House of Commons
Wednesday 6 May 2009
The House met at half-past Eleven o’clock
[Mr. Speaker in the Chair]
Oral Answers to Questions
The Secretary of State was asked—
My right hon. Friend the Secretary of State and I have discussed measures to support people in the economic downturn with both ministerial colleagues and Scottish Government Ministers.
I thank my hon. Friend for that response, but what discussions has she had with Scottish Parliament Ministers about the Scottish repossessions working group and what, if any, progress it has made? What discussions has she had about whether the pre-court protocol that exists in England and Wales could be better utilised in Scotland as well?
The important point is that Scottish house owners should not have any less protection than house owners south of the border enjoy. The pre-court protocol in England and Wales has been successful in helping to stem the number of repossessions cases that pass through the court system. In addition, I am sure that my hon. Friend will welcome the new home owner mortgage support scheme introduced last month, which covers about 80 per cent. of all lending and will offer relief on mortgage interest payments for up to two years for those who suffer a substantial but temporary loss of income. I very much hope that the work of the repossessions working group in Scotland will lead to further protections so that the trauma of repossession can, as far as possible, be avoided.
The Minister mentioned the home owner mortgage protection scheme; it was announced back in December, but has only just come into being. Likewise, the consultation on the sale and rent back proposals does not even conclude until this May. Would the Minister like to take this opportunity to remind the House that congratulations are due to the Scottish Parliament on having had mortgage protection in place since 2001, on having a mortgage rights Act and on committing more money pro rata to mortgage to rent and mortgage to shared equity schemes than elsewhere in the UK?
I certainly welcome any such measures, and I can advise the hon. Gentleman that the consultation on sale and rent back concluded last week. We hope that there will be a move to bring the regulation of these schemes under the Financial Services Authority, and we are already ensuring that when mortgage lenders write to people who have got into arrears, they advise them of the potential pitfalls and problems of such schemes. It is also important that people who face repossession have the best possible advice when they get to court. In England and Wales, people are offered free advice at court. I know that some courts in Scotland have started along that route, but I very much hope that the number doing so can be increased so that a consistent level of advice and service is available to anyone facing the trauma of repossession at this time.
Good morning, Mr. Speaker. The Budget included new measures to support Scots on modest and middle incomes through the recession, and I look forward to discussing those plans with the CBI, the Scottish Government and trade unions at our next meeting.
My right hon. Friend will be aware that there has been a lot of discussion in Scotland about the implications of the Budget for the finances of the Scottish Government. Will he make clear just how much the Scottish Government are getting as a result of the Budget? What assistance can he give the Scottish Government in terms of their own budget in the current financial circumstances that we are all facing?
My hon. Friend raises an important point. An international financial crisis is sweeping across the globe, but, despite that, the Scottish Government will continue to receive increased funding—an extra £700 million next year. That is a very important statement of intent of continued support. [Interruption.] Scottish National party Members may shout, but the fact is that the Scottish Government now have double the budget that Donald Dewar had when he was First Minister just a decade ago. The people of Scotland will judge whether their current Government are twice as good as Donald Dewar’s Government.
Does the Secretary of State agree that the one Government policy that is having no visible effect in Scotland is the temporary reduction in value added tax? Would not that money have been of greater economic and social benefit to Scotland if it had been spent on home insulation, replacing inadequate schools and building council houses?
I have great respect for the right hon. and learned Gentleman, but the fact is that the VAT cut is working in Scotland. Independent economists now assess that that is the case. The Centre for Economics and Business Research says:
“The figures are clear; the VAT cut is working.”
We have never argued that the VAT cut that helps so many Scottish families is, in and of itself, the solution. We have, of course, to continue to look for other ways to support Scots families through, and beyond, the recession, and the Labour Government are determined to do just that.
Largely as a result of this Government’s reckless tax and spend approach, the Scottish block grant has, indeed, grown to twice the size of 10 years ago. Despite some implausibly optimistic forecasts in the Budget, it is clear that the Treasury is now on course to run out of money, yet all the First Minister has done is attempt to persuade the Government that no cut at all can be made to the block grant. Has the Secretary of State informed the Treasury that, following this development, the Chancellor now looks like only the second most deluded politician in Scotland?
That is entirely pleasant. I wonder whether the hon. Gentleman has entered himself for the gold medal in that particular competition following his celebration of the 30th anniversary of Mrs. Thatcher’s ascent to power and the disruption of Scottish industry. I am glad to see him in his place following his celebration of that anniversary and Scotland’s commiseration of it over the weekend.
In the previous recessions of the 1980s and 1990s, a generation of young people were abandoned to a life of poverty and a life on benefit. It is our intention to do, wherever possible, the exact opposite to what the Tories did, so that a generation of young people are not abandoned to a life of unemployment free of any hope.
The Secretary of State can resort to all the old mantras that he wants, but they will do him no good because the public know where the buck stops for this crisis. Does he really disagree with the view of the Centre for Public Policy for Regions that the years of the Scottish Executive coffers being full to overflowing thanks to block grant increases are over? Will he confirm that, as a direct result of Labour’s financial mismanagement of the UK, up to £4 billion in real terms will have to be cut from the Scottish budget over the next four years? Is it not about time that he and his Prime Minister finally took responsibility for Labour’s catastrophic economic failures and, in particular, the damage that they have done to Scotland’s public finances?
The hon. Gentleman refers to relying on old mantras. I would never mention the old lady or the iron lady in those terms, but if he wishes to insult her in that way, he can do so. The fact is that Scots know what happened in the previous recession. They know that industry was destroyed and that instead of supporting that industry and the people who were made redundant, the Conservatives simply cast them aside. Hundreds of thousands of Scots were made unemployed; hundreds of thousands of Scots were deliberately pushed on to incapacity benefit and a life free of hope, which is why I am happy to announce today that we will be organising a jobs summit next month in Scotland to ensure that the lessons are learned from the previous recession, so that young Scots can benefit from the £1 billion announcement that the UK Government have made about preventing long-term youth unemployment in Scotland.
Further to the Secretary of State’s answer to my right hon. and learned Friend the Member for North-East Fife (Sir Menzies Campbell), can he confirm that if that VAT cut, which has had so little impact, had been reversed, it could have brought Barnett consequentials for the Scottish Government of almost twice the sum that has been complained of as a cut by the Scottish Government? Did the Government not realise that that VAT cut was doomed to fail when they enlisted the support of the SNP for it in the Lobby here?
The hon. Gentleman is just wrong; the economic experts say very clearly that the VAT cut is working. A philosophical disagreement is involved here. Of course the Scottish Government are getting more money and their budget continues to increase, but the UK Government’s view is that money should also be in the pockets and purses of Scottish consumers, so that they can spend and thus ensure that the Scottish economy is bolstered and that the recession is shallower and shorter than it would otherwise be. The VAT cut is, of course, one of a range of measures, another of which is the scrappage scheme for cars, which has been welcomed by the industry in Scotland. That is another important measure of a Labour Government who are taking decisive action to do what we can throughout this international recession.
The Prime Minister recently hosted a dinner with the CBI, the Scottish Trades Union Congress and all the party leaders in the Scottish Parliament to discuss working together through the recession.
I suggest that our constituents watching these exchanges are hardly likely to be impressed by what they see on the television. Given that unemployment is rising—it has increased by 87 per cent. in my constituency alone in the past year—and people are worried about losing their homes, does the Secretary of State think it would be better if less time was spent bickering and engaging in political point scoring between Westminster and Holyrood, and more time was spent on working together to help Scots to deal with the effects of the recession?
I cannot come to a judgment as to what the hon. Lady’s constituents who are watching her on telly make of her performance. I have tried my very best in my time in this job to say to Scotland, and to politicians throughout Scotland, that it is time to set aside some of the traditional disagreements. I have tried to bring together all the politicians of different political parties, but a philosophical difference remains. The SNP believes that Scotland would be better off being like Iceland, whereas I simply believe, as do most Scots, that we are stronger, better off and better protected because we are part of one of the largest economies in the world.
Has my right hon. Friend seen the statement by Michael Levack, the chief executive of the Scottish Building Federation, in which he said:
“In the current economic downturn, unless we see rapid progress towards the Scottish Futures Trust actually starting to fund new infrastructure projects, we could see a significant number of construction firms left high and dry within a matter of months and faced with the real prospect of having to down tools.”
When my right hon. Friend meets the First Minister and his Cabinet, will he draw their attention to that statement by builders who face a fall off the cliff in October or November of this year?
My right hon. Friend raises a very important point about the future of the construction industry in Scotland. Of course, the failure of the Scottish Futures Trust to build schools and other public works in Scotland is remarkable, but that will be debated in detail in the Scottish Parliament. For our part, after ensuring that savers were saved from the actions of the banks, our focus was on getting the banks to begin to do more to support the construction industry. There are early signs that that is happening, but more needs to, and will, be done.
We are all reminded of the description of the Labour party by Lord Mandelson that
“we are all Thatcherites now”.
No, we are not—not on these Benches—unlike the Labour Government and their privatisation and cuts agenda. In the same vein, the Treasury has confirmed savage cuts in public spending in the years ahead. In the teeth of a recession, how can the Secretary of State marry his rhetoric against cuts with his plans to cut £1 billion of public spending in Scotland?
We no longer hear from the hon. Gentleman about Iceland or Ireland and the arc of prosperity—now the arc of insolvency. He talks about Thatcherism. Let us recall that it was in this very Chamber just three decades ago that his party ensured the defeat of a Labour Government and a general election. In the Scottish Parliament, the SNP has been supported admirably by the Conservative party in different votes. Despite the SNP and its relentless personal attacks, I am determined to rise above that and work to do what is best for Scotland. The public will punish whichever political party continues to put itself before our country.
My right hon. Friend has always recognised the importance of Ministry of Defence expenditure to the economy in Scotland, and he is well aware of the centre of engineering excellence at SELEX in Edinburgh, which leads on the radar contract for the Typhoon. Given that it has now been reported in the industry that we have negotiated a good new deal on tranche 3, split into two and with the Saudi Arabia export planes counted, will he resume his discussions with colleagues in the Cabinet, such as the Chancellor and the Secretary of State for Defence, with a view to ensuring that Britain stays fully behind this world-beating new plane?
My right hon. Friend raises an important point, and he has raised it many times before. I will of course look into the points that he raises, but the wider point that he makes is a fair one. MOD contracts are of great importance to Scotland and its economy, especially the new aircraft carrier orders. It is a fact that Royal Navy orders have ensured years of work in Scottish shipyards, which is of great importance to current workers and those on apprenticeships. It is very welcome investment indeed.
The decisions in the recent Budget, including, for example, the increase in the price of fuel without concessions for remote rural areas and the increase in whisky duty, have made the economic downturn worse in the remoter parts of my constituency. Those increases severely affect Islay especially. Will the Secretary of State come with me to Islay to meet local businesses and discuss how the Government can help to see them through the recession?
I am always happy to meet the hon. Gentleman to discuss any issue relating to his constituency. The Budget ensured record investment in Scotland, building on the pre-Budget report. I have pointed already to the VAT cut, but we also have the support for pensioners in the winter fuel payment and the car scrappage scheme. In a real policy innovation, we are also considering new ways to support grandparents who look after their grandchildren. Of course, I am happy to listen to any representations that he wishes to make.
My right hon. Friend will remember the meeting he attended in Prestwick, where a number of industrialists were very concerned about banks and the problems associated with banks. He will know that he is coming back to Ayrshire for a further meeting. He should be aware that a number of the industrialists are now concerned about the Scottish Executive’s lack of activity in providing them with relief from the problems that they face because of this economic downturn.
I look forward to returning to Ayrshire to meet leaders of large and small businesses and to discuss ways in which we can provide further help to their companies at this difficult time. One thing raised on a separate visit to Ayrshire was how we support people on the minimum wage in the retail and entertainment sectors. That is why we will take further measures to ensure that it is against the law for tips to be used as subsidies for people on the minimum wage. People have to be sure that when they offer a tip in a restaurant or a bar, that goes to the staff rather than to the employer to be used to subsidise low pay.
It is 10 years since devolution and since my hon. Friend the Member for Dumfriesshire, Clydesdale and Tweeddale (David Mundell) and I entered the Scottish Parliament as two brand new MSPs. We should not let the occasion go without registering that. It is of course amazing that the silence from the party that introduced devolution 10 years ago has been deafening. Does the Secretary of State think that because devolution has meant that the Prime Minister has had less influence on economic development in Scotland, the country will be in a better position to weather the storm than the rest of the UK? Is it not ironic that the one part of the country that is shielded from the Prime Minister’s economic policies will be the country that he is from?
I welcome the fact that the Parliament that the hon. Gentleman opposed continues to be a success. After his short term in the Scottish Parliament, I welcome him to the green Benches here in the Palace of Westminster. The fact is that Scotland, England, Northern Ireland and Wales are stronger together and would be weaker apart. Together we have this unity and Members on both sides of the House—except for four or five who sit opposite—have a sense that our country has a remarkable history. We have achieved so much together and together we can get through this recession strongly, effectively and successfully and we can continue to be the brilliant, wonderful, successful nation that we all believe that we can be.
Oil and Gas Fields
I have had no such discussions recently.
I thank my right hon. Friend for that extensive answer. The financial support promised in the Budget for the oil and gas people and the work that my right hon. Friend is doing with the Scottish Executive deserve congratulations. Will he assure me that the work that he is doing within Cabinet to secure money for Scotland will not be put in danger because of the separatist Administration north of the border?
I will continue to do all I can to support the oil and gas industry in the North sea. I believe that the North sea has a big future not only with its continuing oil and gas industry, but as a world centre for carbon capture and storage. That is why the new investment is so essential. The field allowance has ensured that companies can continue to invest by removing the supplementary charge from up to £75 million of their profits so that they qualify for the small field allowance. That is an important announcement, which will be welcome on both sides of the House.
I thank the Secretary of State for his answers so far, but does he recognise that the impact of that field allowance is limited to only very specific marginal fields? The crisis facing the North sea is much bigger now, given the credit crunch and the banking crisis. Will he work with the Chancellor to see whether more can be done to bring forward tax reliefs that will allow new entrants to explore up front during this credit crisis and so that the Government ease the industry’s cash flow?
Of course I have those conversations with the Chancellor and I have spoken to the hon. Gentleman about some of these issues in the past. As he knows, the fuel allowance has been carefully targeted to ensure that, as far as possible, it supports those projects that would not otherwise go ahead. That is the purpose of the targeted way in which it is being introduced. We continue to look for additional ways to support the industry in Scotland and throughout the United Kingdom and I look forward to discussing them with the hon. Gentleman, the Chancellor and the industry in the future.
My right hon. Friend has no plans to meet the Scottish Executive to discuss the electronic identification of sheep. However, the Secretary of State for Environment, Food and Rural Affairs is in regular contact with his Scottish counterpart on this issue and, on 27 April, he met representatives of the Scottish sheep industry.
Is the Minister aware that a recent survey carried out by NFU Scotland revealed that 74 per cent. of farmers said they would reduce the size of their flocks if electronic tagging with individual registration came in? Is she aware that these EU proposals could do untold harm to Scottish agriculture? What is wrong with the existing system?
The Government recognise the concerns that the costs could well be disproportionate to the benefits. That is why we have been working closely with the devolved Administrations, including the Scottish Government, to seek a number of concessions. In fact, we met the Commission again on 4 May, when it appeared supportive of our new proposals about third party reporting; we very much hope that they will be passed. We recognise that there are additional costs, but this is a mandatory scheme and it must be implemented by the end of this year.
I hear what the hon. Gentleman has to say, but I again point out that the scheme is mandatory. The EU has stated that it is not prepared to review the scheme until implementation. However, we are working very closely with the Scottish Government and the other devolved Administrations to try, as far as possible, to reduce the impact on sheep farmers. We have already achieved a number of important concessions and we continue to work closely with the Commission to achieve more.
River Forth (New Crossing)
I want to see the new crossing over the River Forth built. We had a constructive meeting on 4 March and identified a number of ways of dealing with the funding of a new bridge.
I thank the Scottish Secretary for that answer. People in Fife are getting exasperated by the failure of the Scottish Executive and the UK Government to reach an agreement on this. The £1 billion that has been offered is not new money, and not a single penny has been raised by the Scottish Government to pay for this bridge. I know that the Scottish Secretary and the First Minister are not best buddies, but can they please kiss and make up and sort out this problem before it has an effect on Scottish jobs and Scottish investment?
I know that the hon. Gentleman has been campaigning for this bridge for some time, as have my hon. Friend the Member for Glenrothes (Lindsay Roy) and others in Fife. We had that meeting, and we offered a package of support of up to £1 billion for the new Forth road crossing, including £500 million as consequentials from Crossrail. I am disappointed, and I think all of Scotland will be disappointed, that the Scottish Government at the moment refuse to accept this offer of unprecedented support for this Forth crossing, but despite the opposition, the offer still lies on the table.
Does my right hon. Friend accept that not everyone agrees that there should be a second bridge going across to Fife? Indeed, many of us believe that it should be a tunnel, because it would last a lot longer. The problem with a second bridge is that in 30 years’ time it will have the same problems as the present bridge, and maybe we should be looking at an alternative and that should be a tunnel—and we could take out some coal at the same time.
I am happy to listen to my hon. Friend’s representations that we should have a bridge, a tunnel, a flyover or any other sort of crossing across the Forth. The important thing is that we make progress. That is why the Treasury offered unprecedented deals to the Scottish Government of up to £1 billion to help to make a reality of the Forth crossing—because it is so important to Scotland’s economy. I repeat, despite the SNP’s opposition to an unprecedented offer, the offer still stands.
Does my right hon. Friend agree that a funding mechanism is vital, not just for Scotland’s infrastructure but, as we have already heard from my right hon. Friend the Member for Stirling (Mrs. McGuire), for the future of the construction industry in Scotland, which is in decline due to the failure of the Scottish Futures Trust?
My hon. Friend raises an important point. He is an acknowledged expert on the construction industry in Scotland. Of course, the Scottish Government have to get Scotland building again, and it is for them to discuss how they do that. As for the UK Government, stability in the banking sector and the way in which we save savers from the actions of the bankers, the fact that there needs to be additional support for the construction industry in Scotland is generally recognised. However, I am confident that with the stability that the UK Government have ensured in the banking sector, Scotland’s construction industry can have a bright future.
North Sea Oil
I continue to discuss the issues with members of the Scottish Government, and with those in the oil and gas industry in Scotland.
My right hon. Friend raises a crucial point. Business confidence is important, but so is the confidence of those who work in the North sea, following the recent dreadful, high-profile tragedy that claimed so many lives. That is why there is again consideration of the reintroduction of personal locator beacons. However, in the past, those lights interfered with the long-range beacons fitted to helicopters and life rafts. Of course we are looking into the detail of that horrific crash, and are seeing what lessons can be learned. The reintroduction of those beacons is now under consideration.
The Prime Minister was asked—
Many regions of the United Kingdom, such as Northern Ireland, found it challenging to compete when times were good. In the depths of the current recession, what additional assistance can the Prime Minister offer the devolved institutions to improve the everyday lives of millions of United Kingdom citizens?
I hope that the hon. Gentleman agrees with me that the £600 million fiscal stimulus into Northern Ireland, which allows people to have more money to spend, advances public works programmes and gives more help for the unemployed, is the best way to deal with the problems that we have at the moment. In addition, 3,500 businesses in Northern Ireland have been able to defer their taxes to enable them to have better cash flow. We will continue to do everything that we can to make sure that businesses, home owners and individuals who are facing doubts and uncertainty about their jobs come through this difficult recession. We will continue to offer people real help now.
The Prime Minister will have seen the distressing reports this morning in The Guardian about the trafficking of children, who arrive at Heathrow, are taken into care, and are then trafficked into prostitution and used as child labour. He has always taken a personal interest in the care and safety of children. May I ask him to secure a report for the House on the measures that the Government are taking with the local authority to tackle this problem and prevent this human suffering?
Child trafficking is completely unacceptable and inhumane, and anything that we can do to stop child trafficking, we will do. I will investigate, with the Home Secretary, the reports that are in the newspaper this morning. We will do everything that we can to protect these children. We are leading internationally in asking other countries to help us ban the practice of trafficking children. We will do everything that we can.
There have been a series of U-turns, defeats in Parliament—even when the Government have a majority—and Ministers, including Cabinet Ministers, openly questioning the authority of the Prime Minister. Does the Prime Minister agree that those are signs of a Government in terminal decline?
Once again, the right hon. Gentleman cannot ask questions about the economy, swine flu or the difficult decisions that we have got to take in the world. Once again, he reduces everything to personality. We are getting on with the business of governing.
If the Prime Minister got out and knocked on a few more doors, he would realise that his leadership is the issue. He likes to talk about these issues of substance, but his failure to reform welfare, his failure to deal with the deficit, and his failure to run a united Cabinet all have two things in common: they are failures, and they are his failures. So let us take the state of his Cabinet. This weekend, the Secretary of State for Communities and Local Government wrote an article calling the Government’s performance “lamentable”. Given that she is openly mocking the Prime Minister and his authority, what is she still doing in the Cabinet?
What would be unacceptable is if we were to follow the policies of the Conservative party. What would be lamentable is if we were to adopt the Conservatives’ policy of doing absolutely nothing. Once again, the right hon. Gentleman has nothing to say about the big issues of the day; once again, he has nothing to say about unemployment; once again, he has nothing to say about the help that we are giving people for housing; and once again, he has nothing to say about help with businesses. Talking about U-turns, this is the man who promised to support the Government through the economic crisis; within a few days, he had abandoned that promise with his U-turn.
I am afraid this just won’t wash. The Communities Secretary—she has appeared; I am glad she is still here—did not write an article about the NHS. She did not write an article about unemployment. She did not write an article about the recession. She wrote an article about the Prime Minister’s leadership and his failure of authority. Let me read out what she said:
“YouTube if you want to.”
How much more mocking can one get than that? She also wrote:
“All too often we announce . . . five-year plans, or launch new documents—often with colossal price tags attached—that are received by the public with incredulity at best and, at worst, with hostility. Whatever the problems of the recession, the answer is not more government documents or big speeches.”
Having just made a big speech, who on earth does the Prime Minister think she is referring to? Does he not realise that his Government simply cannot go on like this? Let me ask him again: why is she still in the Cabinet?
What we are doing is taking action on the recession. We are helping the unemployed get back into work—opposed by the Conservatives. We are helping people with their mortgages—opposed by the Conservatives. We are helping people with cash flow for their businesses—opposed by the Conservatives. We are going to give a September schools guarantee to every school leaver that they will get work, training or educational support, which is also opposed by the Conservatives. Let us talk about the real issues in government. It is about making big decisions in difficult times. The right hon. Gentleman is not up to the task.
The big issue in British politics today is the fact that the man who is meant to be leading our country shows such appalling judgment. That is the reason he is losing his authority. Let us look at the string of misjudgments that we have seen. The Prime Minister has made U-turns on Titan prisons, the internet database, MPs’ expenses and that humiliating defeat on the Gurkhas. Why does he think he got so many judgments so badly wrong?
If the right hon. Gentleman wants to talk about U-turns, the biggest U-turn is his supporting public spending, and now saying that he will not match our public spending. The biggest U-turn on education is to support money for education, and then to say that he will cut it. The biggest U-turn is to say that he was supporting us on the police and is now planning to cut police expenditure. Let us remember that he was the “hug a hoodie”, which was another of his big U-turns. Compassionate Conservatism—it has gone, gone and gone.
I am sure that sounded just great in the bunker, while the mobile phones and printers were flying round the room. The biggest U-turn of all is that of the Prime Minister, who fought the last election accusing us of £35 billion in spending cuts. On his own arithmetic, he has cut £85 billion from his own spending. If he is so confident of his arguments and his judgments, and if he thinks he is on the right side of these arguments, why does he not do what Margaret Thatcher and Tony Blair did after four years of a Parliament and call a general election?
The reason I am confident about what we are doing is that there is nobody in the world supporting the policies of the right hon. Gentleman’s party. Go to America, Germany, France or Italy—he has no supporters in Europe. He is completely isolated because he wants to cut spending during a recession, and everybody else recognises that we cannot cut our way out of recession. We have to invest our way out of recession. The Conservatives are in the dark ages on policy. They have to think again.
The Prime Minister talks about isolated. He is isolated in his own Cabinet—he is the only one who thinks he is any good. What is it about this Prime Minister and elections? He would not fight an election to win the leadership of the Labour party; he did not fight an election to become Prime Minister; and he does not have the courage to go to the country now. Is not the truth that Britain needs a strong Prime Minister with a united party capable of taking long-term decisions? Instead, we have a wasted year with an utterly busted Government. No one doubts that he might have come into politics for the right reasons, but is it not clear that he is just not up to the job? The public know it, his party knows it, and now the Cabinet knows it, so why not do the last bold thing left and call an election?
I have listened to the right hon. Gentleman’s six questions, and not one of them has been about policy. He has not raised the cause of the unemployed in Britain once; he has not mentioned mortgage holders or home owners once; he has not mentioned small businesses once; he has not mentioned the state of the economy and what we can do to improve it once; he has not mentioned the public services once; and he has not mentioned health and education once. He is completely out of his depth when it comes to the big issues in this country.
Is my right hon. Friend aware that in just a fortnight’s time, a £120 million designer outlet will open at Gloucester docks, with the creation of more than 1,000 local jobs? Will he call on the regional development agency to continue to invest in urban regeneration companies? It is creating jobs and investment in communities such as mine, and that is a real contrast with when the Opposition were in power.
I am grateful to my hon. Friend, who fights very hard for the interests of his constituents. More jobs are coming to his constituency as a result of what he is doing, and he knows that the Conservative party would abolish the regional development agency. We will support it, we will invest; they would make cuts. That is the dividing line between the parties.
Yesterday, the Prime Minister gave a speech on education and young people. It was his big chance to show that he still has some big ideas for the country: to explain why one in three 11-year-olds still cannot read or write properly; to explain why we have more young people than ever before in prison, in debt or on anti-depressants; and to explain why under his Government we have the unhappiest children in the developed world and a care system in crisis. How is a bit of tinkering with the schools complaints procedure going to fix any of that?
Let us deal with the right hon. Gentleman’s first point, about children and reading. Far more, and a far higher percentage of, children are able to read and write at 11 as a result of the decisions that we have taken as a Government. There are 30,000 children who now get personal tuition to be able to read, and another 30,000 who get personal tuition to be able to write. No Government have invested more in reading, literacy and counting for children, and we have doubled our expenditure on the education of every child over the past 10 years. Of course, there is a great deal more to do and, of course, we are worried about instances of children in care, where there has to be reform. But, we have doubled investment in education over 10 years. It could not have happened under a Liberal or Conservative Government.
There comes a point when stubbornness is not leadership; it is stupidity. [Interruption.] At least I say it to the Prime Minister’s face; Labour Members say it behind his back. For the past 12 years, this Government have vilified and criminalised young people and abandoned a whole generation, and all the Prime Minister can do is spin a vacuous speech to keep his own party off his back. Is it not now obvious that he does not really care about what is right for the country? All he really cares about is saving his own skin.
I am sorry that the right hon. Gentleman prepared his answer to the second question before he got the answer from me. The truth is that we are doing more than ever before to help children realise their potential. Sure Start did not exist until there was a Labour Government; nursery education until age three did not exist until there was a Labour Government; and all the programmes that have doubled expenditure and raised standards in primary schools did not exist until there was a Labour Government. Of course, we have more to do, but it would be better if he supported us in doing the right things, rather than attacking us when we are doing the right things.
May I say to my right hon. Friend that, despite the current state of the economy, Rother Valley still has 3,000 fewer people unemployed than it had in 1997? May I encourage him to keep up that help and assistance for areas that need it and to forget about the blustering from the Opposition Front-Bench spokesmen?
My right hon. Friend is absolutely right. We are doing everything that we can to protect jobs and help people into jobs. Some 350,000 people, who did not receive tax credits before, now receive them to make up for the short-time working that they have to undergo, and we are trying to help people who are unemployed to get back into work as quickly as possible, given that there are almost 500,000 vacancies in the economy. What will not work is doing absolutely nothing and failing to help the unemployed. I must tell my right hon. Friend that, in the Budget, the Chancellor was given an estimate that if we had refused to take action, 500,000 more people would either face unemployment or be unemployed. That is the difference between Conservative policies and Labour.
As the hon. Gentleman knows, the worst thing that could happen to savers would be rampant inflation wiping out the value of their savings. We have kept inflation low during the past 11 and 12 years. The second thing that we have tried to do in the Budget—particularly for elderly savers—is to increase the amount of money that can be invested in individual savings accounts. Soon that will be £10,000 a year. We are aware that low interest rates put additional pressures on savers. We have taken action in the Budget to help them, and I hope that the hon. Gentleman will support that.
In my constituency today, we have the biggest town centre redevelopment in the north-west of England. It includes a new shopping centre, a hotel, a new office block, two primary care centres and a new police station. The Opposition’s spending plans would cut 200 officers from Greater Manchester police. What would be the point of a new police station with that level of spending cuts?
My hon. Friend makes a point. When people are looking, in every area, at the numbers of police who are going to be on the beat, or the number of teachers or classroom assistants who are going to be in schools, they have to compare the spending policies of our party with the spending policies of other parties. It is absolutely clear that thousands of police would lose their jobs as a result of the policies of the Conservative party. It is also clear that spending on regeneration would be brought to a halt by the policies of the Conservative party. People face a choice. We have to invest our way out of recession, as America and other European countries are doing, and not cut our way out of recession. That is the 1930s route; we are taking the modern way out of recession.
The Prime Minister—[Interruption.]
I have always recommended that the Prime Minister treats everything from the Opposition as a joke.
The Prime Minister will recall meeting me and my hon. Friends the Members for Paisley and Renfrewshire, North (Jim Sheridan) and for East Lothian (Anne Moffat) to hear our arguments against the use of service charges and tips to pay the minimum wage. What are the Government going to do to end that scandalous practice, which is harming millions of people in this country?
Last month marked 10 years of the national minimum wage, which I am proud to say was introduced by this Government. It has helped millions of workers over these years. There has been an issue about tipping; consumers—people who are buying goods—leave their tips in good faith, expecting them to go to the workers themselves. Our public consultation, which we promised, has shown that consumers, workers and businesses support a change that would mean that tips would be in addition to the national minimum wage. I believe that that is the right policy, and that is why we will implement a change in the current policy.
Let me, too, congratulate the Brighton team on its success; I think that the whole House will want to do so. I saw some of the photographs of the celebrations. I understand that Brighton has delivered nearly 4,000 Skills for Life achievements, and that is helping young people. I believe that the Learning and Skills Council has provided Brighton and Hove Albion’s football in the community scheme with funding, and we will continue to support that. Football clubs that are at the centre of their communities are good for every community, and Brighton has proved exactly that. It brings not only community support but football success.
Has any Question Time exposed the hollowness of the Conservative party more than what we have seen today? We are dealing with an international financial recession, a health epidemic, which we must deal with in the most sensitive way, and problems that arise from mortgages, unemployment and businesses. I am ashamed that not one Conservative can even raise a question about these issues.
We are in regular touch with every one of the major car companies in Britain. As my hon. Friend knows, proposals arising from Fiat in relation to Chrysler and General Motors are being discussed. There is another Canadian bidder looking at trying to move into Europe. A number of issues have to be discussed in relation to these offers. We are determined to protect our Ellesmere Port and Luton operations of General Motors. We are also determined to help Jaguar Land Rover and all the other companies that exist in our country—Honda, Toyota, Nissan—and we are determined, as he knows, to help LDV, as we have done, to give the company a loan that enables it to complete due diligence on a new bid that is being made for it. Where we have had requests, we have been prepared to consider them and, in many cases, to take the action that is necessary.
On another serious policy issue, given the Prime Minister’s commitment to greater parliamentary scrutiny, will he confirm today that there will be a full parliamentary debate and vote before the next stage of the Trident programme?
There are regular parliamentary debates on these issues. There is the defence debate that takes place every year. The House of Commons came to a view on this issue, and people are perfectly free to raise it on the Floor of the House. Defence debates happen regularly and will continue to do so.
I am happy to do so. This issue concerns me and anybody who looks at the performance of the construction industry. We are also, as I said last week, looking at the operation of illegal blacklists in the construction industry, which is an unacceptable practice.
If the hon. and learned Gentleman were asking about how we are regenerating the area that he represents, the housing policy that the Communities Secretary is responsible for or the funding of local government, it would be a serious question. But unfortunately, even before the local council elections, the Conservatives cannot ask anything about local government. Of course, they are prohibited by their policy from asking anything before the European elections about Europe.
I know very well about the issues in Blackpool, about the importance of learning, education and training and about the big plans that exist in Blackpool to extend further education. We have put aside an extra £300 million of capital funding for further education colleges. We are now working with the Learning and Skills Council to deliver a swift resolution to these issues. Since 2001, 700 projects at 300 colleges have been funded. I have to say that in 1997 not a penny was going to investment in further education colleges. Over this spending period, as a result of the announcements in the Budget, we will be spending £2.6 billion, and I hope that my hon. Friend’s colleges will benefit.
We in this House owe a debt of gratitude to the Gurkhas, who have served this country through wars going back a number of hundred years. Did the Prime Minister notice that last week, the whole House united to reject the present Government’s position, including 100 of his colleagues? It looks like the Government are beginning to say that they do not feel bound by that vote. Will the Prime Minister tell the House whether his Government will be bound by the terms of that vote last week?
We are the first Government who have given justice to the Gurkhas; we are the first Government who have allowed Gurkhas right of settlement in the United Kingdom; we are the first Government who have given Gurkhas equal pensions and equal pay; and we are the first Government to double the pension of Gurkhas who stay in Nepal. We will listen to the voice of the House, as it was expressed last Wednesday. We are speeding up the 1,500 applications and hope to have them completed by the end of May. We are looking at the five judicial reviews as a matter of urgency and will complete that work very soon, and we will come back to the House with a statement. I have always said that we want to do this stage by stage, and we will come back to the House with a statement.
It pains us all to have to look at the appalling failures that happened at Stafford hospital, but I hope that my hon. Friend agrees that since they were exposed, swift and decisive action has been taken locally. That includes the opportunity for anyone concerned about care that they or a loved one received at Stafford hospital to seek an independent clinical review.
A report was done last week that showed that there have been significant improvements at Stafford. Recommendations in such reports will support the staff at Stafford hospital. Extra nurses have been employed and an experienced assistant director of nursing has been brought in. We are boosting the front-line staff, and we are further improving patient care as part of a package of measures. The Healthcare Commission has already conducted a full investigation and produced a detailed report laying bare the failures, but I can say that anyone concerned about care of any loved one will have an independent clinical review.
I met the nurses at the Christie hospital when I was in the north. I have also heard and answered questions in this House about it and written many letters to people, because I am worried about the situation, too. The fact is that we are not the regulatory authority and that many, many more people had finances in institutions regulated by the Icelandic authorities. The first responsibility is for the Icelandic authorities to pay up, which is why we are in negotiations with the International Monetary Fund and other organisations about the rate at which Iceland can repay the losses that they are responsible for. However, we have also agreed that we will look at the particular case of the Christie and see what we can do to understand how we can meet its need.
We and the hon. Gentleman have to accept the fact that many more people who were affected by the Icelandic regulatory authority lost money as a result, which means that certain precedents would be set. We have to look at the matter in the round, and we will do so.
Local people are very concerned about Swindon borough council’s cuts in park-and-ride services and about cuts of up to four branch libraries, despite more than £400,000 of extra funding from the Government. Is that not a warning of Tory public service cuts instead of Labour investment?
Mr. Speaker, you do not have to look in a crystal ball; you look at every Tory authority round the country. They are cutting back on public services, obeying the orders of the Conservative leadership that cuts in public services come before the investment that they need. That is one of the issues that people will be talking about in the next few weeks, because it affects real lives.
Points of Order
On a point of order, Mr. Speaker. You kindly granted an Adjournment debate in Westminster Hall for 90 minutes this morning on the important subject of the further education funding crisis. I wonder whether you are aware that no Minister was present for the start of that debate, that there was no Parliamentary Private Secretary either, and that the officials arrived 20 minutes late. Is there any way that this sort of insult to the House, with no Minister present for the start of the debate, can be addressed in future?
I am not very happy about the report that the hon. Gentleman has made, and I must look into it. Ministers should always be courteous to the House and ensure that they turn up for debates. We all have to be good timekeepers in this House, and there is no reason why Ministers should not be good timekeepers.
On a point of order, Mr. Speaker. In answer to a parliamentary question in March, the Minister for Housing told me that since 1 January, 180 households were being helped under the mortgage rescue scheme and that
“500 applications have been made, resulting in approximately 180 cases meeting the eligibility criteria.”—[Official Report, 12 March 2009; Vol. 489, c. 747W.]
Subsequently, we learn this month from departmental figures that between January and March this year just one family across the whole country has been assisted in that way. Do Ministers have a responsibility in this regard, and is it incumbent on them to give truthful and accurate answers to parliamentary questions?
Further to the point of order raised by my hon. Friend the Member for Hemel Hempstead (Mike Penning), Mr. Speaker. In an excellent debate, I was extremely surprised, as were other hon. Members, to hear in response to a probing question from my hon. Friend the Member for South Holland and The Deepings (Mr. Hayes) that officials in the Department for Children, Schools and Families were aware of the Learning and Skills Council funding debacle, but that the Minister for Schools and Learners was unaware of it for a month. Surely we should have a statement and a debate on the Floor of the House.
On a point of order, Mr. Speaker. The parliamentary ombudsman, Mrs. Abraham, has issued a section 10(3) report in respect of the Government’s response to her original report on Equitable Life. As you will know, Mr. Speaker, that is almost an unprecedented step for her, which she has taken because of the anger that she feels over the Government’s lamentable response. Is there anything that you could do to ensure that the parliamentary ombudsman’s voice is heard in this matter?
Developing Country Debt (Restriction of Recovery)
Motion for leave to introduce a Bill (Standing Order No. 23)
I beg to move,
That leave be given to bring in a Bill to regulate the recovery of the defaulted sovereign debt of developing countries; and for connected purposes.
This small Bill touches on some of the big issues of our times: the unbridled profiteering of some financial institutions; the pressing need for regulation of the excesses of those institutions; and the gulf between their massive wealth and the desperate poverty of millions of people in developing countries. The Bill aims to put some simple regulations in place to stem the worst of the abuses by the vulture funds that profiteer from the debts of some of the poorest people in the world.
The economic crisis has already highlighted the flaws in the global financial system, which we all recognise is in need of reform. It has revealed widespread under-regulation of various financial market actors, including hedge funds and other investors. There is agreement across the House that regulation that is too “light touch” has not served us well, and that more controls are needed to ensure the standards of probity that we expect in the UK as a world centre for financial services. That includes the regulation of hedge funds, and just this week there have been proposals from Europe in that regard. This Bill, therefore, is being proposed against the background of the Government’s commitment to act to regulate financial services.
Another aspect of the background to the Bill is the Government’s outstanding commitment to dealing with developing country debt, which is greatly undermined by the activities of the so-called vulture funds. The Bill is aimed directly at those companies and funds that buy up defaulted sovereign debt at highly discounted prices, then try to recover the full amount, plus costs and fees, through the courts—often, unfortunately, through the UK courts.
The funds are often based in tax havens and are secretive, and it is the secrecy as well as the profiteering that this Bill seeks to address. One of the most notorious cases is that of Donegal International Ltd, which set its sights on Zambia. An excellent investigative report by the BBC’s “Newsnight” programme revealed the full extent of the scandal.
Zambia was provided with a loan to buy some tractors, but by the 1990s it was unable to pay the money back. The country was in the process of trying to find a settlement with the creditors for the debts, but the fund purchased the debt for the knockdown price of $3.3 million in 1999. It proceeded to pursue Zambia through the UK courts for the full amount of the debt, plus interest and fees, demanding an astonishing $55 million in total. The courts awarded a total of $15.5 million, more than five times what the fund had paid for the debt—money that could have been used to train doctors, nurses and teachers, or to build hospitals. A big chunk of it, enough to pay for 30,000 primary school places, ended up in the hands of a secretive, unaccountable private fund.
That is not an isolated case. A current example involves the Democratic Republic of the Congo and a company called FG Hemisphere, which has been awarded $100 million against an original claim of $44.1 million. In addition, Argentina is being pursued through the UK courts for $285 million. Such activity undermines UK and international efforts to reduce the unsustainable debts of developing countries.
Our Government have been at the forefront of driving through the cancellation of the debts of some of the poorest countries. We have contributed to the programme of debt reduction for 35 countries, 29 of them in Africa, providing a total of $51 billion in debt relief.
Debt relief and cancellation have allowed the release of funds for spending on social projects in the countries involved. Thousands of new schools and classrooms have been built as a result, and there has been investment in water systems, teachers, health care projects and many other programmes. Many of Zambia’s creditors, including the UK, agreed to cancel its debts on the understanding that the funds would be used to reduce poverty among the very poor, and not to provide a huge and completely undeserved payday for the very rich.
Thanks to the Jubilee Debt Campaign and the “Newsnight” exposé, some action was taken by the UK and other countries to reduce the risk of sovereign debts falling into the hands of vulture funds. Agreement was reached with the World Bank to help poor countries buy back their commercial debts at a discount. In addition, the board of the Africa Development Bank agreed to endorse the establishment of an independent legal support facility to advise countries on how best to tackle vulture fund activity. However, the global economic downturn has produced more debt problems in the developing world; hence the need for this Bill.
The Bill has four main provisions. First, it would stop the excessive profiteering by preventing financial institutions and companies from buying up developing countries’ debts at cut-rate prices, then suing the country’s Government through the UK courts for the full original amount of the debt. The Bill would limit the maximum recovery amount to the sum paid by the financial institution, plus a simple rate of interest and charges specified in the Bill.
Secondly, the Bill would introduce accountability. It makes provision for controls on recovery actions and introduces reporting requirements. The financial institutions—the vultures—would have to get permission from the UK courts before starting recovery proceedings in the UK for any amount of defaulted debt from a developing country. In addition, the vulture would have to ensure that a copy of the application went to the UK Government and to the UK representative of the developing country’s Government.
Thirdly, the Bill would ensure greater transparency. It would shine a light on the vultures and require the financial institutions to disclose the beneficiaries of the recovery proceedings. It has been completely impossible to get information about this in the past. We have been unable to find out who has benefited from some of these huge undertakings involving recovery actions pursued through the UK courts.
Fourthly, the Bill would help to combat corruption. It contains anti-corruption measures that would require a vulture fund to declare any payments or gifts given by it or its colleagues to the developing country’s Government.
I would like to pay particular tribute to the colleagues in the House who were active in putting their names forward to support the Bill. I would also like to thank the Jubilee Debt Campaign, which first brought this subject to light, and which has worked tirelessly to keep debt at the heart of the international debate on poverty and economic justice. I would also like to thank the Clerks in our Public Bill Office, who did a phenomenal job of drafting the Bill. Similar legislation is being introduced in the US Congress, and I hope that the special relationship that exists between our two countries will extend to dealing with this very unacceptable face of capitalism.
Over the past months, we have all been appalled by some of the extraordinary greed in the financial sector—Fred Goodwin’s pension springs to mind, among other things—but the impact of these vulture funds on developing countries is far worse than anything that we see here in the UK. About two thirds of Zambia’s 12 million people live on less than $1 a day. They are truly the poor of this world. The amount of money that one single vulture fund tried to get from that country would have been enough to keep all those very poor people going for five days—a full working week. That level of profiteering is well in excess of anything that we have seen in the UK, and it is wrong that this country, which has such a proud record on international aid and debt relief, should be used as a haven for secretive and exploitative funds operating without scrutiny or regulation.
After I have presented the Bill today, we will be discussing in our debate on the Finance Bill the impact of the excesses of the banking system on our own economy. My Bill deals with the consequences of those profits on some of the poorest people in the world, and I hope that the House will give me permission to introduce it.
Question put and agreed to.
That Ms Sally Keeble, Sir Gerald Kaufman, Hilary Armstrong, Mr. Peter Lilley, Andrew Stunell, Mr. Andy Reed, Tom Brake, Mr. David Drew, John Austin, Mr. David S. Borrow, Mark Lazarowicz and John Bercow present the Bill.
Ms Sally Keeble accordingly presented the Bill.
Bill read the First time; to be read a Second time on Friday 12 June and to be printed (Bill 91).
[Relevant Document: The Eighth Report from the Treasury Committee, Session 2008-09, on the Budget 2009, HC 438-I]
I beg to move, That the Bill be now read a Second time.
This year’s Finance Bill comes as the world economy is shrinking for the first time in peacetime since 1932. It is the first time ever that five of the biggest banks in the world have had to be rescued by their national Governments. That is the scale of the international challenge we are facing.
This Finance Bill provides for vital measures to support the economy this year and to help British families and businesses through the more difficult times. It also provides for help to support the long-term prosperity of Britain and to ensure that public finances are sustainable for the future. Those two objectives are fundamentally linked, but the main Opposition party, astonishingly, seems to oppose both of them.
If we do not take action now to get our economy moving and growing, it will cost us more in the long run. We need to take action now to support businesses and families to help them through the downturn. If we do not provide real help now, recession will last longer and run deeper, reducing the tax revenues we get from growing businesses. It will increase the amount we have to spend on unemployment and it will push our borrowing and our debt up higher and cost us all more in the long run. That is why the best way to get borrowing down in the future is to support growth in our economy now.
I agree entirely, as I think that cutting budgets in the teeth of recession is very foolish and that fiscal stimulus is essential as monetary policy alone is not enough. Why, then, is the Chief Secretary cutting £500 million from the Scottish budget next year, when everybody knows that the UK and the world economy will still be in recession? Why are her Government taking such a foolish measure, which runs against her own argument?
The hon. Gentleman knows that that is simply not the case. In fact, we are increasing the Scottish Executive’s budget by more than £2 billion over the next few years. We expect the Scottish Executive to make efficiency savings in 2010-11. Indeed, if the Scottish Executive set the same efficiency targets that Welsh, Northern Ireland and English Departments have set—of around 3 per cent., instead of the 2 per cent. set by the Scottish Executive—the additional efficiency savings could be used to support the economy in Scotland as well as across the rest of the country.
The Bill provides for a series of measures—many of them temporary, many of them funded by short-term increases in borrowing as part of the fiscal stimulus that the Government have outlined—to help the economy right now. Clause 9 thus legislates for the temporary VAT reduction to 15 per cent. to run until the end of this calendar year.
The right hon. Lady will be aware that VAT is due to go back up to 17.5 per cent. on 31 December. I do not know what she will do on that evening, but many retail outlets and establishments will be open, so it is not a great time suddenly to change VAT levels from 15 per cent. to 17.5 per cent. For the benefit of our tourism and services industry, I plead with the Chief Secretary to move the date from 31 December to, say, 3 January, which is a Sunday.
Her Majesty’s Revenue and Customs has said that it will continue to discuss with businesses how to ensure that the change happens smoothly. It is right to ensure that this VAT reduction is only temporary, as it is part of our fiscal stimulus. The hon. Gentleman is wrong to oppose the temporary reduction in the VAT rate, which applies across the country, because the cut is equivalent to putting £12 billion into the pockets of consumers and businesses that would otherwise have been taken in tax. It is about putting money into people’s pockets and into the economy when it is most needed.
I will give way once more to the hon. Gentleman, but only if he will tell me why he opposes a VAT cut that supports business, and about which the chief executive of Tesco said:
“The VAT reduction last November was worthwhile. It gave £8-10 billion directly to consumers and as a result helped small businesses in particular.”
Will the hon. Gentleman explain why he wants to take that £8 million to £10 million away from businesses, including small businesses, right now?
I am grateful for the Chief Secretary’s generosity in giving way again, but she has been here longer than I have, and she is aware of the conventions of the House. If she wants us to answer the questions, let her party call a general election, and we shall be delighted to do so.
Let me return the Chief Secretary to my original question, which has nothing to do with Tesco other than the fact that Tesco is likely to be open on the evening of 31 December, at the end of the year. Please will she consider moving the date on which the VAT rate is returned to 17.5 per cent. to 3 January? That is a simple question. Will she answer it directly, rather than taking us down another alley?
The hon. Gentleman should accept that if he wishes to take part in debates in the House, he needs to be able to defend his own views rather than merely asking questions about other people’s. That, in the end, is what parliamentary debate is all about.
Whatever the date on which the VAT rate changes, businesses will naturally want it to be extended by a few more days, because they know that they are benefiting from the cut.
Hon. Members need to recognise that the important thing is to provide certainty for businesses so that they can plan. Whatever the date, they will need to make arrangements to comply with the change, and HMRC will continue to work with them to ensure that the arrangements are made smoothly. I repeat, however, that hon. Members continue to oppose a cut in VAT that is making a huge difference across the country, supporting the economy at what would otherwise be a devastating time given what is happening throughout the world. The independent Centre for Economics and Business Research has examined the impact on retail sales, and has said:
“The figures are clear; the VAT cut is working... There has been a clear and immediate impact on retail sales since its introduction.”
The centre estimates that, between December and February, retail sales were £2.1 billion higher than they would otherwise have been.
Liberal Democrat Front Benchers oppose the reduction in VAT because they would have preferred to spend the money differently. I respect that position, although I disagree with it. Of course it is also right to put money into public sector capital projects, and we are doing that as well, but the advantage of the VAT cut was that it was by far the fastest way of putting money into the economy to provide immediate support across the economy. Unfortunately, Conservative Members simply opposed the VAT cut, along with anything else involving additional investment or spending in the middle of a recession—an economic policy that is not just bonkers but dangerous.
Does my right hon. Friend agree that my neighbour, the right hon. and learned Member for Rushcliffe (Mr. Clarke), was right on this point, although he was shut up by his colleagues? More broadly, the stability of high street sales has surprised many people during the current recession, and it is depressing to observe the eagerness with which Conservative Members have tried to talk down the economy throughout the crisis.
I am grateful to the Chief Secretary. I hope to explain in detail later—if I am lucky enough to catch the eye of the occupant of the Chair—why I oppose in principle the Government’s policy on VAT reductions, but may I first press the Chief Secretary about the date? I understand that the retail industry is very worried about the change being made in the middle of the Christmas sales period. Has the Chief Secretary received representations, and why is she sticking so firmly to 31 December?
We have had discussions with representatives of the retail industry and others about the timing of the change. The main thing they said they needed was certainty about the date so that they could plan, which is why we have set a date. Extending the VAT reduction until, say, the end of January to move it outside the sales period would have cost substantially more. We made a judgment, and the Chancellor made a judgment, about what time would be right, bearing in mind the scale and timing of the fiscal stimulus. I repeat that the change in the VAT rate is part of the fiscal stimulus, which we believe is the right measure to take and which evidence shows is helping the economy through a difficult time, but which Conservative Members have continually opposed.
I said that the fiscal stimulus was supported by countries throughout the world. Let us be clear which countries support a fiscal stimulus: America, Japan, France, Germany, Italy, and all the countries in the G20 are supporting their economies with different kinds of investment.
The Conservative party is completely isolated, because it is the only major party not only in Europe but in the entire world that is calling for cuts in spending in the middle of a recession, and cuts in investment, to take money out of the economy. That is absolute, utter madness. It is completely irresponsible in terms of the future, and in terms of people who currently have jobs. The measures that we are taking are supporting half a million jobs: half a million jobs that could be lost as a result of the approach the Conservatives have taken. They do not care about unemployment, and they do not care about protecting and supporting people’s jobs, because they want to take billions of pounds out of the economy at a time when it is vulnerable.
My hon. Friend is right. In fact, the contradictions between Conservative Back Benchers and Front Benchers on this issue, and even between its Front Benchers, are legion.
Let me explain how other clauses are providing support as part of the fiscal stimulus. Clause 24 doubles tax breaks for business investment. It increases the rate of capital allowance relief to 40 per cent. for one year from April, allowing all firms investing over £50,000 in the current financial year to benefit from a higher rate of tax relief on investment. It is a boost for business but it is opposed by the Conservatives, although, to be fair to the shadow shadow Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke)—who was mentioned earlier by my hon. Friend the Member for Broxtowe (Dr. Palmer)—he has said:
“The increase in capital allowances is worth trying. I approve of that.”—[Official Report, 27 April 2009; Vol. 491, c. 612.]
The problem is that the shadow Chancellor does not approve of the money being provided to pay for it. That investment is needed to support the economy now.
For basic rate taxpayers, clause 3 means an increase in the income tax personal allowance, making them £145 better off than they were in April last year. It provides extra help for ordinary families now, which is opposed by the Conservatives. Clause 23 extends from one to three years tax breaks for business through the loss carry-back rules. It will help up to 75,000 businesses that made a loss last year, and it is part of the fiscal stimulus. It provides real help for businesses now, which is opposed by the Conservatives.
Whether it is the £5 billion of extra help for the unemployed, the £600 million of extra help enabling teenagers to stay at school, or the £3 billion for public sector capital programmes, time and again the Conservatives oppose the vital investment and support that our economy urgently needs so that we can emerge from the recession sooner and stronger.
I am very sympathetic to the Chief Secretary’s efforts to provide tax reliefs for businesses, but she will know that, notwithstanding the support that the Government are trying to give, the banks’ reduction in overdraft facilities tends to negate some of the benefits in the Bill. Can she do anything to force the banks to provide facilities that companies desperately need, without which many of her proposals will be compromised to some extent?
The hon. Gentleman makes an extremely important point. He is right that this started with the global credit crunch and the restrictions on credit for companies across the country. As a result of the additional support we have given, particularly to the Royal Bank of Scotland and the Lloyds group, clear lending agreements are now in place, under which lending must be substantially increased compared with last year. We are monitoring those lending agreements very closely. We are also working with other lenders across the country, because lending by foreign banks has dropped by more than £100 billion since the credit crunch began. The issue clearly goes much wider than the major banks that I have just mentioned.
The hon. Gentleman might also be interested to know that the Department for Business, Enterprise and Regulatory Reform is holding regional engagement meetings and events, bringing together senior regional banking executives and regional businesses to discuss how lending operates locally and to try to improve that.
The right hon. Lady acknowledges that the problem is not only the big banks in the UK, but other banks, particularly foreign banks, withdrawing from the marketplace. Will she put it on the record that the Government recognise the important role that non-bank lenders used to play, particularly in the small and medium-sized enterprises credit market? They are now almost totally absent from the market, yet they seem to have been excluded from all the packages the Government have put in place. Does she recognise the importance of getting non-bank lenders back into the SME market?
The hon. Gentleman is right that credit has been constrained across the market. Some intermediary lenders have found it difficult to get finance and therefore to get involved in lending. We think it is important to support lending across the board within a well-regulated framework, which is why we have set out major lending agreements. We are working across the board. The lending panels approach, chaired by the Chancellor and Business Secretary, is looking at lending not simply by the major banks, but at lending institutions more broadly.
No, I do not; funnily enough, I do not think that that would be a useful way to spend money in the current circumstances—and nor, frankly, do I think it would be remotely fair.
We have set out a series of measures that help the economy now. The Opposition claim that we cannot afford to implement them, but the truth is we cannot afford not to. The best and fastest way to bring borrowing back down is to support the economy and promote a return to growth. That is why every one of our major competitors is also increasing borrowing to support their economy, even though most of them have significantly higher levels of debt than us. They agree with us that it is right to support the economy in the short run because it will cost us more if we do not.
May I remind my right hon. Friend that Canada recently cut the goods and services tax—its equivalent of VAT—and that it also introduced a Budget in January this year with the equivalent of 3.2 per cent. of GDP in fiscal stimulus? The province of Ontario is lowering sales taxes, and several other provinces across Canada are also considering lowering them—there is a provincial sales tax as well as a federal one. Canada is a G7 country that is engaging in fiscal stimulus, and it has a Conservative Government.
My hon. Friend is right that that is, indeed, an example of a Conservative Government who are pursuing ways of supporting their economy. It is also a sign of the widespread consensus in favour of such measures that exists around the world; there is a recognition that countries need to take action to help people who are losing their jobs and who are afraid of losing their homes, instead of turning their backs on them, as the UK Conservative party did time and again in recessions past.
Once the economy is growing again, we will need to make sure that borrowing comes back down. Economic growth itself will help bring borrowing down, but we need to go further, because, for example, tax revenue from the City has been heavily hit by the credit crunch and we do not expect it to return swiftly.
The Bill also provides further measures to help bring borrowing back down once the economy is growing. Weirdly, for all their talk of fiscal rectitude, the Conservatives seem to oppose these measures as well. Clause 6 implements a new additional rate of income tax from 2010-11 of 50 per cent. for those with incomes above £150,000 per year, and clause 4 legislates for a gradual reduction in the personal allowance for those with incomes above £100,000 until that is completely removed. We think that it is fairest for those on the highest incomes to contribute more because over the past 10 years their incomes have increased by an average of £5,000 a year, compared with £600 a year for the average taxpayer.
The right hon. Lady is outlining opportunities in respect of the upper end of the income scale. Will she not also outline the opportunity, which the Government appear to have missed, to increase substantially personal allowances at the other end of the income scale so that the incomes of those who earn, for example, £10,000 or £12,000 a year are tax free?
We are, rightly, increasing the tax allowance. That means that individuals will get an extra £145 compared with this time last year. We have also significantly increased tax credits over the years to provide additional support not only for those with children, but for those who are in work but on low incomes. That is the right thing to do. It is right to support those on lower incomes as well, as part of fiscal consolidation, to ensure that there are fair measures, which mean that those on the highest incomes have to pay more.
With the tapered withdrawal of the personal allowance, and if national insurance is included in the calculations, higher earners will face a marginal income tax rate of 61 per cent. Philosophically, what is the highest level of marginal income tax that the right hon. Lady would contemplate?
We have made a judgment about what the right measures are in this case. As the hon. Gentleman knows, there is an issue to do with introducing changes in personal tax allowances. We have introduced a taper so that they are removed gradually in order to avoid too high a rate of marginal tax. In the end, however, any tax issue has to be decided on the basis of balancing the need to raise appropriate amounts of revenue with the need for a fair tax system that supports employment and other things that we believe are important in the economy. We have made those judgments.
Clause 71 prevents forestalling while we consult on the details of reducing pensions tax relief for those on more than £150,000. We continue to support tax relief.
My hon. Friend makes an important point. We are continuing to make progress towards the 2010 target, and also towards the 2020 target, which we propose to legislate for and therefore embed in law, to support both the long-term commitment and the short-term measures. My hon. Friend will know that some measures announced in last year’s Budget that have been implemented this year also increase significantly child tax credit and lift children out of poverty. This year, as well as a limited increase in child tax credit, the particularly important issue is to ensure that parents can get back to work as rapidly as possible. We know that the big increase in child poverty in the 1980s was strongly linked to parents losing their jobs, and often to people never getting a job in the first place and then becoming parents having become long-term unemployed. That played a major part in that very substantial increase in child poverty. For those reasons, it is right to invest to help parents get back into work. The impact of the current recession on child poverty is uncertain. As my right hon. Friend the Financial Secretary has made clear, that makes it more difficult to make progress towards the 2010 target, but we are determined to continue to keep making progress and to work towards it even through these more difficult times.
Merely making progress towards a target for next year is simply not good enough. It is time that the right hon. Lady came clean with the British people. The promise was made to halve child poverty by 2010. She should tell the House and the people of this country now: is that target going to be met?
What a ridiculous question; the hon. Gentleman does not believe in the target in the first place. How dare he come here to start making pompous remarks about whether the target is going to be met and whether we are making commitments towards it. We are determined to keep making progress towards it, because we think it is right to keep tackling child poverty, whereas his party doubled and trebled the rate of child poverty in this country because it was not prepared to take the action needed to support those who needed help to stay in work and help with their incomes. His party is still committed to making cuts in, and undermining, the tax credits system, which has been so important in helping children out of poverty.
The Chief Secretary may want us to meet a target by 2010, but she can do that only by calling a general election, in order to allow us to have a change of Government. How does she square what she is saying about child poverty with what the Treasury Committee has said in the report that it published today? It said:
“We are concerned by the lack of any substantial measure to combat child poverty in both the Pre-Budget Report 2008 and Budget 2009. On current indicators the Government will fail to meet its 2010–11 target by a significant margin.”
Once again, I note that the hon. Gentleman is not prepared to make any commitment, even to any targets. He is not prepared to make a commitment to support cutting child poverty at all. We have continued to make progress in cutting child poverty and will continue to do so. I say to him again that the most important measures that we are taking that will tackle child poverty are those to help parents to get back into work. Some £5 billion is being invested in helping those who lose their jobs to get back into work—that is £5 billion that Conservative Members refuse to support. They refuse to support £5 billion that can make a difference to parents across the country who might otherwise slip into poverty with their families if they are not able to get the help that we are determined to provide to get them back into work. Time and again, the Conservatives oppose not only the investment that Britain needs, but the measures to help bring borrowing down afterwards.
I return to clause 71 and the pensions tax relief measure that I mentioned. We continue to support tax relief for pensions and savings—indeed, we spent nearly £30 billion on pensions tax relief last year. However, more than £6 billion of that went to the top 1.5 per cent. of earners, and that cannot be fair. On average, someone on more than £150,000 will get about £27,000 a year in tax relief, whereas a basic rate taxpayer gets only about £1,000. I see from the Opposition’s amendment that they have decided to oppose this measure and to defend unfair tax breaks for the very highest-paid people in the country.
Clauses 15 and 16 implement fuel duty increases, but even by 2013-14 the duty will still be lower in real terms than it was in 1999. The measure will also reduce CO2 emissions by 2 million tonnes per year by 2013-14.
The cost of motoring might be lower in real terms, but I can tell the Chief Secretary that on the islands in my constituency the price of fuel tends to be between 15p and 30p a litre higher than on the mainland. Will this Government not do what Governments in other European countries do and apply for a derogation that allows them to charge a lower rate of fuel duty on islands? There would be no possibility of fraud because islands are clearly separated from the mainland.
The hon. Gentleman will know that the Chancellor has raised concern previously about differential rates of petrol pricing in different parts of the country and has pressed for further work to be done on ensuring that unfair competition does not lead to some areas paying a higher penalty. The hon. Gentleman will also know that the points that he raises are raised by those in other parts of the country, including those in more rural areas. The important thing is to ensure fair competition in the sector and to continue to monitor fuel prices, as we did when the Chancellor delayed the increase in fuel duty as a result of the high oil prices last year.
Clause 93 is part of a further crackdown on tax evasion and avoidance and proposes naming those deliberate tax defaulters who are charged with civil penalties, in addition to those on criminal charges who are already named by the courts. Along with the other measures on avoidance and evasion, that will help to secure £3 billion of tax income.
The Chief Secretary mentions clause 93—the naming and shaming clause. Will the Revenue have the power to do deals with taxpayers who are prepared to accept penalties rather than to be named and shamed? Will HMRC be able to use that plea bargaining arrangement?
The purpose of this measure is to encourage taxpayers to come clean, to pay up front and to recognise things that they might have been doing in the past that are wrong. Hon. Members will obviously have the opportunity to discuss the detail throughout the detailed clause debates on the Bill, so I will be happy to hear representations from the hon. Gentleman. The measure’s purpose is to encourage people to come forward and, on that basis, people such as those whom he mentions will not be named and shamed, and the provision will apply only to the most persistent defaulters, providing a strong signal that people should pay their taxes. Ordinary people pay their taxes, and those who are on the highest incomes and can afford the most expensive accountants should not be able to avoid making their legitimate contributions to this country’s tax base.
The Chief Secretary has been talking about maximising the income for the Government. One of the major sources of corporation tax is the oil and gas in the North sea, but tax is paid on it and it provides jobs to my constituents only if it comes out of the ground. The Government have moved a little way with the field allowance in trying to encourage investment in very marginal fields. Why have they not gone further in recognising the banking crisis, the credit crunch problems and the cash-flow problems by examining the industry’s request to bring forward tax relief early for new entrants who do not have income at the moment, in order to encourage them to invest? They are the lifeblood in respect of bringing that new oil and gas out of the ground. Without that, there will not be the future revenues.
The hon. Gentleman conceded that we have taken action to try to support the North sea oil industry, including promoting the opening of new fields. Obviously, in the light of the credit crunch, every sector makes representations to us about the additional support they require, and we have to judge how best to support the economy as a whole. That is what we have done, by providing the kind of tax breaks that support industry as a whole.
The measures I have set out will help to bring borrowing back down, once the economy is growing, but curiously most of them seem to be opposed by the Conservatives. Last week, their leader said he wanted to bring borrowing down faster, yet on Tuesday of last week they voted against billions of pounds of future tax revenue that will do exactly that. They have also said they would reverse the new top rate and the national insurance changes, they are opposed to the pension changes and they would introduce tax cuts for millionaires’ estates. All in all, their tax gap in future years is about £10 billion—the vast majority of it tax cuts for the very richest in the country.
Perhaps the hon. Gentleman ought to mention that to the right hon. Member for Witney (Mr. Cameron), who said very clearly that this would join the queue of measures that the Conservatives were determined to reverse. In other words, the right hon. Gentleman is determined to reverse not only the top rate of tax, but a series of additional measures, and today we have found out what some of them are. The list includes the changes to tax relief on pensions for those on the very highest incomes and the national insurance changes. In addition, they want to put in place the tax cuts for millionaires’ estates. The vast majority of the measures that Conservative Members want to propose are tax cuts for the very richest in the country, in order not to bring down borrowing but, in fact, to increase it.
The Chief Secretary has talked a great deal about tax increases for people on high incomes. One might get the impression from what she has said so far that there were no tax increases for people on ordinary incomes, whereas more than half the tax increases announced in this Budget for this year will fall on ordinary people, not on those on higher incomes. As she is so interested in the Opposition’s policies, let me tell her, for her information, that our priority will be cutting Labour’s taxes on jobs—the increase in national insurance contributions that will affect everybody who is earning more than £20,000 a year.
If that is the case, why is the Conservative party’s only manifesto commitment to cut tax on inheritance for millionaires’ estates, so that the 3,000 richest estates in the country will each get £200,000? How can that be a defence of ordinary people? It is defending the richest estates and shows the wrong and distorted priorities of the Conservative party in the middle of a recession—so much for fiscal conservatism.
There is a pattern here. In the 2005 election, the Institute for Fiscal Studies said that the Conservatives’ plans for tax and benefits alone would have cost an extra £5 billion—unfunded except by higher borrowing. Before the credit crunch hit, they were calling for £10 billion of unfunded tax cuts. The idea that these guys want to bring borrowing down is a joke. They do not want to cut borrowing. They just want to cut spending. That is what this is really all about.
Does my right hon. Friend agree that the Conservatives are keen to knock back taxes because they want to cut the public services on which all our constituents depend? I point her to the excellent report by PricewaterhouseCoopers that spells out the severity of the cuts package that the Conservatives’ proposals would produce and the devastating impact that it would have on our constituents.
My hon. Friend is right. The fact is that the Conservatives want to cut spending right now in the middle of recession—hitting apprenticeships, transport and education. This is the Conservative party finally ditching compassion and returning to its ideological roots. This week, the Conservative leader has admitted Margaret Thatcher is his great inspiration in rolling back the state.
The Conservatives have been watching too much “Ashes to Ashes”. This is ‘80s revivalism gone rampant. Spandau Ballet are back together, Depeche Mode are back in the charts and they are pinning their hopes on Boy George. All we need now is for the hon. Member for Runnymede and Weybridge (Mr. Hammond) to don the stripy legwarmers. If they honestly think that a return to Thatcherism is best for Britain’s future, they are living in cuckoo land.
We remember Thatcherism. We remember the devastation it caused to our communities, the generations of young people abandoned to long-term unemployment, the soaring child poverty, the public services neglected and the families scarred. We will not return to the politics and policies of the ‘80s.
We have presented a Finance Bill that supports the economy and brings borrowing back down when the economy is growing. The Opposition want tax cuts for the very richest, spending cuts on the very poorest, cuts in the middle of recession, the rolling back of the state and businesses and families left to sink or swim. The measures that we are taking will support 500,000 jobs across Britain. The measures that they support would betray jobs across Britain. The measures in this Finance Bill will help to support our economy and Britain’s future, and I commend it to the House.
Well, that was quite a rant. The Chief Secretary has obviously decided that if she cannot defend her own policies and record, the best thing to do is to come out of the bunker spraying fire in all directions and hoping to get away with it. We will take no lectures from her or anyone on the Treasury Bench about the economy and the challenges ahead of us.
The overwhelming sense that I got from that speech, and indeed from the interventions from Labour Members, was that they simply do not get the scale of the crisis that they have created and the challenges that it may fall to others to pick up in an attempt to put this country back on its feet. Hon. Members might be forgiven for experiencing a sense of déjà vu today. It is only last week that we were debating—and unravelling—the Budget. Now we must debate a Finance Bill that was published only last Thursday. Outside experts have scarcely had a chance to digest it, but it will be forced through the House at a pace dictated by the political decision to delay the Budget until after the G20 meeting, rather than by the needs of good government and proper scrutiny. It was a political decision to delay the Budget until after the G20, because the Prime Minister had intended to announce a major fiscal stimulus, which he could present as part of a wider plan delivered by him on his saving the world agenda. That plan was dashed by the Governor of the Bank of England on 24 March when he gave evidence to the Treasury Committee and told the Prime Minister what we had been telling him for months—[Interruption.] The hon. Member for Taunton (Mr. Browne) is right—Britain’s credit card is maxed out and the Prime Minister cannot borrow his way out of trouble.
We have déjà vu in another sense. Last year’s Finance Bill Second Reading was dominated by the Government’s attempted sleight of hand on the 10p tax rate and the growing rebellion on the Labour Benches as the impact of that broken manifesto pledge became apparent to them. This year, the split in the Labour party is caused not by any sympathy for the targets of the distraction taxes in the Budget, but by a tug of war for the heart and soul of the Labour party between the adherents of new Labour’s embrace of aspiration and the exponents of the politics of envy as the most expedient tactic for a Prime Minister who is already up to his armpits in the political mire and sinking fast.
I thought that the hon. Gentleman would spend a little more time on the 10p issue. When Labour Members attempt to amend the Budget to do justice for the group that still has not been fully compensated for the 10p change, will we be able to depend on the support of the Opposition?
I am grateful to the right hon. Gentleman for his intervention and interested to hear that he is still pursuing the issue. It occurred to me as I prepared my speech that I had not heard from him on that subject. We will, of course, consider carefully whatever he presents, but he will have to recognise the difficult fiscal circumstances.
I am sorry that the hon. Gentleman does not know what is happening. We have made it plain on the Order Paper; an early-day motion has been signed by those Labour Members who wish to see full justice for the group of low-paid workers who lost out with the abolition of the 10p tax rate.
I promise the right hon. Gentleman that I shall look carefully at his proposals. In disappointing contrast to last year, we have not had the opportunity of a discussion ahead of the debate on the Floor of the House to consider what we can do together to press the Government on these matters.
A quick glance at the record of last year’s Second Reading debate will suggest that we do not need to take the words that we have just heard from the Chief Secretary too seriously. Last year, she told us that it was impossible to change the personal tax system and personal tax rates in-year, but when it became politically beneficial to do so, she found a way. She told us that the British economy was well placed to weather the global storms, that claimant count unemployment was at its lowest for 30 years and that the UK would be the fastest growing economy in the G7. It seems that hubris is capable of human-to-human transmission, at least in the closed confines of a political bunker.
The Chief Secretary also told the House last year that the Government were using the flexibility of the fiscal rules to borrow more in a sensible and sustainable way. What she did not say was that shortly after the Finance Bill became law, the Government would use the flexibility of the fiscal rules to abandon them altogether before they were comprehensively shattered by the growing crisis in the public finances that will be this Administration’s legacy.
If we fast forward to this year, we may be making modest progress, because I do not think that I heard the Chief Secretary describing the £175 billion that the Government will borrow this year and the £173 billion that they will borrow next year as sensible and sustainable. Last year it was the denial Budget—no one would be worse off as a result of the abolition of the 10p tax rate—and this year it is the distraction Budget, with a subliminal message that taxing the rich can resolve the gaping hole in the public finances as the Government desperately try to divert attention from the reality of the Chancellor’s package. It is a reality of tax rises for the many not the few and of spending increases before an election to mask a programme of massive cuts afterwards. The Budget has a £45 billion hidden tax bombshell aimed at the many and timed to go off after the general election that even this serially unelected Prime Minister will be forced to concede to the British people by this time next year. That is £1,430 per family of extra annual taxes, and I confidently predict that he will not remind the public of that in the run-up to that election.
Does my hon. Friend not share my concern that the vast majority of tax increases brought in by this Budget will fall not on millionaires or even those earning more than £150,000, but on individuals and families earning £19,000 or more?
My hon. Friend is right, and as I made clear earlier in my intervention on the Chief Secretary, when it is possible to repeal any Labour taxes our priority will be to repeal Labour’s tax on jobs, which will hit people on £20,000 a year or more just as the economy is coming out of recession—if we believe the Chancellor’s forecasts.
Sadly, I can make no such commitment. We do not know what the state of the public finances will be next year. The track record of forecasting by the Treasury over the past 12 months suggests that recovery might be very far distant from what is predicted in the Red Book, published just a couple of weeks ago. However, our priority for reducing taxes will be the tax that most affects the many, which is the tax on jobs.
The hon. Gentleman has referred several times to what he describes as the difficult fiscal circumstances. Given that that is how he sees them, why do the first votes cast by his party and by him in Divisions on the Budget add £6 billion to the projected Budget deficit?
They do not. In the course of the debate on this Bill—in the Committee of the whole House and in the Public Bill Committee—the hon. Gentleman will discover the alternative solutions that we propose on fuel duty, corporate taxes and so on, which will explain how we would fill that gap. We are certainly not making irresponsible pledges, as I have made clear to the hon. Member for Broxtowe (Dr. Palmer).
This goes beyond the extra taxes that will hit ordinary families. The public capital investment programme will also be halved over the next five years. I ask the House to listen to what the Chief Secretary said in last year’s Second Reading debate:
“Previous Governments often slashed capital investment when economic pressures grew. We are protecting it”.—[Official Report, 21 April 2008; Vol. 474, c. 1064.]
We truly have moved through the looking glass if halving a budget can now be described as protecting it. This is a dishonest Budget that is all about protecting the jobs of the few on the Treasury Bench rather than the many in the British economy—a crowd-pleasing, economy-damaging tax on the rich this side of an election, with a hidden tax bombshell targeted at the many timed to go off after an election.
The hon. Gentleman refers to public sector investment. As he will be aware, the level set out in the Budget is still twice that of public sector investment as a proportion of GDP in 1997, when we inherited it from his party. Will he also take this opportunity to say whether his party supports Crossrail?
Let me deal first with the public sector investment. The right hon. Lady did not take the opportunity to confirm in her intervention that public sector investment as a percentage of GDP will halve. It will halve over the coming years—I do not think that the Government have been shouting that from the rooftops. We believe that Crossrail is a good project. It fits very well with our agenda of improving rail infrastructure —[Interruption.] She sits there, chuntering about guaranteeing to support this project or that project. Do the Government have no conception of the scale of the hole that they have dug? Every single programme and project will have to be reassessed and re-evaluated. Each project will have to demonstrate its value for money and its effectiveness in an extraordinarily tight fiscal climate created by the disaster that the Government have visited on this country.
This year sees the continuation of the recent trend for the Budget to be increasingly disjoined from the Finance Bill that follows it. Annual taxes are announced years in advance, not for the purpose of providing greater forewarning and more stability and transparency in the system, but for pure political advantage. An early announcement by this Government does not mean greater certainty. Last November, the tax rate was to be 45p from 2011. By this April, it had become 50p from 2010.
This country’s tax system is losing credibility and the process by which tax changes are made not in response to long-term economic challenges but in pursuit of short-term tactical political gain is causing immense damage to our international competitiveness. It all started with the pre-announcement of the abolition of the 10p rate and the reduction of the basic rate in the Prime Minister’s last Budget as Chancellor in 2007. It accelerated with the disastrous pre-Budget report of October 2007, as we saw the first example of the now familiar phenomenon of the Prime Minister trying to head off a catastrophic loss of confidence in him on his own Benches. It continued with the 2008 Budget, with last year’s pre-Budget report and now with this 2009 Budget.
Before I move on, perhaps the Chief Secretary could clarify one issue. She talked about the new 50p tax rate. Will she clarify whether it is intended to be a permanent feature of the tax system or a temporary arrangement? The Chancellor said in his interview with the Daily Mail on 23 April—it was a perfectly fair point—that he would have to ask people on higher earnings
“to contribute a bit more while we resolve this situation”,
signalling a temporary increase to contribute to resolving the mess in the public finances. That is hugely significant, because the behavioural response to a temporary surcharge on higher earners could be quite different from the response to a clear break with the established consensus on top marginal rates.
Will the Chief Secretary tell us whether the signal sent out by the Chancellor is the Prime Minister’s policy? If so, would it also be the policy of a Labour party led by the right hon. and learned Member for Camberwell and Peckham (Ms Harman) or by the right hon. Member for Kingston upon Hull, West and Hessle (Alan Johnson)? If the Chief Secretary cannot speak for them, would it be the policy of a Labour party led by her or by someone very close to her? If she cannot clarify that point now, perhaps the Financial Secretary can do so in the winding-up speech this evening. It is a very important point, which needs clarification.
Is not the logical conclusion that the range of measures to increase the top rate of tax means that the Government will eventually have to come back to the House early next year to reform capital gains tax, which is now very much out of kilter with the income tax rates? That is one reason why they will not collect the sort of money that they expect. People will avoid it and they will try to capitalise their incomes.
My hon. Friend makes a good point. The Government have clearly already sought to close one of the most obvious loopholes to people who are subject to the higher rate of tax by restricting pension relief. Capital gains tax remains a potential loophole, however, and he might well be right that the Government, for all their silence on the issue now, will simply abandon any pretence of a low-tax competitive regime and will resort to higher tax rates in capital gains, too.
The Budget brought home to the British public the scale of the challenges facing our public finances, even if the impact of addressing them has been pushed out to the other side of a general election. The recession that is afflicting the economy will mercifully be behind us at some point, for the simple reason that the Prime Minister did not abolish boom and bust. The economic cycle, I am glad to say, survives and will eventually turn upwards, but the hole in our public finances will remain even if the economy bounces back in line with the most optimistic projections that we have heard. It is a structural deficit, which is the result of a Government recklessly living beyond their means since they started their 2001 general election campaign, repeatedly making promises to the electorate that the country could not afford. That is not even bribing people with their own money; it is bribing them with their children’s and grandchildren’s money.
On the subject of ending boom and bust and cycles, does my hon. Friend believe there is any credibility whatever to the Red Book’s projection, in table 2.1, that growth will decline 3½ per cent.; suddenly and miraculously increase next year by 1¼ per cent.; and then, in 2011, go up to 3½ per cent.? Does anyone my hon. Friend knows, beyond the Chancellor and his Chief Secretary, believe there is any credibility in these forecasts?
I shall come to that point in a moment, but the simple answer to my hon. Friend’s question is no. I do not know anyone else who believes these forecasts. While he is on the subject of cycles, as I have said before, I think the only cycle that the Prime Minister understands or is interested in is the political cycle, and our economy is being run with regard to the political cycle, not the economic cycle.
The Chancellor, in his Budget, was therefore torn between a desire to hide from the electorate the scale of the adjustment that would be required until after one more election, and a desire to send a signal to the bond markets that would induce them to continue funding the Government’s unprecedented borrowing requirement. So what we got was the usual fudge: optimistic growth projections that unravelled within minutes of the Budget and have been further undermined by the Office for National Statistics data published since, and tax increases for ordinary families now, but with much, much more to come after the election, starting with the tax on jobs that will hit everybody on £20,000 a year or more in 2011, all under cover of the smoke generated by the 50p distraction tax “on the rich”, designed to fool the gullible.
We also got a slashing of planned public expenditure growth. After allowing for the increased cost of servicing the huge pile of debt that this Government are building up, and of benefits for those joining the dole queue, there will be real-terms cuts equivalent to 2.3 per cent. in departmental expenditure totals. That is on top of the halving of capital expenditure budgets. It is an unprecedented scale of cuts in departmental expenditure. All this from a man who told us in 2005 that further efficiency savings were not possible, and that any reductions would necessarily involve cuts in front-line services. He was wrong then, and I suspect he would wish to argue now that he was wrong then. The fact is that a Government who said no further efficiency savings were possible subsequently claimed to have made £26 billion-worth of efficiency savings, and to have identified a further £15 billion-worth of efficiency savings. They have no credibility left on spending: no one believes a word they say any more.
My constituents, particularly those who live in rural areas of Holderness, many of them perhaps historically Labour voters, feel betrayed because they know that their national insurance is going to go up and that they are paying more to fuel their cars, which they need to try to find work, and they are expecting to see higher rates on drink when they go to their local pub—at a time when pubs are closing at the rate of 40 a week. As a final insult from this Budget, if they go for a game of bingo at the end of the week to try to cheer themselves up, they see that £105 million is being taken from bingo players. This Government and this Budget are hitting ordinary people; they are not hitting the rich, and they are trying to disguise it.
My hon. Friend is exactly right: it is a distraction Budget. What his constituents do not know, however, because understandably they have not sat and read the detail of the Budget Red Book, is that this is only the start. They will be hit by a further £45 billion a year of taxes as the Chancellor struggles to close the gap that his disastrous policies and those of his predecessor have opened up. Even if we accept the highly optimistic assumptions about the pattern of tax receipts in the recovery, the Chancellor still acknowledges that it will be 2017 before the current Budget is back in balance, and 2032 before our debt is back under control.
One clear victim of this Budget is the credibility of Treasury forecasting. The whole process is undermined if nobody, but nobody—except the Chancellor—believes the forecasts for growth and for tax revenues. The case for an independent office of budget responsibility was made by the Chancellor’s Budget speech more effectively than any of its proponents could have hoped. No Chancellor in future should be able to build his Budget on foundations of sand—to treat the Budget process as a political manoeuvre rather than as an exercise in fiscal responsibility. We will attempt to insert into this Finance Bill provisions to ensure that before next year’s Budget, a rigorous and independent approach to forecasting is established, ending the farce that we witnessed on Budget day, as the Budget growth projections unravelled before our very eyes, rendering the entire Budget Red Book almost immediately redundant.
I have some specific issues to raise on several clauses, but first I should like to set out three key themes linking our main criticism of the Bill: first, its failure to rise to the challenge of building the competitiveness of the UK as a place to do business in the recovery; secondly, its failure to support savers at a time when rebuilding the savings culture will be critical to Britain’s future; and thirdly, its abject failure to balance the rights and responsibilities of taxpayers and the Revenue as it extends and expands Revenue powers. I shall elaborate on each.
Britain is in the depths of the worst recession since the second world war. Unemployment is rising at the fastest rate since records began and the public finances are set next year for a bigger deficit than that of any other G20 country. But even in these circumstances, this should have been a Finance Bill for the recovery. We do not know when it will come, but we need to be sending powerful signals to business about the tax landscape in the UK in the future, to ensure the investment and the jobs that Britain will need when Labour’s recession is over.
Rebuilding Britain’s competitiveness should be the key focus of this Bill—and, of course, competitiveness requires a regime that ensures fiscal discipline in the future as the bedrock on which a strong economy can be built. It also means addressing the long-standing challenges that Britain faces in productivity, infrastructure and skills. It means modernising Britain’s public services and its welfare system, but it also means ensuring a competitive tax system. That is not just about the quantity of tax, important as that is. Business understands that the disastrous fiscal position that the country faces means that there is no immediate prospect of moderating the overall tax burden, but powerful, revenue-neutral signals can still be sent, even at a time of intense fiscal pressure. The nature of the tax code, the certainty of its impact, the manner of its making and the clarity of its future direction all contribute to tax competitiveness.
In a global marketplace, Britain will never be able to compete on tax burden with emerging economies with a limited social infrastructure, but we can and must compensate for our higher taxes by offering a more stable and predictable regime with greater transparency and more certainty—in short, the benefits a business might expect from locating in a higher-tax, mature jurisdiction. What we cannot do—it is simply not an option—is expect to be able to levy developed-country tax levels with the uncertainty, arbitrariness and unpredictability more usually associated with the tax regimes in developing economies.
Ten years ago, the Prime Minister set out his three principles for the UK’s tax system: simplicity, fairness and competitiveness—a long-term, strategic approach to business taxation. However, what we have had in the last few Budgets is the very opposite: a shambles of initiatives, often half-baked, often unworkable and often reversed during the legislative process or thereafter, some of them—the 2007 pre-Budget report springs to mind—literally put together on the back of a fag packet in response to immediate political pressures. We have seen the abolition of the 10p tax rate, the fiasco of the non-dom tax charge and the disaster of the capital gains tax taper relief abolition—and the pattern continues.
If we cannot reduce the tax burden on business, we have to redouble our efforts to reduce the compliance burden to maintain Britain’s global competitiveness. Sadly, the Bill is a missed opportunity, at a crucial moment in our economic history, to send those powerful positive signals. It will further erode Britain’s standing as a stable, predictable and business-friendly jurisdiction in which to operate.
I now turn to the second theme: pensions and savings. The economy that will rise from the ashes of this recession will differ in shape and structure from the pre-August 2007 economy. It will be built on equity, not debt. It will depend on our savings ratio, not our borrowing capacity. The Prime Minister appeared to understand that important shift. As recently as last month, he was hinting in radio interviews that he would do something for savers in the Budget. What we got was a limited, complex change to the individual savings account regime that the industry has condemned as burdensome and confusing, and some very ambiguous signals on pensions that will further undermine long-term saving; I will return to those in a moment, when I address some specific provisions of the Bill.
There was nothing in the Budget to match the Leader of the Opposition’s bold proposal for this year’s Budget. He proposed the abolition of income tax on savings income for basic-rate taxpayers, and an immediate increase in the pensioner tax-free allowance of £2,000 a year—all funded by advancing to the current year the introduction of the efficiency savings that, in the pre-Budget report, the Chief Secretary announced that she had identified, although apparently she could not bring herself to deliver them until after a general election. Let me be clear: it is not a fiscal tightening to take taxpayers’ money back out of the pocket of Government, and redistribute it to hard-pressed taxpayers with a high propensity to spend—people, in particular pensioners, whose savings income has been very much squeezed, in some cases leaving them almost at the point of destitution. On that second count, the Bill fails miserably to rise to the challenge of shaping and building the new economy based on savings and equity, not mountains of excessive debt and easy credit.
Thirdly, the Finance Bill advances still further the Government’s agenda of enhanced powers and increased discretion for Her Majesty’s Revenue and Customs. With additional powers should come additional responsibilities, and if Britain’s business tax regime is to remain competitive and internationally attractive, the extra powers have to come with proper safeguards, and have to be matched by obligations on HMRC. The concept of a taxpayers’ charter, setting out the rights and obligations of taxpayers and the Revenue, appears to be dead. In clause 91, it becomes an HMRC charter—nothing much more than a mission statement prepared and delivered by HMRC, setting out its aspirations. That is a far cry from the statement of rights and responsibilities for both taxpayers and Revenue authorities to which many thought that the Government were committed.
Let me make it clear to the Chief Secretary that we will support the creation of powers that HMRC genuinely needs to prevent unlawful tax evasion and to counter complex tax avoidance, but the burden on ordinary, law-abiding taxpayers has increased exponentially over the past decade, as Britain’s tax code has doubled in length to overtake India’s as the longest in the world. We need a focus on the simplification that the Prime Minister promised, and pressure on the Revenue to deal fairly with taxpayers. For example, we could match the new restrictions on time for reclaiming overpaid tax with an obligation on HMRC to make prompt repayments.
I would like to address a number of clauses in the Bill, making specific observations and putting questions to the Financial Secretary to the Treasury. Clauses 4 and 6, to which the Chief Secretary has referred, introduce the withdrawal of personal allowances on incomes above £100,000, and the multiple additional tax rates that will be required to give effect to the 50p tax proposal, which is to be introduced next year. We on the Conservative Benches—and, in fact, some on the Labour Benches—know the Prime Minister’s motive in seeking to create another of his beloved dividing lines. It is a political gesture; he is throwing some red meat to the heartland vote as he abandons any pretence of reaching out to aspirational Britain ahead of the next general election. The right hon. Member for North Tyneside (Mr. Byers) was correct to say that the measure
“has more to do with political positioning and tactical manoeuvring than a principled, strategic approach to taxation and the raising of revenue.”—[Official Report, 27 April 2009; Vol. 491, c. 615.]
My hon. Friend raises an important point. The view of some independent experts is that the new top rate of tax may raise significantly less than the Chancellor predicted, having used the static model that is used to produce the Red Book’s projections. There was no taking account of behavioural impacts; it was assumed that the very high-rate taxpayers, who are probably very mobile in many cases, would simply leave their affairs as they were, and would not consider relocating away from the United Kingdom, so I share some of my hon. Friend’s concerns.
The Government must be aware that there is a price to pay for playing such political games—a yet more complex system of taxation. We will now have 16 different personal tax rates in the UK, including the rates levied on trusts and dividend income, and a top marginal tax rate of more than 60 per cent. Specifically, may I ask the Financial Secretary to tell the House this evening what the Government’s response is to the concerns raised about the trust tax rate? In aligning the trust tax rate with the new, higher 50p rate, HMRC made the assumption that all beneficiaries of trusts are people who are likely to be subject to the top rate of income tax. That is simply not the case. Although it may have been a broadly reasonable assumption when the top rate of tax was 40 per cent., it is an unreasonable assumption when the top rate of tax affects only those people with an income of more than £150,000.
There will be many beneficiaries of trusts with incomes far below the £150,000 threshold whose income will now be subject to tax at the 50 per cent. rate. That undermines still further the legitimate use of trusts, and should be carefully considered. May I suggest to the Financial Secretary that, as was the case with the initial stab at changing the non-doms regime, announced in the 2007 pre-Budget report, Ministers may have been the victim of long-standing HMRC agendas that are hostile to trusts per se?
My hon. Friend is making an extremely powerful point. Does he acknowledge that the types of people whose assets are held in trust and who might be caught would include victims of injuries who have been the beneficiaries of compensation arrangements? Many of them may be miners, and may suffer from appalling disabilities. Their assets are held in trust to protect their financial position. Most of them would not be higher-rate taxpayers.
My hon. Friend makes an important point. I am scratching to the bottom of my memory; I seem to recall that we addressed the issue of trusts for disabled people in a previous Finance Bill, but I am sure that the Financial Secretary will want to clear up the issue when he addresses the broader point in his winding-up speech.
I wonder whether the hon. Gentleman could clarify a matter for me. I understand that he decries the complications that the proposals will introduce. He makes the Laffer-curve argument that the 50 per cent. tax rate may be counter-productive in terms of tax revenues. I have to say to him that I support it for reasons of social equality, and because of what it says about our society. May I ask him to answer a question on behalf of his party? If he is concerned that the proposals will lead to a drop in tax revenues, and will over-complicate the tax system, is his party committed to dropping the 50 per cent. tax if it gets into government? If not, why not?
As the hon. Gentleman well knows, we are not making any commitment to repeal any of the tax increases proposed by the Government, because of the extraordinary fiscal circumstances in which we find ourselves, with which any incoming Government or, indeed, any re-elected Government would inherit and would have to deal. Clearly, it would be absurd to say that any Government of the day would not look at the yield produced from a tax measure or a series of tax measures.
My hon. Friend the Member for Braintree (Mr. Newmark), quoting from the Institute for Fiscal Studies, suggested that the top rate of tax might produce a sum approximating to zero. In fairness, that comment was made before the suggestion that changes would be made to the pension tax relief that was available. It is probably fair to say that the yield will be less eroded as a consequence of the closing of that obvious loophole, which will be readily available to all those on high incomes who are subject to the PAYE system.
Clause 7 sets the main rate of corporation tax at 28 per cent. and clause 8 holds the smaller companies rate at 21 per cent., postponing the Government’s planned increase to 22 per cent. We on the Conservative Benches believe that British business needs a shot in the arm to stimulate investment in the recovery—a psychological as much as a fiscal boost—so we will put forward our revenue-neutral package of proposals to reduce the main rate to 25 per cent. and the smaller companies rate to 20 per cent., paid for by reducing complex allowances and reliefs.
In 1997 Britain had the fourth lowest rate of corporation tax in the European Union. Our rate has gone down since then, but we have been asleep on the job while all around us are busily sharpening their competitiveness, and we now have the 19th lowest rate in the EU. Part of the plan for Britain’s economic recovery must be restoring that tax competitiveness and sending a clear signal that the UK is determined to remain at the front of the pack of competing business locations, not bringing up the rear. That message should have been at the heart of the Bill, yet it is spectacularly missing.
I turn to clause 9, which extends the failed VAT reduction—the fiscal stimulus which, despite what the Chief Secretary said, has stimulated no one—for a further month, to 1 January 2010. The right hon. Lady quoted Tesco stating that the VAT reduction had been beneficial, especially to small businesses. My hon. Friends will know how much small businesses appreciate the concern that Tesco normally lavishes on their welfare.
My hon. Friend the Member for Bournemouth, East (Mr. Ellwood) tried in vain, as did other Members, to get this question across to the Chief Secretary. It has nothing whatsoever to do with fiscal stimulus; it has to do with the practicalities of changes in the tax regime. We genuinely cannot understand why the Government have not listened to the universal view of retailers that, regardless of the merits or otherwise of the VAT reduction, changing it back at midnight on 31 December, in the middle of a public holiday and in the middle of the busiest sales period of the year, would be a disastrous mistake.
The change could be made on 1 December or 31 January. Of course there will be fiscal implications arising from either of those dates, but have the Government not taken on board the simple practical point that retailers cannot manage the change in the middle of a public holiday, in the middle of the busiest sales period of the year?