Official Development Assistance
1. What assessment he has made of the effect of changes in gross national income on the level of expenditure on official development assistance. (84780)
This Government will honour the commitment that our country made to the poorest people in the world and increase aid spending to 0.7% of gross national income. To ensure that we do not exceed that target, we have adjusted the spending plans of the Department for International Development. Its budget will now increase from £7.8 billion this year to £10.6 billion by 2014-15.
Is the Chancellor still committed to ensuring that he places the achievement of 0.7% GNI for overseas aid as a specific commitment for 2013 and in the legislation that the Government have promised?
I am absolutely committed to that legislation, but more importantly, frankly, we should be delivering the commitment on the money for the aid budget. We are doing that in very difficult times. We are doing it, I hope, on a cross-party basis. We are, as I say, honouring our commitment to the poorest in the world. Even in these difficult times, Britain has not forgotten its obligations to the world’s poorest.
While I congratulate the Government on holding to this spending and maintaining this commitment, is the Chancellor aware that France, Germany and other European nations have not done so well in adhering to their commitments and are therefore pledged to, or desire, a financial transaction tax? Will he be trenchant in making sure that this does not happen, as it will damage our economy and our growth?
There are arguments for, and very much against, a financial transaction tax, but a real red herring is the idea that a financial transaction tax could be used to meet the aid commitments that countries have entered into alongside Britain but have not delivered on. The financial transaction tax which is proposed in Europe, and which we will not accept, has been spent about four times over on domestic programmes, on the EU budget, on climate change measures, and on aid. A far better thing for the countries of the European Union to do is to live up to the commitments they made on international development and deliver them out of their domestic budgets.
Unemployment
2. What assessment he has made of the implications for his policies of the Office for Budget Responsibility’s forecast for unemployment in 2012. (84781)
In line with the weaker outlook for our GDP growth, the OBR has revised up the projected level of unemployment over the year term. In the autumn statement, we committed to important new steps to provide private sector job creation and reduce unemployment, such as nearly £1 million for the youth contract, an initial £1 billion for the regional growth fund, and a £21 billion package of credit easing to support small firms, which are an important source of employment in this difficult time.
With unemployment set to soar to 8.7% next year, according to the OBR, can the Chief Secretary explain how meeting the rising cost of out-of-work benefits helps to get public borrowing down?
The hon. Lady should also note that unemployment rose by nearly half a million during her party’s time in office. The fact remains that we have to deal with the enormous problem that was left to this country in our public finances by the previous Government. The one thing that would hurt the unemployed and the poorest in this country more than anything would be stepping away from our plan and letting interest rates go through the roof, causing mortgage costs to rise, business costs to rise, and costs to the country to rise. That would be the most significant cause of unemployment that we could have.
Will my right hon. Friend confirm that the independent OBR forecasts that there will be 1 million more people in employment by 2016, even including the reduction in public sector employment? Does he agree that the route to higher employment lies not through yet more borrowing but through getting control of our deficit and opening up opportunities and improving skills, not least through the apprenticeships that the Government are introducing?
I wholeheartedly agree with my hon. Friend’s assessment. He is right that the OBR forecasts the net creation of 1 million more jobs and the creation of 1.7 million jobs in the private sector over the forecast period. It forecasts that unemployment will fall to 6.2% by 2016, reflecting the fact that the commitments we have made will deliver for the British economy.
The Government have shown that they are very relaxed about unemployment more than doubling in constituencies such as mine and about their economic policies hurting the poorest and the most vulnerable the most. When will they turn their attention to companies such as Vodafone, which is allegedly failing to pay millions of pounds of tax? That is an affront to the taxpayers who do pay their share.
I am not in any way relaxed about unemployment increasing in the hon. Lady’s constituency or the constituency of any hon. Member. That is why in the autumn statement we set out a youth contract designed to help half a million young unemployed people to get into work and stay in work. I hope that she welcomes such measures.
Presumably, the forecasts from the OBR on unemployment are very sensitive to interest rates. Given that interest yields in Spain have hit 7% and its unemployment rate is 22%, is it not the case that unemployment in Kettering and across the country would be far higher if the Government relaxed their deficit reduction plan?
My hon. Friend is absolutely right in that assessment. A 1% increase in our bond yields would cost the country an extra £21 billion in debt interest, and a 1% increase in market rates would cost mortgage payers £10 billion and businesses £7 billion. That is not the right solution for this country and it would certainly lead to higher unemployment. That is what the Labour party are offering.
In 2010, long-term youth unemployment fell by 36%. Will the Chief Secretary tell us by how much long-term youth unemployment has fallen since January 2011?
The hon. Lady will know that youth unemployment rose by more than 40% during Labour’s time in office. It is precisely because of the rise in youth unemployment, which I do not regard as tolerable any more than she does, that we have set out the youth contract. Perhaps she recognises that her party’s strategy is not working. Perhaps she is the anonymous shadow Cabinet member who was recently quoted as saying:
“The simple fact is Ed Balls’ economic strategy is hurting but it isn’t working.”
I failed to hear an answer in that response. The shocking truth that the Chief Secretary either will not own up to or is not even aware of is that instead of declining, long-term youth unemployment is up by a staggering 83% since January this year. This tragedy is quickly becoming a national emergency. More and more young people leaving school, college or university are missing the chance to fulfil their potential and are stuck on benefits, their talents wasted and their hopes fading. It is no wonder that the Chancellor’s borrowing plans are out of control, with an extra £158 billion of Government borrowing. When will the Government change course, abandon their failed plan and support young people instead of throwing them on the scrap heap?
I did not hear a welcome from the hon. Lady for our youth contract, which will help half a million young unemployed people with real jobs, support through work experience and additional apprenticeships. If there is any tragedy in this House, it is the economic strategy of the hon. Lady and her party. I notice that she denies the deficit but does not deny the quote that I attributed to her. Perhaps I can recommend some holiday reading for her. “In the black Labour”, which was written by three of her party’s most successful activists, states:
“It is precisely the vagueness of Labour’s position over…the deficit that confirms the voters’ worst suspicions about the Party’s lack of commitment to”—
Order. We are grateful to the Chief Secretary, but we will move on to questions and, hopefully, answers that relate to the policies of the Government. [Interruption.] I do not need any gesticulation from anyone. That is the purpose of the exercise, and that is what is going to happen.
National Asset Management Agency
3. What recent discussions he has had with the Republic of Ireland’s National Asset Management Agency on its operations in Northern Ireland. (84782)
Treasury officials have met NAMA officials as part of the bilateral engagement between the Irish and UK Governments. Day-to-day operational decisions are a matter for NAMA and its overall strategic decisions are set by the Irish Government.
I thank the Financial Secretary for that answer. As of today, NAMA is the single largest property owner in Northern Ireland. It is also the single largest creditor operating in Northern Ireland. It threatens to put 150 businesses and individuals into receivership. What are the Government doing strategically to address the needs of the economy in Northern Ireland to prevent NAMA from aggressively putting people out of business and taking blood from the stone?
I understand the concerns that the hon. Gentleman has identified, and I know that the hon. Member for East Antrim (Sammy Wilson) has had discussions with NAMA and the Irish Government about NAMA’s strategy in Northern Ireland. I encourage the hon. Member for North Antrim (Ian Paisley) to use the mechanism that is available to Members of Parliament and of the Northern Ireland Assembly to raise his concerns with NAMA directly.
Bank Lending and Credit (Businesses)
4. What steps he is taking to reduce the cost of bank lending and credit for businesses. (84783)
In the autumn statement, I announced the launch of measures to help improve the flow of credit to businesses. We expanded the enterprise finance guarantee scheme within the constraints of state aid rules, but that was not enough, so we have committed to a programme of credit easing as well, using the low interest rates at which the Government can borrow to help get low interest rates to businesses. The national loan guarantee scheme will lead to a reduction in the cost of bank loans for small businesses, while the business finance partnership will deliver additional finance for mid-sized business through non-bank lending channels.
I thank my right hon. Friend for that answer. Can he confirm that guarantees under the Government’s national loan guarantee scheme are contingent liabilities, and so will have no effect on the country’s balance sheet or deficit?
My hon. Friend is right that the national loan guarantee scheme does not add to the debt or deficit; the guarantees are contingent liabilities. The previous Government had a contingent liability scheme for lending between banks, but this is a contingent liability scheme for lending by banks to small businesses. We are following the model of the European Investment Bank, which has a small programme to lend to smaller businesses in Britain. We are using that model to try to reduce interest costs for small businesses, using the credibility of the low interest rates at which we can borrow to deliver those low interest rates to businesses.
Given the urgency of getting credit flowing to small and medium-sized companies again, when does the Chancellor realistically expect the first loans to be made under the new arrangements?
We hope to get the scheme up and running early in the new year. We have to get state aid clearance, which is the rule that we and every other member state of the European Union have to abide by, but by following the European Investment Bank scheme quite closely, which of course is permissible, we hope to get that state aid clearance as quickly as possible and get the scheme up and running early in the new year. I do not need to be reminded of the urgency of getting help to smaller businesses, particularly as bank credit conditions tighten.
The major banks argue that they cannot be expected to strengthen their balance sheets and increase net lending at the same time. Does the Chancellor agree with the Governor of the Bank of England that that could be achieved if banks were prepared to cut their bonuses and dividends? In particular, is it not time that shareholders stepped up to the plate and ensured that banks behaved responsibly on the matter?
The Financial Policy Committee, which is the body that we have established in the Bank of England to provide advice on issues that affect the whole financial system, is absolutely right to say to banks that they should be using any earnings that they have to strengthen their balance sheets if necessary, rather than distributing them in larger bonuses. We need stronger banks, not larger bonuses, this winter. The advice from the Bank of England is very clear, and I would expect the banking system to follow that advice.
When it comes to shareholders, it is particularly good news that the Association of British Insurers has said this morning that it expects to see restraint in financial sector pay. We have to ensure that our banks are prepared for whatever is thrown at them in the coming months, and that they do not pay the large bonuses that used to be paid out. [Interruption.] They were paid out when people like the hon. Member for Nottingham East (Chris Leslie) supported the Government.
Bank lending funds business investment, so I welcome some of the measures that the Chancellor has announced. However, if the lack of lending is a consequence not of availability or cost but of reduced aggregate demand, and if business investment continues to fall or be sluggish, is he not at all concerned about the fact that the vast majority of next year’s gross domestic product growth—0.7%—will be driven by business investment? Should that happen, where would it leave his growth forecasts?
Of course, the components of our GDP forecast, like the forecast itself, are produced by an independent body, the Office for Budget Responsibility, so it is not my assessment of business investment next year but the OBR’s. I am confident that if we invest in the infrastructure that we set out last week, provide support for seed investment through the enterprise investment scheme that we have created and make it easier to hire people, as we propose to do, we will encourage business to invest, grow and take people on.
Taxation (Banks)
5. What recent assessment he has made of the level of taxation on banks. (84784)
8. What recent assessment he has made of the level of taxation on banks. (84787)
The Chancellor announced in his autumn statement that the bank levy would increase to 0.088% from 1 January 2012, consistent with the Government’s intention to raise at least £2.5 billion each year, as set out in Budget 2011.
In the autumn statement last week, the Chancellor announced measures that will mean that the Government will raise three times as much from cuts in child tax credits than they will raise from any additional taxes on the banks. Should he not hang his head in shame at the Government’s actions? When will they change course and stop their relentless, ruthless attack on those less well off in society?
The hon. Gentleman should get his facts right, because the Government are increasing the child tax credit by £135.
Earlier this year, the Prime Minister announced that the high street banks would commit £200 million to the big society bank to try to fill the £5 billion shortfall currently faced by charities and the voluntary sector. To put it another way, that is just 1.4% of the £14 billion the banks have paid out in bonuses this year. What steps will the Chancellor take, including by providing further incentives, to ensure that those financial institutions commit more to community reinvestment?
The right hon. Lady should recognise that bank bonuses are a quarter of what they were when she was in the Cabinet. The banks are doing that. The previous Government were in office for 13 years. They had no idea about introducing a bank levy. This Government have taken the right steps to ensure that banks pay their fair share of taxes.
My hon. Friend will be aware that banks and financial services contributed more than £50 billion in taxes last year, but has he noted that this Government’s bank levy—the permanent levy—will raise more in one year than the previous Government’s payroll tax?
My hon. Friend is absolutely right. Of course, the previous Government said that the bank bonus payroll tax would be a one-off tax. This Government had the courage to go forward, and to say that we would introduce a bank levy unilaterally, which the previous Chancellor opposed. We are taking the tough action on taxing banks that the previous Government failed to take.
Interest Rates
6. What recent assessment he has made of the likely effect on the economy of an increase in interest rates. (84785)
16. What recent assessment he has made of the likely effect on the economy of an increase in interest rates. (84796)
17. What recent assessment he has made of the likely effect on the economy of an increase in interest rates. (84797)
An increase in interest rates would be particularly damaging to an economy with the UK’s level of indebtedness. A one percentage point rise in interest rates would add around £21 billion to debt interest payments. That is why the Government are determined to keep Britain’s fiscal credibility and to keep our interest rates low. A 1% rise in lending rates would add £10 billion to household mortgage interest repayments and £7 billion to business costs.
Forty per cent. of households in Stratford-on-Avon—some 17,870 home owners—have a mortgage secured against their home. Will the Chancellor confirm that each percentage point increase in interest rates would cost the average household £1,000, and that adopting Labour’s plan B and seeing our interest rates reach those of Italy would mean £89 million being taken out of the local Stratford-on-Avon economy?
My hon. Friend is right that a 1% rise on the average mortgage bill would add £1,000. That is why it is particularly important at this time and in this debt crisis that we try to keep our interest rates low. That is what the credibility of our fiscal policy is doing.
Yesterday, millions of families across Europe faced a bump up in their uncertainty in their financial affairs as Standard & Poor’s, the rating agency, said that it was looking potentially to review their countries’ debt ratings downwards. Will the Chancellor please tell us what has happened to Britain’s debt rating since the election and what the result has been for British interest rates?
The UK is the only western country that has seen an improvement in its credit rating in the past 18 months. When this Government came to office, the country’s triple A credit rating was on negative watch, which is where it was put by the Labour party. I am delighted that it came off negative watch, but we must stay vigilant. The credit rating agencies have said that an abandonment of our deficit plan would definitely lead to a downgrade of the credit rating.
The Chancellor has already commented on the impact of low interest rates on mortgages. Does he share my concern that high interest rates would affect business? Will he say a little more about the effect of low interest rates on business in this country?
My hon. Friend is absolutely right that an increase in interest rates at this time would also hit businesses with loans and lead to an additional £7 billion of business costs, which would mean some businesses failing and jobs being lost. It is all the more reason why we must maintain our fiscal credibility; it is all the more reason why every single business organisation supported our business statement last week; it is all the more reason why international organisations are backing what we have done; and it is all the more reason why the shadow Chancellor cannot find a single credible party in western Europe that supports what he is doing.
Why should anybody take a blind bit of notice of the Chancellor’s forecast on interest rates when he has only been in power for 18 months and he has got every other economic indicator wrong? For Christ’s sake, don’t go to the Prime Minister and ask him to bail you out because he was economic adviser to Norman Lamont, who lost £10 billion in an afternoon and never went near a betting shop.
The hon. Gentleman is the man who has supported a party that said there would be no more boom and bust and that gave us the biggest ever boom and the largest ever bust. I will tell him what has happened since the general election: the deficit is coming down and credibility is going up.
The Chancellor claims that low interest rates are a sign of success of his policy. Can he tell the House how many months before the last election did the Bank of England set interest rates at the current 0.5%?
What we are talking about here are the market interest rates. Italian and Greek households and businesses are looking not at the European Central Bank official interest rate, but at the market interest rates. The market interest rates that we are paying in this country are less than 2.5% and that is a sign of the credibility that we have earned in a debt crisis. That is what we have done. Instead of opposing the difficult decisions that we have taken to put our public finances in order, the right hon. Gentleman should be supporting them.
The Chancellor will be aware that around 40% of Treasury bonds issued this year will be bought by the Bank of England and that the Bank concluded in its last quarterly bulletin that quantitative easing—printing money—accounts for a fall in gilt interest rates of around 1.25%. For the sake of clarity, can the Chancellor say whether he agrees with that Bank of England analysis or is he seriously saying that printing money has no impact whatsoever on low bond interest rates?
The low interest rates were there before the Bank undertook its quantitative easing programme in the autumn. We have had low market interest rates for the whole of the past 18 months, not just when the Bank of England has been undertaking its QE programme. This is what the chief economic adviser to the Treasury said in 2004: long-term interest rates are
“the simplest measure of monetary and fiscal policy credibility.”
That was Mr Edward Balls.
HMRC Contact Centres
7. What recent discussions he has had with Her Majesty’s Revenue and Customs (HMRC) on the provision of customer services by private sector companies in HMRC contact centres; and if he will make a statement. (84786)
HMRC has kept me informed about its plans for a small-scale, short-term trial to test whether the use of additional resources for contact centres from third party providers might help it to improve levels of service.
There are obviously issues relating to the use of the private sector in tax offices. Will the Minister meet me and other constituency MPs who are affected by this rather risky pilot?
I am happy to meet the hon. Gentleman, but HMRC is exploring ways in which it can improve the service in contact centres so that when taxpayers and tax credit claimants phone up they can get through more easily and more reliably. I would have thought that that was something that hon. Members on all sides of the House would welcome.
May I ask my hon. Friend to recognise that the service provided by HMRC contact centres is not good enough and that many of our companies have great difficulty with continuity of service? Anything that can be done to improve the service is wholly to be welcomed.
I am grateful for those comments. It is worth noting that about 70% of calls now get through to HMRC contact centres on the first attempt, whereas last year the proportion was about 40%. Progress has been made, therefore, but we want to make further progress and it is sensible that HMRC explores what possibilities exist.
Will the Minister say how many more or fewer HMRC staff there will be over the next three years?
The overall trend in HMRC employment has been downwards since 2005, when the organisation was formed, and that will continue, but we are redeploying staff, for example in enforcement and compliance, which means that additional staff are being taken on to deal with tax evasion and tax avoidance.
Tax Rates
10. Whether he has made an assessment of the effect on the economy of setting different tax rates in each economic sector. (84790)
The Government’s aim is to create the most competitive tax system in the G20. The corporate tax road map sets out a series of reforms in a single programme to give certainty to business, including by reducing the main rate of corporation tax to 23% by 2014. Where appropriate, the Government provide tax reliefs to support specific sectors of the economy, but simplicity is a key characteristic of a competitive tax system.
I am grateful for that answer. One of the biggest employers in my constituency is Drayton Manor park, home of Thomas Land, and one of the greatest challenges that it faces is the lower rate of VAT levied on the leisure sector in our continental competitor countries. Has the Minister examined the case for lower VAT for the leisure sector in this country, and if he has not—I appreciate the bust that we inherited—what measures is he taking to make the industry more competitive?
We continue to look at VAT in the leisure and other specific sectors but we have to be careful to keep the tax system as simple as possible and we have to bear it in mind that such measures can simply move spending from one area to another. Furthermore, as my hon. Friend points out, we have to ensure that the public finances are in a sound state. I am sure that I remember reading one “Thomas the Tank Engine” story in which the big, unpopular engine Gordon went off the tracks. We do not want a repeat of that.
The Exchequer Secretary will be aware that consumption is a major part of the economy. Given that in recent days we have seen news that retail figures have been poor and the CBI has said that retail stores are laying off people at the fastest rate for two years, why will he not consider a temporary VAT cut to boost demand and get the economy moving again?
Returning to the fundamental question, the difficulty is that if we do not have credibility in the public finances and if interest rates rise, it will do nothing for consumption. We have to get control of the deficit, get borrowing down and stick to the path. We cannot grow money off the money tree, which, I am afraid, seems to be the Labour party’s policy.
Regional Investment
11. What assessment he has made of the effect of fiscal policy on the level of investment in the regions. (84791)
The Government continue to support investment across the United Kingdom, including through the £6.3 billion boost to infrastructure spending over this spending review period. As a consequence of this decision, the autumn statement made available to the Welsh Assembly Government a further £216 million of capital funding. I urge the Welsh Government to consider how best to direct that funding towards growth-enhancing priorities
I am grateful to my right hon. Friend for that answer. The regional growth fund is having a significant impact in Newcastle, Teesside, Cornwall and other parts of the United Kingdom, yet the inaction of the Labour Welsh Government means that little is happening there in spite of them receiving the Barnett consequentials. Will he agree to raise the matter with the Welsh Government to ensure that my constituents can benefit in the same way as other parts of the UK?
My hon. Friend makes an important point, and he will know that the additional £1 billion of funding to the regional growth fund announced at the autumn statement generated an extra £57.6 million of additional funding for Wales. I hope very much that the Welsh Assembly Government will use that money for similar growth priorities. I shall certainly raise the matter with my counterpart in the Welsh Assembly Government, and I am sure that my hon. Friend will do the same in his own constituency.
A recent report by the Institute for Public Policy Research suggested that the economy in London and the south-east will recover by 2014, but that Yorkshire’s economy will take until 2018 and that of the north-east until 2020. In view of those figures, does the Chief Secretary not regret abolishing the regional development agencies and giving the successor bodies less than half the money?
No, I do not, but I share the hon. Gentleman’s view that the unbalanced nature of the economy that we inherited from the previous Government is a serious problem, particularly for regions in the north of England. That is why in the autumn statement and the spending review we prioritised additional infrastructure projects—on the roads, on the railways, and so on—with a particular focus on his part of the world. I hope that he will welcome those sorts of developments.
Will my right hon. Friend join me in congratulating Piran Trezise, Ian Jones and Steve Jones, who have today secured regional growth funding to regenerate the iconic Goonhilly earth station, which will bring hundreds of highly skilled jobs to Cornwall? Does he agree that regional growth funding should be used to enable businesses to rebalance our economy away from London-centric financial services towards sustainable jobs in science, technology and engineering?
That was an excellent point, and I wholeheartedly endorse what the hon. Lady says. I join her in congratulating her constituents on successfully acquiring regional growth fund support for that important project. The regional growth fund as a whole will maintain or support 325,000 jobs in the private sector across the country. That is something that Members on both sides of the House should welcome.
Given the very sharp decline in applications for education from adults in the north-east, how worried is the Minister about the supply of skilled labour to our economy?
We are seeking to address that through, for example, our policies on youth unemployment and the substantial increase in our investment in apprenticeships. All that is designed to expand skills in the economy, which business constantly raises and the Government are acting to support.
Economic Growth
12. What assessment he has made of the reasons for the Office for Budget Responsibility’s forecast of lower economic growth in 2012. (84792)
The OBR is independent, so we accept its numbers, its forecasts and, of course, its analysis. The OBR attributes the lower growth prospects in 2012 to higher than expected inflation, as a result of recent global commodity price shocks, revisions to the depth of the financial crisis and the crisis in the euro area.
Does my right hon. Friend agree that the OBR is a key participant in ensuring the UK’s economic recovery and that its establishment by this Government marked a step change in the transparency and openness of our economic and fiscal policy making? Further—[Interruption.] I have more. Does he share my view that if Labour had won the last election, we would still be without that independent assessment and thus, crucially, still in the dark about just how bad Labour’s recession is?
May we have a brief reply to what was rather a lengthily constructed essay-question? I know that the Chief Secretary will respond pithily.
The creation of the OBR is a marked improvement, as my hon. Friend says, to fiscal credibility in this country. That is why other countries are looking to our example, to see whether they can follow it. Other countries are not looking to the example of Labour, whose prescription for more borrowing in answer to a borrowing crisis is the one policy that no country in Europe or the world is following.
Since the spending review, which the Chief Secretary took part in, the economy has grown by just 0.5%. In the year before that, it grew five times as quickly, and in Europe it has grown three times as fast, so is it not the case that what has brought economic growth to a standstill and pushed up unemployment is the utter failure of the policies that he and the Government have pursued?
The hon. Gentleman should have read the OBR’s report, which analysed the depth of the economic crisis during his time in office and found that the size of the boom and the bust—which he claimed to have abolished—was larger than forecast. As a result, for every £8 that we thought we would have as a country, we have only £7. [Interruption.] It is an appalling legacy for this country, and he ought to be apologising, not chuntering from the Back Benches.
Does my right hon. Friend recognise that export-led growth will not reach the levels needed to match our growth projections by 2015? Will he consider other measures, over and above those already taken, to stimulate demand in the home market, especially to help the small and medium-sized enterprise sector, on which he is so reliant?
The hon. Gentleman is absolutely right to support initiatives to support the SME sector. I hope that he will therefore welcome the continuation of the small business rate relief holiday and the credit easing package, which is aimed at supporting lending and reducing the cost of lending to small businesses—one of many things that we are doing to help that vital sector of our economy.
Tax Loopholes
13. What steps he is taking to close tax loopholes. (84793)
The Government have set out a strategic approach to tackling tax avoidance, with an emphasis on preventing avoidance before it can occur. Measures introduced in the Finance Act 2011 will bring in an additional £1 billion a year over the course of this Parliament and protect further revenues. The Government will carefully consider Graham Aaronson’s report on a general anti-avoidance rule and engage formally with interested parties to establish whether that could further reduce tax avoidance.
I thank the Minister for attempting to answer my question before I have asked it. Hard-working and hard-paying taxpayers demand fairness, but the stamp duty loophole cost the Treasury almost £1 billion. The Minister spoke earlier about redeploying staff; will he confirm that he will put more resources into enforcing tax evasion?
We are putting more resources into dealing with tax evasion and avoidance. Just this morning we have announced proposals that will extend the disclosure of tax-avoidance schemes to stamp duty land tax. The biggest measure we have taken in tackling tax avoidance was on disguised remuneration in the last Finance Bill. Unfortunately, Labour Members did not support us.
Only today my hon. Friend the Minister has had to table written statements blocking tax-avoidance schemes in derivatives, loan relationships and capital allowances and many other measures. A general anti-avoidance rule would back up the plethora of anti-avoidance measures that this and previous Governments have had to introduce. The coalition agreement provided for a study of a general anti-avoidance rule. The Treasury now has that study; will my hon. Friend give me an assurance that it is under urgent consideration for implementation at the earliest opportunity?
I can give the hon. Member that assurance. We are grateful to Graham Aaronson and his distinguished panel for studying this issue. We are looking at it. It is important to consult properly, but we are giving urgent consideration to the matter.
The Government said in August that the deal between the UK and Switzerland would close other tax loopholes and net the Exchequer an additional £4 billion to £7 billion in revenue. Will the Minister explain why the Office for Budget Responsibility described the deal last week as a “fiscal risk”, declined to validate the Government’s numbers, citing “significant uncertainties”, and discounted the revenues from its central projection for receipts?
The agreement has not been ratified as yet; it is yet to go through the parliamentary process in this country or, indeed, in Switzerland. The OBR is rightly cautious, but even the £4 billion is likely to be greater than the amount we would have received from privatising Lloyds Banking Group and RBS. That is not an insubstantial sum of money which Members on both sides of the House should welcome. It will put an end to tax evasion through people putting their money into Switzerland.
Public Sector Borrowing Requirements
14. What recent assessment he has made of the public sector borrowing requirement. (84794)
In the economic and fiscal outlook for November, the independent Office for Budget Responsibility forecast public sector net borrowing in 2011-12 to be £127.1 billion or 8.4% of gross domestic product. The deficit forecast for 2015-16 is £53.2 billion or 2.9% of GDP.
I am grateful to the Minister for that reply. The public sector borrowing requirement was, of course, affected by the size of the public sector. Under the last Government, the number of public sector employees ballooned by 700,000. Although many might be important jobs such as those for doctors and nurses, has the Minister had an opportunity to do any analysis to ascertain whether every single one of those jobs was really necessary?
The Treasury would not centrally manage changes to public sector work forces, but employers have been reforming their work forces since the spending review to make the necessary savings and maximise value for money. My hon. Friend is certainly right that the last Government left us a ballooning financial disaster with the highest deficit since world war two.
Benefit Changes (Women)
15. What assessment he has made of the effects on women of the changes to child tax credit and working tax credit proposed in his autumn statement. (84795)
The Chancellor considered the equality impacts of the changes to tax credits announced in the autumn statement, which included an assessment of the effects on women.
That was not an answer to my question. Figures from the House of Commons Library show that since the election changes to tax, pensions, pay and benefits are hitting women more than twice as hard as they are hitting men. Of the extra £18.9 billion that is being raised, £13.2 billion comes from women, with just £5 billion or so coming from men. This is the biggest attack on women in a generation. Will the Minister tell us what his Government have against women?
Let us look at some of the measures we have taken that will help women and families—the additional support for child care announced last week, for example. The increase in the personal allowance for income tax will take 1.1 million people out of paying income tax at all—and 58% of them are women.
Does my right hon. Friend agree that it is important for us to target the women who need the money most, and that the plans to double investment in child care and free education for children from disadvantaged families must be beneficial in these times?
My hon. Friend is absolutely right. We are taking steps that will provide better opportunities for children, and measures such as the increase in child care provision will help women in particular.
Capital Allowances (Regional Growth)
19. What recent assessment he has made of the effect of capital allowances on regional growth. (84800)
Her Majesty’s Revenue and Customs does not have the data that are required to analyse capital allowances claims by region.
I thank the Minister for another great non-answer. Those in the ceramics sector in Stoke-on-Trent and elsewhere are concerned about the fact that the Government’s package for energy-intensive industry does little to prevent further offshoring of jobs and businesses. Will the Government give careful consideration to the suggestion in the Energy Technology Criteria List that the granting of enhanced capital allowances should include the low-carbon equipment that is vital to the sustainable future of Britain’s world-class ceramics industry?
I should have thought that the hon. Gentleman would welcome the measures announced last week for energy-intensive industries. We are also doing more to help the economy more broadly in the tax system. A couple of hours ago I happened to meet the chairman of one of the leading manufacturers in his industry, who was very supportive of the reduction in corporation tax from 28% to 23%.
York Handmade Brick Company is delighted by the announcement in last week’s Budget statement, and hopes to work closely with the Government to reduce emissions and ensure that we are on track to help energy-intensive industries such as brick companies.
I am grateful for my hon. Friend’s comments. We do not want to export jobs in pursuit of policies that are not effective and do nothing for UK industry.
Topical Questions
T1. If he will make a statement on his departmental responsibilities. (84805)
The core purpose of the Treasury is to ensure that the economy is stable, to lay foundations for growth and employment, to reform banking, and to manage the public finances so that Britain starts to live within her means.
I thank the Chancellor for his reply to my supplementary question earlier. May I put it to him that his announcement last week that £1 billion was to be taken from international aid over the next three years suggests that, in the Prime Minister’s words, he is balancing the books on the back of the world’s poorest?
I do not agree with the right hon. Gentleman. I think that people should reflect on the fact that we are making some very difficult decisions in the current Parliament about welfare benefits and departmental spending, and that much of that is controversial. During this period, spending on aid is set to increase from £8.5 billion to £12 billion, which is a big increase. I think that if we start to attack that commitment—if we say that it is not enough, and the like—the coalition of support for the increase in aid spending that I believe exists throughout the House will start to fall apart, and I do not think that we want to go down that route. We have made our commitment to the poorest in the world. We will be one of the first countries in the world to hit the target of spending 0.7% of our gross national income on aid, and I think that we should all support and welcome that.
T2. I commend the Chancellor on the Government’s decisions to protect the lowest paid in the public sector pay freeze and to take 1 million people out of income tax altogether, but will he tell us what effect that will have on working women? (84807)
Sixty per cent. of the lowest-paid workers whom we have taken out of tax are women, as are 80% of those who benefit from our policy of exempting the lowest-paid in our public sector from the pay freeze.
In October this year, the International Monetary Fund advised the Chancellor that
“if activity were to undershoot current expectations and risk a period of stagnation or contraction, countries that face historically low yields (for example, Germany and the United Kingdom) should also consider delaying some of their planned consolidation.”
At the time when the IMF warned of the risks of growth undershooting, what were its forecasts for growth in the UK in 2011 and 2012?
I do not have the IMF forecast to hand, but as I remember it was absolutely in line with other forecasts at the time. It was very much as we expected, but when the IMF produced that forecast it asked the question again of whether Britain should change its deficit plan policy, and it said no. In doing so, it joins a host of other organisations, ranging from the OECD to the CBI and the Governor of the Bank of England here in Britain, which make it very clear that Britain must stick to its deficit reduction plan.
In October, the IMF said that if growth
“were to undershoot current expectations”
the Government should change course. The Chancellor did not know the answer to my question, so let me give him the answer. The IMF was forecasting UK growth of 1.1% in 2011 and 1.6% in 2012. The latest Office for Budget Responsibility forecast is that the UK is now expected to grow by just 0.9% this year and to grow next year not by 1.6% but by 0.7%.
Let me share another international judgment with the Chancellor:
“Wiser policies, mixing short-term stimulus with longer-term deficit reduction, should have been embraced last year…Instead, the Cameron government persists on a failed, irresponsible course that is unlikely to lead to recovery anytime soon.”
With growth undershooting IMF expectations in October, with borrowing now set to be £158 billion higher than he planned, and with even the IMF calling for a change of course, why is the Chancellor ploughing on? If even across the Atlantic The New York Times can see that it is not working, why can the Chancellor not see it?
The managing director of the IMF has clearly said that the “policy stance” in the United Kingdom “remains appropriate.” The right hon. Gentleman talks about international support, and not one single credible mainstream party in Europe is advocating the position that he advocates in the UK. We have done some research, and we have found that the Workers Struggle party in France supports what he is doing, as do the Communist parties of Spain, Switzerland, Finland, Romania and Moldova. Those are his new fellow travellers. If he had his own Communist manifesto, it would be “Workers of the Labour party unite! We have nothing to lose except our shadow Chancellor.”
T4. The small business rate relief holiday has proved vital to many companies in Kingswood and across the country. Does the Minister agree that many of those companies will welcome the extension of that holiday? (84809)
My hon. Friend is absolutely right. The measure will provide support in the form of a reduction in business rates for more than 500,000 small businesses and 29% of all shops for the whole of the next financial year.
T3. Will the Chancellor tell the House and the country whether it is fair for the brave men and women of our armed forces to face a pay freeze? (84808)
The decision to freeze public sector pay was, of course, a difficult one. I am not sure whether it was opposed by the Labour party; I do not think it was, but I stand to be corrected. Although it was a difficult decision, in respect of our armed forces we sought to double the operational allowance to give tax-free help to those who are risking their lives at this moment fighting for us in Afghanistan. We have also sought to double the council tax relief for our brave armed services when they go abroad. We have not changed the incremental pay increases that people—for example, those in the Army—get through their contracts, and we are enshrining the military covenant in law. So we are absolutely aware of the struggle and sacrifice the armed forces undertake on our behalf and we honour their sacrifice.
T7. I hope it is not giving away too many House secrets to say that it is rumoured that the shadow Chancellor will be reprising his role as Father Christmas at the Westminster Christmas party tomorrow. If that is true, I am sure many children will tell him about their presents, and a recent survey suggests that the average cost of Christmas for a child is £112.50. Is the Chancellor aware that that is almost exactly the same amount that this Government are giving families through the council tax freeze and the reductions in fuel duty we have proposed? (84812)
I am sure that Father Christmas tomorrow will welcome that. Given that my wife is opening the Christmas party with the shadow Chancellor tomorrow, it will certainly be an event worth turning up to.
T5. Does the Chancellor agree with the chief executive of the Engineering Employers Federation, Terry Scouler, that “the biggest threat to reducing”the“deficit comes from weak growth”? In view of the fact that growth is dependent on demand, that this country is confronted over the next two years with the biggest squeeze on its living standards in a very long time, and that demand in our main export market, Europe, is also falling, can he tell us where that growth is coming from? (84810)
May I point out to the hon. Gentleman that Terry Scouler is supportive of the steps we are taking to get the deficit under control, and made that very clear last week. He was also supportive of some of the measures we announced last week, such as the reforms relating to R and D tax credits, which will help manufacturing.
On Friday, I met businesses in my constituency at an event organised by our local enterprise partnership. They tell me that access to finance is one of the most important issues they face. Will the Chancellor confirm that the measures introduced in the autumn statement will provide more and cheaper finance to businesses in Rugby?
That is absolutely the intention of the national loan guarantee scheme. It is designed to help small businesses, in particular, with turnovers of less than £50 million to get access to cheaper credit—in other words, to pass on the low interest rates that we can borrow at, because of the difficult decisions we have taken, to those businesses in Rugby and elsewhere.
Will the Chancellor give a commitment to the English regions that they will receive all the European regional development fund money they are entitled to—or will that money end up with the Treasury?
If there are good projects that need European support and we can put together a joint bid and the resources to do that, of course we will do that. But let me make a broader point: disparity between the regions of this country grew over the past decade and ultimately, what we have got to do is to help the private sector across the regions to grow, as well.
Unlike the previous Government, this coalition Government agreed £1 billion in compensation to qualifying Equitable Life policyholders. Yet, judging by the Minister’s written answers, as recently as six weeks ago less than £500,000 had been paid out. What action will he be taking to ensure that the payment scheme finally gets compensation to policyholders without further delay?
We are on track to pay out £500 million in compensation to policyholders this year. We have completed a pilot testing phase to make sure that the system works, and I can advise my hon. Friend that we have made 3,000 payments to policyholders just today.
In one of his earlier answers, the Chief Secretary to the Treasury referred to the infrastructure fund announced last week. Given his comments of last week, can he confirm to the House precisely how much of the £1 billion allocated to carbon capture and storage will now be available for CCS projects before 2015?
As the hon. Gentleman will know, the consequence of last week’s infrastructure announcement for Scotland is an additional £430 million to be spent in Scotland. We have said throughout this process that £1 billion is available for the carbon capture and storage project. The likelihood is that that project will be delayed because of the failure to agree the Longannet project, and we will make funds available as soon as the competition is completed.
Given that it is the festive season, will the Chancellor be able to spend the proceeds of his bank tax more than 10 times over?
Sadly, I am not a quack doctor who can perform miracles and take a bank bonus tax and spend it 10 times over. What we have done is to introduce a permanent annual levy on the banks that raises in each and every year more than was ever raised in any year of the previous Labour Government, net, and we are using that to pay for things like new nursery care for disadvantaged two-year-olds, and of course to deal with our deficit.
Earlier, the Chief Secretary to the Treasury indicated that the reason for the slow growth in the past year was the depth of the recession. He quoted the OBR report, but it goes on to say that the recovery in 2009 was stronger than previously reported, and that decline started only in the latter part of 2010. Why did he not tell the House and the country that?
The hon. Lady should recognise that the OBR cited three reasons. It said that the bust was bigger and the boom was greater under the previous Government. I would have thought that she would stand up and apologise for that, as well as recognising that the high costs of commodities over the past year has slowed growth now and that the risks posed to the eurozone are what is causing a slowdown in demand at the moment. That is what the OBR said and she should accept it.
What percentage of our foreign exchange reserves are in the euro?
We publish, on an annual basis, a breakdown of our foreign exchange reserves, and this Government, like previous Governments, do not give a running commentary on the composition of those reserves.
Is Her Majesty’s Revenue and Customs trying to maximise its income by not warning businesses immediately that they have incurred a penalty for late payment of PAYE? Businesses in my constituency have been facing huge bills because HMRC has taken six months before letting companies know about the fines they are incurring.
I am grateful to the hon. Lady for raising that point. I assure her that that is not a revenue-raising policy, but I am happy to raise her particular case with HMRC and find out what has happened in those circumstances, if she would like to contact me.
Which strategy does the Chancellor think is best for dealing with a deficit caused by overspending: cutting expenditure by more than 8% over the next four years, as the Irish Government are doing, or increasing cash expenditure by more than 5% over the next four years, as this Government are doing?
I think, of course, that we have got the fiscal judgment right in this country, which is one of the reasons for the support we have had from international investors and others. Each country must make its own decisions. Ireland has to had to make some very difficult decisions, although because of the interconnectedness of the British and Irish economies it is to be welcomed by everyone in this House that better economic news has come out of Ireland more recently.
Given successive quarters of downward revision of the growth forecasts by the Office for Budget Responsibility and given that eurozone countries are now outstripping the UK in terms of upward growth figures, is the Chancellor proud to have abolished boom and bust and to have replaced it with bust and bust?
I do not know how long it took the hon. Gentleman to dream up that question, but he would have spent his time better reading the economic forecasts that he purported to give the House of Commons. They show the OBR downgrading its eurozone growth forecasts, and of course the OECD has forecast quite deep recessions in some eurozone countries. The Labour party really has taken the most extraordinary position; in this week when we have the European Council meeting coming up, those in the Labour party are literally the only people in Europe who think that the eurozone crisis is not having an impact on the British economy or the other European economies. It is absolutely bizarre and it shows why, in a week when some of the numbers have been going up, the one number that continues to fall is on the economic credibility of the Labour party.
What plans does the Chancellor have in place for peer reviews of the Crown dependencies and the overseas territories, and what sanctions will be in place for individuals, banks and businesses that are found not to be complying with international tax standards and are guilty of money laundering and tax avoidance?
Of course we monitor these matters very closely and are in discussions with Crown dependencies and overseas territories, many of which are taking substantial steps to improve their compliance with international tax standards. We welcome that and will further encourage it.
By what means will infrastructure projects in Wales, Scotland and Northern Ireland access finance from the pension funds element of the capital investment programme announced in the autumn statement? Is it a matter for the devolved Governments to put forward projects or not?
The agreement we have reached with pension funds will, in due course, set up a vehicle that enables pension fund investment to be made in infrastructure projects right across the UK. Of course there are many infrastructure projects in the private sector in Wales, in Scotland and in Northern Ireland where that money can help to deliver those projects more quickly. The Welsh Assembly Government will be free to bring forward projects for which they think private sector money is suitable. I also say to the hon. Gentleman that we are in discussion with the Welsh Assembly Government about their proposals for expanding the M4, which is a significant infrastructure project in its own right for Wales, for which Government money will need to be deployed.
rose—
Order. I am sorry to disappoint colleagues, but Treasury questions remains a popular sport, in which demand rather heavily exceeds supply.