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Treasury

Volume 474: debated on Thursday 24 April 2008

The Chancellor of the Exchequer was asked—

Tax Avoidance

1. What his policy is on reducing Exchequer revenue forgone arising from tax avoidance and tax planning; and if he will make a statement. (200859)

“Protecting Tax Revenues”, which was published by Her Majesty’s Revenue and Customs alongside the Budget, sets out the progress made so far and how HMRC is responding to new challenges by further strengthening the strategy. Let me be clear: our approach is based on providing a modern and competitive tax system, which promotes opportunity and enterprise while ensuring that everyone pays their fair share.

I thank my right hon. Friend for her answer, but she will be aware of the recent TUC report, “The Missing Billions”, which identifies at least £33 billion of lost revenue per annum. If even a third of that money were collected, we could easily compensate the 10 per cent. tax losers, immediately restore the earnings link to pensions and pay for free long-term care for all, among other things. Does this not simply require a modicum of political will to collect the money?

First, I do not accept the TUC’s figures, which include reliefs from savings and enterprise and are based on a range of speculative assumptions. It is difficult to measure tax losses that arise from the use of avoidance devices. I hope that my hon. Friend accepts that all recent Budgets have included measures to close down avoidance schemes with a potential cost of between £1 billion to £1.5 billion a year. There have been notable successes, such as halving excise fraud. The measures have already reduced underpayments of tax by more than £5 billion a year compared with five years ago. I therefore hope that he accepts that there is a concerted effort to do exactly as he suggests.

I wonder whether, in our modern and transparent taxation system, we can look at the bonuses that are paid to City workers. Last year, it was estimated that the amount increased to more than £1 billion. Some individuals got a £50 million bonus every year. Such pay increases not only distort housing prices in London and the south-east, but distort society.

I hear what my hon. Friend says—it was more of a statement than a question. All such workers pay their taxes, as expected, and I believe that their enterprise and effort should be rewarded appropriately.

Despite what the Financial Secretary has said, there are many higher estimates for tax avoidance than the figure that my hon. Friend the Member for Luton, North (Kelvin Hopkins) suggested. In The Guardian this week, the estimable Prem Sikka estimates it to be between 20 and 30 per cent. of tax take. Is there not more that we can do? Will my right hon. Friend consider setting up a working party, including my hon. Friends the Members for Luton, North and for Great Grimsby (Mr. Mitchell), and advised by Prem Sikka? Perhaps then we could avoid some of the angst and heartache that we have seen this week in the days leading up to today.

I am not sure that that would mean that I avoided anxiety and heartache, but I am more than happy to meet any of my Labour colleagues to discuss those and other matters as they arise.

Energy Prices

High energy prices continue to affect all economies, and at the recent G7, International Monetary Fund and World Bank meetings, we called for urgent international action by those bodies to improve the functioning of the oil markets, including increasing transparency and investment, as well as supply of oil.

The Warm Front scheme has been welcome in reducing fuel poverty, but what efforts is my right hon. Friend making to reduce the costs of the preferred contractors, especially in light of the growing evidence that local contractors can do the same work for far less money? Has he also considered the criticism that the scheme is just not flexible enough?

I am grateful to my hon. Friend for his welcome of scheme in general. I think that about 7,000 households in his constituency have been affected by measures to help conserve energy through greater insulation. The point that he raises is a real concern, especially at a time when the industry is about to enter a major programme, through the carbon emissions reduction target, to insulate homes throughout the country. It would be a pity if contractors were to take advantage of that and charge more than ought to be charged. His other point was about ensuring adequate competition so that local contractors and others can get the work, which would also help drive down prices. He raises a real concern, which I want to look into, to make sure that all the work is not only done, but done as cheaply and efficiently as possible.

In the Chancellor’s reply to me on Monday, he stressed that rating agencies should not be relied on as a definitive guide in judging the stability of energy companies and other utilities. Given the high levels of leverage in energy companies, will he discuss with the regulator, Ofgem, what measures can be taken to ensure long-term stability, so that crises will not precipitate a collapse of those companies, due to the levels of debt that they are currently incurring?

I will certainly raise the matter with Ofgem. As my hon. Friend said, he raised it with me on Monday. Whether we are talking about a utility company or a bank, I am clear that a credit rating agency should be relied upon to give advice that will help inform directors’ decisions, but it should not be taken as the last piece of advice. In other words, the decision should not be taken by the credit rating agency; it must be one for the directors to take.

The other thing that would greatly help utility companies in this country, particularly in relation to energy supply, is for us to ensure that the supply of energy in the European Union is truly opened up so that we can actually see what is going on. The Commission has taken some welcome steps, which Neelie Kroes initiated a year or so ago, but frankly the progress is far too slow. It is important that we do everything we can to ensure that the market is more open, because that will help British energy companies and therefore, importantly, consumers, whether businesses or individuals.

Why is it that three months after the Chancellor’s high-profile intervention on electricity prices no action has been taken to refer to the big, vertically integrated producers that suppress competition the Competition Commission or to stop the blatant price discrimination against low-income metered consumers? Is that not another case, as with the banks, of powerful companies running rings round ineffectual regulators and Ministers?

No, I do not accept that. What is clearly the case, especially over the past year or so, is that the prices being paid by businesses and consumers have gone up. A lot of that is to do with very high oil prices, which have remained far higher than people forecast even a year ago. Oil prices are significantly higher than they were then. We have a competitive market, but as the hon. Gentleman knows, Ofgem is looking into the situation. I raised it with Ofgem at the turn of the year, because I want to ensure that our market is competitive and that there are no anti-competitive practices.

Since then, the Government have also engaged with energy companies to get them to increase the amount of money that they spend on customers with low incomes and, crucially, to do something about the unfair high payments that were imposed upon customers with pre-payment meters who, by definition, were on lower incomes than everybody else. Action is being taken, but rather like with the hon. Gentleman’s fairy tale on Monday, he might want to look at all the facts and not just some of them.

Although I welcome the interim and short-term measures that my right hon. Friend is taking, is he also considering alternative energies, such as those of the Energy Technologies Institute, which is based at Loughborough university, at the hub of a £1 billion investment? Those are the things that will reduce our reliance on oil in the long term, especially at $120 a barrel, at which it could remain for the foreseeable future. Will he ensure increased investment in those alternatives, not only for the long-term security of the nation’s energy, but for all of us suffering from the increased energy prices caused by changes currently taking place in the world?

I agree with my hon. Friend. Indeed, the thrust of the energy White Paper that I published last summer was, first, to reduce our demand for energy, through increased conservation and measures to ensure that businesses and we as individuals use less energy, which is critical. The second thing is that we need to reduce our dependence on carbon sources of energy. That is one of the reasons that the Government believe that we should rebuild nuclear capacity. However, my hon. Friend is quite right that renewable energy must play a crucial role. The renewables obligation helps the growth of renewable energy. Indeed, we have seen a huge increase over the past few years, although we have a long way to go.

The problem with renewable energy that we also need to tackle is that sooner or later people must face up to the fact that if we want renewable energy, we have to give the go-ahead to wind farms onshore or offshore. The problem, certainly in this House, is that there are people who say, “Yes, we want to be greener”, but who then go on to say, “But not anywhere near me.” That is something that we as a country are going to have to resolve. I agree with my hon. Friend, however, that conserving energy and getting more renewable energy must be two of the centrepieces of any energy strategy if we are serious about tackling climate change and reducing bills for consumers, whether they are businesses or individuals.

The Chancellor will know that the high price of energy is hitting those on fixed incomes particularly hard, especially older and more vulnerable people. When will he be in a position to give the House details of the extra help announced yesterday that is to be given to 60 to 65-year-olds?

I hope that I can do that in the reasonably near future, but I want to make sure that we have bottomed out exactly how these payments can be made and what mechanism will be used. It will almost certainly be done through the winter fuel payment mechanism, because it is already there and we would not need to legislate for anything different. The hon. Lady will recall that, in the Budget, I increased the amount of money going to people over the age of 60 by £50 for this year, over and above the winter fuel payment. That was partly to reflect the fact that, as she has pointed out, people over the age of 60 are often, although not always, on fixed incomes. That payment will help them and will be widely welcomed. Those payments will go out in the autumn.

Is my right hon. Friend aware that electricity bills in south Wales are 10 per cent. higher than in England, causing obvious problems to individual constituents and businesses? Has he made any assessment of the effect of those higher bills on the Welsh economy?

As I said earlier, the higher energy bills are affecting all parts of the UK, although I note what my hon. Friend has said about south Wales. They are also affecting every other country in the world. This is a matter of major concern, which is why we need to do three things. The first is to ensure that we have a genuinely competitive market. While we have made strides in this country—far more than many other countries, particularly in the European Union—we need to do far more to ensure that there is no anti-competitive behaviour. Secondly, we need to ensure that we take action to become more efficient with the amount of energy that we use. The third element, given that the root cause of the problem internationally is the continuing high price of oil, is that we need to take action to increase the production of crude oil, to increase our refining capacity, and to make those markets far more open than they are at present. All those things need to be done, because energy prices are crucial, particularly for heavy industry in south Wales as well as for consumers. I am very conscious of this issue, and we need to take action here as well as internationally.

When the Chancellor is considering alternative forms of energy, will he bear in mind his responsibility for the stewardship of the economy in general? Will he reflect that the erection of onshore wind farms can often despoil the countryside, deter tourists and have a bad effect on revenue as a consequence?

The hon. Gentleman amplifies the point that I made a few moments ago. Of course we have to balance our need to generate electricity, whether from coal-fired, gas-fired or nuclear power stations or from onshore wind farms, with the fact that we need to take environmental considerations into account. If we want more renewable energy, however, we have to put it somewhere—[Interruption.] Someone says from a sedentary position, “Offshore.” Yes, indeed. However, our experience is that there have been almost as many objections to offshore wind farms as there are to onshore wind farms—[Interruption.] Not from the fish, but often from people with quite legitimate concerns that need to be addressed. If we are serious about getting more renewable energy, we actually have to build it. I would say to some, although not all, Opposition Members who say that they want renewable energy that they will need to reconcile that with their often robust opposition to building any more wind farms.

The Government have an excellent record on tackling fuel poverty, but the challenging targets to eliminate fuel poverty by 2016 are now looking difficult to achieve. Energy companies are increasing the amount that they spend on social tariffs to £150 million. Is the Chancellor confident that the voluntary approach is going to work and does he rule out mandatory tariffs?

My hon. Friend is quite right that we have reached an agreement with the energy companies to increase the amount of money they spend on social tariffs. It is far easier to proceed on the basis of voluntary agreement because it avoids all sorts of difficulties, and I very much hope that electricity companies will recognise that people feel very strongly about this approach and that it is something that they want to see, and I want to see that agreement implemented.

Vehicle Excise Duty

3. What the percentage change in vehicle excise duty for a Nissan Micra will be as a result of the changes to vehicle excise duty announced in Budget 2008. (200861)

4. What the percentage change in vehicle excise duty for a Nissan Micra will be as a result of the changes to vehicle excise duty announced in Budget 2008. (200862)

Nissan produces a number of different models of Micra, which have a range of carbon dioxide emission outputs—from 125 g to 175 g a kilometre. Using 2008-09 rates of vehicle excise duty, the percentage change for Micras varies between minus 25 and plus 25 in 2009-10, and between minus 21 per cent. and plus 24 per cent. in 2010-11, reflecting the fact that there are a range of emissions choices with this model of car, as there are with many others.

While the smallest cars get a tiny benefit from the vehicle excise duty changes, even many Nissan Micras are subject to a rising band of VED rather than a smaller one. Is there any hope for these smaller cars?

The issue is that the VED rate changes are designed to increase the incentive for people to buy the least emitting—the best—car in a class, which is why they are designed to reward those who buy best in class with respect to emissions by giving them a reduction in their VED rates.

Micra man. [Laughter.]

Does not the Minister accept that a very large number of motorists believe that the changes to VED bands to be introduced from 2009-10 are merely yet another stealth tax on cars, that the duty increases are in the main excessive and that they take no account of those people in my constituency—the farming community of Macclesfield and those in the hill country of the area—who need to use 4x4s? Will the Government look again into the need for 4x4s in many parts of the country?

I know that the hon. Gentleman is the epitome of Range Rover man. What I would like him and his constituents to do is be able to drive Range Rovers that emit lower amounts of CO2. That is what the changes are designed to achieve.

We now know that the changes to vehicle excise duty announced in the Budget were not a green tax; in fact, they were more of a brown tax or an eco-stealth tax. The reality is that we now know that the changes will raise £4 billion over the next three years. The Treasury admitted in parliamentary questions that motor vehicle CO2 emissions will be reduced—by 2020, I should add—by one tenth of 1 per cent. That is a disgrace: it has nothing to do with saving the planet and everything to do with—

I will do. We also know—[Laughter.] I am coming to it, Mr. Speaker. Of the £4 billion raised, £2.5 billion will go on low-income families and £375 million will be paid next year. Will the Minister add the band A to J losers to the 10p compensation package review? The Government have reviewed capital gains tax and non-doms, so is it not time to review vehicle excise duty?

I am not sure quite how to categorise the emissions that we have just heard from the hon. Lady, so I had better not try. I can, however, tell her that as a result of these changes, in respect of 15 of the 30 best-selling cars of 2006 drivers will be better off, and in respect of nine they will be no worse off, while 55 per cent. of drivers will be better off or no worse off.

Northern Rock

During the period of temporary public ownership, Northern Rock will be managed on an arm’s length commercial basis. On 31 March, its board published a detailed business plan that meets the Government’s objectives.

In his recent ministerial statement the Chancellor said that the Government would hold the board accountable for performance against the business plan, but one of the commitments in the plan is that the bank will treat all customers fairly. In the light of today’s expected test-case judgment, can the Chancellor explain how the Government intend to hold the board to account over the bank’s fair treatment of its customers in respect of its charges?

As the hon. Gentleman says, we are expecting the result of that case today, and until we see the findings it would be premature to comment on how we will respond to them.

If the Chancellor cannot make his own bank cut its mortgage rate, what hope is there of anyone else doing so?

As I told the House on Monday, the measures announced by the Bank of England will take a great deal of pressure off banks. As I said then, they are a further step towards stabilising the financial markets. The benefits of the reductions in the Bank of England’s rate, and the other support that it has introduced, can be passed on.

As for mortgage rates, it is important for two things to happen. It is important for institutions to rebuild their capital position, and we want banks and building societies to be robust enough to be able to continue to do that. As I said, I should like the benefits to be passed on, but as the hon. Gentleman will realise when he has had an opportunity to sit down and think about it, it is important for institutions to examine their own capital positions so that they can strengthen them, especially at a time when we are undergoing so much turbulence and uncertainty. The measures that we announced on Monday, together with the other steps taken by the Bank of England, will help to reduce the pressure that we face, and help those benefits to be passed on to consumers.

During the recess, the Chief Secretary wrote to me admitting that the independent valuer should treat Northern Rock as though it were in administration. Has the Chancellor appointed a valuer? Does he expect ordinary shareholders to receive any value, given that they rank below £400 million-worth of preference shareholders? And does he now recognise that Northern Rock is effectively in administration?

It is not, and—as the hon. Gentleman knows, because he follows these matters—the compensation regime was set down in the Banking (Special Provisions) Act 2008, which Parliament passed in February. However, it is right for the valuation of the bank to be based on the fact that it owes rather a lot of money to the Bank of England. That was the reason for our proposals, which were accepted by the House. I believe that Members in all parts of the House accept that this is a bank that got into huge difficulties, and that if the Bank of England had not intervened it would have gone under. We must be fair not just to people who are involved with the bank, but to taxpayers as a whole.

May I take the Chancellor back to his answer to my hon. Friend the Member for Hammersmith and Fulham (Mr. Hands)? Why has a bank that he nationalised refused to heed his calls to reduce its mortgage rate and pass on the reductions in the Bank of England base rate? Why has a bank that the Government put into public ownership not listened to his advice?

At our last Question Time, the Conservatives complained that Northern Rock was offering rates that were more competitive than those in the rest of the banking sector. Today they are complaining that it is not. Right from the start, the Conservatives’ position on Northern Rock has been all over the place. They have had different positions for every week of the year, most of them contradictory.

As I told the House earlier this week, I believe that the Government have put in place, through the Bank of England, measures that will help to stabilise the financial markets. We are already seeing some evidence of that, but the financial markets are going through a period of unprecedented uncertainty and turbulence, and it is important that the banks—Northern Rock or any other—make sure that they have a secure base on which to proceed. As I have said, I hope that the benefits of both the reduction in interest rates and the additional money and support that the Bank of England has been able to give will be passed on, particularly to mortgage payers.

Welfare Tax Credits

The latest published figures show that in 2005-06, 91 per cent. of the money for child tax credit and 82 per cent. of the money for working tax credit has been claimed.

I thank my right hon. Friend for her answer. Will she confirm that since 2005 the Government have made changes to these tax credits which mean that there are far fewer reclaims of overpayment of child tax credit and far more childless workers eligible to receive working tax credit? Why cannot the Treasury and the Revenue make it automatic that people receive the tax credit to which they are entitled, and if that is not possible, will they engage with Members of Parliament, trade unions, employers, local government and third sector organisations such as Citizens Advice in raising awareness of the availability of these tax credits and campaigning for their take-up?

I am grateful to my hon. Friend for the first suggestion in his question, although I think he will find that legislation requires people to claim—to make an application for—their tax credits. I recognise that more needs to be done to boost take-up of working tax credit by those without children. That is a particularly hard group to reach. I hope I can reassure my hon. Friend by telling him that Her Majesty’s Revenue and Customs has been conducting a campaign aimed at this group. It plans to repeat it in the autumn, increasing its intensity so that it reaches more than 7.5 million households within the priority areas where it believes many people in these groups live, and about 3 million households will receive door-drop leaflets. In addition, HMRC is targeting employers in sectors where it expects there will be high eligibility, and we are also working with the trade unions. Promoting the take-up of tax credit is not a new interest of mine; we have been working hard on it. I am grateful to him for his interest, and I would be happy to discuss what further measures we might be able to take.

The Government have prayed in aid the use of tax credits in dealing with the removal of the 10p tax rate. Notwithstanding what the right hon. Lady has just said by way of an answer and the statements of the Chancellor and the Prime Minister yesterday, will she tell the House how many million people will still be losers by virtue of the removal of the 10p tax rate who will not be able to be helped by virtue of tax credits?

The right hon. Gentleman will have heard the comments yesterday and through this week of my right hon. Friends the Chancellor and the Prime Minister, and he will know that I have had a long-standing interest in improving the take-up of working tax credits—as, indeed, has my predecessor. More work remains to be done in this area and we are redoubling our efforts. I do not at present have the details to respond to the specifics of the right hon. Gentleman’s question, but that will be part of the work we will do going forward.

Does the Minister accept that some people on low incomes have in the past had difficulty in coping with tax credit overpayments and that that is acting as a disincentive to some for claiming tax credits? We need a strategy to deal with this matter, to make sure they claim what they are entitled to.

Absolutely, and I am grateful to my hon. Friend for raising that point. HMRC has developed a series of initiatives through the tax credits transformation programme, including increased support for those renewing their claims—particularly people who have had difficulty in renewing in the past—and enhanced assistance for those making new claims, which involves longer conversations with tax credit office support staff and better training and support for staff in tax credit call centres, to make sure that the customer experiences in renewing their claims and making new claims mean that customers get the tax credits they are entitled to as quickly as possible.

As well as aiming to reduce poverty, do the Government aim to reduce the number of people who rely on benefits to escape it?

Yes, we have said for many years that we believe the best route out of poverty is through work. The support that we have in place is designed to assist people not only to find jobs through our active labour market policies, which the hon. Gentleman will have noted have had considerable success, but to ensure that work pays and provides the benefits that one would expect once people are in work.

Is my right hon. Friend aware that a Library paper prepared for me shows that families who earn up to £520 a week where one adult works for 30 hours and there are two children gain £10 a week through the changes to the tax and tax credits system? There has been a lot of debate about this Budget, but what will she do to ensure that a large number of families who might not have thought about claiming tax credits know that they will benefit a great deal from it?

I am grateful for my hon. Friend’s question. She and I have discussed this subject, and I am interested in the further evidence that she has brought to the attention of the House. I hope that she will be pleased to learn that I am encouraging Her Majesty’s Revenue and Customs to do further work through the transformation programme, including work on new guidance for families, work on more accessible information and work with the national network of children’s centres that is now in place. I am grateful to the staff at the tax credits offices, who are so enthusiastically taking up these improvements in how they work in order to benefit the customers whom they serve.

In March 2007, the Prime Minister told the Select Committee on Treasury that take-up of working tax credits by households without children had increased by 100,000 since 2004-05 and that, partly as a consequence of that, it was incorrect to say that 5.3 million households would lose out as a result of the doubling of the 10p rate. Will the Financial Secretary confirm that the Prime Minister was wrong to say that working tax credit take-up had increased by 100,000 and wrong to deny that 5.3 million households were losing out from the scrapping of the 10p rate? Will she confirm that the problem in trying to use working tax credits for households without children to cobble together a compensation package for the 5.3 million households who are losing out is that the take-up rate is only 22 per cent?

No, the hon. Gentleman knows that the rate of take-up of tax credits is higher than that of any previous system of income-related financial support for working families. The take-up rate was 50 per cent. in the early years of family income support and only 57 per cent. for family credit, but it is 62 per cent. for working families tax credit. This system is successful, although I accept, as I have said repeatedly this morning, that there is further work to do in respect of households without children. HMRC and I are working hard to improve take-up—[Interruption.] He says 22 per cent. from a sedentary position. That fact is in the public domain and I do not quarrel with it, which is why I have said repeatedly to him, his colleagues and Labour Members that there is work to do and we are committed to taking it forward.

Hospitals (Expenditure)

Investment in the health service improves facilities and care, and it helps the local economy both directly, by providing employment, and through improving the health of the local work force.

I can confirm to my right hon. Friend that exactly that is happening in Blackpool. Is she aware that in recent years, £70 million of capital investment has been made in Blackpool Victoria hospital to create new cardiac care and haematology units and much more? Not only has that created new jobs in the economy for contractors and providers, and for 100 new nurses, but, of course, it has improved health care. Will she continue that investment and her good work?

I assure my hon. Friend that the Government intend to continue making significant increases; there is provision for a 4 per cent. real increase in health spending during this comprehensive spending review period. We recognise the benefits that health care investment can bring to the local economy. As she says, it means jobs for nurses, but it also means improvements in health. There has been a 17 per cent. drop in cancer deaths over the past few years as a result of much of the extra investment in the national health service, which has gone into providing new drugs and better treatment facilities.

Given that so much expenditure on hospitals in recent years has been through off-balance sheet private finance initiative and public-private partnership projects, is the Minister comfortable with the notion that, effectively, the next generation of taxpayers will have to pay for jam today in hospitals and other areas of public expenditure?

I am astonished to hear that the hon. Gentleman seems to be against new hospitals, PFI projects and the chance of investment in the future. It is often right to borrow to invest in the future and to deliver the kinds of services from which people will benefit for many generations to come. We are proud of that level of investment. I am sorry—I think his constituents will be sorry, too—if he is setting his face against the new and important capital investment in the NHS.

Welfare Tax Credits

I am so pleased that the hon. Gentleman could join us. He may not have heard me comment that the tax credit system is now working well for the 6 million families who benefit from tax credits, but I continue to look for opportunities to improve their experience. A revised version of the award notice, reflecting comments from the voluntary and community sectors, has, as he knows, been in use since April 2006.

I was here for the whole of the previous exchange, which I noted. I noted in particular that three quarters of people who are entitled to working tax credit do not claim it. I also know that nearly 1 million people were not given the amount that they should have received. Given that there are two four-page forms and that, as the Minister says, the target audience is the people who are most likely not to get the forms right, what will she do, rather than merely saying she is committed, which I do not doubt, to ensure that the system delivers, if it is meant to be the answer to all the Government’s new-found difficulties?

My apologies. I did not see that the hon. Gentleman was here for the earlier discussion. He certainly was not here at the outset of questions. He will have heard me refer to the fact that HMRC has—

I can talk about Liverpool if the hon. Gentleman wants me to. HMRC has already conducted a campaign aimed specifically at one group: families without children who should potentially be receiving working tax credit. I hope that the hon. Member for North Southwark and Bermondsey (Simon Hughes) will accept that this is a particularly hard group to reach and to encourage to claim. It is for precisely that reason that HMRC has focused its effort. It is working with three different groups in which it believes that we could improve take-up: new mums, some ethnic minority groups and the group that I just mentioned. HMRC realises that there is more work to be done.

It is not just a matter of words; HMRC is making a real effort. It deserves to be commended for its work. It is too early yet to see the outcome of that increased effort, but there is no doubt that the effort is being made not only through the leaflet campaign to which I referred, but through targeted radio promoting the use of tax credits to those groups. We believe that they listen to local radio programmes more than other perhaps more conventional methods of advertising.

It became clear from the correspondence that I received about the abolition of the 10p tax rate that there was still a large amount of ignorance about who could claim and who qualified for working tax credit. That might help to explain why take-up is so low. Another explanation is that people with disabilities find it difficult to get more than the number of hours that must be worked in order to qualify for tax credit, on top of the complication of filling out the form. Will my right hon. Friend reconsider the qualifications for working tax credit for those with disabilities, to make it easier for them to qualify without having to work the 30 hours, which they find a high hurdle to overcome? That would also help to address the group that is losing out as a result of the abolition of the 10p tax rate.

My hon. Friend makes a valuable point, which I am happy to consider. I will closely examine the whole area as we go forward to ensure that all those who are entitled to receive working tax credit, whether or not they are impacted on by the questions around the 10p tax rate, can do so. Equally, I want to examine how we can help people in the way that my hon. Friend has suggested. I will consider whether it will be advisable to do so through the tax credit system or perhaps some other means.

Savings Ratio

11. What assessment he has made of the long-term consequences for the economy of the savings ratio. (200869)

The savings ratio is affected by the macro-economic conditions, the financial market conditions and consumer attitudes at any one time. The Government are currently forecasting an increase in the household savings ratio, partly in response to current economic conditions.

Why did the Chancellor abandon prudence some nine years ago to increase dramatically the size and cost of Government and public expenditure, while discouraging saving by a combination of inflation and high personal taxation? Now that the housing market has gone virtually from boom to bust, and it is estimated that UK personal indebtedness is rising by £1 million every five minutes, what further action will the Chancellor take to improve the savings ratio, which is so important for stability in the economy?

I have to say that I completely disagree with the hon. Lady’s diagnosis of the economic situation. We have invested, it is true, in schools, hospitals, education, health care and transport infrastructure, and that has had a very big impact on things like standards in school and the number of deaths from heart disease and cancer. We have also seen big improvements in our economic prosperity. We have gone from being at the bottom of the G7 league to being second from the top in prosperity per head of population. That is a very big improvement in our economic wealth and well-being, and it is as a result of the investment and macro-economic decisions that this Government have taken.

Topical Questions

The core purpose of the Treasury remains to ensure the stability of the economy, to promote growth and to manage the public finances. Last week, the new figures showed that employment in the United Kingdom had reached a new record of 29.5 million people, which demonstrates the underlying strength and resilience of our economy.

In an earlier response, the hon. Member for North Ayrshire and Arran (Ms Clark) responded to a question about the rescue package for the 10p rate of tax by saying that she could not reveal, or did not know, all the details in that package. Given the sensitivities on both sides of the House, and given the fact that another member of the Chancellor’s Front-Bench team was reluctant to reveal other details last night in the press, will the Chancellor answer two very straightforward questions about the contents of the package? First, which elements of it will and will not be—

Order. A supplementary, especially at topical questions, should be brief, and certainly two supplementaries is just not on.

I bow to your point, Mr. Speaker. Which elements of the 10p tax rescue package will and will not be backdated?

I think that I am right in saying that my hon. Friend the Member for North Ayrshire and Arran (Ms Clark) asked a question rather than sought to answer it.

On the proposals, I set out in a letter to the Chairman of the Treasury Committee how I propose to proceed, both in relation to a specific group—people between the ages of 60 and 64, whose incomes do not change that much and for whom there is a readily available mechanism for additional payments through the winter fuel payment—and in relation to everybody else who was affected. I said that there were certain areas that I wanted to look at in relation to tax credits and the national minimum wage, and that I would be setting out proposals and would return to the matter in the pre-Budget report. That is what I said at the weekend and in the letter to the Treasury Committee, which set out quite clearly how I intend to proceed.

T7. Will my right hon. Friend confirm that there will be an attempt to ensure that all groups on low income that are adversely affected by the abolition of the 10p tax band are fully compensated, and that there will be backdating for all those groups? (200857)

As I said in my letter yesterday, the first area in which we can take action is in relation to 60 to 64-year-olds. On the others, if my hon. Friend looks at the letter, she will see that I said that our focus is on allowing that the average losses from the abolition of the 10p band can be offset. I want to do that for this year. Because the groups concerned are diverse, and because the effect of any change to the tax system can be quite complex, it will take time—this is why it will not be until the pre-Budget report that I can come back to it—to work out in which way we can help groups. I suspect that there may be different ways.

I have made my intention very clear. It is all very well for the Conservatives to raise these matters, but they would have more credibility if they had a single proposal that might help.

T2. The House will have noticed that, since his Budget, the Chancellor has been barred from pubs around the country for raising the duty on beer when the pub trade is facing such difficult times. The move will not raise the predicted amount of revenue, but it will be the final nail in the coffin for many pubs. Is the right hon. Gentleman prepared to consider another Budget U-turn, or is he determined to go down in history as the man who killed the British pub? (200851)

I understand that I have been barred from more pubs than anyone else in the country, including pubs that I have never been in and many that I have never even heard of. It is the first time that I have ever come across that.

We raised the duty on alcohol primarily to finance what we are doing to increase the amount paid to people over 60 through the winter fuel payment, and to help families with children. I took account of the fact that the average price of a bottle of wine, for example, has fallen over the past 10 years. I know that pubs around the country face certain difficulties, although I think that the hon. Gentleman will acknowledge that there has been a change in people’s habits generally. However, constraints in the EU rules mean that it is not possible to have differential rates for beer that is bought as on-sales or off-sales. Of course, I have a great deal of sympathy for anyone running a business and trying to attract new customers, but I think that what I did in relation to alcohol was right, especially when one considers where a lot of that alcohol has been going. Finally, I can tell the hon. Gentleman that we are not proposing to change the Budget at all.

The most important reason why the Chancellor was able to come to his decision yesterday on the 10p tax band is that the economy is strong enough to pay out the money that people are going to get. The economy never allowed previous Governments to find the money to reverse a Budget proposal. On Black Wednesday, for example, the Conservatives did not have two ha’pennies to rub together.

As ever, my hon. Friend is quite right— the British economy is very strong and stable. As I said in response to the first topical question, unemployment is at its lowest since the early 1970s and employment is at record levels. Those facts make a huge difference. The situation is quite different from the one that we faced when the housing market in particular got into trouble in the early 1990s, because at that time there were more than 3 million people out of work. My hon. Friend is right that people will remember what happened when the previous Conservative Government got into economic difficulties that resulted in immense hardship for millions.

We are not prepared to allow that to happen, but we cannot be complacent. As I have said on many occasions, economies around the world are slowing and Governments will have to face up to the consequences. Even so, our economy is in a much better position and is more resilient than it ever was in any of the years when the Conservatives were in government.

What is becoming clear this morning is that this incompetent Government cannot organise even a humiliating U-turn without messing it up. Last night, the Chief Secretary to the Treasury was with me in the “Newsnight” TV studio and said that she could not confirm that the rescue package would be backdated. This morning, the right hon. Member for Birkenhead (Mr. Field) said:

“I think Yvette was badly briefed. The agreement—and this is an agreement that the Prime Minister actually put his stamp on—was that…the whole package would be backdated to April the first.”

Who speaks for the Government—the right hon. Member for Birkenhead and his conversations with the Prime Minister, or the Chief Secretary to the Treasury?

First, the hon. Gentleman’s position on this—[Hon. Members: “Answer.”] Well, he is the man who supported the abolition of the 10p rate 12 months ago. When my right hon. Friend the Member for Birkenhead (Mr. Field) tabled his amendment 12 months ago, far from supporting it, the hon. Gentleman abstained. About two weeks ago, the Conservative party’s policy was to reinstate the 10p band, and when confronted with the fact that that would cost him about £7 billion, he said that it was a holding position. Now, he has no position at all.

As I told the House just a few moments ago, I set out how I intend to proceed in the letter that I sent to the Chairman of the Treasury Committee, and I made it clear that, in relation to the first group—pensioners between the ages of 60 and 64—because their incomes do not tend to change that much, I am confident that we will be able to make a payment to them, probably by the same mechanism as the winter fuel payment is made, to cover their position for this year. I also said in relation to all the other people who are affected that this is something that I want to look at, and I will come back to the House in the pre-Budget report, as I said at the weekend and as I said yesterday. However, as my letter says, our focus is to ensure that we allow the average losses from the abolition of the 10p band to be offset for this year. That is something that I fully intend to proceed with, and I will come back to the House when I have specific proposals to make.

First, the Chancellor is in no position to lecture anyone about consistency, when he said on Sunday that he would not reopen his Budget and then did so three days later. Secondly, no one is interested in the letter that he sent to the Treasury Committee; what we are interested in is the conversation between the right hon. Member for Birkenhead and the Prime Minister. The right hon. Member for Birkenhead says clearly, and he said it again on the radio this morning:

“there is no mistake about this—the agreement will be backdated to April first.”

So will the Chancellor get up, stop all this waffle about the pre-Budget report and what the Chief Secretary did or did not say and make it clear that the agreement between the right hon. Member for Birkenhead and the Prime Minister, which the Chancellor was obviously not part of, is that the package will be backdated—yes, or no?

The hon. Gentleman should be interested in the letter that I sent to the Chairman of the Treasury Committee because it sets out the Government’s position. Like many others, no doubt, I heard my right hon. Friend the Member for Birkenhead on the radio this morning, and as he rightly said, because the people affected by the removal of the 10p band are disparate and are affected in different ways, it will be necessary for the Government to consider a range of measures to help them. However, as I say in my letter, my focus is to allow us to offset the average losses from the abolition of that band for this year. That is what I intend to do, and I fully intend to come back to the House in the pre-Budget report to set out precisely how I will do it. I have a commitment to do something about the problem. It is abundantly clear that the Opposition have absolutely no interest in it whatever and regard this as a political game.

T8. As my right hon. Friend knows, next month will mark the 10th anniversary of the G8 meeting in Birmingham, at which the Jubilee 2000 campaign on cancelling international debts really took hold. Will he update the House on what progress has been made in the past year and on what plans he has for next year to progress the cancellation of debt for the poorest 41 countries in the world to mark that 10th anniversary? (200858)

My hon. Friend is right. Right from the start, we have been committed, principally through the work undertaken by my right hon. Friend the Prime Minister when he was the Chancellor, not just to take action here at home to ensure that we meet our international obligations, but crucially and additionally, to work with other countries to write off the debt that poor countries faced. Liberia is perhaps an excellent example of where the international community has, albeit after a bit of a struggle, come together to try to remove the debts from that country, to give it a chance to get back on its feet and to improve the living standards of its people. I believe that the action that we have taken in relation to development and writing off debt right across the world has been a model of what all Governments ought to be doing. I should like to see us do more, but my hon. Friend is absolutely right: that is something that any humane Government ought to be doing, and they should be doing it because it is the right thing to do, not just morally but economically.

T4. According to the International Monetary Fund, the burden of tax under this Government has risen more rapidly than in any other major country, while the rate of growth of output per head has slowed down. Ireland, which has one of the lowest rates of tax, has had one of the highest rates of growth. Does the Chancellor still maintain that the burden of tax has no impact on the rate of growth, and if so, is he really asking the House to believe that Ireland would not have outstripped us by so much if it had suffered the same tax burden as this country does? (200854)

Well, looking at the international figures, we see that in the 10 years up to 1997 the UK was the bottom of the G7, in terms of income per head. It is now the second highest, behind the US, as a result of the decisions that we have taken. The tax burden today remains lower than the average over the 1980s, when the right hon. Gentleman and members of his party were in charge.

T5. I wonder whether the Chancellor has seen the report on page 2 of The Times today, which records that the average price at the pumps for unleaded petrol is now 108.9p a litre. The report predicts that the price will rise to 112p a litre next month. However, many of my constituents would love to pay even 112p a litre; in one of the biggest filling stations in Kirkwall, the price this morning is 123p for unleaded, and 131p for diesel. Will he meet a delegation from the National Farmers Union Scotland and local businesses to hear from them about the crippling impact that high prices are having on local businesses, and to see what the Government can do, as one of the largest contributors to that price, to help local people? (200855)

I appreciate the point that the hon. Gentleman makes and, if I may show my usual lack of partisanship, I know that the hon. Member for Na h-Eileanan an Iar (Mr. MacNeil) would have raised the issue had we got to his question. Having filled my car up with diesel in Lewis just a couple of weeks ago, I am acutely aware of how high the petrol prices are. There are two things that I can say. First, I cannot promise to do so myself, but I am sure that one of my ministerial colleagues will be happy to meet the hon. Member for Orkney and Shetland (Mr. Carmichael).

Secondly, I am struck by the variation in petrol prices across the highlands and islands; they vary substantially. I noticed an excellent article in the Stornoway Gazette a couple of weeks ago—I like to keep informed—that drew attention to the fact that the price of diesel seems to vary quite a bit depending on which side of the Minch one is on. The hon. Member for Na h-Eileanan an Iar has, I think, raised the matter with the Office of Fair Trading, but the fact that there is such variation, when it is not abundantly clear why that is, is something that perhaps all of us ought to have a look at.

T6. I listened carefully to the exchanges between the shadow Chancellor and the Chancellor. Is it not obvious that the Prime Minister has done a deal to buy off Labour MPs next Monday, and that the Chancellor of the Exchequer is in the process of reneging on it? Labour Members will find that they have been conned. (200856)

Absolute nonsense. The Conservative party ought to continue to reflect on the fact that on this issue, as on so many others, its positions are completely contradictory. The Conservative party has absolutely no coherent strategies for helping people on low incomes, for getting children out of poverty, or for helping older people and people on low incomes who do not have children. We do. We are determined to improve people’s living standards, and that is precisely what we will do.