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?

Every hon. Member, including Ministers, will be truthful. It is up to Ministers how they answer 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.

I managed to give the hon. Member for Hemel Hempstead (Mike Penning) a debate for 90 minutes, so we have been doing well—but don’t push your luck.

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?

There is nothing to stop the hon. Gentleman from trying for an Adjournment debate on this matter.

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.

Ordered,

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).

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.

rose—

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.

rose—

Of course people will have different views about the right date on which to change the rate. We have specified a date to give businesses certainty, so that they can plan. The most important thing that businesses need—[Interruption.]

Order. Hon. Members must let the Chief Secretary speak. That is the nice, polite way of doing things, is it not?

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.

My hon. Friend is right. The VAT cut has put substantial additional investment into the economy at a time when it needs that extra help, and our approach has been supported by countries all over the world.

rose—

I will give way to the hon. Gentleman, but then I must move on.

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.

rose—

I will give way to the hon. Gentleman if he will explain why he wants to take billions of pounds out of the economy at a time when that money is making a real difference to consumers and businesses across the country.

The right hon. Lady claimed that her VAT cut was supported throughout the world. Can she give at least one example? Can she name any other country that has copied it?

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.

Does my right hon. Friend see a contradiction in the fact that Conservative Front Benchers oppose the reduction in VAT yet Conservative Back Benchers are pleading for it to be extended?

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.

Does my right hon. Friend think that a further inheritance tax cut for multi-millionaires would be a useful financial stimulus in this time of recession?

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 right hon. Friend has talked about people on high incomes. Will she reconfirm the Government’s commitment to halving child poverty by 2010-11, and say how they will achieve that?

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.

rose—

I shall give way to the hon. Gentleman if he will tell me whether he is prepared to commit to a target of halving child poverty by 2010 and of ending it altogether by 2020—let him tell us whether he supports that target.

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.

rose—

I will give way to the hon. Gentleman if he can tell me where on earth he would get that money from.

I was inviting the Chief Secretary to give way so that I did not have to raise a point of order. I just wish to place on the record the fact that, as she very well knows, we have not made a commitment to reversing the new top rate.

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.

Is the shadow Chief Secretary saying that if a Conservative Government were elected next year, they would immediately abolish that?

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.