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Volume 518: debated on Tuesday 16 November 2010

The Chancellor of the Exchequer was asked—

Office of Tax Simplification

May I add my congratulations to the couple and say that we wish them every happiness? I am not sure that they will be particularly interested in this answer, but I hope that the House will be.

The Office of Tax Simplification was created by the coalition Government in July to reduce the complexity of a tax code that has doubled in size over the past decade. Last week, the office produced a comprehensive list of the 1,042 reliefs that now exist in the tax system. By the time of next year’s Budget, we will have received its advice on which reliefs can be simplified or abolished to be consistent with the Government’s wider objectives.

I congratulate my right hon. Friend on establishing the Office of Tax Simplification. He will be aware that the tax system in this country is labyrinthine in its complexity, and small businesses in my constituency of Northampton North have been adversely affected by it. Can my right hon. Friend assure me that the new Office of Tax Simplification will sort out this complexity sooner rather than later?

I can give my hon. Friend that assurance. A few months ago, he and I visited some small businesses in his constituency, many of which were suffering under the burden of a tax code that has grown from 4,900-odd pages in 1997 to 11,500 pages today. The Office of Tax Simplification is specifically looking at the taxation of small businesses as well as at the issue of tax reliefs. The small business report will be coming out later next year, but we will get an interim report in time for the Budget.

I add the congratulations of this side of the House to Prince William and Catherine Middleton on their engagement. If they need a photographer, I understand that there is one available now. There has been a nice juxtaposition of announcements this morning. Does the Chancellor think that he is aiding tax simplification by raising VAT to a nice round 20%, and does he agree with his Cabinet colleague, the Business Secretary, who once described an increase in VAT as

“a tax on the poor to absolve the sins of the rich.” ?

I have to say to the shadow Chancellor that his position on VAT is completely incoherent. It is well known that my predecessor, the right hon. Member for Edinburgh South West (Mr Darling), was planning a VAT increase, had pressed the Prime Minister at the time for a VAT increase, and—he is in the Chamber so perhaps he can confirm this—when asked about it on “The Andrew Marr Show” after the election, said that of course he would have gone ahead with one.

That was not the question. The fact that one looks at every available tax before reaching a conclusion is nothing new. The conclusion we reached is that VAT should not be increased and that national insurance should be. The Liberal Democrats have been very fair in the way that they have betrayed the electorate. They have broken promises across the age divide—children, students and pensioners—so there is no age discrimination there. The Conservatives specifically said that they would not increase VAT. During the election campaign, we said that if they did not increase national insurance, they would increase VAT. The Prime Minister denied that and said that they had no plans to increase VAT. He said that VAT was

“very regressive, it hits the poorest the hardest”.

I can promise Members that it does. We are now in the unique situation in which we face a tax rise that our Prime Minister has promised will affect “the poorest the hardest”. At the time, the Conservatives said that an increase in national insurance would be “a tax on jobs”. The Chartered Institute of Personnel and Development said that it would lead to 75,000 jobs being lost while an increase in VAT would cost 250,000 jobs.

This is what the former Chancellor said on “The Andrew Marr Show”. Andrew Marr said:

“We now read from Peter Mandelson’s book”—

remember, he was in the Cabinet with the shadow Chancellor—

“that you were quite keen on the idea of VAT going up.”

Alistair Darling replied, “Well yeah, obviously”.

We have taken the decisions necessary to restore some fiscal credibility to this country. We have a leaked memo from the shadow Chancellor’s office. It states:

“Fiscal discipline is if anything more essential in opposition than it is in government.”

That is from the shadow Chancellor’s office, but the truth is that he cannot tell us where a penny of his £44 billion spending cuts would come from. He had two tax policies until the weekend—on graduates and 50p—and announced that he did not agree with them. Frankly, until he gets his act together and comes forward with a credible economic policy, he will not be heard.

Order. From now on, first of all, exchanges must be shorter. Secondly, let it be clear beyond doubt that Ministers answer for the policies of the Government, not for those of the Opposition. That is the end of the matter.

Pensioners (Fiscal Assistance)

2. What fiscal measures he has introduced to provide assistance for pensioners since his appointment. (23964)

7. What fiscal measures he has introduced to provide assistance for pensioners since his appointment. (23970)

Even in these constrained times, the coalition Government have been able to find additional assistance for pensioners. We have re-linked the basic state pension to earnings and provided a triple guarantee that the basic state pension will be raised by the higher of earnings, prices or 2.5% from next April. We have also protected other key pensioner benefits and made the previous Government’s temporary pre-election increase in cold weather payments permanent, because this Government treat pensioners with the dignity and respect that they deserve.

I am grateful to the Chancellor for that reply. Many pensioners and those approaching pension age in my constituency of Selby and Ainsty will welcome his words, but will he tell me what will be the impact in future years of the link to earnings in respect of the basic state pension?

First, next year, the pension will be linked to the retail prices index number for September—4.6%. That will be a welcome support for pensioners from April. However, I should make the broader point that of course, re-linking pensions and guaranteeing through our commitment that they will go up either in line with earnings or prices, or by 2.5%, is a really substantial boost for pensioners. That reflects the fact that many pensioners have worked hard and saved hard all their lives. I am glad that that was one of the first policy announcements of this coalition Government.

What fiscal action will the Chancellor take to assist voluntary sector organisations, which do so much to help our pensioners?

The spending review set out a £470 million package of support for the voluntary sector, including an endowment fund and a transition fund. In addition, the big society bank, which will be funded by dormant bank accounts, will provide a new source of finance for the sector. The Government completely understand the incredible role that such organisations play in supporting elderly people in our community, and we want to help them to do so.

Many pensioners in my constituency have made representations to me because they are fed up with having to buy annuities at 75. What plans does the Chancellor have to change the flexibility of that policy?

We will remove the requirement to purchase an annuity by the age of 75. Draft legislation will be published in December, and we want the new rules in place by 2011, although we have also introduced transitional arrangements to help those who have reached the age of 75 since I made the announcement in the Budget. We think that people who have been responsible enough to save through their working lives are responsible enough to handle their savings in retirement.

Will the Chancellor commit to working closely with the Minister of State, Department for Work and Pensions, the hon. Member for Thornbury and Yate (Steve Webb) to introduce the universal, flat-rate, minimum pension for all citizens as quickly as possible?

Yes, absolutely. The Treasury is working with the Department for Work and Pensions on potential pension reform that could simplify pensions and provide a boost to pensioners for many years to come.

Pensioners, including many of those on low incomes, spend a disproportionate amount of their income on fuel. The Chancellor made the point about the winter fuel allowance, which was very welcome, but will he make it clear to the gas and electricity suppliers that, when they raise fuel costs above anything justified by wholesale prices, as they always do, the Government will take action, hopefully by threatening them with fiscal measures, including taxing them?

I agree with part of what the hon. Gentleman said. It is important that the utility companies—the gas companies—are as quick to pass on to their customers the cuts in the wholesale price of gas as they seem to be in passing on increases. We are looking at the whole electricity market—because, of course, many pensioners receive their heating through electricity—and considering what we can do to better insulate people from price fluctuations that can cause havoc to family budgets.

Child Trust Funds

3. How many child trust funds have been set up in respect of looked-after children since such funds were introduced. (23965)

Local authorities report to Her Majesty’s Revenue and Customs all children coming into their care, and if a child does not already have a child trust fund, one is opened for them. Between April 2005 and April 2009, HMRC opened child trust fund accounts for 16,676 children.

Does the Minister agree that improving the life chances of all looked-after children should be an absolute priority for the Government, and will she consider supporting the amendments tabled to the Savings Accounts and Health in Pregnancy Grant Bill that address the issue of child trust funds for looked-after children?

As the hon. Gentleman is aware, we are taking legislation through the House to get rid of the child trust funds. We think it is vital to support looked-after children, but the question is how best to do that while also tackling our fiscal deficit. We have come to the conclusion that what looked-after children need is support today, and that is what we will provide. Over the spending review period, £7 billion will go to supporting the most disadvantaged children in our country, including looked-after children. He will be aware that in the Department for Education, Eileen Munro is leading an inquiry into how social care can work better, including the support of looked-after children, and finally he will be aware that my hon. Friend the Financial Secretary will be considering proposals to bring forward a junior individual savings account, from which we will specifically ensure that looked-after children can benefit.

Does the Minister agree that it is appallingly disingenuous of Labour Members to posture as the friends of child savings, having left every man, woman and child in this country with debts of more than £22,000 each?

Order. The Minister, who is a dexterous Minister, will relate her answer to the policy of the Government, not that of the Opposition.

I think it is a shame. The best thing we can do for all our children, including looked-after children, is to build a stronger country in which they can grow up and enter the workplace. I am afraid that it simply is not good enough to duck the serious questions of the day, which include sorting out not only our economy, but our broken welfare system, which does those looked-after children no service either.

Will the Minister take time to remind the House of the Government’s manifesto commitment in the May general election to retain the child trust fund for the poorest third of children in society? Does she accept that looked-after children predominantly will fall into that poorest third? Will she therefore consider the amendments to the Savings Accounts and Health in Pregnancy Grant Bill so that she can meet her manifesto commitments, or will it be a case, again, of hitting the poorest hardest?

I do not accept that we did not follow our manifesto commitment. The House had another difficult debate on Second Reading of the Bill, and yet again the Labour party seemed to want simply to ignore the challenges that our country faces. In doing so, it does the public a disservice.

Tax Evasion and Avoidance

5. What the evidential basis is for his Department’s estimate of the additional tax revenue to accrue by 2014-15 from expenditure on measures to address tax evasion and avoidance, and fraud and debt. (23967)

Her Majesty’s Revenue and Customs routinely measures and monitors various performance matrix, including yield-to-cost ratios and a number of statistical models. These were used as part of the spending review process to estimate the effect of investing resource to support its compliance strategy. On the basis of this analysis, HMRC estimates that the additional expenditure of £900 million over the spending review period will result in an extra £7 billion of yield per year by 2014-15.

I thank the Minister for his answer. I guess that Members from both sides of the House would welcome the £900 million sprat that is being used to catch a £7 billion mackerel. However, I understand that the £42 billion gap caused by avoidance, evasion and fraud still exists. Are the Government doing enough, and do we need to do more?

The hon. Gentleman is absolutely right to highlight that issue. We think that the number is very high and that it is possible to find savings in HMRC’s budget. However, there have been specific proposals for where HMRC has identified that it could recover large levels of yield, and this Government have been happy to provide the funding to do that.

I am sure that the Government will be aware of the growing public outrage at the fact that a company such as Vodafone seems to have been able more or less to decide the size of its own tax bill, and, in doing so, is rumoured to have avoided a sum as high as £6 billion. Do the Government agree that we need far more transparency and accountability when it comes to such backroom deals with large companies, or are we now entering a world where only the little people pay their taxes?

This Government are determined to crack down on tax evasion and tax avoidance, but the Vodafone deal was a matter for HMRC, and it is right that the Government are not involved in such negotiations. I hope that the hon. Lady will not be aligning herself with those involved in campaigns to close down Vodafone shops. The fact is that companies should pay the correct amount of tax, but she should not believe everything she reads.

Tax avoidance and tax evasion would be less prevalent if we had a simpler and fairer tax system. I wonder whether my hon. Friend would consider following the policy of the noble Lord Lawson, which was to abolish complicated tax breaks in order to finance lower marginal rates.

My hon. Friend makes an excellent point. As a Government, we are cutting the rate of corporation tax, from 28% to 24%, which is the lowest rate that we have ever had in this country.

Credit Rating Agencies

The coalition Government support greater regulation of credit rating agencies. The credit rating agency regulation came into force in the EU, including in the UK, on 7 December 2009. The UK authorities continue to be active in both the EU and G20 processes, including in negotiations on amending the credit rating agency regulation and in examining ways to reduce our reliance on credit ratings for regulatory and official purposes.

These obviously follow on from the proposals of Jacques de Larosière. One problem that has been identified with the rating agencies is the conflict of interest issue. I think that we should move to a “buyer pays” model. The other issue is a lack of competition in the credit ratings market. Michel Barnier, the EU Commissioner, has floated the idea of having an EU credit rating agency, which I think is a thoroughly good idea. Does the Minister agree?

Of course there are areas where more work needs to be done, and the hon. Gentleman is right that Michel Barnier has made further proposals, in a consultation paper that he published earlier this year. They included looking at the business models for credit rating agencies. However, I question whether taxpayers in Europe would feel it right that their money should be going to fund credit rating agencies.

Is it not a cause for cautious optimism that agencies such as Fitch, Moody’s and Standard & Poor’s have now given the UK such an excellent credit rating?

My hon. Friend is absolutely right, and it just goes to show that credit rating agencies do not get it wrong all the time. In May, Standard & Poor’s put the UK’s credit rating on a “negative outlook”, as a consequence of the previous Government’s policies. However, in October it said that

“the coalition parties have shown a high degree of cohesion in putting the U.K.’s public finances onto what we view to be a more sustainable footing.”

We welcome those comments.

Comprehensive Spending Review

9. What recent assessment he has made of the effectiveness of the outcome of the comprehensive spending review in reducing the budget deficit. (23972)

The Office for Budget Responsibility will update its forecast of the deficit on 29 November, taking into account the spending review. Other assessments have backed the Government’s plans, with the International Monetary Fund, for example, stating that our consolidation plan

“greatly reduces the risk of a costly loss of confidence in fiscal sustainability and will help rebalance the economy”.

That backs our view that the spending review was fair and supports growth.

One of the big winners from the comprehensive spending review was, of course, the European Union. The EU has not had its accounts signed off by auditors for 16 years running, so if the Government are looking for a popular way to reduce the deficit, may I suggest that they go to the EU and say that it will not get another penny-piece out of the UK until it has had its accounts signed off?

Of course, the European Court of Auditors report, which fails to qualify the accounts for the 16th year in succession, is disappointing, as my hon. Friend observes. We will continue to champion reform through engagement with European institutions and other member states. It is worth him bearing in mind that the Government’s most important priority for the forthcoming budget negotiations is to reduce and to keep under control the EU budget, not just next year, but in subsequent years, in recognition of the fact that many EU countries are facing tough financial circumstances, as we are.

The Chancellor’s reckless choice to cut deep and fast at home means that UK jobs and growth are now reliant on achieving booming exports on a scale not seen for more than 60 years. We know that Europe is our single largest export market. Will the Minister share with the House the latest evidence of the growth of demand in that market?

There is evidence of export growth in many sectors of the economy, and the Government have played a significant role in promoting exports, as the recent trade delegation to China showed. The hon. Lady has a poor record of predicting the economy. In April 2008, she was engaged in a debate that observed that there was an extreme bubble in the housing market. She described that as a “colourful and lurid fiction” that

“has no bearing on the macro-economic reality.”—[Official Report, 2 April 2008; Vol. 474, c. 825.]

I would rather take the forecast of the Office for Budget Responsibility than hers.

The CSR is virtually silent on privatisation’s contribution to reducing the deficit. Will the Chief Secretary confirm that those receipts, which normally score in the accounts as negative spending, as he knows, will, when they come, be additional to and not a substitute for the spending reductions already announced in the CSR?

The Chartered Institute of Personnel and Development has revised upwards its forecast of the number of jobs lost in the public sector. It also suggests that the VAT increase will raise unemployment in the private sector. Reputable forecasting organisations, including the CBI, suggest that there will be an increase in unemployment overall in the next year. Does the Chief Secretary now accept that unemployment will increase as a result of the CSR, and is that why the Government have bumped off the autumn forecast of the OBR to the end of this month?

I am content to rely on the forecast of the independent Office for Budget Responsibility, which forecasts a reduction of 490,000 over the next four years in the head count in the public sector, but a net increase of jobs in the private sector of 1.6 million, leading to additional jobs being created in the economy. Of course, the hon. Gentleman will look forward, as I do, to its forecast on 29 November.

Bank Lending (Businesses)

10. What recent steps he has taken to increase levels of bank lending to small and medium-sized businesses. (23973)

The Government have increased and extended the enterprise finance guarantee to support lending to small businesses. We have increased our share of the enterprise capital fund to enable extra investment in start up for small businesses, and we have encouraged the new business growth fund set up by the banks. But more needs to be done to ensure that the banks are lending to small and medium-sized businesses. It is a complex issue with no single answer, but it is crucial to our recovery, and my hon. Friend has my assurance that this is a key priority.

I thank the Chancellor for that answer. Lionverge, a Northampton company employing 80 people, had an overdraft with Barclays of £70,000, backed by security of £130,000. A new manager was recently appointed, and in August he wrote to the company doubling the security, and cutting the overdraft by £20,000 with further cuts of £10,000 a month to end the facility. The company had not defaulted, no warning was given, and no other options were offered. What can the Chancellor do to stop such unacceptable bank practices that undermine the Government’s growth strategy?

I recently met the leading chief executives of our largest banks, and they have come forward with proposals to improve the way they treat their customers, and to increase their lending to small businesses. We welcome the fund that they have set up. As I said, there is still more to do. The issue is complex, and one complexity has been the uncertainty of international regulation and how much capital and liquidity banks need. At the G20 that took place recently in South Korea, there was at last agreement on the new international rules, and a very lengthy transition period to them. I hope that British banks will take heed of that, and as a result, be able to increase their lending to small businesses.

Why is the Chancellor so afraid to make the banks play their full part in picking up the mess that they created? He has refused to do anything about the excessive bonuses, and we read in the paper that he is about to U-turn on the publication of remuneration. We also read that he is climbing down on the bank levy and, in his answer to the hon. Member for Northampton South (Mr Binley), he is now suggesting that it is too complex to make the banks lend to small businesses. The Government are not afraid to hit children and families with cutbacks, but if we are all in this together, why is the Chancellor letting the banks off the hook?

One does wonder where the hon. Gentleman has been for the past couple of years. We are picking up the pieces of the biggest banking crash of our lifetimes, caused by the poor regulation of the previous Government. Since coming to office, we have announced major changes in regulation, putting the Bank of England in charge—which we still do not know whether the Opposition support—and a permanent bank levy, which was opposed by every single Labour Member during the general election. We are determined to sort out the problems left to us by the previous Government.

The enterprise finance guarantee scheme was specifically designed to help small businesses to get bank finance. It has not worked, and many companies feel that it has not assisted them. What is my right hon. Friend doing to ensure that the scheme plays a full part in helping companies to get finance?

The first thing that I would say to my hon. Friend is that, of all the schemes that we inherited, this was the one that we thought had the most chance of improvement and was worth investing in. The other schemes had almost no take-up, but this one did. We were able to provide some additional money for it in the Budget, in the form of £200 million to support additional lending. We are also introducing changes to the way the schemes work, so that there will be a limit of 20 business days that all major lenders taking part in the enterprise finance guarantee scheme will have to comply with, so that people are not left on the hook waiting for an answer.

Personal Saving

11. What steps he has taken to encourage saving since the June 2010 Budget; and if he will make a statement. (23974)

The Government want to build a savings culture based on the principles of freedom, fairness and responsibility, and we are committed to creating conditions for higher saving. We have already announced a number of measures, including the annual financial health check and an end to the effective requirement to purchase an annuity with tax relief pension savings at the age of 75. We will also increase the amount that can be paid into ISAs each year in line with inflation from April 2011.

Recent research from Which? has highlighted the fact that savers are missing out on £12 billion a year by keeping their money in accounts that pay extremely low rates of interest. Would my hon. Friend consider encouraging banks to print the interest rate on bank statements in the same way that credit card companies have to print the rate that they charge on their statements, in order to help savers to identify whether they are getting a good deal from their bank account?

My hon. Friend makes an important point. We need to ensure that savers have the information that they need to enable them to shop around and find the best possible deal. ISA providers have already agreed to disclose interest rates on their statements, and the Financial Services Authority is consulting on extending that duty to other savings accounts.

The Minister will be aware that the savings ratio is forecast to fall in every single year until 2015. Does this not make the decision to abolish the child trust fund—a savings plan with a 74% voluntary take-up rate—all the more short-sighted?

The problem with the child trust fund is that there was no evidence to demonstrate that it increased savings across the economy. We are faced with a difficult decision: we need to find savings to tackle the budget deficit that we inherited, and we believe that the best thing to do is to give help to families now rather than locking that money away until the children are 18.

Private Sector Growth Trends

12. What assessment he has made of the effect on the economy of recent trends in growth in the private sector. (23975)

This Government have been determined to show that Britain is back open for business, and gross domestic product growth has been strong over the past two quarters. That growth has been driven largely by the private sector. The Office for Budget Responsibility, which this Government established, is responsible for producing independent economic and fiscal forecasts, and the Chancellor has asked the OBR to publish a new forecast on 29 November. That forecast will incorporate the OBR’s assessment of the effect on the economy of recent trends of growth in the private sector.

Does my hon. Friend agree that the hundreds and thousands of new jobs that have been created by the private sector in recent months make the outlook pretty positive? What encouragement would she give to budding young entrepreneurs in Yorkshire in existing businesses who are thinking of taking on a new employee?

My hon. Friend is right. In quarter two alone, private sector employment grew by 308,000. I believe that many people in the country want not just to take jobs, but to create them. I would encourage them to get on with it, and to pursue their dreams and aspirations. They will have a Government behind them who are giving them a national insurance holiday for the jobs that they will create, and who are determined to support them by keeping corporation tax rates low when they are successful.

Given that Government plans to cut half a million public sector jobs are expected to lead to the cutting of a further 1 million private sector jobs, does the Minister accept that it would be more effective to reduce the deficit in three ways—through progressive taxation, through economic growth and through savings—than simply to throw millions of people on to the dole and whole communities into poverty?

The hon. Gentleman seems to have managed to get from a reduction of half a million in the public sector head count to millions on the dole. The number that he cited is in the independent report from the Office for Budget Responsibility, which was published after our emergency Budget. Although the report showed that there would be a reduction in the public sector head count of about 490,000, it also showed—and I assume that the hon. Gentleman accepts all of it—that there would be an increase in employment of 1.6 million, and that, year on year, there would be reductions in unemployment and increases in employment. If he accepts the figure of half a million, does he also accept those figures?

I congratulate the Government on extending the enterprise finance guarantee scheme, but I note that it is closed to companies that export because of our over-zealous application of European Union state aid rules. Can my hon. Friend update the House on any plans that the Government have to overcome that obstacle to the achievement of our exporters’ growth potential?

We are examining ways in which we can help our UK companies to export more easily. The Prime Minister and the Chancellor have already led delegations to two key markets, China and India, where we hope that we can export more. That is critical if we are to put our economy back on its feet and it stands alongside the measures that we are taking to support companies creating jobs here, and the measures that we are taking to encourage investment in our country.

HMRC Tax Inquiry Services

13. What assessment has been made of the likely effects on Her Majesty’s Revenue and Customs’ tax inquiry services for the public of the outcome of the comprehensive spending review. (23976)

Her Majesty’s Revenue and Customs is currently reviewing options for delivery of the tax inquiry services that it provides through its network of inquiry centres, contact centres and online services over the next spending review period. HMRC is committed to providing services that are cost-effective and also meet the needs of its customers.

We have already seen a reduction of 25,000 staff and 200 collection offices, which must result in a worse service to the public. We are also seeing cuts in the amount of money spent on dealing with tax avoidance and evasion. The Minister’s colleague mentioned an extra £900 million, but we have been told that that is not additional money, and that less money is actually being spent on dealing with tax collection. Is it not time that we prioritised not only giving a better service, but collecting more tax?

That money is new investment to tackle tax avoidance and evasion. It is specific, targeted funding. As for the service that is provided, it is right for HMRC’s service to adapt to the way in which customers change their behaviour. We have seen a 40% reduction in the number of people using inquiry centres over the last four years, and HMRC should of course adapt to that.

Recent press reports have suggested that there are many so-called zombie households in the United Kingdom, in which families have got themselves into so much debt that they rely on interest rates remaining low to stay afloat. Does my hon. Friend agree that our policies to keep interest rates low, and to enable the Bank of England and the Monetary Policy Committee to keep them low, are key as we go through a critical period in our recession?

A sentence from the Minister in reply will suffice, as the question is about tax inquiry services. We are grateful to him.

Let me put it this way: we would have a lot more inquiries if taxes were going up, which is the policy the Opposition advocate.

EU Budgetary Rebate

14. What assessment he has made of the effects on his Department’s ability to reduce the deficit of the reduction in the UK’s EU budgetary rebate; and if he will make a statement. (23977)

The latest forecast of the UK contribution to the EU budget shows that the UK abatement will decline from £5.6 billion in financial year 2008-09 to £2.8 billion in financial year 2010-11. The Office for Budget Responsibility will publish new projections of the UK contribution to the EU budget, including the abatement, in its autumn forecast.

Under the previous Labour Government our total net contribution to the EU was £19.8 billion; under the coalition Government it will be £41 billion. Will the British people not think it bizarre, bewildering and a betrayal that over half the money saved by cuts will go not to reduce the deficit, but to subsidise other western European countries?

My hon. Friend is right that alongside the domestic economic mess we inherited, we also inherited an EU budget deal that was completely out of touch with the situation faced by many European countries. The fall in our abatement is largely due to the give-away agreed by the previous Government in 2005, which will be fully phased in from 2011. It is expected to cost the UK about £2 billion per annum. That is £2 billion that was needlessly given away for absolutely nothing in return—yet another failing of the British people by the Labour party.

Child Benefit

15. What mechanism he plans to use to ensure that households which include one or more higher rate taxpayer cease to receive child benefit payments. (23978)

From January 2013 Her Majesty’s Revenue and Customs will withdraw child benefit from higher rate taxpayers using PAYE and self-assessment systems. The vast majority of claimants will continue to receive child benefit, and will not be affected by this change.

Earlier this year, the Prime Minister said he wanted this Government to be the most family-friendly Government we have ever had in this country. How does this proposal support a family where one partner stays at home to look after the children while the other partner earns over £45,000 a year?

It does families and everyone else in this country no good if we do not get to grips with the fiscal crisis. If the Opposition are saying households paying higher rate income tax should continue to receive child benefit while those who do not earn so much contribute towards that, it once again shows that they are not getting to grips with the scale of the crisis.

Does the Minister agree that the logic of the policy outlined by Opposition Members is that any child from Prince William and Catherine Middleton would benefit from child tax benefit, whereas the poorest of my constituents would not?

Members really should not refer to members of the royal family in questions. That is strongly to be deprecated, and it certainly should not happen again. I ask the Minister to give a very brief reply.

My hon. Friend is perhaps getting a little ahead of himself. I think all we should say is that should that happy eventuality occur, I am sure he or she will get by without child benefit.

Redundancy and Retraining Costs

16. What estimate he has made of the cost to the Exchequer of redundancy and retraining requirements arising from implementation of proposals contained in the comprehensive spending review. (23979)

The total cost of work force reforms will depend on the decisions of hundreds, if not thousands, of employers up and down the country. Detailed decisions regarding the number of redundancies and the associated costs that may be required have yet to be finalised in most cases, so it would not be appropriate for the Treasury to speculate on any aggregate numbers at this stage.

In the police service alone, major job losses are already being announced, such as in the west midlands, Greater Manchester and Lincolnshire, so not only will there be up-front redundancy costs, but there will be the loss of skills and experience. Does the Chief Secretary agree that the cost of redundancies could be as high as £8 billion?

I have to say that that sounds like rather an overestimate, but the hon. Lady is right to say that employers are spelling out their own plans for redundancies and for managing their work force in an appropriate way. I recognise that many staff will be very concerned about that, but I believe that it is right that they hear about specific plans from their own management, rather than draw conclusions from higher level aggregate numbers.

Government Deficits

17. What recent discussions he has had with his international counterparts on the co-ordination of efforts to reduce Government deficits. (23980)

The UK has been actively engaged in G20 discussions. The Prime Minister and the Chancellor attended the G20 summit on 11 and 12 November, which delivered the Seoul action plan and pledged to continue co-ordinated efforts to generate strong, sustainable and balanced growth. In this action plan, the advanced economies committed to

“formulate and implement clear, credible, ambitious and growth-friendly medium-term fiscal consolidation plans in line with the Toronto commitment, differentiated according”—

of course—

“to national circumstances.”

Bearing in mind reports of continuing threats to some of our EU partners, does the Minister agree that the International Monetary Fund’s recent growth forecasts underline the need for an ambitious and credible strategy for dealing with the budget deficit?

My hon. Friend is right about that. The IMF clearly supported the efforts that the coalition Government have been making both in the emergency Budget and the spending review to get to grips with the terrible fiscal deficit handed over by the previous Government. The OECD also welcomed the balance that we struck in the spending review between not only protecting growth, but tackling debt.

Can the Minister confirm that the international counterparts discussed the subject of the Republic of Ireland, its deficit and the possible EU bail-out for it? Will that cost the United Kingdom money?

At this stage, we cannot speculate about other countries’ finances. Obviously, the Irish are taking very difficult decisions and actions to try to get the situation under control. I do not think that we should pre-empt actions that Ireland or any other country takes and the impact that such actions may ultimately have on the UK taxpayer.

Topical Questions

The purpose of the Treasury is to ensure economic stability, restore sanity to the public finances, ensure employment growth, make sure our banking system is properly regulated and get this country back on its feet.

During the past five years, North Tyneside council has made year-on-year transformation savings without affecting front-line posts, but I fear that because of the comprehensive spending review, front-line jobs will now be lost. What message, other than fictitiously blaming the previous Labour Government for what has been a global recession, does the Chancellor have for North Tyneside?

First, the Government have given all councils, including North Tyneside, greater freedom about how to spend their resources by removing a lot of ring-fencing. Secondly, of course, as I said in the spending statement, this was a difficult local government settlement—I completely accept that. But even the Labour party was signed up to £44 billion of spending cuts. If Labour Members are telling us that those would not have included local government, that is not really credible. We have had to take difficult decisions and we should be supported for that.

T2. The Chancellor is heading to an ECOFIN meeting tomorrow and I hope he will continue to press our colleagues in the European Union for some restoration of fiscal sanity in their economic policies. The flag that will be fluttering so merrily over the proceedings will be the blue and yellow one—those are colours that we rather enjoy. Does he agree that unless we see some return to fiscal sanity and some abandonment of the policy of fiscal recklessness, perhaps the colour of the flag should be changed from blue and yellow to brown? (23989)

Of course we are urging fiscal restraint on the European Union. I should pay tribute to my colleague, the Economic Secretary, who has been out to Brussels twice in the past few days to argue vigorously for restraint in the European Union budget with considerable success. One of the problems we are dealing with is that the previous Government gave up half the rebate and that is one of the reasons why the budget is increasing.

T5. The unemployment rate in my constituency was 10.7% in September. After the announcement in the comprehensive spending review of the slashing of jobs, services and skills, what does the Chancellor think will be the unemployment rate in my constituency in 12 months’ time? (23993)

The whole point is that we have given these forecasts to an independent body, rather than just relying on the forecasts given by the Chancellor of the Exchequer at this Dispatch Box, so that people can believe in their independence and credibility. The Office for Budget Responsibility will produce its autumn forecast on 29 November. But of course the OBR figure that all Labour Members seem to use is the one for the public sector head count, but they seem to forget that this same body made a forecast of an increase in net employment, which sadly they never use.

What steps can the Chancellor take to ensure that the Financial Services Authority’s mortgage market review proposals do not have a disproportionate effect on home buyers and the housing market, particularly at a time when we are trying to encourage growth through the private sector?

My hon. Friend makes an important point and the FSA’s mortgage market review is seeking to learn some of the lessons from how the mortgage market was regulated before the financial crisis and some of the problems that that regulation created. What I think is important is that the FSA should consider very carefully the impact on home ownership and particularly on those people who are looking to move shortly.

T8. May I give those on the Treasury Front Bench the opportunity to answer the question on child benefit that they failed to answer earlier? How do they justify taking child benefit off a single-earning family on £45,000 and allowing a family that earns £80,000 to retain child benefit? An answer this time would be appreciated. (23997)

As the hon. Gentleman knows—and as the whole House knows—the justification for the measure that we took was to ensure that the cost of the spending review fell equally across the population so that those with the broadest shoulders would bear a greater share of the burden. In those circumstances, it is right that child benefit should be taken away from families with higher rate taxpayers. I would have thought that the Opposition would support that, not oppose it.

In the spending review, we took a number of spending decisions that will support social mobility. We chose to invest in early-years education for disadvantaged two-year-olds—a new investment—and to maintain the 15-hours entitlement for three and four-year-olds, something that was introduced under this Government. We chose to invest in a pupil premium that will give additional support to the most disadvantaged children. In tough financial times, that is the strongest investment in social mobility made by any Government in this country for many a long year.

The White Paper last week stated that HMRC will be taking on new responsibilities in collecting and processing real-time pay data for the calculation of universal credit. How much has been allocated for the IT to deliver that change?

The response to the consultation on real-time information—the next stage of it—will be published shortly. We will outline the details in that, but additional sums have been identified as part of the spending review process to pay for the real-time information project.

T6. More than 20% of my constituents in Cannock Chase are employed by manufacturing centred small businesses. Will the Chancellor assure them that the small business tax review will simplify and reduce taxes for small businesses rather than complicate and increase them? (23994)

Yes, I can give that assurance. I also note that the actions that the Government have taken have kept the small companies rate down, avoiding the rise in the rate that we inherited.

The comprehensive spending review contained a proposal to cut the mobility element of the disability living allowance for those in residential care. Why did the Government make that decision—because it was fair or to reduce the fiscal deficit?

In the spending review we took a number of difficult decisions, including decisions on welfare. We sought to identify the savings that we thought were most justified. As far as I understand it—although I am happy to be corrected—the DLA changes have been supported by the Opposition.

T7. Fiscal discipline is, if anything, more essential in opposition than in government. Will the Chancellor tell us whether he has received any support or advice from the Opposition on how to achieve that fiscal discipline? (23996)

I am told that they have plans to cut £44 billion from public expenditure, but they have not told me what those plans are.

What is the economic case for HMRC’s sacking professional tax collectors and hiring novice private sector debt collectors to collect liabilities of tax below £10,000?

The intention is to strengthen HMRC’s capability to collect taxes. If that involves making use of private sector expertise to collect additional debt, which is the intention, that is surely a good thing that should be welcomed by all parties.

Given that the Irish Government have said that they neither want nor need a bail-out, will the Chancellor support them at ECOFIN and put off those people in the EU who seem to want to make a crisis out of a problem?

There is an enormous amount of speculation about Ireland at the moment to which I do not propose to add. The Irish Government have said clearly that they have not sought assistance and that they are taking difficult steps to deal with their fiscal situation. They will make further announcements about their Budget situation in the next few weeks. I make the general observation that what is going on at the moment highlights the fact that concerns about sovereign debt issues have not disappeared and we should be grateful that, thanks to the actions of this Government, we have moved Britain out of the financial danger zone.

What does the Chancellor say to fixed-income pensioner households in my constituency and his who will be faced with the additional VAT burden in just over 50 days?

I would say to them what I would say to everyone in this country: that we inherited the largest fiscal—[Interruption.] Well, I do not know how many times Opposition Members have to hear this but it is the truth. They left us the largest Budget deficit in the G20 and the European Union at a time of heightened sovereign debt concern. They can either be part of the debate that the rest of world is taking part in on how to deal with the deficits or they can completely ignore that debate and become irrelevant.

Does the Chancellor agree that he should ignore the advice of the Opposition on all matters fiscal relating to the European Union, because it is still their policy to join the euro and because their MEPs voted to double our contribution this year?

As you will remind me, Mr Speaker, I cannot speak for the policy of the Opposition or say whether they have changed their official position which is to support joining the euro, but I make it clear to my hon. Friends and others that we certainly will not join the euro while this Chancellor and this Prime Minister are in place.

It was this Chancellor who agreed a 2.9% increase in contributions to the EU and to cede certain powers to Brussels—that is in the papers he signed—so has he not joined that glorious list of British politicians who go to Brussels, lose their wallets and their trousers and then come back and tell us what a great deal they have got?

I think that the hon. Gentleman is thinking of Tony Blair rather than of this Government. We voted against the increase in the European budget, but we were outvoted because it was a qualified majority vote. We are dealing with the fact that the previous Government gave up half the budget rebate, which is why British contributions are going up, and we are very clear that, although we want fiscal rectitude across Europe, we do not propose to hand over substantive new powers to the European Union.

There is much support around the country and in the House for the broad principles of the Robin Hood tax campaign. The coalition Government have made a good start with the permanent bank levy. Will the Chancellor confirm that he expects the Independent Commission on Banking to consider the taxation of bankers’ bonuses and bank profits so that the banks pay their fair share in this country?

The commission that we have set up is looking principally at the structure of the banking sector, which is another very important issue. We have said that we want the banks to make a contribution, which is why we introduced the permanent banking levy; we did not agree with the previous Government that that should not happen. We followed the best practice set out by the International Monetary Fund, which outlined two taxes that could be pursued—one was a bank levy and the other was a financial activities tax, which we also said that we would consider in the Budget. On the broader point of the Robin Hood tax, or the financial transactions tax, which is sometimes discussed at ECOFIN, I think that everyone accepts that it would have to be introduced internationally or else it would be almost impossible to collect any revenue.

Can the Chancellor or another Minister tell us what assessment has been made regarding potential job losses due to changes in the benefit system? Much concern has been expressed in my constituency, particularly yesterday in the local press, that up to 700 jobs might be lost in the HMRC office in Dundee as a result of such changes. What assurances can Ministers give me and my constituents that that will not be allowed to happen?

The welfare reforms that we are proposing are designed to support people off benefit and into work. That is the whole point of the reforms that the Secretary of State for Work and Pensions outlined last week. The reforms that will create a universal credit and some of the changes that we announced in the spending review are all there to help people off benefit and into work, and to help people get jobs, which is what the hon. Gentleman should support.

I did see that rather remarkable comment from the shadow Chancellor over the weekend. We are doing what we are doing because we have to—because of the size of the Budget deficit.

The Federation of Small Businesses North East and the insolvency trade body R3 have wound up one in 10 businesses that were unprepared for the 2.5% increase in VAT next year. Kingston university also recently showed that small businesses in the north-east intend to shed staff. Is not VAT the real jobs tax?

As I say, we are doing that because we need to deal with the Budget deficit. I thought it was the policy of the hon. Gentleman’s party that a greater share of the consolidation should be borne by tax rises; I thought that that was now the official policy. It is also clear that the previous Government were planning a VAT rise. Businesses have had plenty of notice of the increase that is coming in in January, and I am sure they will be able to cope in the same way as they coped with the VAT rise at the beginning of this January.

All of us are all too aware of the record deficit and debt that we inherited from the Opposition. Will my right hon. Friend agree to publish a regular scorecard showing how that deficit and the debt are reducing, so that taxpayers and the public sector can see the benefit of the Government’s policies?

We have created the independent Office for Budget Responsibility so that the fiscal forecasts for the United Kingdom are no longer produced by the Chancellor of the Exchequer and sometimes influenced by the political judgments of the Chancellor of the Exchequer, but instead are done independently.

On child benefit, can the Chief Secretary explain why he believes that families earning £45,000 have broader shoulders than those earning £80,000?

It should be obvious to the hon. Gentleman that higher rate taxpayers have greater means than those at the bottom of the income spectrum. It is a basic principle of fairness that underlies the spending review that we need to ensure that those with the broadest shoulders bear a greater share of the burden. As I said in response to the question earlier, asking higher rate taxpayers not to collect child benefit seems to be one of the decisions in the spending review that the Opposition should find it easiest to support.

As my right hon. Friend says, it is right that in reducing the deficit, those with the broadest shoulders should bear the greatest burden, but do the Government understand the genuine anger that the public feel when it seems as though wealthy individuals and large companies can get away without paying their tax bills? What reassurance can the Minister give my constituents that the richest in society will pay their fair share?

We have taken a number of decisions to make sure that the burden is fairly shared. We have introduced the bank levy, and we are taking child benefit away from higher rate taxpayers, although that is clearly opposed by Labour. We are also seeking to conclude a number of deals with countries that have a reputation for attracting tax avoidance and tax evasion, such as the deal that we are negotiating with Switzerland. That will ensure that there are further revenues coming into the Exchequer from those who can afford it.