their tax codes for this year and are already paying tax and benefiting from tax credits as part of this year’s proposals. He will also recognise that tax changes are part of a major package and that it is not always possible to help everybody in any one package; even those who may end up paying more as a result of this package will still be significantly better off on average than under the Conservatives’ package of 1997.
I would also say to my right hon. Friend that the Chancellor has said that it is his intention to return to this issue in future Budgets and the pre-Budget report and that he wants to look further into what we can do for those on the lowest incomes, just as we have in previous Budgets. That is why we have already made proposals for additional money to help those over 60 this year with winter fuel payments and also why we have provided further help with child tax credit and child benefit. Those will be part of a major programme of work that we shall be taking forward.
Will hon. Members allow me to complete one more paragraph of my speech, after which I will be happy to take as many interventions as they wish?
In the Budget report, we announced that we would begin a new programme of work on the next phase of tackling child poverty. We said that we would work with stakeholders, launching seminars and debates over the next few months, and begin pilot programmes on new approaches to help more children out of poverty. I can tell the House that we will now extend that work to include consideration of households on low incomes without children. Many without children have already benefited from things such as minimum wage increases and the working tax credit, but we want, as always, to do more for those on the lowest incomes, given the resources in the economy at the time. We will therefore consult stakeholders, MPs and different groups on the next phase of tackling poverty and unfair inequality in Britain. That work will initially feed into the pre-Budget report and then future Budgets as well.
Nowhere more than Plymouth appreciates the importance of the economic stability that my right hon. Friend set out earlier in her speech, but she will know that I inherited from my Conservative predecessor the poorest ward in England. Although I can see from what she has set out that the net losers are considerably fewer than was put out by the press over the weekend, does she nevertheless understand that it is some of the youngest people in the constituency, who already feel undervalued, who are losing out? Will she look further into how they might be given a signal that they do matter?
My hon. Friend raises the important issue of young people, for whom the changes in the minimum wage often make a particular difference. As I said, over the last couple of years, those changes have been worth £13 a week for those on low incomes and about £11 a week for the youngest age group. Although that has made a significant difference to their income, my hon. Friend is right that we are keen to do more to help younger workers who need investment in their skills to get the chance of a better job. Our overall approach across the Government has been to support people, through work where possible, but children and pensioners, of course, cannot go out to work. We have given particular additional support to them as well, on top of such things as the working tax credit, but I recognise the points that my hon. Friend has made.
I am extremely grateful to the Chief Secretary for giving way. Further to the question from the hon. Member for Plymouth, Sutton (Linda Gilroy), can the Chief Secretary confirm that the number in the press at the weekend—5.3 million people—is correct? Will she share that with the House today?
Indeed, those figures have been published as part of parliamentary answers, but I say again that they have not included such things as the winter fuel payment, which is an important factor. I would also say to hon. Members that they might be interested to know that about half those households that pay more this year are in the top half of the income distribution. It is right to say, as the IFS has said, that we are providing the most support for those who are on the lowest incomes.
While I fully accept and welcome the many positive proposals in the Budget, does the Minister accept that it is utterly perverse, given that a minority of households are losers, that they should be disproportionately represented among those just above the lowest income bracket?
As I have just said, interestingly, the figures show that around half those who are paying more as part of this particular package are in the upper half of the income distribution, so in fact the distribution is rather different from how it has often been presented in the media. The IFS has made it very clear that those in the bottom third of the income distribution are the biggest gainers.
Let us be clear: we have to recognise the fact that in any major package of reforms it is difficult to help every household, but that is why we look continually—in every single Budget and in every pre-Budget report—at what more we can do so that those who do not benefit in any one year may well be able to benefit in a future Budget or pre-Budget report.
The Chief Secretary has referred to the practical difficulties of making tax changes when the tax codes for this year are established, but she also referred to, and boasted about, increases in the national minimum wage. Given that the Government have announced increases—respectively for the adult and youth rates of 21p and 17p—to take effect from October, will she concede that in principle there is nothing to stop her raising the adult rate to £6 and the youth rate to £5 from October?
I appreciate the fact that the hon. Gentleman recognises the increases in the minimum wage that have taken place. I suspect that he is perhaps one of the few members of his party who have not necessarily been adamantly opposed to the minimum wage throughout its history, as I know many of its members have been. Certainly, we take the advice of the Low Pay Commission in setting the minimum wage for the future and we shall continue to do so. We have a proud record of increasing the minimum wage.
I wish the Minister to see whether we can have a figure, even if it confirms the 5.3 million. That was the figure given last year by the IFS, but it has obviously been overtaken by the tax credit changes and so on. Is 5.3 million people still a valid figure or is it now outdated?
My hon. Friend makes an important point, as the figure changes all the time because people’s income changes all the time. That is the figure that we have confirmed as part of parliamentary answers—we have set out parliamentary answers in this area—but it is also the case that, with every Budget, further changes are made. For example, the winter fuel payment, which is not taken account of, is part of that. Also—
I apologise, Madam Deputy Speaker.
My hon. Friend the Member for Leeds, East (Mr. Mudie) will also appreciate that there are changes to the winter fuel payment and such things as the minimum wage, which are obviously not taken into account as part of this. Of course, there will be further changes.
At the beginning of March, I exchanged correspondence with the Financial Secretary to the Treasury about the 60 to 64-year-olds who would lose out. She wrote back to me admitting that there would be losses, but that they
“will be relatively modest, at about £2 per week on average.”
Those losses will affect about 1.5 per cent. of people on low incomes, in some cases both people in a household. When the current Prime Minister announced the Budget, did he entirely disregard the people who would pay more tax this year than they did last year, or was this an omission that was not recognised at the time?
The work of the former Chancellor, and that of the current Chancellor, has strongly supported pensioners. In fact, the poorest third of pensioners are on average more than £2,000 a year better off since 1997 as a result of the changes that we have introduced. This year we are increasing the winter fuel payment for the over-60s as well as the over-80s, and introducing a range of other changes such as free bus travel.
I understand that my right hon. Friend is trying to help the House, but does she accept that there are millions of low-paid losers who are not entitled to tax credits, and millions more who are but who do not claim them because their earnings change from week to week and they do not want to become enmeshed in overpayments? They face food, fuel and rent increases this week, or this month. They cannot wait for a package in 2009: they need it in 2008.
Many of those families will be about £500 a year better off than they would have been under the tax and benefits system in 1997. It is right for us to continue to support households, which is why we introduced and increased the working tax credit to give additional help to, for instance, people with incomes of £14,000 or £15,000 a year. We have been working on the issue, and my right hon. Friend the Chancellor has said that he intends to return to it as part of his work on the pre-Budget report and on future Budgets. He wants to take into account not just those on low incomes with children, in whom we have already invested a considerable extra amount, but those with no children.
I have already taken a large number of interventions, and I want to make some further points.
These measures will build on the progress that we have made over the last 11 years. Overall, the lowest-income families are receiving much more help through lower taxes and higher credits and benefits than in 1997. In practice, for the poorest prisoners and families with children—
On a point of order, Madam Deputy Speaker. Can you confirm that the debate can continue until any hour, which means that every Member will have ample opportunity to speak and the Minister has ample opportunity to give way as often as she wishes in order to clear the matter up?
I believe that the right hon. Member for West Derbyshire (Mr. McLoughlin) is one of the few Members on the Conservative Front Bench who was not a member of the Bullingdon club, but that does not appear to have stopped him engaging in student politics.
As I was saying, the Bill will build on the progress that we have made over the past 11 years—
On a point of order, Madam Deputy Speaker. Is it in order for an ambiguous remark to be made that could encompass your response to the point of order properly made by my right hon. Friend the Member for West Derbyshire (Mr. McLoughlin)?
Overall, the lowest-income families are benefiting by literally thousands of pounds a year as a result of the changes that this Government have made. The poorest third of pensioners are more than £2,000 a year better off than they were in 1997, and the poorest fifth of families with children are, on average, more than £4,000 a year better off. That means over £80 a week—cash that makes a real difference to those hard-pressed families, and cash that has, more often than not, been opposed by Opposition Members through their continual opposition to the tax credits system. Let us be clear about the crocodile tears we have seen from the Opposition— [Interruption.]
Since when have the Opposition cared about those on low incomes? Since when have they cared about the 10p rate? Last October, when the shadow Chancellor made his big speech calling for tax cuts, did he say that his priority then was to restore the 10p rate? Of course not. Did he say then that he was worried about low-income households? Not a bit of it. What he talked about then was inheritance tax for millionaires. In his big speech on tax reform in February, did he say that he wanted to change the 10p rate? Not once. In his website call for action on Budget day this year, did he mention the 10p rate? Not once.
What is the shadow Chancellor’s policy now? The Conservatives would vote to keep the 10p rate now, but they will not say where the money would come from. They will vote to keep the rate, but they will not tell us whether they would restore it. The shadow Chancellor tells us about plenty of other taxes that he has promised to cut, but there is nothing on the 10p rate. They would vote to keep the rate, but now they admit that they do not even like it. The hon. Member for Runnymede and Weybridge (Mr. Hammond) said this weekend:
“We would not necessarily re-introduce the 10p rate. We are quite happy with the idea of simplification.”
All the shadow Chancellor could say today was that he wanted to reopen the whole package. Perhaps the Conservatives could tell us whether that means he now thinks that we should stop the 2p cut in the basic rate.
Once again this is shocking opportunism, and we will not take any lessons from the Conservative party on helping families on low incomes. That party opposed the minimum wage and even now still wants to opt out of the social chapter. Nor will we take any lessons from the party that is opposing the funding for the winter fuel payment this year and the child benefit increase next year.
I am very grateful to my right hon. Friend for giving way, and pleased that she is making the point that when we debated this matter last year, the Opposition sat on their hands and did not support the amendment proposed by Labour Members. She has said that the Chancellor will return to the issue in the autumn. I know that her hands are tied on this, but may I remind her that the House returns to it next week? Many of us want to know what the Government propose to do to ensure that 5.3 million lower-paid workers are not made worse off by the Budget.
I say again to my right hon. Friend that the distribution of households that are paying more is rather different from how it has been portrayed in the media. It is clear that the lowest-income households are the ones who benefit the most. This is an area on which we continue to work and, following on from our work on child poverty, we will look at those people without children and what more can be done to support them. We will also take the views not simply of MPs, but of stakeholders and others.
I want to return to the important point about the winter fuel payment, which is important for pensioners this year. In order to fund the additional winter fuel payment, as well as child benefit and child tax credit increases the following year, we are increasing alcohol duty as part of this Finance Bill. Over recent years, as incomes have risen, alcohol has become more affordable. In the supermarket, a bottle of wine costs around £4, whereas 10 years ago, the equivalent figure was nearly £4.50. The extra duty is worth only around 14p, so that bottle of wine is still cheaper than it was a decade ago. That is why this is a fair time to raise a bit of extra revenue from alcohol to help pensioners and families with children.
I am grateful to the Chief Secretary for finally giving way. She has now mentioned the winter fuel payment nine times in her speech. She has just told us that it is being funded through a permanent increase in alcohol duty. Over what period will the increase in the winter fuel payment last?
The Budget clearly sets out that we are paying for the winter fuel payment and also for the child benefit increase and the increase in the child tax credit in the following the year, so we are benefiting both pensioners and children through the increase in alcohol duty. The Opposition voted against that increase, so they are saying no to pensioners on their fuel bills this winter, and they are saying no to families with children on their increase in child benefit for the following year. Opposition Members have not been honest about that with their constituents, have they?
I entirely understand the Government’s position that such matters have to be looked at in the round, in terms of countervailing measures such as the increases in tax credits, age-related personal allowance and winter fuel allowance, and that therefore the 5.3 million figure is wrong, particularly in the context of the households to which she referred. If one takes into account such countervailing measures, and also that some households have a low-paid earner and a higher-paid earner, what is the net number of households that will lose—if there are any—because of the abolition of the 10 per cent. tax rate?
The figures change, but we have set them out in parliamentary answers and they are that four out of five households will benefit or stay the same. One in five will pay more as a result of the package, but that does not take account of measures such as the winter fuel payment, because it is difficult to take account of such measures against the personal tax package.
There is a further series of changes in the Finance Bill around inheritance tax and allowing married couples and civil partners to transfer unused inheritance tax allowances to each other, and there are also—
I have given way many times. The Finance Bill also makes changes to allow people who stay in this country for many years as non-domiciles to pay on a fairer basis. People come here from across the world to work, and we should continue to welcome them, but people who make their lives here should make a fairer contribution. That is why we are making changes in that regard. We are also making key changes—
Next year’s Budget will also be the first to set out carbon budgets for the nation, following the implementation of the Climate Change Bill. That will make the UK the first country in the world to put carbon budgets into legislation. This year’s Budget announced funding for the green homes service, but the Finance Bill particularly includes measures to promote more environmentally friendly cars, with changes to vehicle excise duty, and further announced changes will, of course, be implemented through next year’s Finance Bill.
As the Chief Secretary knows, it was the Treasury Committee that recognised that the 10p tax rate withdrawal would cause problems for many people; indeed, the Treasury official who appeared before the Committee last year mentioned that 5.3 million was the ballpark figure. In our report, we have asked the Treasury to look at that, but I will go one step further today and give the Chief Secretary and the Chancellor time to think about this before the end of the Second Reading debate tonight: I will ask my Committee to explore with the Chancellor and his officials who will lose out as a result of this 10p tax rate withdrawal and to look at any measures that could be implemented sooner rather than later to compensate them. I will ask my Committee members to look at that so that we can report back before June or July in order to inform the Treasury, in the hope that we can go a step further towards ensuring that we do not penalise poor people unnecessarily.
My right hon. Friend knows that I respect immensely the work that he and his Committee have done. We would certainly welcome further work from it on this matter, and we hope that he will be a part of the work that we now want to take forward, looking not only at families on low incomes with children, but at families on low incomes without children. We would like to take that forward rapidly, with a series of further programmes of work with stakeholders, in order to report back in advance of the pre-Budget report and to look further at these issues. I would certainly welcome further discussions with my right hon. Friend, and I acknowledge his points on the need to make progress as speedily as possible in these areas.
There are a series of further measures in the Bill to support the environment, as well as the wider work to provide additional support for the economy in challenging times and for millions of families. We shall continue to do more in all those areas, not just in the Bill but as part of future work. I commend the Bill to the House.
This Finance Bill is introduced against a backdrop of unprecedented uncertainty facing the British economy. Over the past six months, we have seen key leading economic indicators turn downwards, consumer and business confidence collapse, retail sales dip and the housing market turn. Millions of families and businesses are apprehensive about what the future holds for them.
At times like this, people want a Government who are strong and unified, with a clear long-term strategy and a sense of purpose. Instead, they have a Government who are weak and disunited, fighting each other rather than fighting for Britain, dithering and indecisive, and focused on their own short-term problems. They have a Government who have lost their sense of where they are going and their will to go there.
This Finance Bill is an opportunity missed. What the country needs today is a Finance Bill that will set Britain back on the right course. It needs a Bill to deliver a fair deal to hard-pressed families as the cost of living soars and earnings stagnate; to restore our business-friendly credentials, which the fiasco of the pre-Budget report did so much to undermine; and to set out a transparent process for future business tax changes and for proper consultation on them. The country needs a Bill to define clearly the scope of the rules and the processes for enforcing them consistently and fairly, and to reinforce the incentives for the investment and entrepreneurship that will deliver the jobs and prosperity that Britain needs for the future.
What we have is a Finance Bill that exposes the legacy of the economic incompetence that has left Britain so ill prepared for the current uncertainty and given the Chancellor so little room for manoeuvre. He has so little room that he has to increase taxes on average families who like an occasional drink or drive a family car. The Bill leaves the business community still facing huge uncertainty about the detail of the non-dom taxation policy, which is now set out in schedule 7—a schedule that is so dense and impenetrable that even the experts tell us that they are baffled by it. By the Government’s own admission, it is still so full of holes, six months after the PBR announcement, that it will require substantial amendment during the Bill’s passage.
In short, this is a Finance Bill that does exactly what we do not need at this point in the economic cycle. It raises taxes on households as the economy slows, the cost of living soars and the housing market teeters on the brink, fuelling the collapse in consumer confidence. It raises taxes on business at a time when our competitors are cutting them to support their economies, undermines investment and business confidence, and kicks families and businesses when they are down.
It is typical of this Prime Minister that, at a time when the focus of attention in the Bill should be on supporting business and consumers and stimulating investment to keep the economy from slowing still further, the income tax measures announced in his Budget of 2007, when he was seeking to box in his successor, have dominated the debate. Perhaps it is poetic justice that when he stepped off the plane to confront the grim reality of home, it was his income tax reform that was fuelling the collapse of his authority and undermining his successor’s first Finance Bill.
It is typical, too, that the Prime Minister seems to be just about the only person who still does not get it and is still in denial that there is a problem. He still refuses to acknowledge his cynical sacrifice of the interests of the poorest to his own short-term political agenda. Opposition Members well remember the farce of the 2007 tax con Budget, and how Labour Back Benchers cheered the announcement of the reduction of the basic rate. What a coup to crown the then Chancellor’s decade in the Treasury, and to launch his bid for the Labour leadership. How he basked in that achievement—for about five minutes.
Then, it unravelled. Table A1 of the Red Book exposed the sleight of hand that paid for the tax cut with the abolition of the 10p rate. Then, the Institute for Fiscal Studies identified who the losers would be; the Chief Secretary to the Treasury apparently cannot say the figure, but I will: 5.3 million of Britain’s poorest families. That figure was confirmed, give or take, in the Treasury’s evidence to the Select Committee, and that is after taking account of the increases in tax credits.
My hon. Friend is making a very powerful case. Is it not even odder that the people who are going to pay this extra burden through the abolition of the 10p band are exactly those who are hit most severely by the surge in food and energy prices and by the further big hike in fuel duty when they want to travel in their car?
That is what makes the timing of this all the more poignant, and I suspect that that double whammy has focused the minds of many Members in this House.
The thing is that the Prime Minister knew that his tax cut would be paid for by an increase in the tax burden of the poorest. The tax-cutting Budget became the tax con Budget, and boy, is the Prime Minister paying for his five minutes of glory.
We identified this problem in the 2007 Budget within an hour of the then Chancellor sitting down, and as I understand it, two amendments were tabled in the course of the following debate. One would have reduced the 10p tax rate to zero, costing the Exchequer about £16 billion, which is not a sensible or fiscally responsible way to address the problem. The other sought to put in place a long-term constraint on the Chancellor’s ability to manoeuvre in future Budgets. Neither of those is the right way to address this problem. We have to deal with the issues in this Finance Bill, the Budget before it and the 2007 Budget, and we believe that that is the way to tackle these problems.
If the hon. Gentleman expects anybody to take seriously his new-found concern for the poor and low-paid, can he explain to us why his No. 1 tax reform proposal is inheritance tax reform to benefit multi-millionaires such as the shadow Chancellor and the Leader of the Opposition, or the abolition of stamp duty on shares to benefit multi-millionaire City traders? Can the hon. Gentleman tell us which way he voted on the minimum wage, the introduction of tax credits and the introduction of the winter fuel allowance, all of which show that Labour has been consistent in delivering better standards of living for the poor and low-paid?
I appreciate that the hon. Gentleman may be the only Parliamentary Private Secretary left in the Government who is supporting the policy, but it is pretty unprecedented to have the Prime Minister’s PPS on the Back Benches with a crib note, trying to intervene in this debate. I suspect that we on the Opposition side of the House are rather with Mr. Carter on this.
If the Government want to talk about what happened in 1997, as the Chief Secretary to the Treasury did, instead of talking about the issues facing the poorest households in our society now, in 2008, then nothing demonstrates more clearly that they have lost the plot and the will to govern, and lost the way forward for Britain.
It seems that the Prime Minister’s Parliamentary Private Secretary is trying to invent a new constitutional convention: that Prime Ministers’ Parliamentary Private Secretaries must be allowed to intervene at any point in the debate on some kind of privileged basis. We would not encourage that.
In case anyone has forgotten, Labour’s 1997 election manifesto—that unfulfilled promissory note—promised, among many things, that Labour would
“establish a new trust on tax with the British people.”
That was before the term “stealth tax” had even been invented. The manifesto continued:
“Our long-term objective is a lower starting rate of income tax of ten pence in the pound. Reducing the high marginal rates at the bottom end of the earning scale…is not only fair but desirable to encourage employment. This goal will benefit the many, not the few.”
So said the 1997 manifesto, on which Labour Members sitting opposite were elected.
That long-term objective was achieved in 1999, and was hailed by the then Chancellor, who said:
“The new 10p rate—the lowest starting rate of tax in Britain for more than 35 years—will make work pay and help people, especially those who are low-paid, to keep more of the money that they earn…As a result…1.8 million low-paid workers will see their tax bills halved…a gain of up to £150 a year.”
That was what the then Chancellor said in April 1999. He concluded:
“When we make promises, we keep them.”
Today, 5.3 million low-income households know that he does not keep his promises. The income tax burden of some of them will double because, by 2007, the long-term objective had apparently outlived its political usefulness, and the low-income households that had benefited from it were betrayed by the Prime Minister. What price now his moral compass?
I stand second to none in having great reservations about the loss of the 10 per cent. rate, which is why I am backing the amendment that will be put forward next week by my right hon. Friend the Member for Birkenhead (Mr. Field).
Would the hon. Gentleman care to correct a canard that seems to have established a life of its own in recent weeks: that this particular change will fund the whole cost of the 2 per cent. reduction in the standard rate, which is about £7 billion or £8 billion? Some 5.3 million individuals or families will lose, on average, between £0 and £232—that is the most that can be lost—and £116 times 5.3 million is about £600 million. That is not even 10 per cent. of the cost of reducing the standard rate by 2 per cent.
I am happy to do so. I was to address precisely that point later in my speech, but I shall give the figures now. As the Chief Secretary to the Treasury knows, the Institute for Fiscal Studies has calculated that the total loss of those who are losers—the 5.3 million households—is approximately £766 million. That compares with the £9 billion cost to the Exchequer of reducing the 22p rate to 20p and, interestingly, with the £550 million that the Chancellor managed to magic out of nowhere between his pre-Budget report last October and the publication of his Budget this year to fund his climbdowns on capital gains tax and the non-doms regime. When they want to find the money, they seem to be able to do so.
I also have some good news for the hon. Member for North-West Leicestershire (David Taylor), who has signed early-day motion 1052, and for all those hon. Members who signed early-day motion 1308. My hon. Friend the Member for Worthing, West (Peter Bottomley), who was one of the original signatories of early-day motion 1308, has re-tabled that early-day motion this afternoon, so that hon. Members will be able to reconfirm their support for the sentiments that it contains, as I am sure their constituents would expect them to do.
Of course, everyone likes a tax cut, but how many hon. Members, on either side of this House, came into politics to increase taxes on the poor? There is almost universal consensus that that group is already overtaxed, but increasing taxes on the poor is precisely what we are being asked to do in voting for this Finance Bill this evening. How many hon. Members, and how many people in this country who will themselves be net beneficiaries of the 2p basic rate tax cut, feel comfortable knowing that that cut will be paid for by increasing the taxes of the lowest paid in our society? They include single people, childless couples on low incomes who are not entitled to tax credits, those who—for whatever reason—do not claim tax credits to which they are entitled, and elderly people under 65 living on savings income or pensions. Care workers, soldiers, postmen, call centre operators, security guards and hospital porters are all examples of the millions of ordinary working people who will be penalised.
I am following the hon. Gentleman’s remarks with great interest. Can he tell my constituents, some of whom live in the poorest ward in England—a legacy of the Conservatives—how he voted on the 10p tax rate in 1999, on tax credits and on the minimum wage? Unless he puts that information on the record, none of my constituents will be impressed by his new-found religion.
I would stop short of calling it a religion. A theme is developing, because the only way that the Government can think of to try to defend their position is to go back to a baseline of 1997. By implication, the Prime Minister is trying to say to people, “Look, don’t worry about the fact that you will be £200 or £250 worse off this year as a result of the Finance Bill. Just remember that you had some good times in years gone by, so you shouldn’t worry too much if we take this money away from you now.” I have to tell the hon. Lady and the Prime Minister that that is not how people, especially those on low incomes, think or plan their lives. Those people need help now to deal with the hit being imposed on them, the scale of which many of them—and, I suspect, Labour Members—did not appreciate until very recently.
I am glad to note that the hon. Gentleman was one of the signatories of the early-day motion, and I hope that he will sign early-day motion 1340 at the earliest opportunity.
We have made it clear that the message that we hope to send to the Government next Monday evening is that they have to go back to the drawing board and unpick this £20 billion package of income tax rates, income tax thresholds, tax credits and national insurance bands in order to mitigate the most negative effects—£766 million-worth—on the poorest families.
I had three messages today. One was from someone whose son had become ill and she wonders how she will pay for prescriptions, one was from a pensioner aged 63, and one was from a woman who says that she has a few part-time cleaning jobs earning £6,500 a year. Her husband is in relatively low-paid work and she says that she cannot believe that a Labour Government can do this. In a non-party spirit, cannot the Government do something to help these hard-working or early-retired ordinary people?
I entirely agree with my hon. Friend’s sentiments. My inbox has been jammed with e-mails and my postbag stuffed with letters from people—not necessarily my constituents—telling me how this change will affect them. Disbelief is the key theme. People simply cannot believe that Parliament can conceivably impose such a penalty on people who are on such low incomes.
Is the situation not ironic whenever the Government foul up? I can only think that the impact of the 10p abolition on that group of pensioners was a foul-up, as the Minister has still not answered my earlier question. Was it a deliberate policy, and did the Government think that the loss to that group of very poor people of an average of £2 a week meant, in the Minister’s words, “Just a modest amount”, or does my hon. Friend believe that the Government fouled up and are now, as usual, looking to us to try to sort out their mess?
I must tell my hon. Friend—I think I have already said this—that I do not think that it was a foul-up. The then Chancellor knew precisely what he was doing. He was making a pitch for votes in a Labour leadership contest and he wanted to show that he could reach out to middle England, Blair-like, in the contest to come. He sacrificed the interests of some of the poorest in our society on the altar of his short-term political interests.
The Labour-dominated Treasury Committee—we always describe it like that, but having heard what its Chairman has helpfully said today, I am not sure how relevant that is any more—put the point in its report on the 2008 Budget with masterful understatement. It said that
“the group of main losers from the abolition of the 10 pence rate of income tax seem an unreasonable target”—
The hon. Gentleman has had enough of a turn today. He needs to scuttle back to No. 10. I hope that the purpose of his being here is to take the pulse and feel the mood. I hope that he will go back to No. 10 and tell his master what the mood is.
Let me finish the quotation. The report stated that
“the group of main losers from the abolition of the 10 pence rate of income tax seem an unreasonable target for raising additional tax revenues”.
The Prime Minister claimed that that was all done in the interests of tax simplification. The Conservatives are in favour of tax simplification, but we would not propose, nor can we support, a reform of the income tax system that is carried on the backs of the poorest. It is morally abhorrent.
The truth is that the package had nothing to do with simplification. Why should it? Its author, after all, is the man who has doubled the length of our tax code and given us the most fiendishly complex tax system in the developed world. He simply does not do simplification. It had nothing to do with a long-term strategy either. Indeed, it undid that man’s own long-term objective eight years after he had achieved it. As I have said already to my hon. Friend the Member for Tiverton and Honiton (Angela Browning), it was all about trying to convince the Labour party as it moved to choose its new leader that he could reach out, Blair-like, to middle England. He might have fooled them at the time, but if proof were needed of the extent to which the Prime Minister is out of touch with the British people, this debate delivers it.
When the parliamentary Labour party met a few weeks ago and discussed the doubling of the 10p rate, a nameless Minister was quoted as saying:
“Gordon did not seem to understand what they were talking about and kept insisting that nobody would lose out by the change. He…gave the impression he was living on another planet.”
Last week, the Prime Minister was not on another planet, but he was on another continent. He was still insisting that no one would lose out and he could not understand what all the fuss was about. The inner circle in the bunker with him remained in denial. The Minister for the Cabinet Office airily dismisses the fate of the 5 million people who are worse off as a result of the changes as a “matter of regret”—a minor piece of collateral damage in the path of the clunking fist. The Secretary of State for Children, Schools and Families apparently thinks that raising tax on the poor is part of the process of taking forward “the fairness agenda”.
Others understand; they get it. They come from all Opposition parties and from Labour, and include some Members on the Treasury Bench. The Lord Chancellor understands; so does the Minister for the Olympics. It appears that the penny is slowly dropping even for the Foreign Secretary. Perhaps even the Chancellor of the Exchequer was hinting last week in China that he understood. The hon. Member for Sheffield, Hillsborough (Ms Smith), who we are delighted to see in her place today, appears to have got the message. In her case, it was drowned out by another message that came across the Atlantic in a display of long-distance bullying that would put the Kremlin to shame. Those Members understand because they have been listening to their constituents, holding their surgeries and reading the letters and e-mails, as we all have, from people who are just working out what the Prime Minister’s “simplification” means for them.
The hon. Gentleman will, of course, be aware of the question that I asked my right hon. Friend the Chief Secretary to the Treasury. The hon. Gentleman keeps quoting the figure of 5.3 million, but there are counterbalancing measures. He always does his research and he is careful with his figures; can he give the House the net number of households that will lose out? Most of us would agree that it is not 5.3 million, although we are concerned that there are losers.
It is no good the hon. Gentleman’s saying that it is not; it is a net figure. What is more, Treasury officials who gave evidence to the Treasury Committee gave a net figure of about 5 million, so I am afraid that the hon. Gentleman will have to go back to the drawing board.
The hon. Gentleman is very precise in trying to outline the problem. Will he be equally precise in outlining a remedy? So far, the only solution that we have heard from him is the idea that there should be a review of the whole Budget. Does he propose getting rid of the 2p income tax reduction, and will he reintroduce the 10p income tax rate? If he will do neither, what precisely does he propose doing? So far, he has been strong on generalities but has not given any specifics.
As I understand it, the hon. Gentleman has reservations about the policy put forward by the Government. We want to work with Labour Members who have such reservations, and indeed with the Government. The Leader of the Opposition has made it clear that he is prepared to sit down with the Chancellor or the Prime Minister and try to sort out the mess into which the Government have got themselves.
When the Chancellor wanted to climb down on the capital gains tax proposals and the non-doms part of his pre-Budget report last October, he was able to find £550 million. If he wants us to work with him, to look at the whole £20 billion package of income tax and national insurance changes, and to work out how we might mitigate the effect on the worst-off in society, we are happy to do that. Let me remind the hon. Member for Bassetlaw (John Mann) that we are scrutinising a Finance Bill. The Opposition’s job is to consider each of the measures in the Bill and to vote against them if they are inappropriate and bad for the country. However, it is the exclusive prerogative of Ministers of the Crown to put forward new proposals that have tax-raising effects.
The hon. Gentleman’s party leader disagrees with him; his party leader says that it is for the House to make its decisions. The two of them have the opportunity to table amendments to the Bill. Precisely what amendments will the hon. Gentleman put forward, so that I and others in the House can consider and contemplate their worthiness or otherwise?
Procedurally, the hon. Gentleman is wrong; only Ministers of the Crown can put forward the type of amendment to the Finance Bill that he suggests be made, but we live in hope that amendments will be tabled to the part of the Bill that we are discussing—and not necessarily by the official Opposition. We will look carefully at those amendments. If the hon. Gentleman and his colleagues hold their nerve and focus on addressing the problem, rather than on trying to score party political points against those across the Chamber from them, we can win this one. We can send the Government back to the drawing board to think again.
I will not give way to the hon. Gentleman again. I have given way to him three times in a row. We are not asking the Government to back down completely from their proposal; that is not realistic. We are asking them to go back to the drawing board, and to unpick the package and put it back together again in a way that mitigates the effect on the poorest members of our society. I think that that is what Labour Members who have concerns want.
On a point of order, Madam Deputy Speaker. Will you advise me? It is a long time since I have read “Erskine May”, but does it have a section requiring that when a Government are in a mess such as this, it is somehow incumbent on the Opposition to table an amendment to get them out of the mess? Would that carry procedural weight in the House?
No, I am going to make some progress, because I have already been speaking for half an hour.
“Watch this space,” the Exchequer Secretary said on Friday; I say to my hon. Friends that if we watch her space through to the next reshuffle, I fear that we may find it empty. Let us hope that she meant that, behind the intransigent bluster that the PM does so well, the backroom boys in the Treasury U-turn department were working over the weekend and yet another climbdown is in preparation—if not today, then before the debate in Committee next Monday. The Government found the money for concessions on non-doms and capital gains tax; they can look at the package and unpick it if they want to.
I could make many other points about the Bill. The former Chancellor’s Budget last year did not stop at the 10p rate for low-income families; when he had finished reversing his policy on the 10p rate of income tax, at the expense of low-income families, he reversed his policy on the taxation of small companies and announced an increase of 3p in the pound—hammering the very people whom he had encouraged just a few years earlier to incorporate their businesses with the now-abolished zero rate. The message is clear: people should not come here if they are looking for a stable and predictable fiscal regime for their business.
Is the Prime Minister responsible for all the problems in the Finance Bill? That depends on who we think was the author of the pre-Budget report. The chaos and confusion that followed from the ill-thought-through proposals on the tail of the cancelled election last October have caused a huge problem in the business community and damaged Britain’s reputation as a business-friendly environment and the Labour party’s credibility with business even further. I could talk endlessly about those issues, but the mood of the House is to move on.
I want to refer specifically to one more thing before I finish: the dramatic increase in powers being granted to Her Majesty’s Revenue and Customs. Some tax experts are telling us that that is the single most important long-term aspect of the Bill. The pattern started with the Finance Act 2007, and without waiting to see how the new powers work in practice the Government have gone on to extend them to the whole range of taxes in this Bill.
HMRC will be given powers to authorise itself to enter premises, including third-party premises. The safeguard on distraint of taxpayers’ goods will be scrapped in primary legislation. There are constitutional questions around clause 117, which will create an order-making power to repeal or amend any primary legislation, including the Finance Act 2008 itself. These are huge new powers at a time when HMRC is miscalculating the taxes of 1 million or more of our fellow citizens every year, when public confidence in the chaotic administration of tax credits is at an all-time low, and when the shockingly casual attitude to data security has been exposed by the loss of the personal data of half the families in Britain. The Government’s response is to give it more powers. This increase in powers is a step too far and a step too soon, and we will seek to postpone their implementation, if the Bill obtains a Second Reading, and to get them brought forward again in a stand-alone Bill that would be subject to scrutiny in the other place, which has expressed a strong interest in such bureaucratic powers.
As the economy slows and we all peer into an uncertain future, this is the wrong Finance Bill to present to this House today.
“We are where we are”,
as the Chancellor said on the “Today” programme on 13 March, and we all know who is responsible for getting us here, ill-prepared, over-borrowed and almost uniquely exposed—the same person who is responsible for most of the Chancellor’s woes in this Finance Bill. At a time when families, particularly those on lower incomes, are struggling with the soaring cost of living and stagnant earnings, it clobbers them with tax increases. At a time when Britain desperately needs business investment to create the jobs and prosperity of tomorrow, it raises business capital taxes by 80 per cent. At a time when people crave certainty, it creates ambiguity, with arbitrary and sweeping new powers for the authorities and an unparalleled lack of clarity around some of its most important clauses.
Most of all, this Finance Bill represents a breach of trust: with investors, who invested on the basis of Labour’s long-term capital gains tax regime; with small businesses, who incorporated on the back of Labour’s long-term small companies tax plan; and, above all, with the 5.3 million low-income households who were told by our Prime Minister, when he lowered their income tax in 1999,
“When we make promises, we keep them.”
The weasel words that the Chief Secretary offered to the House will satisfy no one; they do not begin to address the Government’s breach of trust with those on the lowest incomes in Britain. She goes on about 1997, talking about winter fuel payments that do not affect that group of people at all.
Earlier this afternoon, we heard what the Bank of England is going to do to help Britain’s hard-pressed families and businesses. Now it is the Government’s turn. A promise is a promise. The Government need to go back to the drawing board and reconstruct their tax reform package so that it is not carried on the backs of the poorest in our society. Until they do, my hon. Friends and I, and I suspect many other honourable Members of this House, will not support this Bill.
It is traditional for a Treasury Committee report to be tagged for debate on the Second Reading of the Finance Bill, so as Chairman of the Committee I am pleased to give a short speech on that report. The Treasury Committee’s report on the 2008 Budget was published at the start of the recent recess and has been widely covered, but it was misrepresented in some quarters, not least in terms of forecasts. The Committee itself makes no forecasts for growth in future years, but we said that the outlook from the collection of independent forecasters indicated that the Treasury’s forecasts were slightly optimistic.
I will consider three aspects of the Finance Bill and its contents: first, the overall fiscal position; secondly, the measures to reduce poverty and the 10p tax rate; and thirdly, the scope and impact of measures affecting non-domiciled taxpayers. On the fiscal position, in many ways the Government’s position is strong. Other than Canada, no G7 country has had a fiscal surplus in more years since 1997 than the United Kingdom, and compared with many EU countries our levels of public sector net debt are low. As a Committee, we understandably focused on the two fiscal rules that the Government have set themselves, and we highlighted two areas of concern. First, on the interpretation of the golden rule, we consider that it has been too closely linked to the timing of economic cycles, which has encouraged a position in which examination of the Government’s overall fiscal position has been unduly focused on rather arcane controversies about the dating of the economic cycle.
Secondly, the margins by which the Government expect to meet their sustainable investment rule relating to net sector public debt are tight, and seemingly highly dependent on the Treasury growth forecasts, which are at the top of the outside forecasts for growth in 2008 and 2009.
Does the right hon. Gentleman agree that if we add the unfunded pension liabilities, the PFI and PPP off-balance-sheet liabilities and the off-balance-sheet liabilities for Network Rail and Northern Rock, public sector total obligations are in excess of gross national product, at around £1.5 trillion? That is an enormous figure.
As the right hon. Gentleman knows, the Treasury Committee comprises Members of all parties—his own, the Liberals and Labour. We have concluded that the fiscal position of the UK is strong in comparison to other EU countries.
I want to focus on the measures to reduce poverty and on the 10p tax rate. The Treasury Committee considered the problems of marginal deduction rates and the impact of the abolition of the starting rate of income tax in the context of measures to reduce poverty. We welcome the increases in child benefit and child tax credit that are designed to achieve further progress on the Government’s child poverty targets, and we specifically welcome the £1 billion that the Government found to fulfil those targets. As those on the Front Bench know, we were cautious about that because, in a previous report, we questioned whether the Government were resiling from their commitment. We were pleased to see that the £1 billion was included in the Budget proposals.
We note the significant one-off increases to the winter fuel allowance, which should make all pensioner households better off in the tax year 2008-09, and which need to be built on by further measures in future years; those increases will help 9 million pensioner households. We also welcomed the maintenance of the 10 per cent. starting rate for savings for pensioners. Our concern about the abolition of the 10p income tax rate, however, is concentrated on households that do not stand to benefit from measures targeted on families with children, those seeking to return to work or pensioner households. We specifically said that those who do not gain from the measures on child poverty, fuel poverty and incentives to work would lose out, and we are talking largely about those on incomes of about £18,500 a year and less. We are talking about those who are under 60, who will not qualify for the winter fuel allowance; those with no under-18s in their households, who will not qualify for child poverty payments; early retirees; and those not claiming working tax credit, where take-up is low. The Minister will know that the tax credit take-up rate is about 19 or 20 per cent., which is scandalously low. I believe that £1.28 billion is available, and it is important that there is a campaign to increase the take-up rate. We cannot allow such a scandalously low figure to be maintained.
Does my right hon. Friend agree that although the tax credit system has been a boost to the incomes of many households, any household that has fallen foul of the system will be reluctant to get involved with it again in case it receives an overpayment that has to be paid back? That does not act as an incentive; it makes people more than reticent about getting involved.
My hon. Friend is right, but the Government have to be lauded for their intentions. Previously, we had a system under which we had to wait for more than a year to find out what people’s earnings were, and then corrections would be made. The Government say that they will move to a system whereby things can change on a monthly basis so that we can encourage people to work. However, the bureaucracy gets in the way. People do not remind the Government of their intentions or report their earnings, or loss of earnings, and we end up with the situation we have seen in the past. We have to work on that, and I endorse a system whereby we ensure that people’s income is reviewed on a regular basis so that they get the benefits they need. However, there are problems with the system and, as my hon. Friend knows, the Select Committee has been vigilant about that. We will ensure that we maintain that vigilance.
According to the ombudsman, Britain is alone in having three different Departments that provide benefits—through local government and housing benefit, the Revenue and the Treasury, and the Department for Work and Pensions. Would it not be simpler if one Department provided all those benefits—a one-stop shop, which could be adjusted weekly or monthly according to need?
On tax credits, especially the marginal deductions for those who are seeking to get back into work and coming off tax credits, the problem is that the Budget increases the number of people who have to pay more than the 60 per cent. marginal rate of tax if they come off working tax credit and get into work. In the past 10 years, that number has grown from 800,000 to 1.8 million. Surely that trend is going in the wrong direction.
The hon. Gentleman is a good and hard-working member of my Committee, but on the marginal rates of taxation he knows that, since tax credits were introduced in 1997, the 100 per cent. withdrawal rate has almost been abolished, and we are focusing on the 60 to 70 per cent. rate.
I remember evidence from Mr. John Whiting of PricewaterhouseCoopers, one of our expert advisers on tax, who said that the high marginal deduction rates might be the consequence of the Government trying to achieve their social policy goals. He—and, indeed, Treasury officials—mentioned that the main reason for that was the extra help that the 2007 Budget introduced through tax credits. He said:
“That brought more people into tax credits, the result being that more people then faced higher marginal deduction rates.”
On the one hand, we want to help people by bringing them into tax credits, but on the other, there are the marginal deduction rates. There is no doubt that there is an issue, to which the Treasury Committee will revert.
However, the controversy about the removal of the 10p tax rate has highlighted the importance of the challenge for the Government to do more for those who slipped through the net of measures on child poverty and fuel poverty, especially by redoubling our efforts to make working tax credit take-up worth while for those in households without children.
Ministers made the point about the number of people who are affected by the change. The Treasury Committee is clear about the matter. In evidence to the Committee last year, Mr. Mark Neale, the director of the budget, tax and welfare directorate at the Treasury, said that 5.3 million was the ballpark figure. We should all be straightforward and honest about that, identify the problem and state what we will do. I therefore reiterate my invitation to the Chief Secretary and others. I will put it to my members that the Treasury Committee examine the issue urgently and report back to the Treasury. I repeat that 5.3 million is a ballpark figure.
The Treasury stated to us in evidence:
“Estimates are that 0.8 million single earners with income under £18,500 will see their income decrease by around £1.45 a week on average…The maximum amount any single individual could be worse off by is £232 per year (£4.46 per week) about 3 per cent. of net income…For households that are worse off, the average loss is about £2 per week.”
The Treasury recognises that. Indeed, the Chancellor acknowledges it. In evidence to the Committee, he clearly said that it would affect women between the ages of 60 and 65. Let us therefore establish that people will be affected. People on low incomes will be affected and we need to find out who the winners and the losers are.
One of the problems is identifying the winners and the losers. I have been asked in many interviews in the past few weeks why it has taken Members of Parliament a year to wake up to this matter. No specific information identified the winners and losers and one had to wait until the new arrangements were introduced in the Department for Work and Pensions—that happened last month. Before I was interviewed on one television programme, I tried to find out, through contact with representatives of the Department for Work and Pensions, exactly what the new measures were. They said that they would not be available until the first Monday in April.
We got that information, from which I found out that, sure, a working household with no children with a combined income of £17,500 to £18,000 a year would lose about £13 a week, but also that in some instances single earners would gain. There is a fuzziness, and we do not know who the winners or the losers are. I refer the Minister to the Treasury Committee’s clear recommendation in its report on the 2007 Budget:
“An important part of any change to the personal taxation regime must be that both winners and losers can identify, with ease, how they are affected by the changes stated within a Budget package. We recommend that, in future, this information be provided within the Red Book.”
If the Government had indeed provided that information in the Red Book, we might not be having the highly charged debate on the issue that we are having today.
Does my right hon. Friend agree that the media’s claims that Labour Back Benchers have been silent on the issue for 12 months are misleading? Members like me were writing to the Treasury about the points that our constituents were raising with us on the issue 12 months ago.
My right hon. Friend rightly talks about winners and losers. Would it not simplify the situation if the only losers were the very rich? They would pay more tax, which would not complicate the system, because they do not claim benefits, and no one on average or low incomes would need to be a loser at all.
Over the past hour or so, my right hon. Friend has made the Government the offer that his Committee will look again at the 2008 Budget. I hope that those on the Front Bench will intervene to indicate that they accept that offer. May I impress upon my right hon. Friend the need to undertake that inquiry with some urgency, in order that the Government might have a vehicle through which to alleviate the situation in which many lower-paid taxpayers find themselves?
I would be pleased to return to that issue as quickly as possible. As I have mentioned, the Treasury Committee has tracked the issue since last year, when the figure of 5.3 million people not gaining was given. We have been on the case for that year and we would all like a decent resolution of the problem, but it is for the Chancellor and the Prime Minister to respond.
No, 5.3 million is still the figure. I mentioned the winners and the losers. There are ups and downs and a nebulous element to the process. That is why we need to ensure clarity in the debate, so that we can show who the winners and the losers are. If the Committee undertook any inquiry, that is one thing that we would want to do.
I thank my right hon. Friend for giving way again. I was not trying to minimise the issue for the losers; I was just referring to the evidence that Mr. Chote gave the Committee last year. He made it clear that the figure of 5.3 million would come down over the next 12 months. It would be helpful to have some proper quantification of the figure. Whether the figure is 5.3 million, 4.3 million or 3.3 million, the issue is still vital, but it appears that Mr. Chote has not provided any further information.
There are in fact figures. I do not want to go through them tonight, but let me give my hon. Friend a feel for them. Some 2.2 million of the total will be single working people with no children who do not receive tax credits, while 1.2 million will be two-earner couples with no children and 400,000 will be households comprising one-earner couples without children, most of which will be in the range of about £17,000 to £18,500. There will be 700,000 two-earner couples with children who will lose twice because of income tax and national insurance changes, but who will perhaps gain only once through child tax credit or working tax credit. There will be 300,000 tax-paying women between the ages of 60 and 64 who do not get tax credits and who are too young to be compensated by the rise in pensioner tax allowance. There will also be 500,000 non-workers paying more tax on their taxable benefit and pensions than they gain. They could be early retirees or incapacity benefit claimants. We can see, therefore, how wide-ranging the impact of this measure will be. Those are the figures that add up to the 5 million; I am quite happy to share that information.
Many football fans get frustrated with supporters who turn up only when their team is winning. Does the right hon. Gentleman agree that the Labour party has the opposite problem, in that many of its members develop a conscience only when their team is losing?
The right hon. Gentleman said that he was looking for a solution to the issue of the 10p rate. Surely that solution will present itself next Monday when the right hon. Member for Birkenhead (Mr. Field) presents his amendment. If the Chairman of the Treasury Select Committee and his colleagues want a solution to this, all they have to do is support their right hon. Friend.
That is utter nonsense. The fact is that 21 million people—four out of five people—will gain from the measures. It is typical of the Scottish National party to say that we can find a solution to the problem by creating further anarchy. We cannot do that; we have to be realistic and grown-up about this. The fact is that there is a taxation issue here in the Budget, and we need to be positive about it. Why do I want a solution? I want a solution because poorer people will be affected, and I would have hoped that the hon. Gentleman shared that worthy concept rather than warmongering and trying to create division. He is living up to his past, however, and he will probably continue to do so.
I want to move on to better things. The only other measure that I want to talk about today is personal allowances for non-dom taxpayers. Public debate has focused on the issue of non-doms who will be required to pay the £30,000 charge, but many shorter-term non-doms will be affected by the removal of personal allowances, including many with quite small amounts of unremitted foreign income. There has been a focus on the wealthy non-doms, but almost none on the low and middle-income groups who will be affected by the changes.
There is a serious risk that HMRC could face the problem of millions of foreign workers either seeking advice or being in breach of the new law. John Whiting, our adviser on the Select Committee, was very clear on the issue of low-income non-doms, and he said that millions of them could be affected. I am aware that the Treasury has estimated that there are 80,000 people with both a UK and a foreign income. That might be because it did not include the unwitting non-doms. The Treasury Select Committee report makes it clear that we feel there has been insufficient consideration of the possible impact of the tax changes in the Budget on middle and lower income groups, and we would like the Government to look at that.
By far the largest group of people affected will be the lower and non-income professional workers. An example that has been cited are the typical Polish or Romanian migrant workers who pay UK taxes but who probably do not even know that they are non-doms because they do not know the term, and therefore do not realise that they are about to lose their personal allowance. They will certainly not have any advisers. That group could unwittingly be in breach of the new £2,000 limit for non-doms, and could therefore suddenly lose their UK tax-free allowance. We are asking the Government to be aware of that problem. More importantly, in the light of some of the recent comments about the capability of HMRC, we are asking HMRC to be aware of it. If it is likely to affect millions of people, HMRC needs to understand the problem that is coming down the line.
The right hon. Gentleman talks to the same kind of people as I do, and I am sure he will have heard that there is a mood growing among tax professionals that HMRC in fact intends to deal with this problem by turning a blind eye to the large number of low-income non-doms who will inadvertently become non-compliant. Is that the impression that the right hon. Gentleman has gained, and does he share my concern that that would be the beginning of a slippery slope?
I shall refer again to John Whiting of PricewaterhouseCoopers, who has highlighted this point. In his evidence to the Committee, he said that HMRC had come a long way in terms of its engagement with business. This is still a live issue, however, because I am not sure whether HMRC is aware of the potential problem. It is that lack of awareness that I am trying to point out to the Minister. This applies to anyone whose foreign income could be affected, such as anyone with overseas savings of about £40,000, as the interest on that would be more than £2,000, which is the de minimis level. Equally, the measure could affect anyone renting out a property abroad or who has a summer job abroad. I want HMRC to look at this, because I have enough on my plate as Chairman of the Treasury Select Committee with all the inquiries that we carry out. I do not want to have to carry out an inquiry into this matter in a year’s time, so will the Minister help me out by solving this before it becomes a bigger problem?
I am willing to work with my colleagues in the Government on the withdrawal of the 10p tax rate in relation to low-income workers so that we can identify and compensate them, and so that we are not seen to penalise them unnecessarily. With that, I shall finish my short speech.
There are two main ways in which a Member of this House can judge a Finance Bill, a Budget or, for that matter, a Government. The first is to ask whether the measure has a vision, a sense of purpose and a direction. The second is to ask whether it has what the Prime Minister calls a moral compass. That is the issue that has occupied us to the greatest extent so far today, and the one to which I will devote the largest part of my speech. It is the specific issue of the doubling of the 10p tax rate that is causing the greatest amount of grief and unhappiness among my constituents and among people right across the country.
First, however, I want to touch briefly on whether the Budget had a vision or a sense of purpose, and whether it told us what the Labour party seeks to achieve and what drives the Government. In this debate, we have been discussing a change that was made in the Budget of 2007. The 2008 Budget has escaped without being given much attention at all because it was the most puny, unambitious Budget in living memory.
During the parliamentary recess, I had the opportunity to attend a commemorative service in my constituency to mark the 40th anniversary of the assassination of Martin Luther King in Memphis, Tennessee, in 1968. During the service, I reflected that he had been a man of huge vision. He was an inspirational figure who had a dream and who had stood on the mountain top. He had seen the promised land. How diminished our politics seem by comparison today.
The Labour party, which was founded just over a century ago, was founded for entirely noble reasons. Many people in this House, not only those in the Labour party, will conclude that the formation of the Labour party was to the benefit of the politics of this nation and the many people who live in it. The Labour party was out of government from when I was eight years old until just before my 27th birthday. During that period—from the earliest that I can remember through to my mid-twenties—many people worked in the Labour party to try to make it fit to govern this country again. Many people, including those on the Labour Benches, when they heard this year’s Budget, will have been entitled to ask, “Is that it? Is that what it was all for? Is this what our great party has become?” It was the thinnest, most unambitious, managerial Budget that I can remember.
Another notable American politician, Barack Obama, is fond of saying that politics is becoming smaller just as the issues are becoming bigger. That is particularly true in relation to this Government, who seem to have no purpose or sense of direction left. Yet there are a number of visionary causes that they or any UK Government could adopt. After a massive expansion over the last decade, the Government are now spending £1,700 million every single day—in fact, the Government’s daily expenditure is now more than the entire expenditure of the Foreign and Commonwealth Office for a whole year.
As I say, there is no lack of issues for the House and the Government to get to grips with; the question is not “How much?” but “How?” We are no longer in the area of talking about whether taxes and public spending can be endlessly raised; rather, we are in the area of talking about how we can spend that money more efficiently and achieve better value for money on behalf of all our constituents in order to achieve the objectives that we all share. The primary domestic objective must be to make public services more accessible and more accountable. How can we, as a group of politicians, ensure that people of all incomes can be empowered to shape their own lives? The big domestic challenge of the 21st century is to create health and school systems that are fit for our times—not just through extra public spending, but through meaningful reform.
Of course, the greatest challenge of all facing politicians of our era is how we can protect our planet from ruinous climate change. There is clearly an agenda there for a Government who have vision, a sense of direction and a sense of purpose—a Government who can grasp the scale of the threat and the opportunities and who have the imagination to respond.
The hon. Gentleman is talking about vision, so has he not heard of the Climate Change Bill, which is going through the House? How does that Bill square with the idea of the Labour Government not doing anything about climate change? I simply do not understand the hon. Gentleman’s point, as we are the only Government in the world to introduce a Bill to deal with climate change.
I did not claim in my opening remarks that the Government had done nothing at all; I said rather that the scale of their ambition was far too puny, timid and lacking in ambition. That is very much true of the Climate Change Bill; in fact, I could not have come up with a better example if I had sat in my office and given considerable thought to the matter. That Bill is a proposal put forward by a Government who have been in office for 11 years, during which time the issue of climate change has become considerably more acute. It would be fair to say that my party was talking about environmental issues to a greater extent than the other parties in the 1997 election and before, but the Government have put this proposal forward and made some progress. The Bill, however, does not go far enough. Instead, we had a Budget that confirmed how small and how visionless Labour in government has become. If I were a Labour Member, that—beyond any specific proposals in the Budget package—would depress me most: the sense that the momentum of the whole exercise and the entire reason for being in government have come to a halt. The Government are petering out, running out of ideas for the future of this country.
May I suggest that the hon. Gentleman is simply in the position of not sharing the Government’s vision? There is a Government vision. The hon. Gentleman talks about the NHS; there is a Government vision based on more autonomy for hospitals, foundation trusts, “choose and book” and so forth. The Government have an agenda on school education, which involves empowering parents, as recent announcements show, and they have an agenda on what goes on in schools and further education colleges—training, diplomas and so forth. There is also a Government vision in respect of higher education and—
Order. That is sufficient for the time being.
I am grateful for that intervention. I would not disagree that there is a list of Government policies, but I would disagree that they amount to a vision. I was not present at the parliamentary Labour party meeting—obviously, because I am not a member of the parliamentary Labour party—but I heard reports, which the hon. Gentleman might like to confirm, that Labour Back Benchers told the Prime Minister that they did not know what he stood for. At least with Tony Blair as leader, people felt that there was a sense of direction; they may not have liked it, but they were not left confused about what the Government were trying to achieve. Many people in the Labour party and beyond it no longer know precisely what the Prime Minister and the Government stand for.
That brings me on to my second and larger point, which is the Government’s moral compass and the doubling of the 10p tax rate that was in the Budget of March 2007. People in my constituency and elsewhere are entitled to ask what took Labour Back Benchers so long. Seventy three Labour MPs have signed early-day motions critical of the change, but the Budget was on 21 March 2007—precisely 13 months ago today—when the Government Benches were full of Labour MPs waving their Order Papers and braying at the electoral triumph just laid before them by the man who is now the Prime Minister. It has taken them an awfully long time to look at the details of the Budget.
Perhaps the hon. Gentleman should not read too much into the number of Members who have signed early-day motions. I, for one, have not signed an early-day motion on this matter, but I can assure him that within two to three weeks of last year’s Budget, I was sitting at a table with our Prime Minister, then Chancellor of the Exchequer, expressing my severe reservations about the announcement.
We “Browns” must stick together to ensure that the main “Brown” is put in his place. [Interruption.] I keep hearing sedentary interventions, asking whether the hon. Gentleman was satisfied with the conclusion of his negotiations with the current Prime Minister. I will gladly give way to him again if he will tell me whether he feels that the current arrangements are to his satisfaction.
That sounds a tantalising prospect. The next four hours will fly by.
I remember that, on 21 March 2007, the Labour Benches were awash with a sense of euphoria that the then Chancellor had paved the way to Downing street with no contest, as no one would stand against him. The leader of the Conservative party rose to his feet—we have to remember, of course, that my constituents pay more in their taxes for the salary of the right hon. Member for Witney (Mr. Cameron) than they do for any other Opposition MP, so we are entitled to think that he will stand head and shoulders above us all in respect of his ability to analyse the Budget—but unfortunately, he did not notice the doubling of the 10p rate. In fact, in the first line of his speech, the leader of the Conservative party said the following words on behalf of the 5.3 million people who were losers in the Budget:
“Well, the Chancellor has finally given us a tax cut.”—[Official Report, 21 March 2007; Vol. 458, c. 829.]
That was his analysis.
Just for the record, the reason my right hon. Friend the Member for Witney (Mr. Cameron) did not notice that is that it did not appear in the Chancellor’s speech. We had to get the Red Book and plough through its tables to understand precisely the sleight of hand that the Chancellor had used.
I am grateful for that intervention, which brings me perfectly to the next speech that was delivered on that occasion, which was by my right hon. and learned Friend the Member for North-East Fife (Sir Menzies Campbell), the then leader of the Liberal Democrats—[Interruption.] Indeed, he is not our leader now, but he made a speech that would have informed both Labour and Conservative Members if they had taken the opportunity to listen to it. If you will indulge me, Mr. Deputy Speaker, I will cite what he said at some length. In the same debate as the leader of the Conservative party welcomed the tax cuts, my right hon. and learned Friend said:
“The Chancellor told us as he sat down, to waves of applause, that he would cut the basic rate of income tax from 22p to 20p. On the face of it, that is a Liberal Democrat proposal and a welcome one. But if one looks carefully, one sees that the revenue to justify that reduction will be obtained from the abolition of the 10p rate. To fund the reduction, income tax will be increased for many taxpayers. One could say that we will be asking the poor to subsidise the rich. That is an example of the sleight of hand that the Chancellor has demonstrated in the past.”—[Official Report, 21 March 2007; Vol. 458, c. 834.]
[Interruption.] I hear sedentary interventions once again, but there is a difference between being the official Opposition and being an effective Opposition; just being numerically superior in the House of Commons does not make Members more able to stand up on behalf of their constituents. [Interruption.] We will come on to the Conservative party in more detail in a few moments, as its tax policies deserve greater scrutiny.
If the Conservatives cannot stand the relative heat of being a smaller Opposition than Michael Foot was able to muster, they are obviously not quite the Government in waiting, as they have come to style themselves in recent weeks.
Let us go back to 21 March 2007. Labour MPs, who were hugging themselves with joy because their re-election had been confirmed on the backs of more than 5 million people who were losing out, rushed off to the Tea Room to gossip excitedly about what had just been announced. As a matter of courtesy, as well as of self-preservation, they would have been well advised to stay and listen to the leader of the Liberal Democrats. Of course, the London media commentators in the Gallery all rushed off as well, back to their computers. As a result, the warnings that the Liberal Democrats gave on Budget day, within minutes of the Chancellor sitting down, were not heeded by those Labour MPs, media commentators and others.
The media continue to describe those who are losing out under the March 2007 proposals, which are just being implemented, as low earners. Low earners are affected, but not just low earners. In many communities around the country and in constituencies such as the one I represent, a salary of up to £18,000 does not constitute low earning, although it may sound like low earning to some in the London media commentating classes. Such wages are typical in places such as Taunton, in Somerset and right across the country. Right across my constituency, people such as farm labourers, hotel receptionists and those who work in service industries are adversely affected by the proposals that are being introduced.
People in the House and elsewhere should not delude themselves that we are talking about just a small number of people who are marginally oppressed. We are talking about millions of people who are contributing to the community in every constituency represented here.
I am most grateful to the hon. Gentleman for giving way, because I wonder whether he can explain why that paragon of virtue—that quick-on-the-draw man—was rejected by his party as leader and why he is not standing here now, continuing with those great virtues. Did the hon. Gentleman support that particular paragon of virtue?
I did, although he chose to relinquish his post. However, it reflects well on our party that we have managed to find another person of equal talent—some would say even greater, but that is for other Members to conclude.
I am confident that at the next general election, when the leader of the Liberal Democrats, assisted by my right hon. and learned Friend and others, puts his case to the electorate, the voters of this country will not be impressed by a Labour Government who have left more than 5 million people on low and low to middle incomes worse off.
The Prime Minister is now in a state of absolute denial about the effect of his changes. According to reports that I hear second hand—I am happy to take interventions from Labour MPs on this—he is telling the parliamentary Labour party that nobody will lose as a result of the changes made in his final Budget, when we know, and as has been confirmed this afternoon by the Chairman of the Select Committee on the Treasury, the right hon. Member for West Dunbartonshire (John McFall), that more than 5 million people will lose as a result of the changes announced in 2007. No wonder Lord Desai, a distinguished economic commentator on the Labour Benches in the House of Lords, said:
“Gordon Brown was put on earth to remind people how good Tony Blair was”.
We have a complete disintegration of discipline in the Labour party. We have the Prime Minister, waiting in an anteroom in the west wing of the White House for his audience with the most powerful politician in the world, having to divert his attention to emergency phone calls to a Treasury Parliamentary Private Secretary—not a PPS from another Department, but a PPS from the relevant Department—so that he could plead with her, “Before I have an audience with George W. Bush about issues of global magnitude, please, please will you not embarrass me by resigning as PPS to the Chief Secretary?” It is a pitiful state of affairs.
The hon. Member for Sheffield, Hillsborough (Ms Smith) was not the only rebellious PPS—we have a full-scale revolt: the hon. Members for Sittingbourne and Sheppey (Derek Wyatt), for Blaydon (Mr. Anderson), for Barnsley, East and Mexborough (Jeff Ennis), for Hove (Ms Barlow), for Stafford (Mr. Kidney) and for Ealing, North (Stephen Pound), and, no doubt, many others, whose unfavourable comments I have yet to read in the newspapers. The Chancellor used his Budget to tell us that he would crack down on carrier bags; the Labour Chief Whip is now having to crack down on the bag carriers.
It is an extraordinary state of affairs that it has taken Labour MPs so long to realise the consequences of doubling the 10p rate. That proposal was not only in last year’s Budget, which took place on 21 March 2007, because only a month ago, on 18 March 2008, during the Divisions in the House on the Budget resolutions, we yet again had a vote on the 10p rate. The Government’s position was carried with the support of precisely those Labour MPs who are now making such a fuss, because, as I understand it, they had not then had the opportunity to talk to their constituents and they had not canvassed for the local elections. [Interruption.] As is being said from a sedentary position, it is amazing what an opinion poll or two will do to refocus minds and allow people to rediscover their consciences.
I am grateful to the hon. Gentleman for his generosity in giving way. I am a PPS and I have expressed reservations to the Government. I did so in the House on 30 April last year.
I caution the hon. Gentleman. I take some of his points about equality and fairness for the lower-paid, but before he goes too far down this line, he should remember that two years ago his party was making proposals for swingeing increases in green taxes, some of which would be counterbalanced by drops in other taxes. The hon. Member for Eastleigh (Chris Huhne), speaking for the Liberal Democrats on those matters, made it quite clear that green taxes would be ratcheted up and up and up. Given that those measures would have been there to change behaviour, they would have affected the lower-paid badly.
I do not want to go too far off the beaten track, but the point that we have consistently made, and which the Government have not heeded, is that there will be public support for environmental taxation only if that taxation is offset by reductions in other taxes, most notably income taxes.
I am in a strange position. I took an intervention from one Labour Back Bencher, the hon. Member for Wirral, West (Stephen Hesford), who said, “Look at our environmental credentials; they are greater than you claim they are,” and I am now hearing that the environmental credentials of the Liberal Democrats are excessively ambitious. Yet again, the lack of any sense of purpose and direction in the Government becomes obvious.
I was listening to Radio 4 on the evening of Friday 18 April, and when asked what would happen as a result of the growing rebellion in the Labour ranks over doubling the 10p rate, a Treasury Minister said, “Watch this space.” Well, we watched it today, and unless I missed something the Chief Secretary said no changes were possible. In fact, over the weekend, she took to the airwaves to damp down any speculation that that other Treasury Minister might have been suggesting or hinting at imminent changes.
Labour MPs need to realise that there is no great salvation coming from the No. 10 bunker; they are on their own. In the bunker, all is dither and meltdown. If they want to save their lower and lower to middle income-earning constituents from taking a big tax hit precisely when their food and other bills, council tax and fuel bills are going up, that will not be achieved by this Prime Minister and this Chancellor. Labour MPs will have to act alone to try to represent the interests of their constituents.
I thank the hon. Gentleman for giving way once again. If Labour Members are looking for some kind of saviour and an answer to the issue, we did not get one from the main opposition party. Can he give an indication of what his party would do? I honestly believe that this issue is far more complex than some individuals understand.
I am again grateful for an extremely helpful intervention, because it is my party’s policy to reduce income tax rates on the lowest earners. Hon. Members must remember that the Labour party and the Conservative party are committed to offering identical levels of taxation at the next general election. I hope that my party will have the scope to offer even more than we already propose to help some of those people on the lowest incomes in this country, who in my view are paying far too great a proportion of their income in taxation.
The hon. Gentleman has also brought me neatly to the Conservative alternative to the proposals in the Bill. As I said earlier, the Conservative party leader did not notice the doubling of the 10p rate, so I must rely on quotations from other Conservative Front Benchers for guidance.
On 16 April, while the House was in recess, the shadow Chancellor of the Exchequer in a national newspaper wrote:
“I would stop the tax rises on families.”
But we know that he will do nothing of the sort, because the Conservative party is committed to precisely the same levels of overall taxation as the Labour party. In fact, the Conservatives have two criticisms of the Labour Government: the first is that they tax too much, spend too much and waste too much, and the second is that they have not done what the Conservatives would do, which is exactly the same. The Conservative party and the Labour party have morphed into a single entity. Every time the Conservatives criticise Labour tax rises, we should remember that they must have a secret extra tax rise in mind to make up for the one that they are criticising.
The Conservatives feign concern about those who will be harmed by the doubling of the 10p rate, but at the Conservative party conference last autumn, what was the party’s main priority for helping those who were struggling with their tax burden? Was it helping the people on the lowest incomes—the people whom I mentioned earlier, the farm labourers, hotel receptionists and hospital porters cited by the hon. Member for Runnymede and Weybridge (Mr. Hammond)? Was it single people under the age of 25 on modest incomes? No; they were completely ignored by the Conservatives. Was it pensioners between the ages of 60 and 64, who will be adversely affected by the Government’s proposals? No, it was not them either. The group singled out for special assistance by the Conservative shadow Chancellor—
—were people who owned houses worth around £990,000 to £995,000 and had paid off their mortgages. Those people were considered to be a more deserving target for the largesse of the Conservative party than people, in my constituency and elsewhere, on incomes of £11,000, £12,000 or £13,000 a year.
Many members of the shadow Cabinet bought their first house for about £1 million, but they are not entirely typical of the people whom I represent, although they may be entirely typical of the people at the dinner parties attended by the shadow Chief Secretary of the Treasury. It was the shadow Chief Secretary, who is so out of touch not just with public opinion but with the mood in his own party, who said recently that the Conservative party would not be able to introduce any tax cuts until 2015. Unfortunately, over the recess he was overruled by the shadow Chancellor, who indicated that it might not be possible to reduce the tax burden until 2018 at the earliest. No wonder the chairman of the Conservatives’ own tax commission, the former Cabinet Minister Lord Forsyth, said only last week that the Conservative tax policies were “mad”.
That is an intelligent intervention. The answer is that we shall see at the time—[Interruption.] Let me answer the question. We know for certain that for the purposes of the next general election the Conservative party is committed to taxing the same proportion of GDP as the Labour party. I hope—although it will depend on the economic circumstances and on what GDP is at the time—that the Liberal Democrats may be able to introduce a tax cut aimed at people on low earnings who, in my view, are currently paying too large a proportion of those earnings in tax. If we could do that and, as a consequence, reduce the proportion of GDP that is taken by the Government in overall taxation and help people on low incomes, it would be fantastic, but we need to make our overall calculations to see where we can afford to make the savings. We know that the Conservative party is committed to not doing that. For those who want an overall net reduction in taxation in the United Kingdom, there is only one party that can potentially offer that at a general election: the Liberal Democrats.
On 15 April, the political editor of the Daily Mail wrote a story beneath the headline “Cameron plans his own night of long knives in Shadow Cabinet clear-out”. The right hon. Member for Witney—overlooking his own fallibility when it came to identifying the most damaging parts of the Government’s agenda—had identified what were described as a “magnificent seven” members of the shadow Cabinet out of a 30-strong team. The article went on to say
“He is, however, preparing a purge of under-performers”.
I regret to say that the hon. Member for Runnymede and Weybridge was not one of the “magnificent seven”, and is therefore in the firing line. I for one am extremely disappointed, because I think that the hon. Gentleman made an excellent speech this afternoon which identified many of the Government’s failings. I regret that his efforts are not appreciated more by the leader of his party.
Talking of purges, the hon. Member for Falmouth and Camborne (Julia Goldsworthy) has been purged over these Treasury matters. Last year she committed the Liberal Democrats to producing a Finance Bill only once every two years. Is that still Liberal Democrat policy?
Order. This is a Second Reading debate and a fair amount of latitude is allowed, but I remind the hon. Gentleman that we are discussing the Second Reading of the Finance Bill.
I am grateful for your guidance, Mr. Deputy Speaker.
Everything that has been said by my hon. Friend the Member for Falmouth and Camborne (Julia Goldsworthy) is eminently sensible. I commend it, in its entirety, to the hon. Gentleman. Just as Labour Members would have benefited from hearing my right hon. and learned Friend warn them of their impending doom, every time my hon. Friend speaks she can offer them guidance that will prove extremely useful as they seek re-election against a very unfavourable political backdrop.
Like the Budget, this Finance Bill fails all the tests of leadership. It has no great purpose, it has no great vision, and it flunks all the big challenges. Worst of all, the proposals that we will scrutinise in depth in the months ahead have no soul. It is now impossible to work out what the Labour party exists to achieve. The abolition, or doubling, of the 10p rate sends out the signal that the end of the empty hologram that was new Labour has finally arrived. It was Harold Wilson, who won four out of five elections while leading his party—four more than will be won by the current Prime Minister—who said that the Labour party
“is a moral crusade or it is nothing”.
Many Labour Members seem finally, but far too late, to have realised that with the doubling of the 10p rate their party is now nothing.
It is a pleasure to follow the hon. Member for Taunton (Mr. Browne). He reminds me of a former Member of Parliament, Bob Woof, whom many Members may recall. Each year he made a Budget speech, but about the previous year’s Budget. He read the previous year’s Budget carefully, and then made his speech. Having listened to all of today’s debate so far, I have a feeling that this too is a debate on last year’s Budget, and on last year’s abolition of the 10 per cent. tax rate.
I remind the House that last year, as now, there was a Budget statement, followed by publication of the Red Book, which has been mentioned. It was followed by a Budget debate which continued for about five days, a debate on Second Reading of the Finance Bill—such as we are having now—a Committee stage, and Third Reading. Where the House went wrong in not picking up the fact that the 10 per cent. rate was to go must be a mystery to most of us. It seems to me that the reason why we are having a debate on that particular aspect is the Institute for Fiscal Studies and the figure of 5.3 million net losers, and I am not sure that the IFS report actually said that.
I remind Labour MPs who are signing early-day motions and carrying their consciences on their sleeves that, in the 11 years of the Labour Government—to get on to the “vision thing” that the hon. Member for Taunton talked about—our vision has been clear. We believed in a fundamental and irreversible shift in the balance of wealth and power to workers and their families. Over those 11 years, we have brought in a national minimum wage, against great hostility in this House from the Opposition, who said that it would cost jobs, and increased it to more than £5 an hour. We introduced tax credits, of which we have heard some criticism, to which I shall refer in a moment. We have signed the social chapter; the Conservatives not only did not support it, but have said that they will repeal it when they come to power. We have brought in specific measures for the elderly, of which the increases in winter fuel allowances are one. Over 11 years, we have moved the balance of power towards workers and their families.
If I may spend a moment on the 10 per cent. rate, the tax package last year was designed to target extra support to help many of those who only paid the 10p rate. For those aged 65 and above, age-related allowances were increased by £1,180 above inflation, meaning that 600,000 pensioners paid no income tax at all. For families with children, the child tax credit child element increased by £175 above earnings indexation from £1,845 to £2,085, providing additional financial support for families and further reducing child poverty.
For those in work on low incomes, the first income threshold of working tax credit rose significantly from £5,220 to £6,420. Supporting work is the best route out of poverty through increasing the gain from work for many low income households. That is the background to the abolition of the 10 per cent. rate.
We do not want to go back over history or to recite poetry:
“see how dark the backward stream!
A little moment passed so smiling!”
It is a long time since we had a Conservative Government, but under the Conservatives the basic rate of tax was 23p in the pound with no tax credits other than the limited benefit from family credit. That meant that even the poorest taxpayers paid 23p in the pound. Under Labour, the basic rate is now 20p in the pound and there has been a major increase in tax credits, particularly for those with children but also for those without.
The reforms overall meant that all income tax payers have benefited compared with 1997. Those on lower and middle incomes have benefited the most. Giving low-income families a negative income tax rate—that is to say a tax credit—is better than leaving in place the 10p rate; that was the philosophy and reasoning behind the Government’s decision, which was not picked up throughout last year’s Budget proceedings.
The tax credits system—a minus rate of income tax—is the best way to help people out of poverty. Each year, the Labour Government have put more and more resources into tax credits. The 10p rate is not a targeted tax measure as all taxpayers benefit from it, including higher earners, such as those on £100,000 a year who would still only pay 10p in the pound on the first £2,230 of their taxable income.
As my hon. Friend the Member for Dumfries and Galloway (Mr. Brown) and my right hon. Friend the Member for West Dunbartonshire (Mr. McFall) said, it is because of these tax credits that we have been able to deliver historic achievements such as taking millions of pensioners and children out of poverty. The tax credits mean that we have rates of 40 per cent. and 20 per cent. for income tax, but that we have effective tax rates of minus 1 per cent. right up to minus 200 per cent. through tax credits, so that the tax and benefits system pays more to people on low and middle incomes.
While the House is focused on this matter, we must not overlook the basis of our economy. Part of the Bill calls for the promotion of access to finance and resources for small and medium-sized enterprise and for the enterprise management incentive schemes. In this respect, I refer to David Smith’s economic outlook column in The Sunday Times yesterday. The hon. Member for Taunton gave us a great review of the press over the last 10 days, but David Smith said that our
“job market remains extraordinarily strong, with a rise of 152,000 in employment in the December-February period. In the past year, employment has climbed by 456,000 to a record 29.51m.”
Twenty nine million of our fellow citizens are in work. As my right hon. Friend the Member for West Dunbartonshire said, there were 21 million beneficiaries from last year’s Budget—something that must be repeated. There are nearly 700,000 job vacancies and the unemployment claimant count is at its lowest since June 1975.
We have had forecasts on growth; my right hon. Friend the Member for West Dunbartonshire referred to them, as did the hon. Member for Runnymede and Weybridge (Mr. Hammond). In conjunction with the hon. Member for Taunton, I thought that the hon. Member for Runnymede and Weybridge made an excellent speech from the Front Bench. It was a strong Opposition speech and he should be congratulated on it. We will not go into his facts or polemics, but the manner of the speech was worthy of the House of Commons and for that he deserves congratulations.
The growth rate forecast by the Treasury is about 1.85 per cent. It may be that the forecast will go down to 1.5 per cent., but I remember being an Opposition Member and asking Lord Lamont, as he now is, at that Dispatch Box whether we were in a recession. The answer was yes, we were; we had had three months of negative growth. We are not in a recession and we are not likely to go into one. We are holding the line in a very difficult and turbulent financial world.
We read a lot about consumer confidence. The newspapers make a great thing about the loss of consumer confidence, but whatever the newspapers tell us—to get back to the hon. Member for Taunton and his diligence in reading newspapers—total retail sales in our country, including new floor space, were up in March on a year earlier. The rise was 1.1 per cent., while Tesco reported a 12 per cent. increase in sales in the past financial year. By the way, over the same period cash was used for 60 per cent of all retail sales, up from 54 per cent. in 2006. If we are moving away from a credit card economy to a cash economy, that is all to the good.
The Chancellor said that the theme of the Budget was stability. We live in an unstable world and I shall not repeat all the arguments on the sub-prime mortgage crisis. I commend my right hon. Friend the Member for West Dunbartonshire on his excellent Treasury Committee report on the subject. We have moved over the last 10 years to economic stability and growth. We are faced with unprecedented turmoil in the financial markets, but in those 10 years of stability, we have been able to deliver real change in our economy.
The national minimum wage, to which I referred earlier, has increased by 23 per cent. in real terms to £5.73 in October 2008, which has helped 1 million low earners, many of them women working part-time. We have lifted 600,000 children out of poverty since 1997 and action since the Budget of 2007 will lift an additional 500,000 out of poverty. Child poverty, which doubled in the 20 years up to the mid-1990s, has been reversed under the Government. What we can see is a strong economy underlined by great stability.
The Government set the target of halving child poverty by 2010-11. The Treasury Committee has said that if they do not put in place the policies and funding to ensure that that is met, it will
“represent a conscious decision to leave hundreds of thousands of children in poverty for longer than is necessary or desirable.”
Does the hon. Gentleman believe that the Government are on track to halve child poverty by that date, or have they abandoned that aim as they are no longer wholeheartedly committed to it?
It would be a great help if the Conservatives were to match our commitment on child poverty. The point has been frequently made today that the Opposition are not the Government, and I fully accept that. I accept that the Government must make decisions and bring forward policies, but when we do have policies that are in the national interest it would be helpful if they were supported, and the Conservative Opposition should support our child poverty aims. We have heard about stability repeatedly from the Chancellor today, and also in the Budget—stability for the country as a whole. The Opposition are right that we have difficulties with consumer prices; wheat and fuel prices have risen. The price of a loaf of bread has risen in this country at the same level as in France and Italy. That is currently a problem for all such countries.
I am grateful to the hon. Gentleman for giving way again. No other countries are putting taxes up at present, as they know that they need to support those with least in their societies now when they are being hit with those price rises. Only our country’s Government are hitting millions of poor people. That is why so many Labour Members are so uneasy about the Budget and the Bill.
Clearly, rising food and fuel prices will trouble the economy, and the Government must look at those matters and deal with them as they can. Making changes to last year’s Budget this year might not be the appropriate way forward. Instead, the appropriate way forward might be that suggested by my right hon. Friend the Member for West Dunbartonshire and the Minister, which is to see how we might accommodate the changes being forced upon us by exterior events.
The hon. Member for Taunton asked about the vision thing. There have been answers from the Labour Benches on the national health service and climate change, but the vision is also present in the Budget and the Budget statements. It is a value vision based on opportunity, fairness, efficiency and equilibrium between all strands of society. We are frequently coming across that vision. A reference was made to this being a managerial Budget. It was not managerial, but it was intended to accommodate a difficult financial situation and to be a steady-as-she-goes Budget—the words of Stanley Baldwin many years ago.
There are difficulties, therefore, but within them there are also opportunities, and this Budget reflects those opportunities, as do the Labour Government. Our business is to maintain stability in our society in what is an unstable world, and this Budget does that. The measures announced today by the Bank of England, supported by the Chancellor, will assist that stability, and as time goes by we will see that the British public will come to understand that and will support us.
Despite the strictures of the hon. Member for Middlesbrough (Sir Stuart Bell), whom it is always a pleasure to follow, the speeches we have so far heard in the debate have concentrated, as, I suspect, will those we have yet to hear, on the effects of the abolition of the 10p rate—or as the hon. Member for Taunton (Mr. Browne) rightly described it, the doubling of the 10p rate—on the 5.3 million households who will lose out as a result, and who are among the poorest households in our land. I know that there has been a certain amount of controversy about that figure, but no Member has put forward an alternative. The only Member who came close to doing so was the Chairman of the Treasury Committee, the right hon. Member for West Dunbartonshire (John McFall)—and, indeed, if we add up the various components he itemised in his speech, we get to a number that is pretty close to 5.3 million.
It is right that we should concentrate on that aspect of the matters before us this evening, because there is no doubt that this change will cause genuine hardship to people such as the young man I met in a supermarket in my constituency on Friday. With great pride, he told me that he had been unemployed for some time and that he had just got a job in the supermarket. I congratulated him, of course. He is precisely the kind of person whom we ought to be helping by making work a more attractive prospect. It is madness to take action that will make the world of work less attractive to him and others like him, as this change will do.
However, I want to concentrate in my brief contribution to the debate on another aspect of the change: what does it tell us about the Prime Minister? I have studied the Prime Minister for many years. We entered the House at the same time, after the 1983 election. During the 25 years that have elapsed since, I have had ample time to get to know him, sometimes at close quarters, such as when he was Chancellor and I shadowed him, and at other times from a distance. I do not want to damage him by praising him too extravagantly, but I have long had considerable respect for the Prime Minister. It has always seemed to me that, quite unlike his predecessor, he brought to his political life a clearly formed philosophy and a deep-seated sense of values. He wanted to help the poor, and he cared about social justice—indeed, we all do, although we may differ radically on what is the best way of achieving that eminently desirable goal.
It has always seemed to me that the Prime Minister has been clear in his own mind that the best way of helping the poor has been through old-fashioned, socialist redistribution. By and large, that is what he tried to do during most of his tenure as Chancellor. Of course, that has given rise to a great deal of internal tension, because he was never prepared, or allowed, to admit that that was what he was doing. The word “redistribution” was expunged from the new Labour lexicon, so it was all carried out by stealth—and it was only moderately successful, largely because the Prime Minister’s chosen weapon of the tax credit system is so complicated and unwieldy that many do not claim what they are entitled to claim, and many who do claim suffer severe hardship when overpayments are recovered. I was, however, always prepared to give the Prime Minister credit for good intentions; I always thought that although his methods may have been flawed, his intention was clear.
So how on earth did it come about that this Prime Minister could introduce a change that hurts so many who are among the least well-off in our society? What is the explanation? We know that in one sense the explanation is that through making this change he found the money to reduce the basic rate of income tax from 22p to 20p, but why did he choose to benefit the somewhat better-off at the expense of the less well-off?
The hon. Member for Hyndburn (Mr. Pope) said in his short-lived early-day motion earlier in the month that that was not the intention of the Government—that, in effect, it was an accident. However, no one doubts that the Prime Minister is a very clever man with a reputation—although perhaps not always well deserved—for prudence and caution. It is inconceivable that he could introduce such a measure without making a careful assessment of its consequences. After all, as Chancellor—when he introduced the Budget we are discussing today—and now as Prime Minister, he has held in his hands the power to make a real difference to the condition of life of millions of our fellow countrymen. I do not believe for one moment that he is so irresponsible that he would introduce a change of this kind without carefully thinking through all that it would mean for those affected. No, I think that the Prime Minister knew very well what he was doing, and he was doing it deliberately and for a purpose.
Of course, we can only speculate about the reason, but I am afraid that none of the likely candidates reflects well on the Prime Minister. My hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond), the shadow Chief Secretary, said, in an excellent speech that has rightly earned tributes from all quarters of the House, that it was to curry favour with the then Chancellor’s own party in advance of a possible leadership election. That is certainly one explanation, but I confess that I am somewhat sceptical about it. I think that if there had been a leadership election, quite a lot of attention would have been paid to the consequences of doubling the 10p rate, and I am not sure that it would necessarily have helped the then Chancellor.
Another possibility is that, even at that early stage, the current Prime Minister had an autumn general election in his sights. What better platform to appeal to middle England, he might have thought, than a reduction in the basic rate of income tax? If that were achieved at the expense of those who were less well off, so what? That would, of course, have been an extremely cynical act. Had it been put to the test, I do not think that it would have worked. We all want to better ourselves, but very few of us, if any, want to do so at the expense of those who are less well off than ourselves. If an autumn election had taken place, I do not think that the Prime Minister would have reaped the electoral reward that he may have expected from the policy.
I am afraid that I cannot put out of my mind the thought that there may have been another, even more unworthy, reason for the Prime Minister’s action. We all remember the flourish with which he finished his Budget speech last year. Without leak or prediction, the reduction in the basic rate of tax was produced, like the proverbial rabbit out of a hat, in the last few sentences of his speech. It had not been leaked or predicted, and came like a bolt from the blue.
As we all know, the reply to the Budget is given by the Leader of the Opposition. It is often said that it is the most difficult speech in the parliamentary calendar, and as someone who has had the dubious privilege of delivering it on two occasions, I am rather inclined to agree with that assessment. The Leader of the Opposition is not given any notice whatever of the Budget’s proposals. The hon. Member for Taunton missed the point that immediately after the then Chancellor announced that shock, unexpected, unanticipated reduction in the basic rate of tax, my right hon. Friend the Leader of the Opposition had to get to his feet to reply.
I am afraid that I cannot entirely escape the thought that at least one reason behind the Prime Minister’s action was the hope and belief that it would wrong-foot and embarrass my right hon. Friend and cause him to stumble at precisely the time when all the media’s attention was upon him, and that that would damage his reputation, possibly even permanently. In the event, that proved a total miscalculation, as has happened so often on other occasions. My right hon. Friend dealt with it with his usual aplomb and the Prime Minister’s arrow conspicuously failed to hit its target.
What a tragedy it is that a man who undoubtedly came into politics wanting to help the poor, who devised extraordinarily ingenious and complicated policies for doing so, and who staked his reputation and integrity on that cause, should end up betraying those ideals, betraying those whom he had promised to help and, ultimately, betraying himself. What was the slogan of which we heard so much early in his premiership? “Not flash, just Gordon”. Well, we know an awful lot more about Gordon now, and I suspect that we will hear an awful lot less of that slogan.
It is a pleasure to follow the right hon. and learned Member for Folkestone and Hythe (Mr. Howard), although I am not sure that I agree with his analysis. I do not think that when my right hon. Friend the Prime Minister was Chancellor, he would have designed the replacement of an income tax rate simply to wrong-foot the Leader of the Opposition. That is a simplistic scenario. I suggest that he might have decided, wrongly, to try to distance himself from the then Prime Minister and establish his own manifesto before a possible autumn election.
I shall return to the 10p tax rate, but I turn now to a matter that I have raised in the House on a number of occasions recently—the rates of alcohol duty that are in the Bill and were announced in the Budget. I declare an interest: I am the honorary adviser to the northern Federation of Licensed Victuallers Associations, which, like most people in the pub industry, is concerned about the increases in alcohol duties, particularly that on beer. Duties on other alcohol are not as punitive and are not having the same effect on the pub industry.
It is no secret that the pub industry is in trouble. Both the Prime Minister and the Chancellor have been lobbied on the issue a great deal in the not-too-distant past, and there has recently been a flurry of reports on the industry’s problems and the crisis that it faces. Various estimates have been made of the number of pubs that are closing each week in this country, ranging from 30 to 60. Figures have also made the broadsheet press, stating that the last time the volume of beer sold was equivalent to the present was in the 1930s. They also stated that the beer market has fallen by 22 per cent. since its peak in 1979, and beer sales have fallen by 49 per cent. since then. The breweries’ profits have decreased by some 78 per cent. There has been a huge decline in beer sales in pubs, and the increases announced in the Budget have increased that problem.
One problem that the beer industry faced last year was the smoking ban, which has had an effect on pubs and clubs. The industry has not complained about that and has accepted it, but the Government’s increasing of beer duty has put another nail in the coffin of pubs and clubs around the country.
The main problem that our pubs and clubs face is the sale of alcohol in supermarkets, which have targeted alcohol sales as something on which they wish to take over from the pubs. They are in competition with pubs, and at the moment they are winning by selling alcohol at less than the wholesale cost, as a loss leader at a lower price than they pay for it. Alcohol is sold to people who drink at home, in an uncontrolled environment, whereas there are controls on them when they drink in a public house. Pub operators and owners have to operate to codes of practice, whereas people drinking at home can drink as much as they like. If alcohol is extremely cheap, as it is in supermarkets, it is easy for them to do that.
I am talking not about under-age drinking or sales to minors but about sales to an adult population, particularly those between the ages of 18 and 35, who drink alcohol bought from supermarkets. We have debated the matter before in the House. The phrase used is “pre-loading”: young people drink at home among their friends before they go out to a pub or club. Unfortunately, the drunkenness kicks in at the last licensed premises that they visit. The pubs and clubs get the blame for binge drinking, yet a lot of this drinking is done at home.
There has been a call for controls to be placed on such sales by supermarkets to try to make pubs more attractive, to promote them as controlled drinking areas and to prevent them from going out of business in the face of competition from supermarkets and their loss-leaders.
I am delighted with the terms of the hon. Gentleman’s argument and he is making a very valid point, especially with regard to rural pubs, which have been particularly hard hit by the smoking ban and the increases that we are discussing. They are the heart of our rural communities. Does he agree with me that we are in danger of losing more and more of them, and that that would be bad for our rural communities?
I am grateful to the hon. Gentleman for that and yes, I do agree with him. Attempts have been made to deal with the situation. One initiative aimed at rural pubs used the catchphrase “The pub is the hub”. Some rural pubs were given post office counters and internet connections in an effort to attract people there to do business, and to retain the pub as part of the community by allowing it to go further than just selling alcohol. This is a big issue, particularly in rural areas, but even in urban areas pubs are closing at a drastic rate.
I have referred before to sales promotions in supermarkets, so I shall not dwell on this point. We debated this issue in the House on 6 December, and I gave examples of supermarkets offering cases of beer at the discounted rate of three for the price of two, and three bottles of spirits for the price of two. In one instance, a 75 cl bottle of whisky was sold at £9.99, yet the 1 litre bottle was sold for £10—for an extra penny. It might interest Treasury Front Benchers to know that on the day of this year’s Budget, supermarkets knocked £5 off the price of a bottle of spirits. So whatever the message that the Government were sending out regarding controlling or curbing drinking, the supermarkets cocked a snook at them on that one.
Further such examples have been given in debates in the House. Budweiser sold beer to Morrisons supermarkets at £9.82 per case excluding VAT, and Morrisons sold those cases for £10—the same as, or less than, the wholesale cost. The supermarkets are taking the mickey out of the Government and ignoring any message that comes across on safe drinking by selling at a loss.
In 1968, a can of Tetley bitter sold at the off-sales at a pub in, say, Yorkshire, where the Tetley brewery is located, for the equivalent of 79p. Today, a can of Tetley bitter costs about 55p. In February 1986, when, VAT was 15 per cent., a pint of Tetley bitter in a pub cost 68p. If we add 2.5 per cent. VAT to bring it up to the present rate and we allow for inflation, that price rises to £1.51. Today, a pint of Tetley bitter is being sold in pubs in Leeds, for example, for between £2.40 and £2.50. Such is the cost to pubs of overheads and so on that they simply cannot compete with the supermarkets. Whereas a pint of Tetley bitter is £2.50 in a pub, it is 55p down the road in the Asda supermarket, for example. We are talking about a figure that is 59 per cent. higher than the retail prices index. This is the competition from supermarkets that pubs are having to deal with.
How do the supermarkets get away with that, and how do they fund it? The answer is simple—part of that funding comes from us, the taxpayers. Through the VAT regime, the supermarkets can claim back some of the VAT resulting from such sales. For example, if a pub buys £200 worth of beer, it will try to sell it at a profit to cover its overheads. It pays £35 VAT on the £200 of beer and claims £17.50 back. A supermarket buying £100 worth of alcohol will sell it at £75. The VAT on that figure takes it to £88.12, so it is paying £13.12 in VAT but it claims £17.50 back, just as the pub does. However, the net contribution to the Treasury is £4.38, so the taxpayer is subsidising the supermarkets to sell alcohol at a loss. We are not claiming the full amount of VAT back. After taking into account VAT, the net loss to the supermarket on £100 of alcohol, which it sells at £75, is £20.60. It simply recovers that by increasing the price of goods in the non-VATable area, which, of course, is food. That is another reason why food prices are increasing.
That is a rather clumsy example of how VAT works, but if we apply those figures to alcohol sales of some £50 billion in our supermarkets, which are avoiding VAT and requiring us to pay for it, we can see exactly what the Government are losing. If they addressed that fact and claimed some more VAT back off the supermarkets, we would probably not be having the debate on the 10p rate of income tax, as plenty of revenue would be coming in. Something has to be done about how supermarkets can avoid their responsibilities in respect of VAT and sell alcohol as cheaply they do.
Another suggestion that has been mooted heavily is to rate supermarkets on the areas in which they sell alcohol on the same basis as pubs—in other words, on turnover, not square footage. The rate that would be paid by a supermarket on the section of it that carries alcohol would be higher than the rate for the rest of it, but on a basis equivalent to a pub.
I turn now to an issue that is not covered in the Finance Bill, but which I and other Members think perhaps should have been: VAT on bingo participation fees. Some of my colleagues and I have been lobbying the Government for a number of months on the issue of bingo duty. Just as pubs are closing, so are bingo clubs. Nine have closed already this year, and some 57 closed last year. The bingo industry has made representations to the Government for a number of years regarding what it refers to as
“the current system of double taxation”
on bingo played in licensed clubs. Licensed bingo remains the only gambling product subject to double taxation, which results in an effective tax rate of 28.2 per cent., compared with 15 per cent. for most other gambling products. The industry believes that this is illogical.
I can explain the situation very simply. If a Member of this House goes into a betting shop to put a bet on a horse, they are not charged an entry fee or required to pay anything to place that bet; they simply pay the stake over to the bookmaker, who takes it at a certain set of odds. If a person walks into licensed bingo premises to play bingo, they might be charged for entry or for the bingo card on which they will play the game, and anything that they buy within those premises will also be subject to a charge and to VAT. So bingo operators are subject to VAT and what is known as gross profit tax.
In 2003, the Government chose not to remove double taxation from bingo. There are some 3 million bingo players at any one time; they continue to be disadvantaged by this system, and bingo clubs continue to close. Bingo is a soft form of gambling that appeals mainly to women, and all constituencies contain bingo clubs. Bingo should not be subject to this level of taxation. We should be encouraging safer forms of gambling, rather than promoting casinos and all the rest of it. I mentioned that there are 3 million bingo players at any one time, but I should also say that the total membership of UK bingo clubs is about 17.5 million people—that is an average of 30,000 members per club. If an hon. Member’s constituency contains a Gala bingo club, the chances are that 30,000 people will be registered as members of it. My local club in Barnsley, Central has 26,000 registered members.
The removal of VAT on bingo clubs would be cost-neutral to the Treasury because it would help to keep clubs open. The £75 million that the Government get from VAT on bingo clubs is countered by the loss of tax from other areas of revenue. The Bingo Association and the bingo industry are therefore saying to the Government, “You’re allowing these clubs to close at an alarming rate, and you’re losing the VAT and other revenues from them. If you waived VAT and stopped the double taxation, you would keep that VAT and you would also get other revenue from people paying tax on other aspects of the clubs.”
I know that one of the arguments has been that the removal of VAT might require a derogation from the EU, but can the hon. Gentleman confirm that no such derogation is required in terms of gambling or gaming—that matter is purely at the discretion of each state—and that there would be no technical, legal or European obstacle to removing VAT on bingo?
The hon. Gentleman is right to say that that very technical issue would not require a derogation, because in order to levy VAT on bingo as we do, the Government apply a derogation to the existing European Union legislation. This issue is subject to a court case, known as the Linneweber judgment. I shall not go into that this evening, because it is extremely complicated and I would not want to bore hon. Members rigid by referring to it. In order to remove VAT on bingo duty, we would need an exemption from the exemption that we already have. The issue is complex, but it would not be difficult to remove VAT on bingo. As I have mentioned, the wider aspect is that the Government will lose revenue from the closure of bingo clubs, and our constituents will be deprived of a particular leisure activity.
I mentioned that nine clubs have already closed this year at a potential cost to the Treasury of £5.6 million, which adds to the £25.9 million potential cost of the 37 clubs that closed last year—that already represents more than the tens of millions estimated by the Treasury. I hope that the Government will re-examine bingo duty as the Finance Bill goes through Committee. As I say, we have lobbied hard on this matter, from the Prime Minister downwards, to try to get some relief.
My remaining comments will be about the 10p tax rate, which has been widely covered by hon. Members. I do not have much to add, except to say that I cannot understand why this Government, who have known about this for a year and have done the calculations, have abolished this 10p tax rate without realising the consequences. Like many hon. Members, I have been out campaigning in the local government elections and have been surprised by the representations that I have received on the doorstep, and by the number of letters and emails I have received about this matter. That is mainly because, like other hon. Members who made representations to the Treasury on behalf of constituents, I was assured that this would affect a small number of people at a very small level of income. As it is, that level of income is obviously very important to the people affected, because they are on low incomes, and I cannot understand why a Labour Government have simply not thought this through.
I heard the Prime Minister saying on the radio today that nobody will lose out because of the proposal. My hon. Friend the Member for Middlesbrough (Sir Stuart Bell) also suggested that nobody would lose out, and that the 5.3 million people could be wrong. People do not agree with that view. They do not see the wider picture, and that perhaps their allowance has gone up in some way and perhaps the winter fuel payment will compensate them in another way. They see an increase on their tax assessments and a reduction in the money coming into their households each week. They perceive that they are being taxed by this Government even though they are the lowest-paid in our society.
The Government must overcome that perception. Saying that we will have a review starting for the pre-Budget report in November simply will not wash with anybody. It will not wash with me, because I do not agree with that approach. I want the Government to re-examine this matter and come up with something substantial rather more quickly than that to alleviate my constituents’ concerns. The only sensible option produced so far in this debate was put forward by my right hon. Friend the Member for West Dunbartonshire (John McFall), the Chair of the Treasury Committee, who said that his Committee would re-examine the issue. The Government must re-examine it; otherwise they will be labelled as the Government who are taxing the lowest-paid in our society while at the same time making concessions on inheritance tax and capital gains tax for venture capitalists. I urge my hon. Friends to look again at this issue.
Order. Before I call the next speaker, may I say to the House that although we have a reasonable amount of time left, hon. Members will be aware that a number of other hon. Members are seeking to catch my eye, so unless contributions are reasonably short, a number will be disappointed?
I shall try not to speak for an unlimited period of time, Mr. Deputy Speaker, in deference to the House and in the interests of other hon. Members. It is a great pleasure to follow the hon. Member for Barnsley, Central (Mr. Illsley), whose three key points contained an important common theme: they all related to the direct ways in which taxation impacts on people’s daily lives. I strongly endorse his comments about bingo, where a clear unfairness will increasingly take away one of the few areas of social interaction for people in many communities. That matter should be addressed.
My hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) began by saying that the Finance Bill should be supporting business and consumers but is failing to do so. The hon. Member for Taunton (Mr. Browne) made an entertaining speech, in which he said that the Budget was puny and unimaginative. My take on things is that the fundamental problem is the Budget’s lack of theme and the fact that there is no theme or context to the Finance Bill either.
I am grateful to the former chairman of the Altrincham constituency Labour party for making that point; he may return to that role in the near future. He makes my point for me, because the Budget, and the Finance Bill that seeks to implement it, demonstrated a continuation of business as usual; the same procedure and approach that we have had over a number of years rolled on. Precisely what it failed to do was to respond in any significant way to changed circumstances.
The underlying assumption of the past 10 or 11 years is that a high tax burden is sustainable and that the Government can keep taking money out of people’s pockets and it will not hurt and people will not object. The assumption is that that is true for individuals and for companies. We are now starting to find—the story is the same from Labour Members—that such taxes are becoming much more difficult to justify in the difficult circumstances pertaining today when people are up against the credit crunch and worried about whether they can pay their mortgages or whether they will be in stable employment in one or two years’ time.
The only obvious concession to a new and more difficult economic situation was the six-month delay in the implementation of the fuel duty increase. That is a welcome recognition of the fact that fuel costs are rising for families and businesses, which is creating a competitive problem for UK hauliers, many of whom are competing against continental competition from countries that do not impose such a high fuel duty. However, the Budget was not clear about why the duty rise would have been unacceptable now. If it is because of the overall effect on costs for families or businesses, how will the Government respond if the same, or worse, circumstances appertain in October when they intend to proceed with the duty increase? People need some clarity about whether the Treasury accepts the principle that the costs in UK industry should not be levered up, creating an increasing competitive disadvantage for British businesses. Or was the delay just a response to short-term pressure and intended to get the Chancellor off the hook? Do the Government accept the principle that families are hurting because they have to pay increased fuel costs every week when they fill up their cars’ fuel tanks, or was the delay just a short-term fix to put off the moment of reckoning?
The same question arises in relation to the abolition of the 10p tax rate. It is welcome that Labour Members are starting to recognise that taxes cannot be increased again and again without consequences. For 11 years, taxes on all our constituents have increased dramatically. The pain has been mitigated, in many cases, by significant increases in salaries, easy credit, and rising house prices, which have given people a sense of security. It has also been mitigated by the hugely complex system of tax credits, which has reduced the impact on some groups of people.
In proposing the abolition of the 10p rate of income tax, the Chancellor—or perhaps it is the Prime Minister—has belatedly discovered the joy of simplifying the tax system. That is welcome, but simplifying taxes when raising or maintaining the overall burden of taxation means that there will inevitably be losers as well as winners, which has also been demonstrated in the changes to capital gains tax. The drive towards simplification is welcome, but it has been necessary to introduce mitigating measures, such as entrepreneurs’ relief and the transitional arrangements, because of the damaging effects—some of which were unintended consequences—on some people.
With both the capital gains tax regime and the abolition of the 10p rate, I hope that a new understanding is developing on both sides of the House that there is a limit on how much it is fair or sensible to tax people, and that that limit has been reached if not exceeded.
Much has also been said about how proper consultation could have helped on the capital gains tax issue. That brings me to my final issue, because I wish to congratulate the Treasury on its sensible and detailed consultation on the proposed tax change to aviation duty. The changes will come into effect in autumn next year, but the paving measures are in this Finance Bill. The intention is to move from air passenger duty to aviation duty. The consultation document released in January was a serious and thorough exploration of the options and some of the difficulties arising from the proposal. I suspect that by now, with the consultation drawing to a close on Thursday of this week, Ministers will have begun to arrive at some conclusions. It will be clear, for example, that applying aviation duty to freight could lead to significant problems for the UK air freight industry. It could lead to significant job losses, especially in some parts of the country, such as the area around East Midlands airport. It could lead to the diversion of air freight from UK airports to near continental airports, and that will not save any emissions. Instead, it will increase road haulage and the environmental impact caused by the transhipment of freight by road. It will also transfer thousands of British jobs to other EU competitor countries, and that will clearly not be beneficial to the British economy.
The document also goes into sufficient detail about some of the other difficulties that might arise. The first obvious answer is to exempt freight-only flights, but not all flights carrying freight are freight-only flights. Passengers and freight are often carried on the same aircraft.
The second conclusion that is difficult to escape is that applying a distance criterion to aviation duty discriminates in favour of short-haul routes and against longer haul routes. Short-haul routes tend to give rise to the most emissions, which are concentrated during take-off and landing. Therefore, mile for mile, applying a distance criterion has a perverse effect.
Thirdly, the inability to apply the charge to movements other than those that originate at UK airports would encourage the use of aviation hubs outside the UK. All the same aviation would take place, so there would be no environmental benefit. People would take short-haul flights from UK airports to Schiphol or Paris to transfer to their long-haul flights. All that that would achieve is to damage Britain’s strategic economic interests by undermining UK hubs.
Fourthly, the duty could have a damaging effect on regional airports. It could therefore increase the pressures on and congestion at Heathrow and other airports in the south-east of England.
Fifthly, an up-front charge, unrelated to demand and the number of people on board a flight, would make it much harder to establish new long-haul routes from regional airports. I have a particular interest in Manchester airport, which is very close to my constituency. When long-haul services from regional airports are established, they often depend on relatively low volumes of use in the early stages, and putting a charge on the flight when the service is first inaugurated could render them uneconomic and uncompetitive, and might also lead to a diversion of traffic to the more congested airports in the south-east.
Sixthly, basing the duty on the maximum take-off weight of the aircraft provides no incentive to invest in cleaner aircraft. Furthermore, while the shift to a duty based on air movements rather than passenger numbers is superficially attractive, the change could lead to higher emissions rather than lower emissions for all the above reasons. Given that the whole of aviation will, we hope, be included in the European emissions trading scheme within a relatively short period of time—that ought to cover the environmental costs of the industry—we are not talking about a provision that will have an environmental benefit. In fact, the new tax might defeat many of the objects that it purports to achieve.
Finally, the proposals might actually breach international law. They might be contrary to the Chicago convention and the EU-US aviation agreement. For all those reasons, I hope that the Government will learn something from the numerous problems in their application of tax policy and tax changes in recent months. I hope that they will reflect on the fact that where they have not consulted, they have come unstuck. They have had to engage in some embarrassing changes in policy. They have had to execute some U-turns and have looked unprofessional and unco-ordinated in doing so. When they have engaged in some consultation but have not taken proper account of its findings, they have had further difficulties.
In this case, the Government are consulting. They have given themselves a reasonable time. They do not need to finalise the details of the duty regime until this autumn in order to give the 12 months’ notice that they have promised the industry for implementation in November 2009. They have time to think again and to consider the implications of what they are doing. I strongly urge them to do so.
It is a pleasure to follow the hon. Member for Altrincham and Sale, West (Mr. Brady).
The top priority of the Budget was to ensure the country’s economic stability not only for today but for tomorrow and into the future. The Budget sets out a number of measures to support the economy and families while preparing the nation to meet all the challenges of the future. Those challenges and the steps taken to deal with them include tackling child poverty by increasing housing benefit disregard, child benefit and child tax credit; promoting enterprise by improving access to finance; improving access to housing though more shared equity for key workers and first-time buyers; and tackling climate change by increasing incentives to go green.
After the Budget debates, the official Opposition voted specifically against measures on alcohol duty and vehicle excise duty. By voting against those measures, they voted against the funding that enables the increases in child tax credit and child benefit, as well as the extra winter fuel payment for this year.
Is it not also the case that it undermines the Conservatives’ green claims to vote against VED changes that are based on emissions and the fuel use of cars? This is surely the kind of route that we want to follow in being more thoughtful about how we apply green fiscal measures. Although I welcome what is being done in the Budget, there is an awful lot more that we could do.
I agree wholeheartedly with my right hon. Friend. I thought that we were at a stage in this House where we were all 100 per cent. behind making progress on green issues. Clearly, as he has pointed out, there was a fundamental flaw on this occasion.
The Conservatives voted against the Budget measures that raised money, but not against those that increased spending. That equates to a £10 billion black hole in their economic plans on top of the £10 billion in unfunded tax pledges. Support in the Budget included the additional one-off payment in 2008-09 of £100 alongside the winter fuel payment for the households of those aged over 80, and of £50 for the households of those aged over 60. That will benefit about 9 million households. The increase in the first child rate of child benefit to £20 a week from April 2009 reinforces our Government’s commitment to child benefit as a foundation of financial support for all families. The increase in the child element of the child tax credit of £50 a year above indexation from April next year will further help low to middle-income families.
The public will see through the reckless unfunded promises made by the official Opposition, whose opportunism showed through when the Leader of the Opposition called for the 10p rate to be restored. Now there seems to be confusion, because they refuse to say what their policy is. That is typical of the reckless and irresponsible approach that they take to issues of taxation and spending. It was precisely that reckless approach to public finances that saw the last Tory Administration inflict on hard-working families across Britain interest rates at levels that reached 15 per cent. We would never wish to return to those days.
More than a third of the Bill is concerned with measures designed to simplify and modernise the tax system. That will help businesses to be more productive and the UK to remain internationally competitive in these difficult times. The 2008 Finance Bill will implement the business tax reforms announced in the 2007 Budget. The Bill will further promote access to financial resources for small and medium-sized enterprises through reforms in the enterprise investment scheme and the enterprise management incentive scheme.
The Bill implements the capital gains tax reform announced in the pre-Budget report towards the end of last year. That includes the introduction of the flat-rate capital gains tax of 18 per cent. and a 10 per cent. entrepreneurs’ relief on the first £1 million of lifetime gains. The Bill will also reform the North sea fiscal regime, particularly focusing on the tax treatment of assets. Petroleum revenue tax will also be reformed.
Having mentioned petroleum, I want again to put on record my thanks that the Chancellor saw fit to delay the fuel duty increase that had been proposed for earlier this month. I know that there is likely to be a proposal from some in this House to introduce a fuel price regulator. I hope that my right hon. Friend the Chancellor will be in a position fully to explain why such a proposal is unmanageable.
As I am talking about fuel, I also want to mention an issue that blights many who live in rural communities—household heating oil. Those people are among the hardest hit. I know from a recent discussion with my hon. Friend the Minister for Energy that we need seriously to consider a number of issues, including social tariffs, which would alleviate some of the problems that many households face.
Looking to the future, as a nation we need to set our minds to the ever-increasing price of crude oil. It has taken us a long time to reach the price of $100 a barrel. It is not uncommon to see some of the major oil companies saying in the press and the media that oil will cost $200 a barrel in the next two or four years. If that is the case, we all need to consider the issue seriously now rather than waiting until it happens.
I thank the hon. Gentleman for his intervention. The current and the previous Chancellor have obviously watched the increase very carefully in recent years. If the price of crude oil was seriously to increase, and crept up towards $200 a barrel, we would need to look at the issue in its entirety. It is for all of us seriously to consider where we are going as a nation, and whether we will be held to ransom by oil producers. The Organisation of Petroleum Exporting Countries is not at present considering increasing output; if it did, the price of oil would fall, so we are, to a certain extent, being held to ransom.
On the reduction in the basic rate of income tax from 22p to 20p announced in last year’s Budget, and the abolition of the 10p rate, we should not forget that more than 600,000 pensioners will be lifted altogether out of paying income tax. That is a major issue for some pensioner households. Earlier, I intervened on the hon. Member for Taunton (Mr. Browne); he has not stayed around to hear the end of the story that I told him, but I am sure that he will read Hansard enthusiastically tomorrow. I told him that within two or three weeks of the Budget last year, a number of colleagues and I met the then Chancellor of the Exchequer, now the Prime Minister, to discuss various aspects of the Budget. Obviously, there was a lot that was good in it, but I took the opportunity to raise certain issues.
I represent an area that is renowned, north of the border at least, for having a low-wage economy and very low household incomes. I thought that the abolition of the 10p tax rate would bring severe hardship to a number of households. In recent weeks, we have read in newspapers, seen on TV and heard on the radio that many households and individuals will be adversely affected, including women pensioners under 65, those who have retired early on the grounds of ill health, and wage-earning households where there is an income of under £18,000 and no recourse to tax credits to offset some of the loss.
The tax credit system has to be improved; that may be the best way of putting it. In an intervention on my right hon. Friend the Member for West Dunbartonshire (John McFall), I made the point that far too many families have fallen foul of the system and ended up having to repay some of the tax credit that was awarded to them. Let us imagine someone on a low income, earning barely more than the national minimum wage, working hard and taking the opportunity to do a little bit of extra overtime. Months down the line, that may put their figures out of kilter, and it may mean that they receive an overpayment. In some cases, such people have unfortunately fallen foul of the tax credit system. They are then very reluctant to go back to it. That is a tragedy, because tax credits have removed so many families and children from poverty. I raised that issue with the former Chancellor shortly after the Budget statement last year, and I have also raised it twice in the past three months or so with the current Chancellor. He understood, and made it abundantly clear that he had been lobbied on the issue, particularly as regards the issue of women pensioners under the age of 65.
I am somewhat perturbed by some of the stories that the press have run. As well as dealing with constituents through correspondence, I have also taken the time to pick up the phone and call them in the evening, so that I can understand what their difficulties are. I have been astounded by the number of pensioners over 65 who have believed everything that has been in the press. They have not recognised the fact that there has been an increase in their personal allowance, which will more than likely take many of them out of the tax-paying bracket. That has not been helpful. I tell my right hon. Friend the Financial Secretary to the Treasury that I suspect that in many working households, people in the low-earning bracket, who have not yet received their April salary, do not yet realise the impact that the measures may have on them.
How did we get where we are? The figure of 5.3 million has been quoted regularly today, but I am not desperately concerned about the exact figure, because I come from a background where if people on low incomes are being adversely affected, we have to do something about it. Whether we are talking about 5.3 million people or a few hundred, it matters. There are people who will find it much more difficult to make their household budget meet their needs. I tell my right hon. Friend that we have a problem, and we, as a Labour Government, need to put it right. It really does not matter how we try to dress things up, or what the facts are. If a pensioner pays an extra £1 a week, or £52 a year, we may try to offset that with a winter heating allowance increase, but the reality is that that does not matter to them. All that they are concerned about is the fact that they are paying additional income tax.
I am greatly concerned by the fact that our problem—I do see it as a problem—is not easily resolved; there is no quick fix. Earlier, the hon. Member for Buckingham (John Bercow) suggested that an increase in the national minimum wage would help low-wage earners. Yes, it would, but that is no good for women pensioners under 65 years of age, or anyone who has retired early on the grounds of ill health. The matter is much more complex than that. Supporting an amendment next week is not the answer, either. The question of how the situation arose is of deep concern to me. I see that the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) has left his place; I do not agree with any of the conspiracy theories that he put forward.
I was about to come to a point that may provide the hon. Gentleman with some answer. I am not absolutely convinced on the subject, but I am prepared to give those involved the benefit of the doubt. I would like to know whether someone got their calculations wrong. Or was bad advice given, and taken?
I am not saying that at all, and the hon. Gentleman should know better than to try to put words into my mouth from across the Chamber. There has been an error that affects many people in this country. As I say, it is the duty of this Labour Government to put that right.
The hon. Gentleman was not able to explain why the former Chancellor made the change, and he ruled out incompetence. Let me ask the hon. Gentleman another question: given that the problem was known a year ago, why has it taken the Chief Secretary to the Treasury so long—a year—to suggest that a review be undertaken? Is the timing down to the imminence of next Monday’s vote?
I am not convinced that the hon. Gentleman is right. We have to look. Undoubtedly, there were a number of Members—probably on both sides of the House—who knew that there was an issue. Has the hon. Gentleman’s party, knowing that there was a problem, merely sat quietly and brought the issue to the fore only in the run-up to the local and mayoral elections? We can all have conspiracy theories. Many on the Labour side had deep concerns, which they raised hoping that the matter would be corrected. It has not been. That is why I am saying that any amendment next week will not put the issue right.
No, I am not giving up. The comments made have been to the effect that the issue can be reviewed and looked at. I urge the Chancellor and his team to consider seriously the offer made this afternoon by my right hon. Friend the Member for West Dunbartonshire: an answer may be found by working with the Treasury Committee. That answer must be found sooner rather than later.
It is a pleasure to follow the hon. Member for Dumfries and Galloway (Mr. Brown), who always speaks with care on behalf of his constituents. I am sure that many of them would listen to his concern about fuel prices, which is shared by many Members.
I was disappointed earlier at the words of the Chief Secretary to the Treasury. Given that she represents a Yorkshire constituency, I would have thought that she would have known a little more about how to judge a wicket. It seems to me that she was on a particularly sticky wicket today, and I expected her to respond accordingly. However, my judgment of her words was that she thought that the wicket would take a bit of spin, and I found that disappointing.
I want to talk about what is missing from the Finance Bill and what should be put in on Report. I want to concentrate on three issues: the rising costs of regulation faced by business generally; the increasing tax burden borne by small and medium-sized enterprises, particularly small ones; and the personal debt faced by many of the poorest in our community, for whom the cutting of the 10p tax rate will cause considerable hardship.
I have spoken about regulation on a number of occasions and the issue is well rehearsed among many other Members. It is almost a truism now to say that the cost of regulation is hitting business hard. Much of that regulation is increased tax regulation, with which the Bill is particularly concerned. The Chancellor’s inability—or unwillingness; call it what you will—to simplify that tax burden for business generally is a sizeable omission. I do not need to repeat that the British Chambers of Commerce recognises that the cost of regulation under this Government has now risen to £66 billion—a massive burden for business, given the global challenge that is emanating from Brazil, India and China. In addition, the statutory instrument statistics for 2007 made it clear that 14 new regulations were enacted by the Government every working day. Many of them impact on business. Finally, the Federation of Small Businesses said that, on average, small businesses spend seven hours a week on red tape and paperwork.
Those are tremendous burdens on a business economy to which we are looking to provide the real challenge on which our children and grandchildren will rely for their well-being in 20, 30 and 40 years’ time. This House does not often think in terms of such lengths of time, but it behoves us to do so. Otherwise, we shall find our decline down the table of well-being continuing and accelerating. I find that a fearful prospect.
I do not need to talk too much about the need for tax changes because the Treasury Committee report on the 2008 Budget made that plea on a number of occasions. I could read them out, but I do not think that you, Mr. Deputy Speaker, would want me to do so, given that time is limited. However, the Treasury Committee grabbed on to the fact that we need to simplify our tax system and get burdens off the backs of businesses, particularly small ones.
The National Audit Office looked at small businesses in 2006. I have not seen any changes as a result of that audit, although the Government should have taken notice and created change. That is a fine example of how the Government, in my humble opinion, are going wrong. The National Audit Office said that the monitoring regulations for small schemes were not well developed and that there was no assessment of the impact of Small Business Service expertise on the development of regulation. Indeed, the Government went on to argue that they would cut the number of small business support schemes from the estimated 3,000 in existence at that time to 100.
Way back in March last year, I asked the Treasury how many schemes had been cut, how many had been consolidated and how many were in existence then as a result of the reduction. Secondly, I asked what assessment had been made of the effectiveness of the schemes, but I am afraid that I got no answer. I tabled a written question on the issue on 3 April this year, which means that I was due an answer this morning. Sadly, I did not receive an answer to the important question of how many schemes have been reduced, how many are now in existence and the Government’s assessment of their effectiveness. My guess is that I will not receive an answer, although I hope that the Minister will give me it tonight. Unless the Government effectively assess what they do, they cannot do anything effectively; the premise is simple. My concern about the Bill is that nothing in it tells me that the Government are assessing properly. I shall talk more about that in a little while.
I move on to taxation. I can say from my own experience that the business sector is not getting the message that the Government are business friendly. In fact, it is becoming increasingly concerned about the Government’s attitude when it comes to real measures rather than words. There has been a capital gains tax increase from 10 per cent. to 18 per cent.—an 80 per cent. increase. I welcome entrepreneurial relief, but many entrepreneurs are still being put off from starting, developing and growing businesses. We need to recognise the impact of such increased taxation on small businesses particularly. What assessment has been made of that increase, and what effect do the Minister and the Government generally feel that the increase will have on small business start-ups and on the businesses that might leave these shores as a result of increased taxation? Capital gains tax plays a particular role in that respect. It is estimated that the Exchequer yield from increased capital gains tax will be £250 million in 2008-09, £300 million in 2009-10 and £500 million in 2010-11. However, it does not seem to assess what the cost impact will be in real terms. If it does, I will be happy for the Minister to prove me wrong later, but I bet that I do not get a proper answer.
An example of the impact of Government thinking on small businesses is that of income shifting. Many small businesses run by husband and wife teams will recognise the value of consultation undertaken by the Government after due pressure and will be equally pleased that this measure has been put off until 2009, but there is fear about the bureaucracy that will be enacted at that time. Anybody who has been involved in a small business and knows about the impact of such bureaucracy will understand that fear. It will mean all sorts of double accounting for husband and wife teams.
My main concern, however, is that the Government seem to believe that every small business is out to twist the taxman. That is the impression that they give. One need only read what the Chancellor said in his Budget speech to recognise that that was the underlying theme of this move. The truth of the matter is that most people in small businesses are, frankly, too damn busy—I apologise if that is unparliamentary language, Madam Deputy Speaker—earning a living and creating and developing their businesses to have the time to think about dishonesty with the taxman. In fact, they are quite fearful of the taxman and want to be honest because they do not want him on their backs. I do not understand why the Government think that small businesses are out to cheat them. Again on assessment, it would be nice to know what is the economic advantage to the Treasury. Has that figure been worked out? Are we putting a massive burden on small business generally for very little return to the Treasury simply because this Government do not trust business? If so, business knows the answer and will know how to act.
Let me conclude by talking about the impact of personal debt, particularly among the very poorest in our society. I quote from a document that states:
“The Bank of England has estimated that around half the people who describe debt as being a “serious burden” are from a low income group…People living in housing provided by local authorities or housing associations are more than twice as likely to have been in debt than the average person…Debt and a number of other serious social problems are interdependent on each other both in terms of cause and effect…Those out of work are more likely to have experienced serious personal debt problems…Those who left school early, or came from single parent families, or whose parents were unemployed are more likely to have been in debt.”
There is a massive debt problem for people at that level; I do not want to talk about loan-sharking today, but that has an impact. It is all about weekly cash flow, and the problem is that the Government’s proposals will affect that. There lies the hidden problem that they have not understood. I wonder whether they have assessed the impact of that weekly necessity to repay debt and how that relates to the abolition of the 10p tax rate. If so, perhaps the Minister will tell me what it is. That is a serious matter that has not been considered and needs to be.
The Budget, as represented in this Finance Bill, has not helped many sectors of the community. It has created massive concern for home owners, as indeed has the Prime Minister—the previous Chancellor over a period of years. It has brought despair to would-be first-time buyers, because there was no help for them. It has turned off entrepreneurs and depressed business managers. It has made the poor poorer. Sadly, all this is from a Minister who has bailed out bankers who have caused their own problems, and caused problems for this country, not only by allowing increased personal debt but by acting in the most irresponsible manner imaginable. There are parameters to controlling any sector of business, and, by golly, there is an immediate need to look at the finance sector.
I would categorise the position of the official Opposition as follows: opportunistic, contradictory and wrong. So far, we have had crocodile tears from Conservative Members, although I do not necessarily include the hon. Member for Northampton, South (Mr. Binley) in that. I have to say to some of my own colleagues that there is an element of naivety in the approach to the 10p tax rate conundrum. That has two parts: the issue itself, and all that it means, and the context in which this Finance Bill and the Budget were produced—that of the global economy. We cannot unpick those two elements. It is all much of a muchness in relation to the stability package that the overall Budget was designed to address.
The right hon. Member for Witney (Mr. Cameron) said in a recent article in The Daily Telegraph:
“We would not double the 10 pence tax rate for five million of the lowest-paid families”.
He went on to list a litany of unfunded tax-and-spend promises to the value of about £20 billion. However, having stated that he would not double the 10p tax rate, he did not say what he would do on that issue. The shadow Chief Secretary did not say that either. He hid behind the technical defence—I think, Madam Deputy Speaker, that you were asked about it in several repetitious points of order—that the Opposition cannot table amendments to make positive suggestions on the Budget. That is not what the Opposition are duty bound to do if they are suggesting, as the right hon. Member for Witney suggests, that the abolition of the 10p tax rate is wrong. What the Opposition can do, and I invite the hon. Member for Fareham (Mr. Hoban) to do this in his winding-up speech, is tell us their policy. I know that they cannot put it down in a technical amendment and affect the Finance Bill in that way, but they could tell us their policy on the 10p tax rate, and what they would do about the £7 billion it would cost to vote against the measures in the Bill.
The contradictory nature of what has been said comes from the hon. Member for Tatton (Mr. Osborne). I do not know the gentleman who wrote an article recently in The Parliamentary Monitor describing the hon. Member for Tatton as “petulant and unremarkable”. Whether he meant that personally or with regard to policy is for hon. Members to decide, but I want to address policy. In a recent article on 8 April, the hon. Gentleman said:
“Today’s generation of bankers, economists and politicians across the Western world are also confronting problems that few had imagined possible even a year ago”.
In other words, the credit crunch could not be foreseen, but that is exactly the contradictory charge that the Opposition have made.
Is the hon. Gentleman saying that it was perhaps a mistake to announce such a radical change to the tax situation a year before it took place, when the Government could not possibly know the economic circumstances in which that change would take place?
The hon. Gentleman has made his point.
In the article to which I referred, the hon. Member for Tatton went on to say:
“We must not rush to rash judgment or premature solutions”,
but that is exactly what the Opposition seek to put forward. The right hon. Member for Witney did so, among a litany of other issues, in the article to which I referred earlier. However, the hon. Member for Tatton went on to contradict himself in his article. Having said that the crisis was not foreseeable even a year ago, he goes on to say:
“But the warning signs were ignored because under…the old economic consensus all was well.”
The hon. Gentleman’s memory is short. During the 10 years that my right hon. Friend the Prime Minister was in post as Chancellor, there were a number of pauses in the global economy, to say the least: the dotcom collapse, the Asian collapse and American problems in the early 2000s. One of the only economies that survived and prospered was this one. The Chancellor was entitled to take some credit for the stability and growth that this Government brought forward from 1997.
The hon. Member for Tatton, having said that the credit crunch could not have been foreseen, and having claimed that we should have foreseen it, said that we cannot rush to judgment and that not every problem
“needs a new law or piece of regulation.”
He went on to say that to survive the credit crunch, we must change the rules. Which is it? Does he say that all is well, or does he think that there ought to be intervention of the sort mentioned earlier by my right hon. Friend the Chief Secretary?
Following that article, the hon. Member for Tatton made a speech at the Policy Exchange on 14 April attacking my right hon. Friend the Prime Minister, saying that his economic legacy had collapsed. He referred to the “three pillars” of my right hon. Friend’s economic policy collapsing. That would be a damning indictment if it were accepted by serious commentators in the economic field. When I heard the hon. Gentleman make his speech, I asked myself where this idea of three pillars collapsing came from. Lo and behold, the day before, Lord Lamont had also written an article, for The Daily Telegraph. No doubt the right hon. Member for Witney—who advised Lord Lamont at a particular time in the life of the previous Government—and the hon. Member for Tatton had got their heads together on the Policy Exchange speech, because Lord Lamont said in his piece of 13 April:
“Contrary to what the Government have been saying, the UK is not well positioned to withstand this crisis. Whether it be the rise in house prices, mortgage debt…or personal indebtedness”.
That is the line that many papers have run, probably for a month or more. If those were the facts, they would be quite worrying to my constituents.
I have set out how what the Opposition are saying is opportunistic and contradictory, but it is also wrong. The case made by Lord Lamont is simply wrong. Why do I say that? Ruth Lea, a well-respected economist, but no friend of the Labour party—she never has been and never will be—used to be the finance director for the Institute of Directors, and she contradicted Lord Lamont and the hon. Member for Tatton when she said, very recently, that the British economy was very well placed to withstand the credit crunch in terms of stability. She said that that was the case for three reasons: low interest rates, in contradistinction to circumstances when other credit crunches caused severe recession, pain, negative equity and so on; low inflation; and high and improving levels of employment, a point made earlier by my hon. Friend the Member for Middlesbrough (Sir Stuart Bell)—we now have record employment. Those three factors were completely absent in 1991, 1992 and previous recessions.
As for other economic commentators, in case there were any doubt about whether the economy is in good shape to withstand the credit crunch, David Smith said last week in The Sunday Times:
“If you are in America, with barely any growth, or Italy, with today’s election being fought in an economy predicted to grow by only 0.3 per cent., things feel grim…As for Britain, the IMF’s forecast of 1.6 per cent. growth for this year and next is stronger than America, plainly, but also outstrips Germany, France, Italy and Japan.”
He went on:
“It may not be a great prize to win, but over the next two years Britain will vie with Canada to be the strongest-growing economy in the G7.”
That does not fit the description of a country that is acutely vulnerable to the credit crisis.
David Smith’s final point shoots the fox that some newspapers and Opposition Members have been trailing for the past month or so. He comments on the circumstances of credit crunches and squeezes in the past, and analyses three or four previous examples. In summary, he says that, on each and every one of those occasions, the credit crunch lasted for a certain period and was then over, with the economy back on an even keel. He measured three previous credit squeezes as lasting between six and 18 months. He said that we are already seven months into the current credit squeeze, which began roughly in August last year, and, unless those previous historical circumstances—I am talking not about pre-history but about events in the 1990s, 1980s and 1970s—are completely different from our position now, he guesstimates that we will get through it very soon or a little later.
David Smith therefore says that there are two sets of circumstances. First, the economy is in good enough shape to withstand whatever the credit crunch throws at us, contrary to what Opposition Members argue. Secondly, even if we are more vulnerable, only some months are left, hopefully. [Interruption.] The hon. Member for Northampton, South laughs. Does he wish to intervene?
I would love to. I thank the hon. Gentleman but, with respect, “hopefully” is simply not good enough for the many people who are considering starting businesses, those who will make investment decisions about developing such businesses and those whom banks will tell that they cannot have the money to start a business. “Hopefully” is not good enough.
Of course it is uncomfortable, but a Lord Lamont-style rant, which talks down the situation for political gain and makes it appear worse, for political purposes, than it is, will not help. I exempted the hon. Gentleman from my opening remarks, because he has a genuine interest in the small businesses about which he spoke. However, it does not help those small businesses to talk up the credit crunch or talk down the economy—the real economy. David Smith also says that some of the conversations about the credit crunch are divorced from the way in which the real economy works. The small businesses about which the hon. Member for Northampton, South speaks can prosper in and take succour from the stable economy, unbroken since before 1997. The business people whom he forcefully represents want that sort of climate and will prosper in it.
When considering the removal of the 10p tax rate, we must examine both the proposal itself and the global circumstances in which it is being discussed. Members of all parties refer to the Institute for Fiscal Studies. One of its leading economists said that there are basically three solutions and that, in simple terms, two are simply not affordable. The one that is left is to mitigate the effect on the so-called 5.3 million. The effect cannot be reversed, as the Opposition suggest, but mitigated. Labour Members have pointed out the problem with mitigation, but we have received no help from Opposition Members, who refuse to say what they would do instead. The problem is that several separate components of the electorate are differently affected by the removal of the 10p tax rate, so that mitigation for one sector might not assist another. The House must consider that seriously. My right hon. Friend and neighbour the Member for Birkenhead (Mr. Field) may table an amendment to try to address the mitigation aspect, but could fall into the trap of not dealing with the matter for every one of the 5.3 million. We should not, as the hon. Member for Tatton said about a different matter, rush to judgment.
What is to be done? My right hon. Friend the Chief Secretary said that the matter would be considered. The Treasury Committee suggested that that could be done in conjunction with it. That may well be a sensible option. However, the matter is much more complicated and serious for the people whom we are considering than we have explored with Opposition Members— unless the hon. Member for Fareham can tell us what he would do in place of removing the 10p tax rate.
I am pleased to follow the hon. Member for Wirral, West (Stephen Hesford), who provided a cheery, upbeat assessment of the economy. I would hate to hear him when he was miserable. However, let me get rid of the delusion that he presented—the denial in his speech and the making light of the credit crunch. The Chancellor told us earlier that he would give the banks £50 billion in Treasury bills in return, at least in part, for US credit card debt; there are tens of billions of Treasury bills in Northern Rock now; there will be £581 billion of cumulative deficit next year—that is in the Red Book, as is next year’s £43 billion of debt, and there will be £189 billion of private finance initiative liability, most of it off balance sheet. When the hon. Gentleman talks about the “real economy”, he should remember that we have lost a million manufacturing jobs since Labour came to power, and that there is an £87 billion balance of trade deficit in goods and £1.3 trillion of personal debt. We all want to talk up the economy, but let us do it on the basis of—he is a Labour Member and will understand—objective reality. His speech contained no reality.
On Budget day, I described the Chancellor’s speech as a speech from
“a Chancellor who had no room to manoeuvre.”—[Official Report, 12 March 2008; Vol. 473, c. 345.]
The clearest indication that we have had of that limited room for manoeuvre is the detail in the Bill, which is another smash-and-grab raid. The Government will take £2 billion extra from business, including £200 million extra from business in Scotland, in the next three years. I will come to the detail of that, but there is also the abolition of the 10p rate. I do not want to claim credit for being the first person to notice that in last year’s Budget, but I should like to put it on the record that I mentioned it in my speech on Budget day.
The Finance Bill sees the Government scrambling around for every penny that they can get from business and people’s pockets to plug the holes in the books. I have outlined some of those holes to the hon. Gentleman and will return to them later. The Bill also takes its lead from policy decisions in the previous Budget and the pre-Budget report, which the CBI estimated would take some £5 billion from business, straight into the black hole of the Exchequer. That is the clearest indication that, after 10 years of relatively benign international conditions, relatively stable if unspectacular growth and reasonable inflation, there is nothing left in the tank. Debt levels are far too high and there is no cash reserve to allow the Government to do what is necessary to stimulate the economy when the downturn comes.
Ministers have said that there is stuff in the Budget and the Finance Bill for business, but where are the measures genuinely to increase investment in research and development? We know that such investment is relatively low in the UK, at about 1.8 per cent. of GDP, as I have said before. Our main competitors have a higher rate, and in Scotland the figure is very low indeed. The Government have done little in the Budget or the Finance Bill to assist R and D. Ministers may point to the small and medium-sized enterprise R and D tax credit increases, as well as the general R and D tax credit increases, from previous Budget measures. That will cost the Exchequer some £70 million this year, and that goes to business; however, that is taken away from business, in yield to the Exchequer, either by the changes to the integral fixtures capital allowances, which will bring in £70 million, or the first year of the phased abolition of the industrial buildings allowance, which brings in £75 million. There is therefore no net gain for business from doing the R and D that they want, and they will have to find the cash to pay for those outgoings.
By increasing taxes—the small companies rate of corporation tax in particular—and refusing to reconsider proposed changes to capital gains tax, the Government are taking more tax from business at a time when they are making it potentially more difficult to secure investment. I am certain that those measures will worsen the situation in manufacturing, which has seen 1 million jobs lost in the UK since 1997, including 100,000 lost in Scotland and 34,000 lost since 2002.
Making it more difficult to raise capital and increasing taxes for growing companies, particularly when they are struggling to meet spiralling energy, transportation and raw material costs, will worsen the balance of trade problem. We are talking about an £87 billion deficit in our trade in goods and a £70 billion deficit in our overall balance of trade, which is up £10 billion from £77 billion in the past full year. That deficit affects our ability to grow GDP. Since 2000, we have seen a suppression of GDP of around 0.25 to 0.5 per cent. every year. That means that UK GDP has grown by £30 billion less than it would have, had trade been in balance, which equates to about £1,000 per household. That is another matter that should have been addressed in the Budget and the Finance Bill, but which has not been.
The Chief Secretary also argued that the Finance Bill was a Finance Bill for the environment—that was when she was actually talking about the Bill. I am not sure whether the Government are right about that. The Bill will defer the April rise in fuel duty until the autumn, which is to be welcomed, but from next year there will be a 1.84p per litre rise and a 0.5p per litre rise above indexation from 2010, as well as a swingeing new vehicle excise duty regime.
My hon. Friends and I have no objection to using price to discourage unnecessary journeys, to encourage public transport or to encourage freight off the roads, which everyone in the House agrees is sensible. However, many of the Government’s measures ignore the fact that so many journeys, of both people and freight, are wholly necessary and that in many areas there is often no alternative. With the Government already taking in excess of 60 per cent. of the price of a litre of fuel in duty and VAT, it remains outrageous that, when there is a windfall, particularly in VAT, and when there is spiking of prices at the pump, that money is not used to moderate the price of fuel.
I hope at some stage to be able to table amendments to the Bill to do a number of things. The first would be to introduce a fuel tax regulator, in order to use the VAT windfall, first to help generally, secondly to assist remote rural areas, and thirdly and most importantly —I hope that this will command support—to assist the road haulage industry, which is being hammered and is even contractually unable to pass on the fuel prices it is having to pay.
The second thing that I would like is for the Government to reconsider possible exemptions for working 4x4 vehicles from the new high rates of VED. The Chief Secretary said that growth is continuing, but at a much lower rate than previously forecast. The impact of the lower growth is that Government receipts are forecast to be down £1.2 billion from the pre-Budget report. That did not stop the Chancellor, like his predecessor, boasting about growth in the UK economy. However, it is worth reminding ourselves —particularly the hon. Member for Wirral, West, who believes that this is the best of all possible worlds—that average growth in the OECD has outshone that of the UK in half of the past 10 years and that low-tax economies such as Ireland’s have outshone the UK every year since Labour came to power.
As ever, the Chancellor, like his predecessors, ignored the quarterly downturns in the Scottish economy and the many low and flat growth quarters under the Government’s watch. Indeed, average growth in Scotland has been 30 per cent. lower than in the UK over the past 25 years, yet there was nothing in either the Budget or the Finance Bill to assist.
One of the few areas where the Budget indicated revenue growth was from the North sea. There was an increased tax yield from the North sea, which was based on an average price at the Budget of $83.60 a barrel of oil, which is an increase on the $68 a barrel forecast in the pre-Budget report. As I pointed out at the time, four out of the five closing prices for oil in the week running up to the Budget were record closing prices. The price on Budget day was $94 a barrel, but it has now smashed through the $100 a barrel price. It is worth noting that the Budget forecast £56 billion in revenues over the next six years, as compared with £38 billion over the previous six-year forecast. That massive windfall alone should act as an encouragement for the Government to consider how we might deploy some of the extra revenue generated for a fuel tax regulator, to help people in remote rural areas in particular and the road haulage industry.
Many Ministers and Government Back Benchers—the ones loyal to the Government, that is—have argued that the Finance Bill was a Bill for stability. Obviously the Budget was so dull and the Bill so appalling that the only watchword that they could come up with was “stability”. However, the Bill and the Budget will not provide stability. They are designed to do one thing: to fill the holes in the UK books. There was £37.6 billion of debt, with £43 billion forecast for next year. There was a cumulative debt of £541 billion last year, with a debt of £581 billion forecast this year. The PFI liability last year was £179 billion, with £189 billion of PFI liability this year, for—from memory—only £60 billion of capital projects. That is why our First Minister, my right hon. Friend the Member for Banff and Buchan (Mr. Salmond), described PFI as hyper-expensive and a hyper-waste of money. We need to do something about that, and very quickly.