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Changes to the Budget

Volume 546: debated on Monday 11 June 2012

(Urgent Question): To ask the Chief Secretary to the Treasury to make a statement on the changes that the Treasury has made to the Budget, which was presented to this House on 21 March 2012.

Order. The Ministers who appear are chosen by the Government, and it is not for me to explain that choice. Members ask, “Where’s the Chancellor?” The Chancellor is appearing before the Leveson inquiry, as Members know perfectly well. We welcome Minister Gauke.

The Budget supports working families and re-establishes the UK’s reputation as a leading place to do business. It continues to deal with the record peacetime deficit that we inherited, so that the state no longer borrows £1 in £4 it spends, as it did when we came to office.

The Budget contained 282 measures. Having said that we would consult on some of its measures, we have made changes to three. On VAT for hot food, it is right to end anomalies and ensure that VAT is applied fairly between businesses. Where fish and chip shops had to charge VAT, supermarkets selling the same products did not. Having consulted, we have revised the relevant tests to ensure that, for example, bakers cooking hot savoury food that is left to cool are not caught in the changes.

On VAT for static holiday caravans, we have listened to hon. Members, who argued that static caravans should be treated more akin to second homes and not like touring caravans. Given that static holiday vans fall in a grey area between residential properties and temporary holiday accommodation, and given the relevant tax regimes that apply to them, a 5% rate of VAT is a fair compromise.

On tax reliefs, we continue to think that the system we inherited—which allows the wealthiest to pay the least tax, meaning that cleaners can pay a higher rate than their bosses—is unfair. We will therefore move to cap reliefs to ensure that this is addressed. However, having engaged with the sector, we will exclude reliefs relating to charitable giving from the cap.

These changes are small in the context of a Budget that lowered tax by £170 for 24 million people. The amounts concerned are tiny compared with the total tax changes announced in the Budget—in monetary terms, less than 2% of the Budget changes and 0.0002% of total receipts. The Budget continues to have a neutral impact on the public finances, and we remain on track to tackle the unprecedented debt and deficit we inherited. This is a Budget that improves the country’s competitiveness by cutting the top rate of tax, reduces corporation tax to give the UK the most competitive rate in the G20, and rewards and supports hard-working families by helping to take 2 million people out of income tax altogether.

I thank the Minister for his answer, but regret the absence of both the Chancellor and the Chief Secretary to explain this series of U-turns.

This statement leaves a number of questions unanswered. On 16 April, the Exchequer Secretary told the House:

“The same approach should apply to mobile caravans as to static, non-residential caravans, and to a hot pie served in a fish and shop and one served in a bakery.”—[Official Report, 16 April 2012; Vol. 543, c. 130.]

On 12 April, in relation to the proposed cap on income tax relief for charitable donations, he said:

“The policy that we’ve announced is a sensible one.”

What new evidence has come to light since then and during the recess that has led the Government to change their mind? The reality is that the facts have not changed. This is a Government who do not like to be held to account for their mistakes. The Minister has tried to make a virtue out of the Government’s abandonment of policies that prove to be unpopular and unworkable by saying that they are listening. However, failing to do the necessary work on a policy before announcing it and then sneaking out a reversal when they hoped no one was looking is not consultation—it is total incompetence. Is it not the truth that this Government were so desperate for money-making measures that they took from whomever they thought they could, hoping to get away with it? The result: a total and utter shambles of a Budget.

The mistakes that are still in the Budget are, however, the worst ones of all: a tax cut for millionaires while asking millions to pay more, and no plan for the jobs and growth that we desperately need to get our economy back on track and our deficit down. As the Minister and his colleagues are making such a virtue of listening and of their readiness to change course and make the occasional U-turn, perhaps now they will listen—to the millions of pensioners hit by the granny tax; to the millions of families hit by cuts to their tax credits; to the 1 million young people out of work; to the businesses struggling to break even; and to everyone in this country suffering from the double-dip recession made in Downing street and crying out—[Interruption.]

Order. The House needs to calm down, on both sides. I remind the shadow Chief Secretary to the Treasury that the narrow focus of the question covers changes to the announced policy. I know that she will concentrate on that narrow matter, as this is not a Second Reading debate on the Budget.

Given the number of U-turns that the Government have made in the past two weeks, it is difficult to know where to start. Will they now change course on the biggest mistakes in the Budget—cutting tax credits for working families, the granny tax and cutting tax for millionaires while asking ordinary people to pay more? The country is crying out for the Government to change course and to get a grip on their policies, which dug us into this hole and this recession.

The hon. Lady says that the Government were desperate for money-making measures. Why does she think we needed such measures? She might have noticed that her party left the biggest peacetime deficit we have ever faced. The extraordinary thing about the Labour party is that it always believes that there is a magic money tree that we can get money from. I am afraid, however, that we have to take steps to reduce the deficit. Even with these changes, we remain on the course that we set out. This was a fiscally neutral Budget, and we are not taking risks with the public finances, which is the U-turn that the Opposition want us to take.

The hon. Lady asked how a Budget could be changed and why we had departed from what it set out to do. I should like to remind the House what happened four years ago. In 2007, the then Chancellor of the Exchequer announced the doubling of the 10p rate. A year later, his successor had to come to the House—not in a Budget, but weeks later—and set out additional tax cuts of over £3 billion. They had got their policy wrong and they had destroyed their credibility by doubling the income tax rate for the poorest earners in this country. That is an example of a Budget shambles.

The Government should not apologise for making these U-turns. This is parliamentary democracy at work. It is because Members of this House argued strongly for changes in the Budget that such changes have occurred. Let us contrast that with what happened under the last Government. When their own Back Benchers asked for changes, the Government would not agree to them. This Government should be proud of these changes; they should not apologise.

The Minister is now telling us that the Government do not need the money that would have been raised by the measures that he has scrapped, so why were they announced in the first place?

Let us put this into context. In the last year of the forecast period, the Budget measures that we announced in March would have resulted in an additional £1.14 billion for the Exchequer. As a consequence of these changes, that figure will now be £1 billion. These are relatively small items, but we have listened to the specific cases that have been made on the three elements. We had already made it clear that we wanted to consult carefully with charities and philanthropists on one of them. We have listened to the arguments and we have made changes. In the overall scope of the public finances, however, they will not make a significant difference.

Accommodating the interests of colleagues will require brevity, to be exemplified by Mr Jacob Rees-Mogg.

Does the Minister agree that the real things that must not be changed are a tight fiscal policy and a loose money policy? There is no alternative.

My hon. Friend is absolutely right: this Government, in contrast to the Labour party, remain committed to getting the public finances under control.

The Minister did not mention the reverse on VAT for listed places of worship. My constituency has the oldest Baptist church and the oldest Methodist church, so do the changes announced by the Government on listed places of worship apply only to the Church of England or to all denominations?

They apply to all denominations, but to provide further clarity we made it clear that we would change the level of grant available under the listed places of worship scheme to reflect the need; after consultation with the Churches, we have increased that number, but there is no change to the tax law relating to VAT for listed places of worship.

Let me reassure the Minister that Liberal Democrats welcome the change both to the pasty tax and the caravan tax. [Interruption.] We would also have liked a third change—to keep the top rate of income tax, but we did not win that argument. Will the Minister join me and make sure that all Ministers turn up the volume—[Interruption.]

Order. This is most discourteous. We must hear the voice of Bermondsey and Old Southwark— Mr Simon Hughes.

Will the Minister ensure that all Ministers turn up the volume to get over the central message of the Budget, which is that over 20 million pay less tax and millions pay no tax at all? Clearly, some people have not heard it yet.

This coalition Government are proud of the fact that we are taking 2 million people out of income tax and cutting the tax for 24 million basic rate taxpayers.

Let me remind the House that the urgent question relates to the subject of changes made by the Treasury to the Budget presented to the House on 21 March. Questioning must be focused on that narrow terrain. I know that in that respect we can rely on Mr Stewart Hosie.

The Minister said that these U-turns, however welcome, would be neutral in terms of the Budget, so will he confirm that by the time we get to 2016-17 the Government will still take out of the economy £155 billion a year in tax increases and service cuts?

The Government remain committed to their deficit reduction programme. As pointed out by the hon. Member for Bolsover (Mr Skinner), the hon. Gentleman presumably thinks that Scotland will pursue a different approach by that time.

May I pass on a huge thank you to the Chancellor and to the Minister from Pathfinder Park Homes, a manufacturer of static caravans in my constituency, which is delighted with the reversal on VAT? In its view, it has saved its business.

I am grateful to my hon. Friend for his comments, and I am sure that his constituents are grateful to him for the work he has done on this matter.

What estimate has the Minister made of the damage done to the bakery industry as a result of announcing a policy that has now been reversed?

Given that the policy does not come into effect until 1 October, we do not think any damage will have been done through the policy. We think that addressing the anomalies is the right thing to do, and we have taken the opportunity to improve the policy we initially announced.

Evidently, the most urgent question relating to the Budget changes are those to VAT on static caravans and hot pastries, while across the channel we literally have financial Armageddon happening. What would the Minister contrast between the management of this country’s finances and the management of those of Europe?

This Government are determined to focus on the big issues we face. As a Government, we are showing determination to ensure that the UK remains in a safe place.

I am grateful for the Minister’s diplomacy, but let me say gently to the hon. Lady that the question was not quite as wide as the channel—but it was not far short of it!

Will the Minister confirm what extra information came to light during the recess that led to the U-turn on the charity tax?

In respect of all the measures we are discussing today, this Government have been listening to the arguments. As far as charities are concerned, once we had reached the conclusion that we would not proceed with a cap on relief for charitable giving, we felt it only fair to make the announcement as soon as we could—and we did so.

Before I feel tempted to congratulate the Minister on the changes he has made, I should perhaps declare a personal prejudice and a personal interest in the reduction in VAT on pasties.

Welcome as the Minister’s consultation with Back Benchers has been, may I ask him to continue to focus on the main aim of the Budget, which is to ensure that we do not go down the same road as the rest of Europe?

I am not sure that that particular policy announcement will necessarily do my hon. Friend any good, but he is absolutely right to ask the Government to continue to focus on the big issues that the country faces, and we will do so.

Given that other applications of VAT are being U-turned, why is its application to sports nutrition products not being U-turned as well?

We think it right for sports nutrition products to be subject to the standard rate of VAT. VAT should be a broadly based tax, and we believe that our policy addresses an anomaly in the system that needed to be dealt with.

We had almost a full day’s debate on these measures, initiated by the Opposition, and the changes made by my hon. Friend are almost exactly the changes for which the Opposition asked. Given that my hon. Friend and his colleagues have listened to Opposition Members, would it not be rather better for them simply to say “Thank you” and sit down—as I say “Thank you” to the Chancellor and his colleagues for the changes in respect of VAT on listed places of worship?

There is only one word to describe the Budget, and that is “omnishambles”, but will the Minister tell us what changes have been made to VAT on skips?

There have been no such changes. HMRC produced operational guidance, which I understand was misinterpreted by the industry. HMRC has clarified its guidance, but there has been no change in the policy or operational position relating to skips.

Marshall’s Bakery in Pewsey, which is in my constituency, will be delighted by the news, as the Minister will know because he received a large petition from its customers. I am proud to be part of a Government who listen to people, but will the Minister please assure me that he will never, ever listen to any economic advice from the Labour party, whose view is that the way to get out of a borrowing crisis is simply to borrow more?

I can assure my hon. Friend that we will not be listening to those who think that the best solution to debt is to borrow more.

So much has been changed in this disastrous Budget that one wonders what will be next. Will the Minister now start to rethink his tax cut of £40,000 a year for 14,000 millionaires, which is, quite frankly, outrageous?

Let me point out to the hon. Gentleman that three changes have been made in the 282 measures announced in the Budget. As for the 50p rate, the problem was that it did not raise any money. The measures that we have announced will raise five times more money from the rich than the policy pursued by the Labour party.

On behalf of the thousands of people who supply, make and sell the £180 million of Cornish pasties produced each year, and the millions of people throughout the country—including my hon. Friend the Member for Elmet and Rothwell (Alec Shelbrooke)—who enjoy eating them, may I say “Thank you” to the Minister? It is great that we finally have a Government who listen and do not plough on regardless.

I am grateful for the constructive way in which my hon. Friend and other Cornish Members have engaged in this process throughout.

Will the Minister explain why he chose to listen to representations on pasties, caravans and charities, but not to representations on the granny tax? Was it because pensioners do not have loud enough voices, or because he does not care about them?

No. It was because we found the arguments on the three items that we are discussing today persuasive that we decided to make the concessions we have made.

Will the Minister join me in welcoming the comments of the chief executive officer of Greggs that the Government should be “applauded” for the way in which they have “conducted themselves”, and for listening to the views of the industry? Will he also acknowledge, as Sir Terence Leahy has, that the Government should maintain their course and— unlike the Labour party—keep the British economy sound?

Again, I am grateful to my hon. Friend for his comments. We have listened to strong arguments and responded accordingly. That is what a sensible Government do—and I really must contrast that with the approach taken by the previous Government, in particular with regard to the 10p rate of income tax.

Does the Minister agree that business stability is important and that, for example, a caravan tax rate of 0%, 20% and 5% in six weeks is not good for business planning? Has he written to his hon. Friends who voted for those measures to apologise for hanging them out to dry?

Many Members on the Government Benches engaged with this issue in a constructive and thoughtful way, and helped us reach what I think was the right conclusion.

Most of my constituents want their Government, regardless of political hue, to be a Government who listen and appreciate their views. In this case, the changes made by my hon. Friend and the Treasury team have hugely benefited listed places of worship, which are an important part of our regeneration campaign, and an important local company, Janes Pantry, which makes pasties. They have also been much appreciated by all of us who donate to charities. We cannot have it both ways: we cannot have a Government who listen and then criticise them when they do. I am grateful to the Government.

As the Chancellor recently said, if there is one thing worse than a Government who listen, it is a Government who do not listen.

Unfortunately, the Exchequer Secretary’s attempt to clarify the skip tax appears to have added to the confusion. Will he engage with the industry in the same spirit as he has engaged with others, and consider the eligibility of fines residue from trommel equipment being eligible for the lower rate of duty?

My understanding is that Her Majesty’s Revenue and Customs is continuing to work with the industry to provide clarity in this area. There have been concerns; I think there was a misinterpretation of earlier advice and I believe that that is in the process of being addressed.

I greatly welcome the consultations, but will the Minister confirm that the Government will stand firm on the main facets of the Budget, which have resulted in tax cuts for 25 million people, council tax frozen for the second year running and fuel duty being 10p lower than it would have been under the other lot?

Order. I did not hear a question about changes, but the hon. Member has registered his view with force and alacrity, and it is on the record so his constituents will hear it.

The Minister started by saying that this was a Budget for families, so will he now consider another U-turn and restore the tax credits to working couples on low wages and low working hours?

Order. I am sorry if I did not explain the position sufficiently clearly—although I must say I thought I did. Some Members are making speculative bids for extending the U-turns. They may wish to do so, but the terms of the urgent question relate specifically to the announced changes. I am sure that understanding that point will not be beyond the ingenuity of the hon. Member for Wansbeck (Ian Lavery).

On the announced changes—the U-turns—on everything from buzzards and skips to caravans and pasties, when will the Government reconsider a U-turn on the granny tax and the cut in the tax on the rich people in society?

I am disappointed in the hon. Gentleman. He started out as such a good boy, and it is a pity that he spoiled that thereafter. I know that a similar sin will not be committed by the hon. Member for Kingston upon Hull East (Karl Turner), because he is a good listener and a quick learner.

I welcome the Government’s U-turn on the caravan tax, which would have adversely affected many thousands of people throughout the country. However, will the Minister take this opportunity to apologise to the 350 employees of Willerby Holiday Homes in my constituency who were told that they would potentially be made redundant as a result of the Government’s barmy idea, and will he describe the effect on the industry of the introduction of the 5% tax on caravans?

First, let me say that I am grateful to have an opportunity to return to the Dispatch Box. On the point the hon. Gentleman raises, I really do not think that the changes, which in our original proposals would not have come into effect until October and which now will not come in until April, can be the source of some of the current difficulties within the caravan industry. We think we have the right policy now and that a 5% rate is fair.