Wednesday 7 January 2015
[Mr Andrew Turner in the Chair]
Diverted Profits Tax
Motion made, and Question proposed, That the sitting be now adjourned.—(Mark Lancaster.)
A happy new year to everyone who is here for what I hope will be an interesting debate on a whole new tax. It is not often we get whole new taxes in this country, and I thought we should mark this one with a bit of parliamentary scrutiny, because I fear it will sneak through in the pre-election wrap-up Finance Bill and will not get much debate in Committee. It would therefore be helpful for Parliament to have a bit of a chance to work out the Government’s intentions and exactly where they intend this tax to go.
If we judge Government measures by how balanced the reaction to them is, this tax has probably gone down about right with people. Some advisers regard it as the worst-drafted legislation in some time, while some have said it is relatively narrow and focused—there has even been a cautious welcome from Richard Murphy, although he is perhaps thinking again about that. Another tax campaigner, David Quentin QC, regards the tax as “widely and aggressively drafted” with “a penally high rate”. If we take the average of all those reactions, it is probably about where the Government would want it to be. It appears that the tax will deter some people from doing some things, but it will not do so ridiculously little that it destroys the UK tax regime, so we are perhaps starting in the right place.
It would be useful to understand what the Government see as the way forward. We have had Treasury tweets suggesting, “This tax isn’t ever really meant to apply to anyone. We hope everyone will change their behaviour. We’ll accept they all have establishments in the UK after all. They’ll stop using artificial transactions, and everything will be fine. We’ll rarely have to apply this tax. It’ll be a big stick that never actually gets wielded.”
In some ways, the Treasury forecast of how much the tax will raise suggests it is not intended to apply to the many thousands of multinational companies it could apply to. Some advisers say that, in theory, the tax could apply to a large number of people and raise a large amount, but the Treasury seem to think it will raise a small amount. I assume, therefore, that behavioural change is the main motivation, but it would be interesting to see whether the Minister confirms that. It would also be useful for everyone to know that the Government actually intend to put this tax through before Parliament is dissolved so that it is on the statute book exactly on 1 April—the date on which it is intended to come into force.
That leads me to one of the main concerns about the new tax—its impact on, and the Government’s strategy for, the base erosion and profit shifting process, which is intended to produce an international agreement on stopping multilateral companies flouting tax rules around the world and avoiding paying tax on profits they earn in various countries. Everyone accepts that that is the right place to get to. It is ludicrous that a large global company can earn profits in the UK and not pay tax here. We all want that to stop, and we all welcome the fact that the Government have introduced a proactive measure to achieve that. However, what I suspect no one wants to happen is that, rather than moving forward with a global agreement so that we have globally consistent rules that can be applied everywhere, we end up with a load of countries taking a piecemeal approach, putting in place slightly different rules that overlap or conflict with each other. In other words, rather than a sensible level global playing field, where everyone knows what the rules are and applies them, we end up with some horrible complexity that results in a similar mess to the one we started with or, equally as bad, a load of double taxation risks. We are a main global trading nation, and I suspect we have a lot to lose from a load of conflicting double taxation rules.
I congratulate the hon. Gentleman, who is a colleague on the Northern Ireland Affairs Committee, on securing the debate. The message I get from many in the business community in my constituency is that if Her Majesty’s Revenue and Customs had been doing its job in the first place, there would be no call for this new tax. HMRC does not seem to go after the large companies that avoid paying tax, but it does go after the medium-sized to small companies, and that is unfair. What we really need is a level playing field.
The hon. Gentleman comes from an area that would like to be a tax haven—under these rules, a tax haven is defined as somewhere where the tax rate is less than 80% of the UK rate, and I suspect he hopes that the rate in Northern Ireland will be less than that in the relatively near future, although I would be intrigued to see whether the rules would actually apply to profits diverted into Belfast. However, I agree with him in part, and we have had all the stories about sweetheart deals. It is much harder for the Revenue to go after very large companies with very sophisticated advisers who can resist the rules, and it may be tempted towards softer targets that are perhaps not as well advised. However, it is not fair to say that we have this new tax because the Revenue has failed to use the rules that exist. There is a gap in the law, and certain companies have managed artificially to avoid having a permanent establishment in the UK and have, therefore, avoided paying tax on UK profits. I think a general agreement has been reached through the OECD BEPS—Base erosion and profit shifting—process that the rules need changing to bring those profits into tax in the right places. The point the hon. Gentleman made at the start of his criticism was therefore perhaps not entirely fair, given the context we are talking about.
To return to the concern regarding BEPS, no one would want the UK, by acting unilaterally, to unravel that process so that we do not get the co-ordinated international outcome we all expect later this year. It would be helpful if the Minister could explain the Government’s strategy on BEPS. Is the tax meant to be complementary to it? If the outcome of the BEPS process is inconsistent with the tax, do we change the tax, or do we end up keeping both?
My hon. Friend said that this unilateral action should not affect a global agreement that may be reached in the future. What concerns me, however, is that some countries—Luxembourg, the Republic of Ireland and, possibly, Holland—are acting as de facto tax havens. They regard helping big companies avoid tax in our country as a method of increasing their GDP. Given that, it is unlikely there will ever be a global agreement of the type my hon. Friend is talking about.
I have always been cynical about the OECD process, for exactly the reason my hon. Friend gives: the risk is that some countries will block it or undermine it out of self-interest. If the main countries are serious about tackling multinational tax avoidance, one country that really needs to change its rules is the US. The US could stop a lot of this by changing some of its rather strange entity classification rules and other things. That would stop US corporates getting the real tax saving they are after. I sense that until the US is willing to do that, we will never see these things stop completely.
I should have added that our hands are not clean. We appear quite sanguine about the status of the Isle of Man, Jersey and Guernsey. I am always a bit surprised that neither Front Bench has ever regarded that as an issue on which more action is needed. People in Luxembourg would raise that issue with us, just as I am accusing them of acting as de facto assisters of tax evasion.
My hon. Friend makes a fair point about the UK doing some sponsoring of the Channel Islands and the Isle of Man, but I will leave the Minister to answer for the Government’s policies on tackling that. My hon. Friend says our hands are not entirely clean; it is interesting that we have introduced the Patent Box to try to have a lower tax rate for intellectual property in the UK—presumably on royalties charged in countries around the world. We have also been trying to get our tax rate down to a low level to encourage international investment. Someone sitting somewhere with a tax rate much higher than 20% might think that we are trying to encourage profits to be taxed here that perhaps should not be, but I am sure that is not the Government’s intention.
To wrap up on the BEPS process, the Association of Revenue and Customs—the trade union for professionals at HMRC—raised the concern that the Government’s proposals were unilateral and stood outside the BEPS proposals. The ARC suggested an alternative approach, whereby the Government remain in the BEPS process and timetable, but use their current initiative to show they will have legislation in place in case the process falters or is impeded. I presume the Government will confirm that they do not intend to slow down on the rules and wait for the BEPS process and that we will see them on the statute book later in the year.
The second area I would like to look at briefly is how likely the rules are to be effective. We all want the tax to be collected in the UK. We do not want to see these corporates able to artificially avoid paying the tax that is due here, but there is a question on whether the rules will survive a challenge under the UK’s many double tax treaties or under EU law. People suspect that the Government have chosen to do a whole new tax, rather than just tweak the existing corporation tax rules, to try to ensure that the rules are not struck down by our international treaties or by EU law. Can the Minister confirm that the Government have looked into that and are satisfied that the treaty analysis is correct? Paragraph 4 of article 2 of the OECD’s model tax convention states:
“The Convention shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes.”
At first glance, it looks as though the direct profits tax will be a tax on corporate income, which sounds similar to a corporate income tax and our corporation tax. The definition in the convention suggests that the tax might be caught by the treaties. Article 7 of the convention, which is on business profits, states:
“Profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein.”
The problem we are trying to fix with the avoided permanent establishment part of the rules is that if a company does not have a PE, we cannot tax them. We think they are diverting profits out of the UK and we want to tax those profits, but if we are dropped back into the treaty, we might end up in the same position as we started. It would be useful to understand how the Government have satisfied themselves that the tax will not be caught. Is it because they are trying to tax the UK establishment that already exists, or do they believe that it is a new tax that falls outside the treaty?
On the EU law point, I am no big fan of the EU interfering in our tax system. Tax is meant to be for nation states and not the EU. I have never been keen on the view that the European Court of Justice should interfere in sensible tax avoidance rules, so I will not advocate that here, but there must be a risk for the many companies that choose to site themselves in Luxembourg, as my hon. Friend the Member for Warrington South (David Mowat) said. We have all seen the tax rulings that have been published, and we know how many companies are doing that. A company based in Luxembourg might say, “Wait a minute: if I am established in the UK and pay tax there, I pay it at 20%. Why, because I am in Luxembourg, do I pay a slightly different tax at 25%? Is that not fundamentally contrary to some kind of freedom of establishment principle?” There is a risk of a legal challenge to the rules on that basis. It would be useful to understand how the Government have satisfied themselves that the European courts would not strike down what many of us see as a sensible anti-avoidance measure that we would not want to lose.
The flipside to that is whether the provisions have been drawn up in the right way, so that they catch those we are aiming at, but do not create onerous burdens for loads of “innocent” corporations or place a ridiculous burden on HMRC. We want targeted rules that attack the corporations engaging in what they must know to be pretty aggressive artificial structuring. The guidance is clear on some of the structures that HMRC and the Treasury are targeting. We would all probably agree that it looks artificial if a sales force gets 95% of the way through a sale and cannot sign the final contract, but has to refer it to Luxembourg, Switzerland or somewhere else. If the rules are drafted too broadly, there is a risk of thousands of companies that the Government had not intended to be caught fearing that they will be caught. That creates a burden on them, and they will have to go through the whole compliance process to satisfy themselves that they are not caught.
The flipside to that is the risk that HMRC gets thousands of notices that it cannot possibly deal with, and then misses the notices that have all the tax at stake. By drawing the rules too widely, people could sneak through the middle who should not. The adviser community is expressing sensible concerns and asking, “Have the rules been drawn too broadly? Is there any way that they can be focused, perhaps through filters, such as those in the controlled foreign company rules?” Through that, we could be clear to taxpayers on who is intended to be caught, and what the hallmarks are that let them know that they are caught. That can give those who are not trying to avoid UK tax artificially some kind of comfort that they are not in the rules and do not need to do the self-assessment.
I should probably let the Minister explain the tax that the Government are trying to introduce, but there are two parts to the rules. One is about avoided PE and the other is aimed exactly at brass plating. It looks at where companies are paying fees, royalties or other things to companies that do not have the substance to justify the income they are earning. If the hon. Gentleman reads the examples that HMRC has put in the guidance, he will see that the rules target the routing of large fees into entities with very little substance in tax havens. I think we would all accept that that is an appropriate, sensible and fair target. I am sure the Minister will correct me later if I have misunderstood and am too optimistic about what the rules are trying to achieve.
Those concerns about how broadly the rules have been drafted are echoed by the ARC, which is concerned that HMRC will end up swamped by a load of notifications from people. It recognises the burden that that will place on companies and HMRC. Can the Minister confirm whether the Government are prepared to look in the consultation at whether any filters could be introduced to try to make the compliance burden easier for companies that are not trying to avoid tax, or does she think that that is too risky and might narrow the rules and allow some companies that should be caught to squeeze out?
Clarity on the direction of the Government’s thinking, and on how we can get the rules to apply only to those to whom it should would be welcomed by a lot of people. One way of achieving that would be a clearance mechanism. Will the Government consider that? Is there a way that taxpayers could seek an advance ruling from the Revenue, or confirmation that what they have done does not bring them under the rules?
That brings us to how the Government propose to handle large corporates that have been through inquiries on their transfer pricing or their permanent establishments and think they have an agreement with the Revenue that says that their tax affairs are okay. Are those agreements still in force or, because the tax did not exist when those agreements were made, are they outside the rules? If the company has been engaging in activities that HMRC thinks are avoidance, are those activities safely in scope? Do we expect customer relationship managers to give their customers any assurances on that? Exactly when can people get assurances? When will HMRC staff be trained on the new rules? The rules will apply from 1 April. If a company has an April year-end, it will in theory have to submit its notice by the end of July. The rules will apply in six months’ time, and people will have to start complying with them. When will the support be available for people to work out what they need to do?
The final area I will touch on is the assessment and collection process. This is a new tax with a different assessment method from the one we are used to in this country. We normally accept that people self-assess how much tax they owe and then pay it. HMRC chooses whether to inquire and challenge how much that tax is. With this tax, we have almost the reverse of that. A taxpayer has to write and say, “I think I might be caught”—that is perhaps not quite the technical language—and HMRC has two years from year-end to issue an initial charging notice stating, “Here is how much we think you owe.” The taxpayer has 30 days to make representations and HMRC has 30 days to issue a final charging notice. The taxpayer has to pay that then. Then there is a year in which that charge can be inquired into, challenged and discussed before it is finally agreed. Effectively, that is saying, “Pay now, argue later”, rather than agreeing the liability before it is charged. There are questions about how reasonable that approach is. I accept that it will enable the Revenue to get the money early and leave the arguing until later. Perhaps part of the intention behind the tax is to prevent people from engaging in that behaviour in the first place.
There is a practical question. If the Revenue gets a notice from a multinational corporation that it has not inquired into regularly in the past, how can it issue an initial notice saying, “Here’s how much we think you owe”? If it has absolutely no idea other than a territorial disclosure of its UK turnover, how can it have any idea of how much tax to assess in the first place? Will it put a finger in the air and say, “Don’t worry, we’ll sort it out in the fullness of time”, or will there be some process to enable the initial assessment to be at least relatively in the right ballpark? No one wants a system in which someone gets an assessment that is far too low and chooses not to challenge it, or one in which they get an assessment that is ridiculously high and that creates unintended business survival issues, although those are clearly extreme situations.
I am also slightly intrigued about what will happen if we think a whole load of tax is owed by a non-UK resident party. How do we collect it? I assume that we can go through the mutual collection procedures, but I have never been entirely convinced that it is easy to make them effective. There is a provision in the rules that enables us to collect tax from any UK member of the group, but if there are relatively small UK group companies that do not make any money due to artificial tax avoidance, how will we get the money from them? Are we assuming that all the multinationals that have apparently been engaging in artificial tax structuring will decide that standing behind their subsidiaries and ensuring that they can pay their tax bills is the right and noble thing to do, or is that one level of optimism too much?
In my 20-minute canter round the new rules, I have been trying to extract from the Government further information about their policy direction, the intent of the rules and who they are trying to catch. Are the Government happy that the rules are catching the right people, and not just spreading the net so wide that it will create compliance burdens? We do not want to make the UK a less attractive place for corporates to establish themselves. We clearly do not want to attract artificial tax abusers, who come here to take advantage of our tax regime. However, our strategy has been to make ourselves a territory in which companies want to base their head office, and in which they want to invest by creating a stable, predictable tax regime.
UK Trade & Investment published a helpful document, “A guide to UK taxation”, which notes that we have a stable tax regime, that we avoid unnecessary changes to the rules and that our tax policy is aligned with business practice. It states that we have
“legislation which minimises complexity…a level playing field for taxpayers”
“A transparent and consistent approach to policy-making”.
Our objective is to create a level playing field in the UK territorial system, so we want everybody who operates here to pay taxes on their profits here. I see this tax as a way of ensuring that everybody pays their tax, and as a way of creating a level playing field so that UK companies are not out-competed by multinationals that do not pay tax.
However, is the Minister concerned that the speed at which the rules are being introduced will worry some corporates? Will their breadth put some people off investing here or make some corporations think, “Well, the easy way out of these rules is to have no UK establishment at all. We’ll just ship everything in from Rotterdam”? Is there a risk that we will lose jobs and the tax that we do get by chasing such things too onerously? I suspect that most of us will say that we are a great place to do business, so if companies want to make money here, they must pay their tax here. If they do not want to pay their tax here, perhaps they are not the kind of people we want. However, I am not sure it is easy in the real world to make that stick.
Are the Government happy that the rules are proportionate and in the right place? Do they target the right people? Will they be effective in tackling those people? Are the Government sure that they will not be struck out by some other international law? Will the Government respond to the various responses by tweaking the rules to ensure they focus on the right places, so we get the tax off people who owe it without unduly burdening those who do not?
I thank the hon. Member for Amber Valley (Nigel Mills) for giving us the opportunity to contribute to the debate. It is always a pleasure to speak on such issues. It is nice to see the shadow Minister in her place. More importantly, it is nice to see the Minister in her place, because we have conversed and supported each other in many debates in Westminster Hall. It is nice to see her back in a ministerial position. I look forward to her response, which will be worth listening to.
The public anger has been immense over this issue. If there is one thing that nyarks people, to use an Ulster Scotsism, in my part of this country, it is the issue of tax avoidance—big companies making money and not making the contribution they should.
We welcome the Chancellor’s introduction of the new tax; we are pleased to see it. Many of the companies that hit the headlines back in 2012—they are not all UK-owned—have been in and out of the news ever since, which infuriates people. The Chancellor said that this new legislation will bring in £1 billion over five years, although others have said that they are not sure whether it is workable. When the Minister replies, will she give us an idea of how it will work and how we can make those companies accountable?
Does my hon. Friend agree that although the proposed legislation is welcome, we need to take account of what was said earlier? The director of the Oxford University Centre for Business Taxation said:
“The fundamental problem is the structure of the international tax system”.
In addition to this legislation, we need international co-ordination to prevent people from brass plating.
My hon. Friend and colleague is on the button. Although it is good that we have the legislative change, we need co-operation among countries across the world so we can work together to address this issue.
This new legislation aims to ensure that people pay tax. There are various safeguards that, as my hon. Friend and colleague said, we need to see in place. We need to work better with other countries across the world. We also need to ensure that businesses that are pursued wrongly are not affected.
The legislation is for larger companies. It concerns what is referred to as artificially diverted profits, and that is exactly what it is. Foreign companies must have UK sales of at least £10 million, and if the UK activity would be considered a small or medium-sized company for UK accounting purposes, this new law does not apply, so there are some important concessions.
Finally, the tax provision examines whether UK costs have been inflated or UK sales have been reduced, which is another way of artificially diverting the figures. We must look at whether there is a tax mismatch between what seems likely should have been reported in the UK and what is reported in a foreign company. We need clarification on those issues from the Minister. The hon. Member for Amber Valley set the scene well in his introduction.
Although £10 million might seem like a lot of money, I will put it in perspective. In 2011, Starbucks, a global company that has come into disrepute again for not paying any tax—its coffee is lovely but there is an issue to address elsewhere—made £398 million in UK sales alone. I used the word “nyark” earlier. It nyarks us greatly that companies can make that much turnover and not pay a considerable amount of tax.
Does my hon. Friend accept that doing nothing is not acceptable? However, as questions have been asked about the new scheme that the Chancellor spoke about, is it not best that we look at those questions and ensure that the legislation that is being introduced will tackle the problem we face?
My hon. Friend is absolutely right. We need to have legislation in place that enables us to oversee the loopholes that have been outlined. We are all hoping that the Minister will tell us how it will work in her response. I hope she will address the questions that have been asked.
Starbucks employs 8,500 people in the UK, so it makes a contribution in employment, wages and associated taxes, but it pays no corporation tax. Amazon, another global company, employs 15,000 staff in the UK and reported sales of £3.35 billion in 2011, as well as profits of £74 million, but it paid only £1.8 million in corporation tax. That annoys me greatly. Google, one of our favourite search engines, made £396 million in 2011 and paid only £6 million in corporation tax. Some of the companies have of course been stung into making tax contributions, although those have been minimal.
An article by Joseph Brothers that I read last month in the magazine Tax Notes International sums up the subject of the earlier intervention by my hon. Friend the Member for Upper Bann (David Simpson) on brass plating. Brothers suggested that Apple, reacting to a threat by the Irish Government to shut down one of their lucrative, corporate-friendly, tax-avoiding laws, would switch strategies to escape taxes in Ireland. He wrote that the so-called “Double Irish” might soon be replaced by a new “Bermuda Triangle”: instead of ships and planes mysteriously disappearing in it, it would be a triangle of tax treaties between Ireland, the Netherlands and Bermuda, exploiting rules that do not quite align and creating the space for profits to vanish, at least to the eyes of the Internal Revenue Service auditors.
If that strategy works, Google and others are likely to follow suit. The outcome could well be that the big corporate tax dodgers achieve what a noted tax lawyer calls “stateless income”: siphoning profit out of high-tax countries in Europe, Japan and North America and moving it around under tax treaties until it is not subject to any tax, because any profits are being reported in a non-existent country called “nowhere”. That is the bottom line of what could happen if our legislation is not correct and if the loopholes, disparities and open questions are not dealt with.
I am using those three companies as examples, but there are many others. Unfortunately, a common trend is filtering down through to a large number of companies. At the end of the day, we must remember that UK-based companies pay corporation tax on their taxable profits wherever those are made. It is only right, therefore, that foreign companies pay tax in the UK on profits made in this country. We must make it clear that the UK is not a country to come to for freeloading. Those are the issues.
Many British-based global companies do pay their taxes. They are concerned that the new legislation might give HMRC too much discretion. Furthermore, as the head of the tax policy unit of KPMG here in the UK noted in the company’s latest annual tax competitiveness survey, companies value “stability” and “simplicity”, but unfortunately, one criticism of the proposed legislation is that it does not offer simplicity. Many questions therefore need to be answered and much transparency applied to ensure that the legislation, while welcome—we have to take a step in the right direction—can work in practice.
The aims of the legislation are admirable as well as necessary. In a recent poll of more than 500 accounting and small business professionals, taken immediately after the Chancellor’s autumn statement, 56% of respondents said that the most significant tax announcement in the speech was the one about the diverted profits tax. Many, perhaps all of us—if not the companies trying to avoid the measure—welcome it, but we need to be sure that everything is in place.
Will the Minister tell us about another issue raised by the hon. Member for Amber Valley: the IT equipment necessary to ensure that expertise is in place? There is also the question of the resourcing of moneys. I understand that the initial set-up will cost £2.3 million in staffing for the first year and £1 million per year thereafter. At a time of HMRC cuts, of which we are all aware in every area, perhaps the Minister will indicate whether provision has been made for the IT equipment and the necessary staffing resources to ensure implementation.
It is of course important to remember that big businesses are always welcome in the UK and, as other Members have said, we do not intend to turn any away. We want companies to be based in the United Kingdom, but we, like everyone else, want them to make their contribution to the tax system. It is always extremely pleasing to hear that another company has made the decision to expand in the UK, and we are seeing a lot of that at the moment in Belfast. It is good to have those companies providing employment opportunities and taxes, and spending money so that our economy in Northern Ireland grows. That is super news for local people, local business and the local economy. It is also vital, however, that those big companies pay their way, otherwise it is not so lucrative after all for local businesses, people and economies. Instead, the money will simply stay in the hands of the global giants.
Will the Minister say what steps the Government will take to deal with the tax havens in the Isle of Man and the Channel Islands? Will we have some influence there, or access to information? Gone are the days when money was hidden under the mattress, the bed or the floorboards; people now put it overseas in tax havens. Will the Minister give some indication of the direction of policy?
I am keen to check the view of the hon. Gentleman’s party. In the event that Northern Ireland chooses to reduce its corporation tax rate, does he agree that Northern Ireland should not use that lower rate to attract artificial income into Belfast, as the Irish did in the Republic? The lower rate should be for the purposes of getting real jobs and real substance into Belfast, instead of dragging profit out of the UK mainland, perhaps through the financing of intellectual property companies or other ways of artificially moving tax.
The hon. Gentleman will find that my party, through the Northern Ireland Assembly and the First Minister, will hold an upstanding position in working the policy. We will not be developing into a tax haven. We want to see real jobs for real people on the ground. That is the way forward, and it is what we support.
We are pleased to have the Minister in her place today. Responsibility for answering our questions and for how this will work lies very much with her Department. We are committed to having the new legislation in place, I hope by 1 April. We want the big companies to be brought into line and made accountable for tax avoidance. We want the issue of the tax havens over which we have control to be dealt with, and for our neighbours in the Republic of Ireland to have the same opportunity. In addition, we have to look at the global picture, because although legislative change may take place in this country, what will really make it work is how we interact with other countries.
It is a pleasure to serve under your chairmanship, Mr Turner. I, too, congratulate the hon. Member for Amber Valley (Nigel Mills) on securing the debate. His initiative is excellent, given the enormity of what is proposed.
There is something of a crisis in corporation tax: globalisation, the European Union and the internet have all given many more opportunities to move tax or profits around. In the days since I was a global finance director in 1996, we have seen a lot more predatory activity by advisers and companies. They seem to be far more shameless about carrying out transactions without a commercial basis. With my training, I would have said that that was already a problem, even without any new legislation, but companies seem quite happy to do such transactions, to the extent that a year or so ago the chief executive of WPP could describe the amount of tax paid as “a question of judgment”, which tells us a lot about the amount of flexibility that he could see in the system.
Moreover, the chief executive of Google famously boasted about avoiding £2 billion in tax in a single year. He seemed to have no concept that that meant £2 billion in cuts to public services in the all countries in which his company operates, or the same amount more in tax that other companies and individuals in those countries would have to pay. The climate seems to be changing, although the Prime Minister’s business advisory group still includes that chief executive. I wonder whether he had any input into the new policy and what he thinks of it.
After the measure was announced, Newsweek commented on 26 December:
“The British government, after a search, says it knows how to tax profits Google earns in the United Kingdom. Its solution is simple and elegant, and it probably won’t change a damn thing.”
That view is perhaps overly cynical, but it backs up a point made by several Members: the expectation is that companies will take other measures rather than lie down and pay the tax. That is a huge issue.
The hon. Member for Amber Valley was right to mention the question of how on earth the tax will be calculated. City experts are already saying that the calculations will lead to a “legal quagmire”—that is one expression I have seen used. In other words, when HMRC comes up with an assessment the lawyers will probably start work. I wonder whether HMRC has budgeted sufficiently for the resources that it will need to make the tax stick. It could be involved in lengthy legal cases with expensive lawyers paid by large companies.
That leads us to the main question concerning this tax. When I was trained as an accountant, we were told that the one principle a tax system needs is certainty. In other words, it should be clear what a company is doing and what the tax on that will be; the company can then pay that tax. Certainty is one of the functions of a good tax system, but with the diverted profits tax we are straying into an area of high uncertainty about how the tax will be assessed and paid. The hon. Gentleman made an excellent point about our ability to collect the money: by definition, it could be all over the place and not in the UK. That leads us to the question of the confidence the Minister has in our ability to collect the money—I am interested to hear her comments on that.
The hon. Gentleman has made an interesting point about certainty and also about the difficulties that globalisation and the internet have caused for gathering corporation tax. Is there a case for the international community to give up on corporation tax and instead have higher taxes on sales and, if necessary, dividends, so that the tax is still raised in the end but we do not have a continual process of chasing money across international boundaries, which, for the reasons he has given, is time consuming and perhaps counter-productive?
I take the hon. Gentleman’s point on board. I know that some commentators believe the right way to go is to scrap the incredibly complex system that we have. Although that might be where we end up, I would like to see country-by-country reporting introduced first, so that we know what activity companies are carrying out in each country, and where they are trading and are declaring their profits will be transparent to the world at large. That would help tax authorities; also, the problems companies would then have with reputation management would cause quite a shift. I would like to see that country-by-country reporting first, but perhaps we will end up in the position that he has suggested.
The estimate is that the tax will raise £1 billion over five years. That is a very small amount given the scale of the issue. One commentator has suggested that Google alone could be assessed as owing around half that figure. The Financial Times has found that in 2012 seven US technology companies paid only £54 million in tax on UK sales of $15 billion. I am aware that corporation tax is levied not on sales but on profits, but the companies we are talking about typically make 20% profit or more on sales, so we could quickly come up with a large number there. Will the Minister tell us how the assessment of the amount the tax will collect was made? What assumptions sit behind it? The figure seems small given all the relevant issues, which we are well aware of.
The hon. Member for Amber Valley rightly mentioned EU law. I will not repeat what he said but there is clearly the potential to challenge the tax through the EU. When one talks to global finance directors, there is no doubt that financing structures and interest payments are the tax avoidance measure of choice—they are how the largest diversion of profits occurs. Will the Minister explain why offshore finance centres and excessive foreign interest payments have been specifically excluded from the diverted profits tax? I welcome the moves that have been made, but a large area has not been addressed by the tax.
I will mention a few other aspects of profit diversion. The Minister may tell us that they are included, but my guess is that most are not. There are well documented loopholes used by banks for tax arbitrage between countries, particularly between the UK and the US, because different instruments are taxed differently in the two countries and by shuffling money backwards and forwards it is possible to create beneficial tax arrangements. Will the legislation address those loopholes? Does the legislation deal with hybrid entities, for which there are similar opportunities because of the different taxation of legal structures between different countries? They are another method that the financial services sector in particular uses to shift profits.
Some of the issues connected to Luxembourg have been mentioned already, but will the Minister address the issue of the wholesale tax avoidance and profit diversion that, for example, sees Vodafone holding five times as much capital in Luxembourg as the GDP of Luxembourg, although it does no trading there? That kind of thing enrages the public, and it is high time it was addressed. When will she get the EU to deal with the preposterous activity going on in Luxembourg behind its so-called headline corporation tax rate of 29%?
The Channel Islands have already been mentioned. The particular point I want to raise is that the majority of contracts for UK private finance initiatives are now financed from those islands. That makes a mockery of the Green Book assumptions about PFI tax recovery; it is assumed that a very high figure—I think it is 6%—will come back to the Treasury in tax receipts, but that assumption completely ignores the fact that PFI deals are routinely moved to the Channel Islands, including those for 50% of the schools in my constituency, which are apparently owned in Jersey.
Those are just a few of the arrangements that may or not be covered by the diverted profit tax legislation. I suspect most are not, but they illustrate the fact that there is a lot more yet to do.
Diverted profit arrangements do not simply cost tax or allow profit diversion; they incentivise offshore acquisition and ownership of UK businesses. These days, highly profitable UK businesses have to create some offshore financing or else somebody else will do it for them, as predatory takeover activity in the UK is often predicated on offshore finance structures designed to move taxable profits out of the country. A good example would be Betfair. Last year, a company was looking to take it over in an aggressive takeover. I wondered what the company was going to add in terms of betting technology or new IT, but the clue was the name: “So-and-so Partners, London and Luxembourg”. The factor the takeover was going to add was the shifting of Betfair’s profits away from the hands of the Treasury. In the end, that takeover did not go through, but the diversion of profits affects business ownership and competition in the UK.
I mentioned the amount that the tax is expected to raise. I think the figure is low because of what are traditionally called behavioural effects—in other words, what companies may do as a result of the tax—and so I am interested to hear more from the Minister on what the Treasury thinks will happen, as opposed to the idea that companies will simply sit there and pay the tax. What kind of measures does the Treasury consider companies might take?
How will the success of the tax ultimately be measured? As the hon. Member for Amber Valley rightly said, it could well be that the real success of the legislation will appear not in diverted profit tax receipts but as higher corporation tax receipts. Does the Treasury have any way of judging how the measures have played out?
I welcome what is happening and hope that the Government will do more. I have mentioned country by country reporting, and that has begun to happen in the financial services sector. It is driven partly by other countries’ legislation. I hope it will expand through the work of the OECD and pressure from our Government, and in the operation of companies around the world will become more transparent. We should push for that.
John Cridland, the head of the CBI, said about a year ago that he was confused and did not know what the Government wanted on tax. I do not think that it is confusing at all. We want companies to account for their UK activities in the UK and pay tax on the profits that they earn in the UK. It could not be any simpler. I addressed the CBI tax forum two or three months ago and made that point. I said bluntly that if its companies were doing otherwise, we would steadily be coming after them.
The Government have a record of at least moving in the right direction. I was a member of the Public Accounts Committee for more than four years and took part in scrutiny of large companies and tax advisors; judging by the culture and attitudes out there, we still have a long way to go. I vividly remember asking a tax advisor how many of the schemes that he had advised individuals and companies to adopt in the previous few years had been made illegal; he cheerfully said it was all of them. It is good news that HMRC keeps pinning those things down, but the fact is that there is an industry out there constantly looking for new ways to avoid the taxes that we try to levy. I hope that the Treasury will make its proposals work, and will continue to recognise that there is still much more to do.
It is a pleasure to serve under your chairmanship, Mr Turner. I congratulate the hon. Member for Amber Valley (Nigel Mills) on securing the debate, and on his speech. He raised many points on which I, too, want to press the Minister. He was right to say that the issue has not received a huge amount of attention, and that there will not be a great deal of parliamentary time for detailed scrutiny of the Government’s proposals, given where we are in the parliamentary cycle.
The announcement of the proposals was of course rather trumped by the changes in stamp duty, which led the media coverage and debate. However, there has been a lot of coverage in the specialist taxation media, and that has helped to bring out some of the issues raised by the proposed diverted profits tax. I am grateful for this opportunity to press the Government further on their proposals. I will seek answers about technical detail— bearing in mind that there is currently a technical consultation, which will report on 4 February—as well as about practical elements and the Government’s emerging thinking about the impact on the OECD BEPS process. All three hon. Members who spoke mentioned that.
Our general approach is not dissimilar to the Government’s, and we recognise that there is a significant issue. All those who have spoken have referred to the public examples of large companies, with significant businesses that are doing very well, effectively gaming international tax rules to minimise their tax liabilities in this country. That significantly undermines public trust and confidence in the taxation system, particularly at a time of economic difficulty and stress. It is a real issue, and it is legitimate for all political parties to look for practical answers to alleviate such concerns.
As a general principle, economic activity should be taxed where it takes place. The question for all politicians to grapple with is finding an effective way to get to that point. For the Opposition—and for the Government, going by what they have said throughout this Parliament—the starting point is to try to work with international partners, notwithstanding the concerns raised by the hon. Member for Amber Valley about whether the US and other jurisdictions would be willing to play ball on co-ordinated international action to deal with gaming of the international tax rules. It is the right place to start, and that is why we have supported the OECD’s BEPS process. It is the right forum for seeking an international agreement on tax rules.
The Government have of course been much closer than the Opposition to that process, and we rely on publicly available information about its progress, and expert commentary from, and conversations with, some of the participants. From what the Government were saying up to the time of the autumn statement, we anticipated that their preferred way of proceeding on all the issues that form BEPS action points would be to await the final reporting in September before thinking how to go further. They have of course moved a little more quickly with the diverted profits tax, and I, like other hon. Members, would like to hear more about how that affects our role in the BEPS process.
We agree that a solution is needed and are keen for the issue to be dealt with, so we broadly welcome the Government’s proposed action. We will approach the diverted profits tax proposal in the Finance Bill in a supportive and constructive spirit, because we want a workable solution to reach the statute book; but I want to press the Minister further, particularly about the BEPS process. It would be helpful if she could tell us how those in the process have reacted to the DPT proposals, and why the Government felt it necessary to take unilateral action at this point, notwithstanding what many commentators have said about the looming general election. Was there a feeling that BEPS would not produce much of a result in relation to the relevant element of the international tax rules? Does the decision mean that BEPS will effectively be a failure? Is that the kind of world that we are looking at?
Some commentators have, as I am sure the Minister is aware, expressed cynicism about the motive for a unilateral move by the UK, and some have even suggested that it will torpedo the whole BEPS process, so that we get nowhere. I am interested to understand the conversations that the Government have had with people in the OECD and in the tax specialist community about where BEPS now stands.
I have been listening carefully to the hon. Lady’s points about international co-ordination. In the event of a Labour victory in the May election, what would its position be on UK tax havens such as Jersey, Guernsey and the Isle of Man? I thought that the hon. Member for Redcar (Ian Swales) made a powerful point about the 50% of schools in his constituency that are financed from Jersey. I would expect the Opposition to have developed some policy on that.
I am grateful to the hon. Gentleman for giving me the opportunity to highlight Labour policy in this debate. A few months ago, we published a paper on corporate taxation that included a section on the Crown dependencies and overseas territories. We have made the commitment that, if we win the general election, we will require the Crown dependencies and overseas territories to publish a public register of beneficial ownership. That is the key demand of all in the wider tax justice and fairness community, and it would shine a light on the true owners of businesses based in the Crown dependencies and overseas territories. The Government have spoken a great deal about doing something similar, but I think it is fair to say, without being party political, that progress has stalled. We have gone further by saying that we will ensure that that process happens. I have already taken the conversation forward with Ministers and other officials from the Crown dependencies and overseas territories.
The hon. Lady makes an interesting point. Recently, I met officials from Jersey and Guernsey, and although transparency might be part of the issue, a lot of the arrangements that shift profit out of the UK are totally transparent. The issue is not transparency, but the arrangements themselves and, for example, the allowance of huge interest payments. I know that the debate is not about Labour party policy, but since we have strayed into that area, would her party do anything about such arrangements? A lot of them occurred under the Labour Government’s watch.
Of course we will look at particular arrangements, but transparency is the starting point. The Prime Minister famously said that
“sunlight is the best disinfectant”.
There has already been some opposition to our proposals, which suggests that there is real gain to be made from a much more transparent system for the Crown dependencies and overseas territories. That will be our start point, but we will continue to look at the other issues mentioned by the hon. Gentleman.
While we are on the subject, I would be interested to hear from the Minister about the Government’s approach to tax transparency policy with regard to the diverted profits tax. She will know that, in its paper on corporate taxation published a few months ago, the Labour party committed to going a little further on the broader issue of tax transparency and country-by-country reporting of business profits than the Government have done so far. We will support multilateral action, because we think that that is the right start point, but if multilateral agreement is not reached, we are prepared to take unilateral action on public tax transparency.
The Government have fully rejected that approach, saying that it will create too large a burden on business and that, were the UK to take unilateral action on tax transparency and country-by-country reporting, it would negatively affect the UK’s tax competitiveness. The Minister is well aware that both those arguments apply equally to unilateral action on the diverted profits tax. Will she explain why the Government have used those arguments to block potential unilateral action on country-by-country reporting in the form of a public register, but are dismissive of the same concerns when they are raised by others regarding unilateral action on the diverted profits tax?
It is important to understand why the Government think that those arguments do not apply, because although we may disagree with the criticisms made by business, in particular in relation to the diverted profits tax, it is important to understand the values and philosophical thinking behind the Government’s approach, because that will give us an indication of where policy is likely to go. I would appreciate the Minister’s detailed comments on that.
Other hon. Members expressed concerns about the potential for legal challenge. The Minister is aware that there is substantial scope for discretion in the application of the new rules. Although I was not a tax specialist, as a former lawyer, whenever I see the word “discretion” I know that for lawyers it basically means that there is lots of money to be made—a point also made by other hon. Members. What assessment have the Government made of the possibility of challenges within both EU law and the terms of the UK’s various double taxation treaties? My working assumption was that conversations have already been had, particularly in relation to the double taxation treaties. Nevertheless, it would be helpful if the Minister could update us and perhaps also give further details on HMRC resourcing, particularly for known areas of risk of legal challenge.
The Exchequer impact was also mentioned. Given that the draft legislation casts a broader net than was anticipated in the lead-up to the autumn statement, it is unclear why the revenue associated with the measure is quite so low, comparatively speaking. For example, we know that Google and Amazon alone generate somewhere in the region of £7.5 billion of UK revenue between them. A £360 million tax boost at a corporation tax rate of 20% would imply taxable profits of £1.8 billion, which an aggressive interpretation of the rules could attribute to those two companies alone. The projected yield therefore implies some combination of caution and, potentially, significant ongoing royalty deductions from UK corporation tax, behavioural change, and the anticipation of legal challenges. Again, it would be helpful if the Minister could explain exactly what the Government had in mind when modelling the Exchequer impact of the changes.
Avoidance is a continuing issue. Whenever new rules are introduced, one of the first things we must all look for is the potential for avoidance opportunities. One method for avoiding the rules might be the relocation of businesses where the business model does not require a physical footprint in the UK. Have the Government done any work in consideration of such issues? The new rules read much more like a TAAR—targeted anti-avoidance rule. In the past year, I have had a number of discussions in Committee with the Minister’s colleague, the Financial Secretary to the Treasury, the hon. Member for South West Hertfordshire (Mr Gauke), about the use of targeted anti-avoidance rules to support the tax avoidance measures that the Government have introduced, and I have wondered whether we might also end up discussing a TAAR for this particular TAAR. Again, it would be helpful if the Minister could explain where the Government are coming from on that.
Has the Treasury done any modelling to take account of copycat or so-called retaliatory legislation from other countries? Could the UK ultimately be a net loser? We have some intellectual property-heavy sectors in our country, particularly pharmaceuticals and media. If other countries introduce similar rules, that would affect the UK, potentially making us a net loser. I am sure that the Treasury has done some work on such issues; we should know more about them in order to illuminate the debate.
Finally, where does the Minister think the new measures leave the general anti-abuse rule—GAAR—for which the Government legislated earlier in this Parliament? Tax lawyers in particular have commented that we are seeing much more complicated new legislation, rather than better use of existing legislation, including the GAAR and, potentially, transfer pricing rules and other elements of the tax system that people feel are currently not necessarily enforced. The combination of those two measures could have dealt with many of the issues that have been raised. Instead, the Government have decided to introduce an entirely new tax. Where do they think that that leaves the wider legislative framework?
The Opposition’s general approach is supportive, and we will seek to be constructive as we debate these issues further ahead of the Finance Bill 2015.
It is a pleasure to serve under your chairmanship, Mr Turner, and I wish you a happy new year. I congratulate my hon. Friend the Member for Amber Valley (Nigel Mills) on securing this debate on such an important subject. As a number of colleagues have pointed out, the new measure is designed to ensure that Britain is a very competitive place—in fact, our ambition is to be the best place in the world to start up and run a business. If a company comes to this country, we will charge it low tax rates, but it will be expected to pay. That is what lies behind the measure: to ensure that companies pay that fair rate of tax.
The Government are working to create the most competitive tax system in the G20—a simple, competitive and fair tax system that will support economic growth and investment. However, we then expect companies operating in the UK to pay these fair and competitive taxes, so we are taking action both domestically and internationally. It is not one or the other—one does not rule out the other, as the hon. Member for Birmingham, Ladywood (Shabana Mahmood) suggested it may. We are trying to address concerns about some businesses paying little or no tax on profits made in the UK.
When this Government came to power, Britain had one of the least competitive business tax regimes in Europe. Since 2010, the Government have introduced a series of tax reforms to boost competiveness, such as the patent box, increasing the generosity of research and development reliefs, modernising the UK’s controlled foreign companies regime, and cutting corporation tax from 28% to 21%—next year, it will fall to 20%, the lowest rate in the G20.
The corporation tax reforms were a central plank of our economic strategy, and that strategy is working: growth, jobs and investment are all moving in the right direction. An increasing number of multinational businesses are locating activities in the UK, including companies such as Brit Insurance and Hitachi Rail Europe. The UK is one of the most competitive and attractive countries when it comes to deciding where to base a business.
It is clear that the tax reforms we have made since 2010 are supporting the economic recovery, and that our plan to cut corporation tax again to 20% will lead to more jobs and investment in the UK. Nine out of 10 UK businesses say the corporation tax rate cuts delivered since 2010 have been good for UK competitiveness.
However, as all colleagues have pointed out, there are real public concerns about unfairness in the system, whereby some companies, particularly large multinationals, are seen to be aggressively avoiding tax in the UK. It is vital that the public have confidence in the tax system, and that the tax rules treat both companies and individuals fairly and consistently, without leaving them scope to avoid their obligations. As we seek to return the public finances to balance and reduce the deficit, it is also important to make sure that we collect all the tax that is due. For those reasons, we are taking action, both domestically and internationally, to reform the tax rules and tackle corporation tax avoidance.
The hon. Member for Birmingham, Ladywood asked whether we are therefore giving up on the international tax framework, and of course, as she will know, that is not the case. The current international tax rules were first developed in the 1920s and desperately need reforming, so that they continue to support free trade and ensure a level playing field for businesses, but also to make sure that they address weaknesses such as companies playing different regimes off against each other to avoid paying tax on their profits anywhere at all.
The UK has taken a lead on the international stage to reform these rules and is committed to multilateral action through the G20 and the OECD to tackle the issue of base erosion and profit shifting—known as BEPS. At their summit in St Petersburg last year, the G20 leaders fully endorsed the ambitious and comprehensive BEPS action plan set out over 2014 and 2015. The individual action points are being taken forward by various OECD working parties.
The OECD BEPS project is reviewing the international tax rules to find out where they are not fit for purpose in today’s modern globalised economy. Over 40 countries are collaborating to take forward the action plan: a comprehensive two-year strategy to tackle international tax avoidance.
We constantly hear about the G20 and the OECD, but the Netherlands, for example, is not even a member of the G20. Is the Minister concerned that all this work is going to be focused on certain countries, but that will, in itself, just lead to even more activity in countries that are not party to this process?
The hon. Gentleman makes a good point; nevertheless, the UK is at the forefront of driving the international effort to tackle these problems—these weaknesses—in international tax laws that are very out of date. The UK is certainly doing its bit.
In line with the BEPS action plan, in September 2014 the OECD’s first set of outputs from the BEPS project were fully endorsed by the G20 Finance Ministers at their Cairns summit. In a global economy in which goods and services flow freely between countries, international co-operation, as the hon. Gentleman points out, is the only way to tackle the challenge of tax avoidance. Measures taken in Britain will not deal with the problem on their own; we must have global tax rules, too. That is why, under our Prime Minister, we have been pushing, through the G8, the G20 and the OECD, for global solutions.
Of course, that has to be the right answer, but does the Minister really believe that countries such as Luxembourg and the Republic of Ireland, which derive a considerable amount of GDP from a tax evasion strategy, will contribute to any such global effort when it is so important to their standard of living?
I am grateful to all hon. Members for the points they are making about other tax jurisdictions. What the UK can do is lead the international effort and focus on what we can do to ensure that the UK’s tax base is not eroded. Therefore, although these other points are extremely important, hon. Members will realise that I cannot influence directly the tax laws that Luxembourg undertakes for itself, other than through the contribution the Government make to the international effort to put pressure on different jurisdictions.
The Chancellor announced, in the autumn statement 2014, UK action on two of the internationally agreed 2014 outputs of the BEPS project. I know that the hon. Member for Redcar supports the UK’s introducing legislation to implement the G20-OECD agreed model for country-by-country reporting, which will require multinational companies to provide tax authorities with high-level information on profit, corporation tax paid and certain indicators of economic activity for risk assessment. Draft legislation for the Finance Bill 2015 was published on 10 December 2014, with a tax information and impact note and an explanatory note.
Furthermore, a consultation document on the UK plans for implementing the G20-OECD agreed rules for neutralising hybrid mismatch arrangements—another point raised by the hon. Gentleman—was published at the autumn statement. The new rules will tackle a tax avoidance technique used by multinationals to exploit differences between countries’ tax rules to avoid paying tax in either country, or to obtain more tax relief against profits than they are entitled to.
However, the Government have gone further still. The hon. Member for Birmingham, Ladywood asked whether that was instead of BEPS or because we feel that BEPS will not work, but no, not at all—this is in addition. The Government have gone further to tackle tax avoidance by multinational companies operating here in the UK and to strengthen our defences against the erosion of the UK tax base. That is entirely complementary to the BEPS process. Where companies in the UK are going to extraordinary lengths to avoid paying their fair share of tax, we will act to prevent that. That is why the Government have introduced the new diverted profits tax—to counter the use of aggressive tax planning by large multinationals to avoid paying tax in the UK on profits that have been generated from economic activity here in the UK.
The diverted profits tax will be applied using a rate of 25% from 1 April 2015. The measure is targeted at contrived arrangements used to shift profits away from the UK in a manner that ensures they go untaxed or largely untaxed. The measure is designed to counter the erosion of the UK tax base as a result of complex structures that circumvent the international tax rules on permanent establishment and transfer pricing.
For example, some multinationals have gone for aggressive tax planning that involves quite complicated arrangements, such as the so-called “double Irish”—a point raised by the hon. Member for Strangford (Jim Shannon) and my hon. Friend the Member for Amber Valley—using group companies in other countries as conduits to route expenditure to tax havens so that profits from UK activity goes untaxed.
Specifically, the diverted profits tax applies in two situations. The first is where a foreign company carries out activities in the UK in connection with the supply of goods or services to UK customers in such a way that it avoids creating a permanent establishment, and the main purpose of that arrangement is to avoid UK tax, or a tax mismatch is secured such that the total tax derived from UK activities is significantly reduced. The second situation is where a UK company, or a foreign company with a UK permanent establishment, creates a tax mismatch by using transactions or entities that lack economic substance.
If a multinational company is found to be using those contrived arrangements to avoid tax in the UK, HMRC will issue a notice that requires the diverted profits tax to be paid up front. The legislation provides for a review period of up to 12 months, within which the multinational company will have the opportunity, among other things, to demonstrate that it was not liable for the charge or to provide information to HMRC to show that the level of disallowance of intra-group expenditure in computing the charge is wrong on normal transfer pricing principles. The measure is designed to complement our transfer pricing arrangements.
On the second case the Minister mentions, she can be interpreted as talking about artificial financing structures—for example, moving money to Luxembourg and then loaning it back to the UK—but the briefing note says that the legislation specifically excludes such arrangements. Can she confirm that?
I think I have been quite clear about the purpose of the legislation. I am not aware of the briefing note to which the hon. Gentleman refers. I will address the point again in responses to questions, so perhaps we can deal with it then.
After the 12-month review period, if the charge has not been withdrawn, the multinational company will have the right to appeal the charge at a tax tribunal on any appropriate grounds.
There are some specific exemptions from the tax. A number of hon. Members asked who was exempted. Those will include small and medium-sized enterprises, companies with limited UK sales and the situation where arrangements give rise only to loan relationships. I will come on to that in more detail at the end of my responses to questions. The draft legislation was published on 10 December and will come into effect from 1 April. Comments from industry are of course welcome as we finalise the rules to ensure that they are clear and targeted.
As I said, the UK is fully engaged in the work to reform the international tax framework through the OECD-G20 BEPS project. The introduction of the diverted profits tax is entirely consistent with those principles and complements the ongoing international efforts in the BEPS project, which is looking to align taxing rights with economic activity.
A number of hon. Members questioned the yield that is expected or forecast from the diverted profits tax. The Office for Budget Responsibility has certified the central estimate of tax yield to be £1.35 billion over the next five years to 2019-20. That will contribute to the £31 billion that HMRC has already secured from tackling tax avoidance and evasion by large businesses since April 2010.
Let me answer some specific questions. My hon. Friend the Member for Amber Valley asked whether this measure was in some way overriding UK tax treaties. I can reassure him that that is not the case. The scope of the UK’s tax treaties is limited under UK law to income tax, capital gains tax and corporation tax. The diverted profits tax is therefore not covered by those treaties, so, as a formal matter, there is no treaty override; and in fact the OECD, in the commentary on its model tax treaty, provides that states can deny the benefits of a tax treaty where arrangements have a main purpose of securing more favourable tax treatment in circumstances contrary to the object and purpose of that treaty.
My hon. Friend also asked whether the measure was compatible with EU law—he did so rather reluctantly, and I would be reluctant, too, on the matter of tax sovereignty. The diverted profits tax has been designed to comply fully with our obligations under EU law. It is aimed at structures that are clearly designed to erode the UK tax base. As such, it is an appropriate response to those who abuse EU law to divert profits from the UK. The safeguards built into the legislation provide taxpayers with a number of opportunities to demonstrate that they should not be subject to the diverted profits tax. Accordingly, we believe that this is a balanced and proportionate measure that tackles arrangements that are clearly designed for tax avoidance.
The hon. Members for Strangford, for South Antrim (Dr McCrea) and for Upper Bann (David Simpson) asked about the specific cut-off for the diverted profits tax. I can tell them that the rules do not apply to SMEs as defined by the EU. That includes companies with fewer than 250 employees, turnover of less than or equal to €50 million and a balance sheet size of €43 million. That is consistent with our transfer pricing legislation. There are also measures that restrict the diverted profits tax if there is not much UK business going on.
My hon. Friends the Members for Amber Valley and for Warrington South (David Mowat) asked about the Channel Islands and the Isle of Man. Of course, they will be aware that those territories are free to set their own rates. We in the UK will go through international forums in terms of influencing international tax jurisdictions, but the UK has a very clear and transparent tax policy-making process, as evidenced by this parliamentary debate. Tax is a national, sovereign matter, so individual tax jurisdictions are free to set their own tax policy. The diverted profits tax is designed to ensure that the UK’s tax base is not eroded by that.
My hon. Friend the Member for Amber Valley asked whether the assessment and collection processes will really work and whether they are fair. For example, if HMRC gets a notice from a big company saying that it might be within the scope, how can it issue an initial charge notice in 30 days? Where would the information come from and so on? I can tell him that the notification of potential liability to diverted profits tax must be made within three months of the end of the company’s accounting period. The Government are still consulting on the detail of the notification requirement and would welcome comments on the drafting. However, it is likely that not all notifications will result in the issue of a preliminary notice. The preliminary notice does not create a charge, but merely warns that a charging notice may be issued and sets out estimated figures that would be included. Following the issue of the preliminary notice, the company would have 30 days to correct any factual inaccuracies in it. That would include any errors in figures on which an assumption in the notice is based.
My hon. Friend the Member for Amber Valley and the hon. Member for Strangford asked whether the provisions were drawn too broadly, such that they might catch not only the abusive structures targeted but a whole load of other, unintended taxpayers. The Government are of course open to suggestions on how the drafting of the legislation could be clarified without undermining its effectiveness. However, the calculation of the charge follows well established transfer pricing principles. Those principles are widely understood and routinely applied by businesses in pricing intra-group transactions. The only difference is that where the contrived features set out in the legislation are present, the diverted profits tax will have to be paid earlier than in a normal transfer pricing dispute.
I thank the Minister for giving way again; she is being very generous. She talked about the notification process and so on. Is she happy with our knowledge of legal entities and the fact that many of them will be outside the UK? Will HMRC be able to cope with that process?
The hon. Gentleman will be aware that this Government have significantly increased the resources available to HMRC for this purpose, so yes, we are confident we will be able to manage this process.
There were a number of other questions, which I fear I will not have time to deal with now, about interest payments being excluded. There is a limited exemption for certain arrangements that involve only loans, and separate work is going on to look at how to ensure fairness in the measures. That matter is not being excluded, but is being looked at separately.
Hon. Members raised the question of the wholesale diversion of profits to Luxembourg. The legislation targets profit diversion only where the profit has a clear link to the UK, as I think I made clear. It would not be appropriate for the legislation to go further than that and to bring into scope profits that originate from other territories. However, the Government are strongly supportive, as I said, of the BEPS process, which aims to prevent and address this international problem.
In conclusion, I reiterate that the whole purpose of the diverted profits tax is to create in the UK the most competitive environment in which to base and run a business, including low corporation taxes, but it is a requirement of this Government that companies wishing to do business in the UK should pay those taxes and should not seek to avoid paying them.
Health Care Provision (Newark)
I start by thanking Mr Speaker for granting the debate and the Minister for replying this morning. I am also grateful for the attention of the Secretary of State, who visited Newark hospital last year. I thank my constituents and the Newark Advertiser, who have come here for the debate, and I thank my constituency neighbour, my hon. Friend the Member for Sherwood (Mr Spencer). Rather like the film “Groundhog Day”, the last debate on the subject was held two years ago to the day. The matter has moved on somewhat since then and progress has been made, to which I will refer shortly, but concerns remain. That is the reason why I return to the subject today.
I do not want to bore the Minister, but a little bit of history might be useful. I know that she visited Newark three times in May last year, but let me briefly guide her. We sit on the border between Lincolnshire and Nottinghamshire, and despite excellent north-south road and rail links, the community is relatively remote and rural, and it is bedevilled by poor roads and awful traffic. Newark is a growing town, with applications for thousands of new homes being considered as we speak and many more to follow, according to local growth plans. We have an older population, and the number of over-65s is likely to have doubled by 2026. I fear that Newark suffers from the Nottinghamshire health care model, which has been in place for at least a decade and a half. Centres of excellence have been created in places such as Lincoln, Nottingham and King’s Mill hospital, but not in Newark. For reasons of population scale, Newark hospital was linked to King’s Mill hospital some years ago. They were, and remain, uneasy bedfellows, because there are few natural connections and poor transport links between the two.
I congratulate my hon. Friend on securing this important debate. In the two years that have elapsed since the previous debate, one thing that has changed is the transfer of more than £80 million in private finance initiative payments from Sherwood Forest hospitals trust to its PFI holder. What impact is that having on Newark hospital and Sherwood Forest hospitals trust?
I thank my hon. Friend for his campaigning on PFI and Sherwood Forest hospitals trust. I will return to that question later in my remarks, because it is one of the central issues affecting the trust’s ability to deliver good-quality health care not only for my constituents, but for his and for people throughout Nottinghamshire.
To return to my brief history lesson, the hospital delivers superb services, and it always has done, but those services have diminished relative to those that were offered in the recent past. In addition, as we have heard, King’s Mill is saddled with a devastating PFI that will be in place for 30 years. The problem is not new; it has been a hot potato in the Newark area since at least 2004, and there is a history of declining services including the loss of maternity care in the increasingly distant past. The PFI was put in place, and in 2010—bridging the previous and current Governments—the A and E department was replaced with a minor injuries unit. I say that, but the classifications in the NHS seem byzantine to us amateurs, and even if they are not designed to confuse us, they undoubtedly have that effect. The department called itself an A and E for the best part of 10 years, but it did not qualify to be one. It was always going to be extremely painful to change the department’s title and inform the community that the back-up available at the hospital was insufficient to be safely called an A and E and to have ambulances directed to it for the commensurate range of emergency situations.
In 2012, Monitor delivered an extremely critical report on the PFI and the trust, which includes King’s Mill and Newark hospitals. The report pointed out that Newark hospital was, at times, underutilised by some 55%, and it was closed for admissions after 6 pm. Good has come from that report, including new management and significant improvements at the trust. However, the trust, as the Minister knows, remains in special measures, with a corresponding impact on recruitment, retention and the reputation of the trust and its hospitals among my constituents and those of my hon. Friend the Member for Sherwood.
To return to the hospital and bring us closer to the present day, some services, including those related to hips and knees, have been removed in recent years following the Keogh report and the imperative, we were told, to ensure that services are matched to appropriate levels of staffing and back-up. The trust is in the process of refocusing Newark on day case services and diagnostics. We all understand that the transformation of services takes time to implement, and the period of change has seen some underutilisation. I suspect that that period has gone on too long. Furthermore, there have been problems about directing patients to the appropriate hospital and ensuring that that hospital is Newark if the services are still available. I have lost count of the number of times that constituents have told me that they were not offered Newark hospital or had to ask for it specifically, when we know that the hospital delivers the necessary services. That contributes to underutilisation and must be resolved once and for all.
On top of those difficulties, East Midlands ambulance service received a concerning inspection report by the CQC at the beginning of 2013, which found it to be underperforming in four of the six central measures. As medical professionals agree that the most serious emergency situations are best treated by fully staffed and equipped general hospitals, the imperative becomes greater to have an ambulance service in north Nottinghamshire with the capacity to respond swiftly and meet the appropriate timings for our constituents. Furthermore, residents complain about the length of time taken to repatriate those who are no longer critical but who require rehabilitation or some further care closer to home. That is made all the worse and more onerous by the long journeys and expensive bus fares required for relatives to visit.
To bring my history lesson to a close, I want to report some positive developments of late. In 2013, a new 13-bed ward, the Fernwood recuperation and rehabilitation unit, opened. The Bramley children’s unit, new cardiac services and an endoscopy suite have all opened. The CT scanner at the hospital, which had reached the end of its natural life, is—admittedly after some pressure—to be replaced. The trust has appointed a new director, Mrs Jacqueline Totterdell, with the specific objective of bringing Newark hospital up to full capacity in the range of services that it provides. This week, the trust and the clinical commissioning group have announced a capital investment of more than £500,000 to enhance the facilities of the minor injuries unit, providing a better patient experience and more consultation rooms, and integrating the MIU with out-of-hours GP services. That development is the successful result of an application to the Prime Minister’s challenge fund.
Those developments are refreshing and should be celebrated. They confirm that the old rumours in the town that the hospital was to close are unfounded. The trust has made that clear. They also suggest a welcome degree of focus on the hospital by the trust and the CCG, which I hope will continue and which must intensify. I praise the clinical leader of the CCG, a respected Newark doctor named Dr Mark Jefford, for his role in that.
Where do we go from here? My objective, which I am sure that my hon. Friend the Member for Sherwood shares, is to ensure that Newark and north Nottinghamshire have health care provision of the highest possible quality delivered as close to home as is safe. I gave this debate the title “Health Care Provision (Newark)”, as distinct from the previous debate, to emphasise the fact that my interest is precisely that. My interest is not in bricks and mortar, and it is not driven by nostalgia or false science.
I return to the emergency provision. We still hear forlorn voices talking about the reopening of an A and E unit, but no one who understands the problem could think for a minute that Newark will have an A and E unit. I want to make it clear that that really is not the issue at hand. The issue is whether the present MIU or urgent care centre—whatever one wishes to call it—adequately reflects the fundamental remoteness of Newark and the surrounding area of Nottinghamshire, and whether anything can safely be done to provide a higher degree of emergency provision. Again, terminology gets in the way but, for the sake of argument, let me call it MIU-plus—in other words, providing sufficient support to enable Newark hospital to take a greater proportion of the so-called green cases. One can argue about what the proportion might be but, clearly, any material increase in the types of cases that paramedics could safely bring to Newark hospital, or that the hospital accepts from those walking into the MIU, would result in a range of benefits: shorter journeys to hospital for those in Newark and rural areas; less pressure on the ambulance service; and greater convenience for patients and their relatives. The benefits would surely be felt throughout Nottinghamshire and Lincolnshire and would take pressure off overstretched A and E departments.
In my time as a Member of Parliament, I have argued that, if a clinical case can be made, there is no reason why such an MIU-plus should not be introduced at Newark hospital. I have sought the advice of the Under-Secretary of State for Health, my hon. Friend the Member for Central Suffolk and North Ipswich (Dr Poulter), who, without detailed knowledge of the circumstances, pointed me in the direction of a hospital in Hexham where GPs, local authorities and the hospital trust have integrated to a degree to preserve and enhance services in a remote area.
Members of the management and leadership of the trust and CCG with whom I have discussed the matter over the past couple of months take a different view. They think the system would be extremely difficult to implement safely. I would be grateful if the Under-Secretary of State for Health, my hon. Friend the Member for Battersea (Jane Ellison) gave me her view, today or in the future, on exactly how realistic the proposal is. Members of the public seeking an outcome not wholly dissimilar to the one I have described have written to various authorities, including Ministers and NHS England, but have been unable to gain their opinion on that route. I admit to banging on about this, continuing a line of argument that has been made unsuccessfully for some time, but I raise it again because it is strongly felt by my constituents. I seek the Minister’s guidance and, of course, the ear of the trust and the CCG.
As I have already described, the heart of the problem in Newark and Nottinghamshire is the interlocking concern about the adequacy of the MIU and the performance of our ambulance service. East Midlands ambulance service has new leadership, a new chair in Mrs Pauline Tagg and acting chief executive in Mrs Sue Noyes. The ageing fleet, which I have seen myself, will be upgraded, including with welcome new vehicles for north Nottinghamshire. The trajectory appears to be upwards, which is welcome. Any support that the Minister and her Department can give to EMAS and its leadership would be greatly appreciated.
I recently spent time with paramedics and was hugely impressed. They face the challenge of operating in a large geographic area. A and E is under strain, and a contributing factor is the very limited circumstances in which paramedics are able to take patients to Newark. Whatever one’s view on that, there is a lack of clarity on those circumstances. I am told by one source that a lad breaking his arm on a football pitch, suffering no other major symptoms, could be taken to Newark, but I am aware of plenty of cases in which paramedics could not take such patients there or have been turned away. I am told that the number of circumstances in which paramedics may take patients to Newark has increased, yet I have seen a crib sheet in ambulances that appears to show that the number has decreased by two. I do not know the rights or wrongs—I am not a clinician, so I cannot say—but that must be cleared up urgently. Fundamentally, the rurality of Newark and north Nottinghamshire needs to be addressed with adequate ambulance capacity,
Finally, I will address the PFI debt, which my hon. Friend the Member for Sherwood mentioned. Monitor expressed concern about the financial situation of Sherwood Forest Hospitals NHS Foundation Trust. The trust signed its £320 million PFI deal for the redevelopment of King’s Mill hospital in November 2005, and in 2012-13 the trust’s PFI cash outflow was £42.5 million, which equates to 17% of the trust’s income. If ever we needed an example of a terrible PFI deal and debt, this is it.
The trust operates with one hand tied behind its back. In December, my hon. Friend and I asked the Secretary of State for Health whether he would review the trust’s finances as it is both in special measures and suffering the consequences of a disastrous PFI deal. He agreed to do so, and I ask the Minister to make good on that promise. PFI contracts are complex and the options available to the trust to reduce the current burden—whether that be some form of refinancing, the buying back of debt or addressing parts of the contract not yet or inadequately executed—are complex and require analysis. The trust has limited resources to devote to the analysis required, which would presumably require the help of outside specialists. Are the Minister and the Department willing to sponsor, by which I mean pay for and support with advice, a full review of the PFI deal, with the objective of presenting options to the trust that can be reviewed and, I hope, implemented? I make that request with the full support of the trust’s chief executive. Such support would make a difference to the trust, my constituents, my hon. Friend’s constituents and the constituents of many other north Nottinghamshire Members who have not been able to join us this morning.
In addition to my specific questions, I leave the Minister in absolutely no doubt of the importance to my constituents of Newark hospital and of health care provision in north Nottinghamshire. Newark hospital is much loved. I was there on Christmas morning, and patients and their relatives had the utmost respect for the wonderful staff. My constituents, and people across Nottinghamshire, want an inspiring vision of what their health care provision will look like, but a vision without substance is an illusion. My constituents now want a credible plan in which they can believe, a plan that ensures that health care continues to improve for them and for future generations in this growing and rural community. That, in essence, is what we seek today.
It is a pleasure to serve under your chairmanship, Mr Turner. I apologise for being a stand-in for the Under-Secretary of State for Health, my hon. Friend the Member for Central Suffolk and North Ipswich (Dr Poulter). I know he has previously debated these issues with my hon. Friend the Member for Newark (Robert Jenrick), whom I congratulate on securing this debate. It was a pleasure to go to Newark to campaign for him during the by-election. Literature that we all delivered told us that he would be a doughty campaigner, with health at the heart of his campaigning and his representations on behalf of his constituents. He has evidently made good on that promise in his relatively short time in the House. I am very aware of his dedication to ensuring that the health needs of his constituents are met. It is also a pleasure to see my hon. Friend the Member for Sherwood (Mr Spencer), who is another assiduous local Member and a valued colleague who has the health concerns of his constituents at heart.
This debate is a welcome chance to discuss local health care matters. I know both my hon. Friends regularly meet local health leaders, which is right. The depth of knowledge that comes across from both Members this morning is the result of that engagement. I encourage such engagement because it allows Members to be best placed to bring their constituents’ concerns to the House.
I recognise, as does my hon. Friend the Member for Newark, the hard work and dedication of NHS staff in his and other constituencies. He rightly describes them as wonderful, and it is excellent to hear that he was with them over the Christmas break. More than 4,000 staff are employed by Sherwood Forest Hospitals NHS Foundation Trust alone, in addition to the thousands who work in primary care. We thank them for their service at a time when we know they are under pressure.
It is all too easy to overlook primary care’s essential contribution to health care provision. The local GP or pharmacist is the key health care provider for many people. I will talk about the local hospital in a moment, but that foundation of good primary care is important. I am delighted that, through the Prime Minister’s challenge fund, Newark and Sherwood CCG is working with the hospital, local GP practices and Central Nottinghamshire Clinical Services, the out-of-hours provider, to improve access, reduce complexity for patients and ensure a sustainable staffing model. Given the pressure on the system over the Christmas and new year period, we can see only too well the importance of that work and the challenge fund in finding new ways to provide primary care access. In 2014, Mansfield and Ashfield CCG and Newark and Sherwood CCG were awarded a total of just over £1.8 million from the Prime Minister’s challenge fund, which was part of a £5.2 million collaborative funding bid that was spent in this financial year.
My hon. Friend is right to make Newark hospital the heart of his speech. Although there is legitimate concern, much of the worry caused for patients and the public in Newark has simply been unnecessary. I know he realises this but, for the record, the number of patients being treated is increasing. In 2012, the number was about 131,600; it increased to almost 133,500 in 2013. There is also more day care surgery, as my hon. Friend mentioned. The number of out-patients’ appointments is increasing and the number of specialities offering appointments at Newark is up. There is also improved provision for children.
I quite understand, however, why my hon. Friend wants to emphasise the need to keep building on that progress. He focused much of his speech on the minor injuries unit and urgent care centre. I can only sympathise with him with regard to navigating a way through terminology, because I am well aware that some terms mean different things in some parts of the country and that our health economy, because of its sophistication, is sometimes quite complex. It is therefore incumbent on all of us—Ministers, local health leaders and so on—to try to cut through that complexity as much as possible to make clear to local people what they can expect to get in a particular facility, what they would go there for, and where that facility fits into the local health economy, as well as the fact that it is part of a plan.
Newark provides consultant-led out-patients’ services, planned in-patient treatments, day-case procedures, diagnostic and therapy services and the MIU-UCC. My hon. Friend spoke about the need to increase the range of services. He is right to do so and to put forward his constituents’ concerns. As he outlined, there are plans to enhance the services offered at Newark hospital through the Newark strategy. He gave a history lesson at the beginning of his speech; I am well aware that there have been a number of strategies, but the current Newark strategy is being implemented, and I am encouraged by what I heard, in preparing for the debate, from local senior leaders. However, he is right to say that progress must be maintained.
The strategy includes Newark hospital being a centre of excellence for a broad range of services, including diagnostic, rehabilitation and so on. A number of new developments are already in place and a £500,000 development to make structural changes to the MIU is planned, which will make urgent care simpler and increase the range of Newark-based services.
As I said, I will take this debate as an chance to emphasise that if there is a lack of clarity locally—I can understand that there might be—local health leaders and all of us who work in and around the health system must work hard to ensure that the public, who are the users and end recipients of our excellent NHS services, really understand what is being offered. It is vital that they do.
The plans I mentioned include provision of additional consulting rooms, so that health care staff, including hospital staff and GPs, can work alongside each other instead of at separate locations. Building for that should start in April, which is really encouraging and testimony to my hon. Friend’s efforts to keep this a front-foot issue. Such evidence of the hospital’s long-term future is extremely welcome and should be reiterated.
With regard to the suggestion that more ambulance patients might be taken to Newark hospital, I understand that the local NHS has identified safety concerns with that. The level of emergency care was reviewed locally in 2013 as part of the development of the Newark strategy. As I know that my hon. Friend will appreciate, a patient’s diagnosis will not always be clear when the ambulance crew first arrives at the scene, so more comprehensive diagnostics are required—diagnostics that often need to be done in a main centre before a serious condition can be excluded.
I am told by the local NHS that the conveyance of all green ambulance calls to Newark would result in a limited improvement in ambulance response times, but I hope that it has looked at that carefully, has heard what my hon. Friend said today, and is giving proper weight to that. I know that for both my hon. Friends, the safety of their constituents is a paramount concern. They will know that for the Secretary of State for Health, the safety and quality of our health system is a touchstone issue in this Parliament, and we have debated significant safety concerns in recent years. When local clinicians believe that there are safety risks, it is important that their opinions carry weight and that we listen to those concerns closely.
My hon. Friend the Member for Newark has already discussed with the Under-Secretary of State for Health, my hon. Friend the Member for Central Suffolk and North Ipswich, whether hospitals elsewhere might provide helpful examples for both Sherwood Forest Hospitals NHS Foundation Trust and Newark hospital. Hexham was mentioned as one such example. While parallels can be drawn, an exact comparison cannot, as my hon. Friend the Member for Newark acknowledged. There are some similarities between the services offered at those sites, but Hexham is a larger site with a more remote community. I note, however, what he said about his constituency being mixed, with some areas being much harder to get to owing to their road services.
GP services are offered at Hexham, and the new extension at Newark will enable that to happen in my hon. Friend’s constituency, which will be welcome. As he is also aware, decisions on local services, including urgent and emergency services, are a matter for local NHS leadership because they are the people, working with elected representatives, who know the local community best. The local NHS is clear that decisions about services will be based on patient safety and sustainability, which, having seen some of the problems uncovered in this Parliament in cases such as Mid Staffs, is what we all want as the foundation on which we build.
I will; in fact, that is on my next page. My hon. Friend is right to bring me to that. On the trust’s financial position, as my hon. Friends have mentioned, Monitor assessed Sherwood Forest Hospitals NHS Foundation Trust in 2012 and identified issues that had contributed to its deteriorating financial performance. The trust signed its £326 million PFI deal under the previous Government in November 2005 for the redevelopment of King’s Mill hospital. The trust’s PFI cash outflow equates to some 17% of its annual income, which is clearly a substantial amount. The operating costs for that scheme are inflating with the retail prices index by about £1.5 million a year. My colleagues are therefore right to raise that considerable concern.
The trust has received ongoing financial support directly from the Department of Health: it received £28 million in 2013-14 and £26 million in 2014-15. However, as my hon. Friends realise, it is important that I emphasise that such funding is not sustainable as it takes resources away from other areas. We therefore clearly need a better solution.
The trust forecast a financial deficit this year, but Monitor does not have any immediate concerns about the sustainability of services at Newark hospital. I put that on the record as a note of reassurance for my hon. Friend the Member for Newark. The trust recognises the challenge that its PFI payments present—that has come out clearly in my discussions—and it accepts that the solution lies in the full involvement of all partners in the local health economy. The Better Together programme for Nottinghamshire goes some way towards achieving sustainability, and local commissioners continue to work with Monitor and NHS England, as they need to, to find a solution.
I am aware that there have been suggestions locally that Sherwood Forest Hospitals NHS Foundation Trust should look at the route taken by Northumbria Healthcare NHS Foundation Trust and buy out its contract. However, the overall PFI deal for Sherwood Forest is much bigger than Northumbria’s, so a similar buy-out would incur a far greater cost. That is a note of caution.
The Department and the Treasury have discussed a range of options to reduce the cost of PFI projects in general, using public sector capital, including buying senior debt and terminating contracts completely. It is however for individual trusts to be clear about what options they have considered and to bring proposals forward.
Looking around the country, it is clear that the individual schemes have complexities, in terms of when they were signed, effective pricing and risk profile, so it is important both that such matters are looked at carefully at a local level and that the Department is engaged early on by trusts and foundation trusts when they develop their proposals, which will then be considered carefully by the Department of Health and the Treasury—and Monitor, if required—on a case-by-case basis for value for money and affordability. That is what happened in Hexham.
In the time left, I want to assure my hon. Friend the Member for Newark that my right hon. Friend the Secretary of State, as he said last year, will be happy to consider any proposals brought forward. We are very much open to that.
I am left with little time to comment on the ambulance services, other than to say that although we acknowledge that there are some big challenges, a resilience plan is in place and we will monitor that carefully. I end by congratulating my hon. Friends the Members for Newark and for Sherwood on bringing this important topic once again to Ministers’ attention.
Benefit Claimants (North-east)
[Mrs Linda Riordan in the Chair]
It is a pleasure to serve under your chairmanship for such an important debate, Mrs Riordan. I hope that you and all Members present enjoyed the festive period. As we return to Westminster, it is important to recognise that not everyone will have been able to enjoy it. We have seen unprecedented demand at north-east food banks over Christmas, and it is not hard to see why. On my website, I publish pie charts of the issues raised with me by constituents. If Members visit www.chionwurahmp.com —I recommend that everyone does regularly—they will see that benefits is consistently among the top two or three issues. For example, my office dealt with 28 benefits cases in November, 36 in October and 32 in September.
MPs all over the north-east are aware that a particular challenge of benefit cases is that they almost always involve someone vulnerable. Those claiming benefits are by definition going through a tough time. They may have lost a job, have an illness or disability, or be in low-paid or part-time work, or they may be caring for young children or relatives, making it harder for them to work. They need our support. They need our care, a helping hand to get their lives back together, and concern for and understanding of the challenges they face. As the shadow Secretary of State, my hon. Friend the Member for Leeds West (Rachel Reeves), has said:
“Jobcentres, and the HMRC offices that currently administer tax credits, are vital public services that British citizens pay for with their taxes. People who use them have as much right to expect fair and respectful treatment as patients in an NHS hospital, parents dealing with their child’s school, or victims reporting a crime at a police station.”
It has become increasingly clear to me that that is not the experience of my constituents.
I have dealt with cases in which the only explanation for the cruel and inhumane way people were treated is that the employees of the Department and its agencies—public servants—have forgotten, or been told to forget, that benefit claimants are people: human beings with lives, loved ones and feelings. That is why I want the Minister to answer for the treatment of benefits claimants in the north-east and the culture in the Department for Work and Pensions that results in that treatment. I am going to raise a number of cases from my constituency to illustrate my point. I know that the issue extends beyond the north-east, but I want to focus on my region. I know from speaking to colleagues that they have many similar cases, and we can see how well represented the region is by the Members present.
The first case concerns a constituent whom I will not name for reasons that will become evident. Each constituent I do name has given me their express permission to do so. In January last year, my constituent was found hanged in his home by a neighbour. He was well known to Newcastle Welfare Rights, from which he had received considerable support in his dealings with the DWP. He had been in receipt of employment and support allowance, and previously incapacity benefit, and he was engaging well with NWR until November 2013, when he underwent a work capability assessment. The social worker who accompanied him had to spend two hours with him afterwards.
After he scored zero points and was found fit to work, NWR sought evidence from psychological services, and wrote to the Department, stating:
“The recent news that Mr…is not entitled to ESA support has had a significant impact on his mental health…he was acutely distressed; he struggled to talk, he was having thoughts of suicide, he had also started drinking alcohol to cope and had struggled to leave the house…His main emotion was one of fear and unfortunately this has reawakened traumatic memories of abuse in the past”.
The letter went into a lot more detail, but was disregarded by the DWP. The decision remained unchanged.
Over Christmas 2013, my constituent attempted to take his life using prescribed medication and attempted hanging. He had daily input from the local mental health trust crisis assessment and treatment team, and regular input from NWR. In January 2014, NWR submitted another letter from his psychologist that said that his
“distress and subsequent suicide attempt are directly related to the ATOS/benefits decision recently made”.
The letter went on to state that the psychologist was aware that my constituent was “highly anxious” prior to the assessment
“and required a significant amount of support following the interview.”
The psychologist’s professional opinion was that if he
“was found to be ‘fit for work’ this could directly lead to further suicide attempts and subsequently result in him successfully killing himself.”
That was a warning, and, tragically, that is exactly what happened.
As one can imagine, his suicide had a serious impact on the NWR team, especially those who were working to support him. They told me they were numbed and deeply saddened that their efforts were not enough to prevent his suicide. The neighbour who found him was also deeply affected and continues to require psychological support.
The second case that I want to highlight concerns another of my constituents, Mr Roy Hails, an IT specialist who was recently made redundant. He was determined to find work and applied for every suitable job while claiming jobseeker’s allowance, but was sanctioned by the jobcentre when his work search record was judged inadequate—in the week that his father died. Think about that for a moment. I happened to know Mr Hails’ father and the long and complex illnesses that he suffered from. I also know what a close family they were, and what a loss to his family and the community Mr Hails senior was. Regardless of that, is there anyone in this Chamber—or, indeed, in this country—who does not believe that a son should be given the opportunity to grieve for and bury his father, whether or not he is claiming benefits? The culture that this Government have put in place is such that people are not being given that opportunity.
Members are no doubt familiar with the play “Antigone” by Sophocles, in which the heroine defies a brutal Government to bury and mourn for her brother. It is a sad indictment of the Conservative party when an ancient Greek playwright, dead for more than 2,000 years, is more in touch with the needs and values of this country than the Government.
After I wrote to the director general for operations, the Department did find an exception by which a bereaved claimant can be excused from signing on or job search requirements for up to two weeks. However, the officials who dealt with Mr Hails were unaware of it; they thought that that the Government they work for would prevent a man from grieving for his father. What does that say about the culture the Government are promoting? Mr Hails told the Jobcentre Plus in Newcastle that his father had died and that was why he had not been searching for jobs, but they still thought it appropriate to sanction him.
I congratulate my hon. Friend on securing such an important debate. Does she share my deep concern about the rumours that there are league tables in DWP offices, and that people who are working very hard are being brought to task for not sanctioning people enough? They are told that they are underperforming. If that is the case, we will face these issues for ever and a day, as long as a Conservative Government are in charge.
My hon. Friend is absolutely right. I will not call what I too have heard rumours, because it is clear that jobcentres are measured on the number of sanctions they issue. There may not be official targets, but the numbers are measured and published, so of course they are compared. I know from speaking to former and current DWP employees that they are under pressure to sanction people, almost regardless of how hard they are trying to find a job.
My third and final example concerns another constituent, Adam Ross Williams. What happened to him occurred just before Christmas. In November, the jobcentre wrote to Adam to say that because he had failed to complete and return a JSA2 claim review form, which he had never received, all payments to him were going to be suspended. He immediately called to ask why the form had not been sent to him by recorded delivery or handed to him at the jobcentre, which he has to attend. He also asked if he could complete the form by phone. He was told that that was impossible and that he would have to wait for another form to be posted to him.
The form finally arrived just before Christmas, almost one month after he had requested it, during which time he had no income, going without and relying on handouts from friends and family, “when I was lucky”. Of course, many other claimants in similar situations are forced into debt, and in particular to use payday loans.
Adam’s circumstances had not changed and the form he was sent was exactly the same as the one he had first filled out. He filled out the second form, took it to his local jobcentre and asked them to fax it straight over to the DWP. However, he immediately got a phone call from the DWP saying that they had not received his form and asked if he would be willing to complete the form over the phone, which is what he had wanted to do in the first place. We must remember that all this happened just before Christmas, which is a really stressful time for everybody, particularly those on a low income or, as in this case, no income.
Adam asked for an emergency payment and he was assured that he would get a phone call confirming that he would be paid. No phone call came, so he checked with the benefit inquiry line and was told that no emergency payment had been requested, so nothing could reach him until after Christmas. And yet all that had been needed was to ask him to confirm that his circumstances had not changed. When I hear stories such as this, I wonder whether the system is designed to hound people such as Adam, who are seeking work.
I could go on for hours—I could give 300 examples, not just three—but I know that many Members from the region wish to speak, and I also want to say a little about the broader context. There are people on benefits who are abusing the system; there are what are known as “scroungers”, who take what they can get and consider benefits both a lifestyle and a right. However, they are a very small proportion of those on benefits. It is estimated that 0.7% of welfare spending is lost to fraud, in comparison with the 1.3% lost to overpayment because of mistakes.
It is of course important to tackle fraud and error, but does the Minister think it necessary to place adverts on buses in my constituency saying:
“Think you know a Newcastle upon Tyne Benefits Cheat? Report them anonymously”?
Stunts such as that fuel misconceptions about benefits and fraud. Is it any surprise that people estimate that 34 times more benefit money is claimed fraudulently than is actually the case? Perhaps the Minister can tell us how much that campaign cost and how the Department plans to measure how much money has been saved by it. I have yet to see adverts encouraging people to turn in tax evaders, despite the Treasury itself estimating the “tax gap” at £34 billion and tax campaigners suggesting that the true figure could be much, much higher. Or is this process more about, as one person complained to me, fostering a culture of suspicion and bitterness towards claimants? That is the outcome, and certainly that is how many of my constituents have come to feel.
I will quote from what Adam said to me:
“In summary, I am absolutely disgusted at how I have been treated. I feel entirely let down by my government, and like a second class citizen. What have I done to deserve this?”
I did not mean to interrupt my hon. Friend before she reaches the end of her excellent contribution, but I wonder whether she, like me, has had cases involving former service personnel who served in Iraq, Afghanistan and, in some instances, even earlier conflicts. They were in receipt of incapacity benefit and other benefits due to their war disablement, but under the new system—the work capability tests—they have been thrown off those benefits. Does she have such disgraceful cases in her constituency? I will raise those I have come across with the Minister when she replies to the debate.
My hon. Friend makes an excellent contribution herself. I am not using all the examples I have, because I have so many. However, I am aware of the way some veterans in my constituency have been treated, and of the disgraceful impact it has had upon their lives. I look forward to hearing from her about the cases in her constituency.
My constituent, Adam, went on to say:
“How can it be right that an unemployed person…not only has the shame of completely having to rely on the government for my next meal but can have my only income arbitrarily stopped? A civil servant promises to get an emergency payment to me then what…? Forgets? So now I have to wait an extra week. Christmas is ruined…I can’t even go see my little girl, let alone put the heating on or buy some food.”
I want to make it clear that I am not blaming those who work in jobcentres or in the DWP. As I mentioned earlier, I have spoken to current and former jobcentre officers, and they have told me how they are pressurised to sanction claimants and how, as one former agent told me, the atmosphere changed immediately following the general election. Their job was no longer to help claimants into work but to “find them out”. I accept that mistakes are sometimes made, but it is the organisational culture that the Minister is responsible for, and I am sure she will want to take responsibility for it, as any business leader would. I would welcome her comments on this issue. I am sure she will acknowledge, as I do, that this challenge is not an easy one, but that much more needs to be done. That means supporting those in work, and not vilifying those seeking work or unable to work.
Five charities have come together for the Who Benefits? campaign. I know the Minister prefers charities to be seen and not heard; that is the Victorian mindset of this Government. However, the Children’s Society, Crisis, Gingerbread, Macmillan Cancer Support and Mind often work with people who find themselves in receipt of benefits. The charities are campaigning because they believe that
“politicians should do more to listen to, understand and act on the realities of people’s lives”
and to focus on
“the real reasons that people are struggling to address, like low wages, the high cost of living and the housing crisis”,
rather than demonising those on welfare benefits.
I have a number of specific questions for the Minister. First, will she make it clear in her own words how much she recognises the challenges that benefits claimants face, and outline the kind of nurturing, supportive environment that she is seeking to establish? Secondly, what measures are in place to ensure that benefit claimants are nurtured and supported, and that those who work for the DWP and its agencies treat them with dignity and respect? Thirdly, what assessment has been made of the impact of measuring and comparing the number of sanctions meted out by jobcentres? What other measures have been looked at, such as measuring the number of claimants in every jobcentre who found and stayed in work for six months? Fourthly, what sanctions are in place for those who are not respectful towards benefits claimants, and are those sanctions applied to Ministers? Fifthly, why do the Government refuse to acknowledge the link between increased sanctions and increased food bank usage? Finally, why did the recent Oakley report on sanctioning not extend to all benefit claimants? I look forward to the Minister’s response.
When the Minister’s office wrote to me asking what this debate would be about and what my concerns were, I wanted to give her lots of time to prepare for it, so I made it clear to her that the debate would centre on the culture and treatment of benefit claimants, and that I would cite examples where that culture and treatment had not met the standard that I hope the Minister aspires to. I would also like to reassure her that I have studied the recent Westminster Hall debate on benefit sanctions, on 2 December 2014. I have read the questions posed by my hon. Friends in that debate and her response to them. I think it fair to say that there is not a strong correlation between the two. I assure the Minister that she does not need to repeat the points made in that debate about the importance of getting work, the history of sanctions or the role of incentives to work. I and the vast majority of benefit claimants are familiar with them. No one wishes to make it easy for freeloaders, or foster a culture that does not recognise the value of work. That is not what the debate is about. Will she ensure—unlike on the last occasion—that she saves some time to address our concerns? They are important.
The sense that claimants are being treated as second-class citizens, scroungers and cheats has a terrible impact on their well-being and, in particular, their mental health. I have some experience of that. I was brought up largely on benefits. We were a one-parent family. My mother was crippled with rheumatoid arthritis and also suffered from breast cancer. It was hard for her, not only because of our poverty but because of her shame at taking handouts. I am so glad that she did not have to face the sort of vilification and abuse that benefits claimants face now—abuse caused in part by a sustained campaign from those on the right of the political spectrum. Contrary to what many of them would imagine, I was brought up with a strong work ethic and to believe that the state should provide a robust safety net for those who need it. I am not proud that I grew up on benefits, but I am not ashamed either. I want to know what the Government are doing to prevent the demonisation of those claiming benefits.
Before I call the next speaker, I remind the Chamber that several Members want to take part in the debate. I want to give the Minister enough time to reply to all the points raised, so I would be grateful if Members kept their speeches to about six minutes.
It is a pleasure to serve under your chairmanship, Mrs Riordan. I congratulate my hon. Friend the Member for Newcastle upon Tyne Central (Chi Onwurah) on securing the debate and on her passionate speech. We all know how the changes under this Government have victimised benefits claimants, and we have all met people who have suffered because of the harsh sanctions regime, but it is not only the law that has changed; the culture has changed, too. The jobcentre is a very different place from what it was just a few years ago. The focus has changed. It is no longer about getting people into work; it is about getting them off benefits by any means necessary.
My hon. Friend gave several examples, and things are no different in South Shields. Constituents of mine have been refused a private room to discuss intimate personal or medical issues, and have felt humiliated at having to hold such discussions in a public area. One man who was suffering from serious back pain and could barely climb the stairs was told that he could not use the lift because it was for staff only. The general attitude of staff is confrontational and sometimes downright rude. One man was told that he had to shut his mouth and get out when he disagreed with staff.
To highlight one of the difficulties with the staff, who generally do a fantastic job, the press reported on the assessment of a lady who is blind and has a guide dog. The person doing the assessment held three fingers up and asked the blind lady, “How many fingers am I holding up?” The lady said, “I am blind.” The person said, “That has nothing at all to do with it. I have to ask you the questions.” That is the way disabled people—in this case, a blind person—are being treated by some of the staff in jobcentres.
I have noticed that compassion and understanding are being completely removed from the jobcentre. There are no grey areas anymore; it is black or white. When I went to my local jobcentre to discuss some of my constituents’ complaints, I was shocked by how dismissive the local management team were. They explained that they refused to offer a private room because they did not want to set a precedent. In other cases, they simply said that they did not believe what I and my constituents were telling them. The whole attitude was completely negative and showed the confrontational way in which jobcentres now deal with claimants. In fact, the attitude shown to me was so appalling that I complained to the regional manager. It was not that I was particularly fussed by how they spoke to me; my concern was that if they speak to a Member of Parliament in that way, how on earth are they treating our constituents?
Jobcentre staff are ultimately there to provide a service, and to help people find work. If someone has special requirements, staff should be allowed to accommodate them. The Government’s hard-line approach and the pressure on staff to meet targets mean that the focus has changed and the majority of hard-working staff, who I genuinely believe want to do their jobs properly, feel hindered and frustrated about being unable to do so. When I was looking for work, advisers were there to guide jobseekers into work or training that was right for them. It was a process that treated people like human beings. That is important when people are already feeling low or marginalised because of their unemployment. That is not how the system works today. Now the role of the jobcentre is to police the unemployed and punish them for making even the smallest of mistakes. If they are five minutes late for an appointment, there is no mercy or discussion—their benefits are simply cut off. Where once staff were there to advise, they are now told to check up on claimants, to police them and to catch them out.
As far as I am concerned, our jobcentres are no longer providing a good enough service. Staff are under pressure to get people off benefits by any means necessary, and there are perverse incentives to push people on to make-work courses. Constituents have complained that they have been ordered to take the same CV writing courses over and over again as a substitute for genuine support. That is a complete waste of time and does not get them into work. What it does, however, is remove them from the unemployment figures. Like those on the Work programme, they are not employed in any meaningful sense, but they do not show up in the figures. I make it crystal clear to the Minister that being on the Work programme or stuck on make-work training courses does not constitute employment, no matter how much her Government would like us to think so. The only purpose of the schemes is to help a jobcentre meet its targets, because it can use the courses as evidence that it has provided training or work-related activity, or use non-attendance as a reason to sanction benefit claimants.
In any organisation, the attitude of those at the top filters down. That is why the culture change at the DWP fits right in with the ugly attitude that the Government have taken towards people on benefits. They have encouraged and continue to encourage the public to think of claimants as spongers or skivers, so that working people struggling to get by will blame the unemployed man or woman next door, claiming their £70 a week, instead of the tax-dodging companies that cost our economy billions every year. The way claimants are treated is nothing to do with getting people into work; it is about scapegoating the poor and making them a target for the anger and frustration the public feel during a time of serious hardship. It is downright nasty politics, and the Government should be thoroughly ashamed of themselves.
It is, as ever, a pleasure to serve under your chairmanship, Mrs Riordan. I congratulate my hon. Friend the Member for Newcastle upon Tyne Central (Chi Onwurah) on securing the debate, and I applaud the graphic, detailed way in which she outlined the problem faced by all Members of Parliament in the north-east. Sadly, the cases she outlined are not unusual. They are common—even the case where the gentleman died. There has been more than one such example in recent times in the north-east, and that is completely unacceptable.
I will start by talking about the staff at Jobcentre Plus and the DWP in general. They work hard and are put under enormous pressure. Staffing levels have diminished dramatically since 2010. We hear anecdotally about the pressures of informal targets on sanctions—we all know they are in place—from people who are too frightened to say something, so they tell us off the record. I sympathise enormously with them about the job they are being asked to do every day.
The other thing I want to discuss before I go on to the example I will talk about is the north-east’s economy. I have lived in the north-east my entire life. I live two miles from where I was born, which is very common in the north-east. We are a close-knit, supportive community, and that is replicated throughout the north-east, not just the part I am from. We have had high unemployment throughout my lifetime—obviously, there have been peaks and troughs, but it has been consistent. Although more jobs are available at the minute, their quality has to be questioned: a lot involve zero-hours or temporary contracts, so they give no stability.
We have a lot of people who, through no fault of their own, rely on benefits. We are also a low-wage economy. Furthermore, most people’s families do not have massive wealth, so if people fall on hard times, their families do not have the wealth to support them informally. If somebody’s benefits are sanctioned, they really do have no money. They cannot go to their families to ask for a little help, because their families simply do not have the money. It is not that they do not want to help—they simply do not have the finances to.
The other thing to say about the background of people in the north-east is that we are a hard-working area. Life is pretty tough for many people, but people have an ethos of working hard, paying their way and doing a fair day’s work for a fair day’s pay. That is the mindset of people in the north-east, and I take great offence when I read or hear about people criticising the area and talking as if people there were just scroungers, because that simply is not the case. I have no truck with people who really try to fiddle the system, and I would be the first to remove their benefits and sanction them, but they are not the norm, and they are not the people we are talking about.
People who need to claim benefits should be treated with dignity and respect, not only by those they deal with at the DWP and Jobcentre Plus, but by the rest of society. They should not be made to feel that they are worth any less than the person next to them because, for whatever reason, they have to live on benefits. However, the treatment people receive often falls short; in some cases, it is absolutely appalling and unacceptable.
I want to give an example of a case study I have had. Like my hon. Friend the Member for Newcastle upon Tyne Central, I get a staggering number of cases every week. A few months ago, I had a constituent who was unable to attend an appointment at Jobcentre Plus because he had suffered an asthma attack and was in A and E. He telephoned his adviser to tell them, although, to be fair, it would have been perfectly reasonable if he had not managed to do that. However, he did, and he spoke to the receptionist about the Jobcentre Plus appointment that had been scheduled for that day, which he would clearly be unable to get to. He explained his reasons and, on returning from hospital, he sent a letter.
A few weeks later, he received a letter saying that he had failed to comply with the scheme’s requirements and that his jobseeker’s allowance would be sanctioned for one month. Extraordinarily, the letter went on to say that an asthma attack was not a sufficiently good reason for missing an appointment. I am an asthmatic myself, and I know how crucial it is for people to get to hospital pretty darn quick if they have an attack that is out of control. The difference between not getting treated correctly in a timely fashion and surviving is paper-thin, and we read every year about the tragic cases of people who have not got to hospital quickly enough. However, if people get to hospital in time, they can be treated and brought back to health quite easily. The time element is crucial, which is why I said that, although my constituent took the time to ring, it would have been acceptable if he had not.
Miraculously, when my constituent came to me and I got involved, the decision was overturned. The most annoying thing is not that it was overturned—that was absolutely the right thing to do—but that it was made in the first place and that my constituent ever had to come to me. That is the problem, and that is what needs sorting out.
If people are ill, or have other genuine reasons for not being able to get somewhere at a certain time, they need to be treated fairly. They need to be treated like anybody else in any other system, and to be believed. In this case, my constituent had discharge letters from hospital; there was no question but that he had been at hospital, but that was not seen as a reason not to attend an appointment. That is just one case, but it graphically explains the problem.
I do not want to go over other cases, because we all have them. The people we are talking about are vulnerable. Many have not always been on benefits, and the unemployment that has arisen in the last few years is new to them. They are not part of a culture of benefit claiming. Treating them in this absolutely inhumane way is wrong and unacceptable—there is no other way of saying it—and it reflects badly on the DWP, the Government and, in broader terms, us as a society. We should be proud of the fact that we have a safety net for people who fall on hard times.
Let me take the debate slightly further north. I was recently astonished to read reports that the DWP was issuing stories and details about people they alleged were scroungers to the media to feed this attitude that my hon. Friend describes. This is therefore coming from the top, not just from a local office level.
That is not something I have read of, but it would not surprise me, quite honestly.
This week, the Select Committee on Work and Pensions held its first oral evidence session on benefit sanctions beyond the Oakley review. The review was highly critical of what was going on, and I look forward to seeing what comes of that. The Minister needs to accept our comments as constituency MPs who have witnessed the same problem at different jobcentres and offices. It is not one office that is to blame; this is about a culture. I hope that she will listen and act on our comments, because we are genuine people, and I am sure that the way we have described the system working is not what she would intend. I am interested to hear her comments on the situation as it actually is.
It is a pleasure to serve under your chairmanship, Mrs Riordan. It is also a pleasure to take part in this important debate. I congratulate my neighbour, my hon. Friend the Member for Newcastle upon Tyne Central (Chi Onwurah), on securing it. It is enormously important to the people we represent that we debate these issues and tease out things that are just not acceptable.
At the heart of the problem is the mismatch between the pressure on DWP staff and what is actually obtainable for the citizens we represent in the circumstances of the north-east of England. The inflexibility of the regime—especially the ESA regime—is at the heart of many of the individual cases that have been raised so far and of the one or two constituency cases I will raise in a minute.
The restricted nature of the jobseekers labour market, as opposed to the broader north-east labour market, is a significant factor in this, as is the Department’s practice of churning people through projects, a further period of JSA and then more projects, and of migrating them from incapacity benefit to the new ESA, when their chances of actually securing sustainable employment are not that strong.
People come to my surgeries, as they do to all Members’ surgeries, but when their opening gambit is, “You are my last hope,” my heart sinks, because I know the system is failing them and that they have been referred to me, as their Member of Parliament, by others who are trying to help them or that they feel they have nowhere else to go.
One chap I met—I will call him Mr A because I do not want to put his name into the public domain—is 62 years old. He has been a labourer all his life. One look at him told me that his days of being a labourer were over. He is on ESA. He is certainly not capable of manual work any more, but he is to be churned through a range of schemes to train him for jobs that I do not think he will ever be able to do. I went to visit Ingeus, and I do not take as harsh a view of the Work programme as my colleagues. I thought that much of what Ingeus was doing, as one of the Government’s contractors, was sensible and well founded; but I was struck by how different the labour market that it was dealing with was from the broader labour market in the north-east of England. The spectrum of all the jobs across the north-east of England is not there for people on ESA. A much narrower range of overwhelmingly service-sector jobs is open to them. I do not think that it will work for the chap who came to see me.
The same will be true for another constituent, who was referred to me by the Newcastle Society for Blind People, which was trying to help her. She is 60 years old and epileptic. Her eyeballs were removed in childhood, so she is absolutely blind. She has a carer; he cares for her, but cannot read or write. She has been transferred from incapacity benefit to ESA; therefore, the system will find her a job. She cannot write or see, but can read Braille. She uses a thumbprint for her signature. I have asked the DWP to write to her in Braille. After a lot of haggling between the Department and me, it has agreed to note my request. Perhaps I may gently put it to the Minister that there are a number of ways for MPs to deal with issues of this kind: the first might be for me to ask her politely to get the Department to do a bit more than just note my request.
Given my constituent’s age and circumstances, and the obvious hardship that she has endured throughout her life, it is not fair to her to kid her on that somehow she will now find a job she can do without overcoming every one of the hardships that confront her. It seems just wrong—almost inhuman—to put her through the sort of exercises that the Department is putting her through. It is harsh and unreasonable. I once did the Minister’s job. I was the first Minister for Work when the Department was created under the previous Labour Government. In my time as a Minister I did not come up against a case of this kind, referred to me by a Member of Parliament from either side of the House. Had I done so, I would have intervened straight away to help the victim of what I would regard as oppressive treatment.
Another constituent of mine, a 62-year-old, was sanctioned for a year for not complying with JSA. As his sanction—it actually went on for a year and a month—came to an end, he was told that he would be sanctioned for another 13 weeks, but not given a reason. He was then told that he had to fill in a JSA10 form at a jobcentre. He went there and was told that the form did not exist any more, and that he had to ring the benefit delivery centre. The centre staff told him that he had to go to Felling to fill in a declaration, and he walked from Newcastle to Felling. Hon. Members might ask why he walked, when we have some very good integrated transport arrangements in Tyne and Wear. The walk is not a direct one, because there is a river in the way, and it means going to the centre of Newcastle—in the constituency of my hon. Friend the Member for Newcastle upon Tyne Central—over the bridge and along the south bank. My constituent walked because he does not have any money to pay for his travel.
When he got to Felling the official gave him a telephone number that he had to ring. It would have been possible either to give him that without requiring him to undertake the journey, or to ensure that he had the money to make the journey on public transport, rather than having to walk. My constituent then got another phone call from the Department—which was being proactive, for once—telling him that he faced further sanctions because he had missed an appointment with his work provider. He had not missed any actual work, the House will understand —just a meeting with the provider. He missed the appointment because, as he had informed the Department, his residency at the Salvation Army on City road was closing down, and his mail was not being satisfactorily redirected. That is an issue that will apply to other people who have lived in that facility, which was quite well known on Tyneside. He spent 45 minutes on the telephone begging for a hardship payment, because he had no money at all to live on. He eventually got an £86-per-fortnight payment—just think of living on £86 a fortnight—and was then told that he stood to be sanctioned again and that his national insurance contributions would be withheld as well.
My office intervened. MPs always get the credit for dealing with these cases and it is actually our staff who do it. This is probably an appropriate time to thank our staff, who work very hard, not least on wading through pretty intransigent responses from the Minister’s Department. It is certainly not how we originally envisaged Jobcentre Plus operating when it was rolled out more than a decade ago. My assistant’s intervention meant that the matter was finally resolved in a satisfactory way; but we should not be putting people through such turmoil. The system should be on their side. It is meant to be run by the state for the citizens of the country—and it just is not. It should not be necessary for us to have to take such matters up with the Minister directly. I hope that she will take from the debate the fact that things are going wrong with case work, and that there is a need to intervene directly to turn around the culture in the Department that allows that to happen.
It is a pleasure to serve under your chairmanship so early in the new year, Mrs Riordan. I congratulate my hon. Friend the Member for Newcastle upon Tyne Central (Chi Onwurah) on securing this important debate. I am conscious of the time and the fact that several of my hon. Friends want to speak, so I want to make several quick points, based on the experience of constituents who have contacted me.
The first point is about the rise in the use of sanctions in the past couple of years. Most people would accept the principle that if people flagrantly and persistently fail to adhere to mutually accepted requirements, they should face consequences. I have a constituent who failed to attend 22 out of 26 appointments, without any real explanation, and it is difficult to argue against some sanction in that case. However, like my hon. Friends, I have noticed a large increase in the number of sanctions imposed, often for a first or light transgression, and often with no regard to the context. Life is not so black and white. If it were, everyone who went over their parking meter allocation by a minute would be fined automatically, and I think there would be outrage at that.
A constituent contacted me about his experience of realising, on the date of his appointment, that he had missed the time. He phoned up the same day to apologise and make another appointment, which was offered for the following day. He turned up and went through the interview, and was then sanctioned by post. The staff did not even have the respect to do it face to face. He was left with no income—no means of feeding himself or heating his home—for an entire month, on the basis of one missed appointment.
There have recently been roadworks at the junction of Raby road and Middleton road in the centre of Hartlepool, which have caused chaos. All road users have been affected, including bus passengers. A constituent of mine was late for her appointment because her bus could not navigate Raby road and was delayed on the first day of the roadworks. That was not her fault. She had no way of knowing it would happen; but she was sanctioned and left without money for a month.
One of my constituents was told that her appointment for a work capability assessment was cancelled; she was then sanctioned for failing to attend the cancelled appointment. If it were not so serious it would be ludicrous. Another constituent was sanctioned for a month, and left with no means of feeding herself or heating her home, because she missed an appointment once. The reason she missed it was that on the day of the appointment she was burying her grandfather, having been at his deathbed for the previous week. In all those cases, and in others, I have been able to get the sanctions overturned; but that itself raises some issues. Is it an efficient use of taxpayer resources to apply a sanction, only for staff time to be employed in overturning it? How robust, efficient and effective is the process if that continues to be the case?
My second point is about jobcentre culture. Front-line staff do not have any flexibility to determine whether a benefit claimant has failed to comply with a requirement. They have to see things in black and white and they cannot provide personalised support. The system is geared not to help individuals, but merely to process them.
Claimants can suffer appallingly as a result of their treatment. Jobcentre Plus is not seen as a place that assesses people’s skills and training needs and helps them get back into work, but as a negative place where any contact results in the delay or stopping of benefits. It is seen as somewhere where claimants are punished and belittled, rather than helped. I have constituents who have independently told me that Jobcentre Plus staff have said to them, “But you sit on your backside all day watching ‘Jeremy Kyle’, don’t you?” That cannot be acceptable. What is the Minister doing about that top-down, politically driven culture? It is demoralising for staff and claimants, and something needs to be done.
My third point relates to personalised support. Hartlepool, like other parts of the north-east, has a large number of men—it is largely men—who worked in manual occupations for most of their working lives. Many reach their late 50s and find that, because of their personal circumstances, the fact that they are becoming ill or changes to the economy, those occupations are no longer available to them. The jobcentre is simply not interested in helping them secure a new job. Through its indifference and latent hostility, it is consigning my constituents and those of other hon. Members to the scrap heap long before their time.
A constituent came to see me who had worked in factories for 35 years and had been made redundant. He was a hard worker and a proud working man. He had never been on the dole in his life, but he said that the jobcentre was treating him like a leper because he had asked for assistance. He was told to apply for benefits online, and was not given an answer or any support when he said that he did not have a computer, had never used one and did not even know where to begin. There are many people like my constituent in Hartlepool and the north-east. The digital divide is creating social exclusion that is affecting the most vulnerable people. What will the Minister do to address that?
My final point is a technical one. Will the Minister take action to ensure that jobseeker’s allowance or employment and support allowance sanctions result in the suspension, rather than the closure, of claims? The different public agencies are not talking to one another. Will the Minister also ensure that her Department distinguishes between claims that are closed because the claimant has gained employment, and claimants who are sanctioned and are entitled to housing benefit on the grounds of low income? If the Department provides local authorities with that additional information, it will ensure that those claimants’ entitlement to housing benefit continues and that they do not lose their houses as a result of that culture and their treatment.
My constituents deserve better, as do many others in the north-east and elsewhere. They are treated shabbily and with contempt. They are proud people who want to work. The Minister should be trying harder.
Several hon. Members rose—
It is an honour to serve under your chairmanship, Mrs Riordan. I congratulate my hon. Friend the Member for Newcastle upon Tyne Central (Chi Onwurah) on securing the debate and on her touching personal and factual speech.
My office, like those of my hon. Friend and other Members here today, receives many enquiries from constituents who have problems with their benefits and are at the end of their tether. My excellent staff always do their best to resolve their problems. In some instances, as has been said, constituents turn out to be swinging the lead, but when they have a genuine case we see the unnecessary distress that can be caused, and we do our best to help them.
Anybody here who has experienced unemployment—I know that some colleagues have—know how miserable it is to go through the process of signing on at the jobcentre, and they know the feeling of rejection when job application after job application does not even receive a response. When somebody gets an interview and it is unsuccessful, it adds to the feeling of deflation and their confidence goes down even further. That is why people’s experience at the jobcentre is so important.
The Work and Pensions Secretary said that in return for claiming unemployment benefits, jobseekers have a responsibility to do everything they can to get back into work, and that sanction should be a last resort. However, the examples we have heard today show that the Government are not keeping their side of the bargain and that sanctions are far from being used as a last resort.
I have two examples of people at different stages of their working lives that illustrate how my constituents have been short-changed in the jobseeker’s allowance process. The first concerns a single mother who works as a dinner supervisor for less than 16 hours per week. She is entitled to a top-up of JSA, and she dutifully always sends the necessary wage slips every month. She was shocked when her benefits were stopped because her wage slips had not been received. My office got in touch with the MP hotline. We got further copies of her wage slips and sent them in again, only to find that those had disappeared too. The issue was sorted out in the end, but in the meantime her benefits were stopped and she fell into rent arrears, all through no fault of her own.
A single, older constituent who had paid her taxes and national insurance for more than 40 years was referred to the Work programme. She attended appointments with Ingeus three times a week, and her job adviser was satisfied that she met the job search requirements. She was pleased when she managed to find a part-time job, but when she went to the jobcentre to tell them about the new job, the adviser wanted to see her jobseekers’ diary. She had shown it to the Ingeus adviser, and thought she would not need it at the jobcentre. She was told that she had not demonstrated that she had performed an adequate job search, and her case was referred to a decision maker. She was left without any money for more than a week, which caused her a great deal of hardship as she started her new job. Fortunately, she won her appeal, but that was no consolation for the poor treatment she received.
I worked in the former Department of Social Security back in the 1980s, so I know that staff take pride in their work and want to help people. I cannot help thinking that the Government cuts to the public sector are putting more pressure on staff in our jobcentres and that consequently, claimants in the north-east and across the country do not receive a fair and proper service. Evidence shows that advisers interpret the guidelines for sanctions inconsistently, which means that claimants in similar circumstances can receive completely different decisions. That should never happen.
I watched some of the first session of the Work and Pensions Committee’s inquiry into benefit sanctions this morning, and I was surprised to hear that the sanctions process is not monitored. How can the Government possibly measure its success? North Tyneside citizens advice bureau told me that, according to the monitoring of a similar scheme in Canada, sanctions have little or no effect on claimants’ behaviour. I have written to the Secretary of State about the examples I have outlined. I hope the Minister can give my hon. Friend the Member for Newcastle upon Tyne Central and our constituents some positive answers, and that in the future jobseekers receive the fair treatment they deserve.
It is a pleasure to serve under your chairmanship, Mrs Riordan. I, too, congratulate my hon. Friend the Member for Newcastle upon Tyne Central (Chi Onwurah) on securing this debate. She spoke with great passion, authority and personal conviction, and we should listen to her.
At the start of the day in the Main Chamber, the Speaker’s Chaplain leads the main prayer in which we undertake to
“seek to improve the condition of all mankind”.
That sentiment is hardly likely to chime with my constituents who have had recourse to the benefits system or who have suffered sanctions.
The creation of the welfare state by the great post-war Labour Government ranks among our nation’s greatest achievements. It was created with the conviction that in a wealthy nation such as ours, nobody should fall into the depths of deprivation and extreme poverty. British citizens fund vital public services with their taxes, with the understanding that when people lose their jobs or fall on hard times there will be a safety net and a network of support to assist them and help them back to employment. We expect anybody who uses those services to be treated with dignity and respect.
There is a consensus among the public that the existence of such a system is right and civilised. However, under the Government, we have witnessed policies that seek to redefine the role of the welfare state and the status of those who depend upon it. Our society includes those who, through luck, hard work or talent, are unlikely to ever need to depend upon the state. Those people are often entrepreneurs or committed and hard-working individuals who work in businesses and create wealth and jobs. It includes those who have the potential to make great contributions to our society, but require support to achieve what they are capable of, and it includes a small minority who need more than just a gentle nudge to engage with employment and contribute towards society. It also includes vulnerable people who live at the margins of our society, and who have not been as fortunate as others and are in need of our support, compassion and love. The Government, however, have lumped together all those who have to use benefits. The notion that has permeated this Government’s welfare reforms has been that joblessness is the personal and moral failure of the unemployed to which there is an “all stick and no carrot” solution, plunging them into destitution. It is almost a case of, “If we make people’s lives more difficult and more unbearable, somehow there will be a positive outcome.”
Since the existing regime was introduced, 1.4 million jobseeker’s allowance sanctions have been imposed. My constituents are sanctioned more than any others in the north-east, with more than 1,000 sanctions applied against JSA claimants in Middlesbrough between April and June last year, 300 more than in any other constituency. Ministers would have us believe that each of those sanctions was a just act that punished workshy people for failing to demonstrate that they were looking for employment. Every hon. Member present knows, however, that that is often not the case. We are inundated with stories from our constituents who describe a punitive regime that punishes benefit claimants for things beyond their control. The human cost is unacceptable.
One case is that of a single mum who works part-time as a lunch-time supervisor at a primary school while undertaking training to become a classroom assistant. She is in receipt of in-work benefits. Despite her asking for the interviews to be arranged outside her working hours, they were constantly arranged during them, meaning that she faced sanctions. She failed to attend one interview that was due to take place on the day that her father died. In the distress of the moment, she forgot the appointment, but when she rang the jobcentre the next day to apologise and explain that her dad had died, it was not accepted as a valid reason for missing her appointment. She was sanctioned for a month.
Another case is that of a 19-year-old homeless boy with no family, a baby and no support network, who has little in the way of formal education and limitations in his ability to communicate. He failed to complete a particular form correctly, which was beyond his capacity. He was duly sanctioned and left destitute. He then stole food from a supermarket in the hope and desire that he would be sent to prison, so that he would have something to eat and somewhere to sleep.
The number of such cases is shaming and a damning indictment of the Government and their policies. The Government refuse to explain the increase, but numerous sources have reported that it is being driven by unofficial targets imposed on jobcentres by the DWP. That is unacceptable. Introducing targets or expectations for jobcentres on sanctioning benefit claimants is a perversion of the values of the welfare state. People’s benefit entitlements ought to be decided on the basis of need, not on an arbitrary target set in Whitehall.
One important issue that has not been discussed in the debate is the coalition decision to withdraw the independent living fund, which hundreds if not thousands of disabled people in our area, the north-east, depend on. Does my hon. Friend agree that that decision should be reviewed? The independent living fund is there to help disabled people. If it is withdrawn, disabled people will end up in abject poverty.
My hon. Friend makes an absolutely valid point. That the circumstances of people dependent on such a vital source of income should be reduced—we saw on the television last night the people protesting outside this place—is an absolute horror and brings shame upon us all.
In conclusion, with the vulnerable being penalised along with hard-working people who do all that we expect of them, either the Government must concede that, on their watch, the safety net that marks us as a civilised society has become no longer fit for purpose, or they must admit to their audacious abandonment of the principles of the welfare state.
I am pleased to serve under your chairmanship this afternoon, Mrs Riordan.
I congratulate my hon. Friend the Member for Newcastle upon Tyne Central (Chi Onwurah). She has done everyone a great service in securing this extremely important debate. I am also immensely pleased that so many Labour MPs from the north-east have spoken this afternoon: my right hon. Friend the Member for Newcastle upon Tyne East (Mr Brown) and my hon. Friends the Members for South Shields (Mrs Lewell-Buck), for Sunderland Central (Julie Elliott), for Hartlepool (Mr Wright), for North Tyneside (Mrs Glindon), for Middlesbrough (Andy McDonald), for Wansbeck (Ian Lavery) and for Washington and Sunderland West (Mrs Hodgson). They all took part and have spoken with compassion and forensic attention to detail, which it would be nice to see from those on the Government Benches as well.
To understand the problem, we need to think more about the reasons why people in the north-east claim benefits. The north-east is the area of the country with the highest unemployment. At the moment, unemployment is 9%, compared with a 6% national average. An issue with sanctions is that we suspect them of forming part of an attempt to massage down the level of unemployment figures, in particular in our region. It is absolutely clear, however, that there is a serious problem for people in finding work, as my right hon. Friend the Member for Newcastle upon Tyne East pointed out. The ratio of vacancies to claimants, when that number was last collected in 2012—again, the Government are hiding more recent numbers from us—was 4:1 in the south-east, but 9:1 in the north-east.
High unemployment in the north-east is caused by economic restructuring, as my hon. Friend the Member for Hartlepool pointed out. When people move from, say, being an administrator in the local magistrates court, they are not immediately able to go and work for a biotech company. They are bound to be unemployed for a certain time. We need a safety net to support them during that period. The Government have been boasting about the level of public spending cuts in the north-east, because they believe that we were over-dependent on public service jobs, but it behoves the Government to take a more positive attitude to the people most affected by their chosen policies.
The second problem, also mentioned by my colleagues, is the overhang of heavy industry, which means that we have higher levels of industrial injuries, disabilities and chronic illnesses. Therefore, any problems in the benefit system that relate to JSA, PIP, disability living allowance, ESA, IB or industrial injuries benefit—all areas that the Department has managed to mismanage over the past five years—weigh particularly heavily in our region. In Redcar, for example—it is unfortunate that the hon. Member for Redcar (Ian Swales), who is a Liberal Democrat, has not bothered to turn up today—16% of the working-age population is on out-of-work benefits. That is not a lifestyle choice by the people who live in Redcar; it is because they face serious problems.
My hon. Friend the Member for Newcastle upon Tyne Central talked about the problem of people with chronic conditions and disabilities who have wrongly been turned down for benefits. That continues to be a problem and I still have such problems in my constituency. It is incredibly unpleasant for people, creates misery, worsens their health and is a prime example of Tory welfare waste. The level of appeals has been as high as a third; the level of decisions overturned has also been a third—the Minister is looking puzzled, but I am quoting from what the Select Committee said about the ESA system in 2012. The cost to the public purse therefore has been £70 million per year. In the north-east, we are used to working with the Japanese and they have a “right first time” approach; we would like to see more of that in the benefits system.
The second set of problems involves the immense delays that we see over and over again. The situation is pitiable and particularly problematic at this time for people making PIP applications. Since April 2013, 670,000 people have made claims; as of last October, 287,000 people were still waiting for decisions. That is appalling; that is almost half. I know the problem is a continuing one, because my constituency office is looking at 35 such cases. At the moment, 900,000 people in this country are stuck in that waiting period. What is the Government response to the report by Mr Paul Gray? It would be helpful to hear something from the Minister. Again, however, we have the problem of the Government avoiding addressing the issue by delaying the publication of the statistics on waiting periods for some further months.
The final and most discussed set of problems is to do with sanctions. Everyone knows that we need some sanctions in the benefits system. Indeed, like my right hon. Friend the Member for Newcastle upon Tyne East, I was a Minister in the DWP during the previous Parliament, and the last thing I did in that role was take a statutory instrument through the House in March 2010 to tighten up the sanctions regime.
Under this Government, however, we have seen an absolute explosion in and abuse of the use of sanctions. My right hon. Friend the Member for East Ham (Stephen Timms) had an Adjournment debate on this issue in the main Chamber just before Christmas, to which the Minister responded. My right hon. Friend has discovered that, across the nation as a whole, the number of people sanctioned has doubled during this Parliament, that sanctions are longer and that a quarter of JSA claimants will now be sanctioned at some time during their claim. In the north-east, it is even worse. The number of ESA claimants sanctioned has increased at least fourfold and the number of JSA claimants sanctioned has doubled, meaning that in any year, 30,000 people are being sanctioned at any moment in time in our region.
It is obvious to the Opposition that that is what is feeding—I use that word deliberately—the rise in people accessing food banks. When I visited a food bank in Washington in December, the people there said that when they analyse the reasons why people are coming through their doors, benefit sanctions are by far the top reason given.
My hon. Friend is absolutely right. The sanctions problem is extremely alarming. For example, a constituent of mine, Mr A, rearranged an appointment he had missed—he had got confused because a close family member had died. When my office got in touch with the jobcentre, the sanction for that was overturned. Mr B was sanctioned for missing an appointment because he was collecting his ill daughter from school. The jobcentre falsely accused him of having a fictional child. The sanction was overturned on appeal, but in the meantime he was sanctioned for 13 weeks. In another case, Ms D was sanctioned because she refused to do a job at the weekend, when there was no child care.
There is a pattern to the sanctions cases that we are receiving, taking up and seeing overturned. I had a look at the Department’s guidelines on what constitutes a good reason for someone not being sanctioned if they miss an appointment. Good reasons include: domestic violence; health conditions; harassment or bullying at work; homelessness; travel time; domestic situations, such as bereavement or child care issues; learning difficulties; and legal constraints. We have heard examples of cases involving almost all of those reasons today.
Will the Minister deny this afternoon that there are any targets for jobcentres on sanctions? Will she tell us how many sanctions have been overturned on appeal? Will she also tell us how many of those overturned fall into those categories—how many people have been wrongly sanctioned because a bereavement, a child care problem or ill health have not been properly taken into account?
From what we are hearing it is clear that decision makers and people working in jobcentres are not clear about what is in the guidelines. When the Minister gets back to her office in half an hour’s time, will she write a letter to all the jobcentres across the land to tell them that those categories are there for good reasons and that she expects decision makers and people who work in jobcentres to take proper account of the guidelines that her Department has promulgated? We cannot have a set of guidelines in the left hand and a piece of behaviour in the right hand, and no connection made between the two.
As my right hon. and hon. Friends have said, however, it should not be necessary for us to come to the Minister to tell her about these problems. She should know what they are. She should have tackled them and done something about this situation. I want to know why she has not. Why has she not sorted out the sanctioning problem? I very much hope that she will be able to tell us, in detail, what she is doing about it. She must understand that she is responsible for the misery caused to thousands of people up and down this country. Of course, it is possible that Ministers in her Department do not care about the misery they are creating, in which case, as no good reasons for what is going on have been given to us, one might say that they are the ones who should be sanctioned.
The upshot of the situation is that we have seen appalling maladministration and cases of people living in a half light that make the Kafkaesque seem totally straightforward. As my hon. Friend the Member for Washington and Sunderland West said, the number of people in the north-east accessing food banks has gone up, and in the six months between April and September last year it reached 40,000.
The whole situation is the result of Tory welfare waste. It is a waste of public money, a waste of official time—things get done and then redone, and redone again—a waste of the efforts of people in the voluntary sector, who would much prefer to be doing creative projects, and it is certainly a waste of the lives of the people who are on the receiving end.
It is a pleasure to serve under your chairmanship, Mrs Riordan. I thank the hon. Member for Newcastle upon Tyne Central (Chi Onwurah) for securing the debate, as it allows me to clarify and explain some of the points that have been raised. First off, I want to speak on behalf of the 34,000 jobcentre staff who work in over 740 jobcentres across the country and see about 400,000 people a month. The attacks I have heard on them are completely misplaced.
No, they were specific quotes used by Members about what advisers had said. Those people in the past year alone have helped record numbers of people into work, and work consistently hard every day, to the best of their abilities, so I want to speak on their behalf.
I will also say that nobody, whoever they are, should be treated shoddily, badly or rudely—I think those were the words used—or as a lesser person in some way because they are on benefits. That is not allowed and should not happen. If it is proved that anybody has done that, they are answerable to me. I will not have people doing that anonymously.
I am trying to follow the logic. Apparently we were not talking about the staff, but there are people who are treating people shoddily, badly and so on; the hon. Gentleman therefore is talking about people who work in jobcentres—[Interruption.] I would like to finish my sentence.
Not at this moment, no. When people have been spoken to or treated like that, the people who have done that will be brought to account. I am saying that it is not acceptable that anybody is spoken to in such a manner, irrespective of who they are. I will defend the right of anybody to be spoken to properly and courteously. That is only right, and it is the way I would expect everybody to speak to others.
I thank the Minister for giving way, but I have to say that I have rarely heard such a cowardly defence of a position—attacking the people for whom she, as Minister, is responsible. All of us here made it very clear that this is about the culture. She shakes her head, but I hope that she has some experience of the responsibility associated with management and will therefore take responsibility for the culture that she and her Government have created, and for how people behave in that culture. If she will not do that, she is even less in touch with reality in this country than I thought.
As I said, I take full responsibility, because I would not accept anyone speaking to anyone else, irrespective of who they are, in a discourteous way. Obviously, hon. Members would like to know that, actually, claimant satisfaction has increased under this Government. It has increased in the north-east, and at the moment it stands at 81%. That is only right. We constantly monitor how people are treated and what happens.
I meet with staff, claimants and businesses daily to ensure that we are doing the best for all of them. When we talk about different people—where they have come from, their backgrounds and the various paths that they have trodden—I have always said, “There but for the grace of God go I.” That is something that I would totally live by, and which I think is only right. Anyone may be only one pay packet away from being unemployed, whether owing to redundancy, to falling on hard times or to a family matter. I live by that completely, because all of us here may know family members or members of other people’s families who have fallen on tough times and come to the state for support. It is only right that we support those people as best we can.
I am grateful to the Minister for giving way. She said that she will not stand by anyone in the work force if such cases are proven. Therefore, if any Member can bring evidence to her, will she commit today to looking into those cases? There are probably just a few bad apples among the work force, with the rest of them doing a sterling job.
Absolutely. If anyone comes forward to point out what has happened, the people involved should be brought to task. I would like to think that these are instances of bad apples, because I do not believe that that reflects the 34,000 people who are doing a sterling job, and who have helped so many people into employment—that is their job. They come into the profession because they want to help other people, and it is only right that they do that. As for feeding stories to the media—words such as “workshy” and “scroungers” were used today—I can honestly say that I have never put forward a story like that, and I never will. That serves nobody’s purpose.
We have talked a lot about sanctions. Sanctions have existed since benefits were created. The Oakley review described them as
“a key element of the mutual obligation that underpins both the effectiveness and fairness of the social security system.”
Benefit sanctions provide a vital backdrop in the social security system for jobseekers. That is correct, and I think I heard Members from both sides of the House agree with that. [Interruption.]
I will not; I will proceed a little further. We had to ensure that we did not have different approaches and inconsistencies. We had to ensure that everyone was treated the same and fairly across the country. In 2010, 1.4 million people had spent most of the previous decade trapped on out-of-work benefits, so our mission was to renew the incentives to work and to remove barriers in people’s way and, in so doing that, transform the benefit system for those who were locked out of work but who wanted to work, so that, going forward, we could give them the best help to get them into work.
The latest employment figures nationally and in the north-east show that employment has increased by 1.75 million since the election, and by nearly 600,000 in the past year. In the north-east, it has increased by 32,000. There are a record 30.8 million people in work in the UK and 1.18 million in the north-east. Employment for women in the UK is at a record number of 14.4 million and rate of 68.1%. That has increased by 300,000 in the past year in the UK and in the north-east by 18,000.
Private sector employment has increased by nearly 640,000 in the past year—nearly 2.2 million since the election—and 60,000 in the north-east. We have done that as part of our transformation of the UK as a whole to get it back to working. There are various sources of extra support, such as the £310 million in the north-east for the regional growth fund. There are new and other companies expanding there, such as Siemens and Quorn. There is offshore development, and £20 million for research to create jobs and innovation. That shows that considerable infrastructure investment is going into the north-east.
Part of the picture—perhaps Opposition Members do not want to hear this—is about why welfare has been changing and what has been happening. How many people are sanctioned? We know that, per month for JSA, the figure is between 5% and 6%, and that for ESA the figure is less than 1%. In the past year, the number of people sanctioned actually decreased. The number of adverse decisions overturned on reconsideration is 12%, and the figure on appeal is 3%.
I thank the Minister for giving way. I repeat that we specifically asked her not to repeat the statistics that she used in previous debates, but to address the issues that we were raising. In these last two minutes, will she say what she will do to ensure both that our constituents are not treated in the ways shown in the examples we have given and that the sanctioning regime is fair? That is not how it is now.
I have been answering those points. Today’s statistics were specifically for the north-east. They show the help and support that we have given to individuals who would have been locked out of the workplace but who were given support to get into work. We have reduced the figures for worklessness and for children living in workless households; all of that is key.
On digital separation, the extra support needed there and how difficult that is for people, one of the key things is to help people who are digitally excluded to be able to use IT, because they will need that not only to claim benefits, but to get a job and a cheaper standard of living. We are providing extra support to enable people to claim benefits, and to benefit them later in life, once they have got a job.
We have provided more support than ever before with training, extra help, work experience and sector-based academies. With that comes a greater commitment from the individual. We have ensured that that is totally personalised: when each person walks through the door, they will get an intense interview with their adviser on making a claim and giving a commitment. Everything that they want to do—their hopes, dreams, ambitions and where they would like to go—is written down and formulated, so that, between the two of them, they have a claimant commitment that they can work from. They get the best out of their time, and we understand what they need so that we can help them. It is a deal between two: those who need a job and those who are giving them the support. That is key: how do we best help that individual to get a job? How do we bring about a culture that is all about support to get people into a job?
Short Let Deregulation (London)
I am extremely grateful for the opportunity at the 11th hour to explain to the Minister the concerns that I am picking up from constituents, residents, community associations and local authorities about the impact, particularly in inner London, of the proposals to deregulate further the rules on short-term lettings.
Residents in my local communities that are particularly affected—in areas where there is already a substantial proportion of private rented accommodation that is very much at the front of this kind of problem—are already under a number of pressures; I will develop that point later on in my speech. They are very anxious about how much that will be extended with further deregulation. I believe that measures can still be taken that can offset those problems for my local residents.
The Government’s logic in extending deregulation is that home owners should be free to take decisions about what they do with their own homes, within some continuing limitations. Of course, no one wants to put in place petty, bureaucratic restrictions. If a home owner wants, for example, to do a home swap when they go on holiday for two or three weeks, or to take advantage of their absence to let their home out for a week or two, they should not be subject to severe restrictions and enforcement action. However, what local authorities will say—particularly the central London authorities—is that they do not seek to enforce against that kind of casual and holiday use, but they do seek to use the existing law to enforce against the significant and growing problem of abuse of short-term lets. What seems reasonable when viewed as cutting red tape for the individual can feel very different when it is scaled up and applied to the residential economy of central London neighbourhoods. That is certainly the conclusion of the residents and amenity societies in Westminster.
Even before the deregulation, those neighbourhoods have been facing this pressure, and local authorities have been feeling the cost of enforcement, as residential neighbourhoods increasingly resemble an extension of the hospitality industry. That can be confirmed by spending a minute or two on home-letting websites such as Airbnb. The simple fact is that there is a strong economic incentive for inner London property owners in particular to turn over their properties to commercial use. Data collected by Westminster council a few months ago demonstrated that hospitality rents are far higher than those that apply to longer-term residential properties. It found that a one-bedroom flat would earn almost £800 a week in the short-term let industry, compared with £440 on average for a longer tenancy—and prices are rising proportionally.
I am pleased that my hon. Friend has secured this debate. She mentioned Airbnb, one of the more aggressive marketers. Not a day goes by without constituents writing to me having been asked by this organisation to give their flat or house over. They are worried because they feel that residential areas are effectively turning into hotels, and as a consequence, there are fewer properties in an area where there is already great pressure, and there is also a lot of disruption to their lives.
I am grateful to my hon. Friend, because that is exactly the substance of my comments, and I agree with him totally. As I said, a one-bedroom flat could generate £800 a week in the short-term let industry. For a two-bedroom flat, Westminster council estimates that £1,372 a week could be earned, compared with £600 in a residential let. For a three-bedroom flat, £2,660 could be generated, compared with £950 for a longer-term rental, and for a four-bedroom flat, £3,367 could be earned, compared with £1,158. That economic incentive not only reduces the attractiveness of longer-term residential letting, but distorts rents elsewhere and reduces affordability still further.
Central London, and particularly Westminster, has traditionally been the largest private rental market in the country, meeting a growing need for rental homes offering accommodation to different groups of people. That includes people who want to move to London for employment, sometimes on short-term contracts; students and young people who are starting out in life and saving for a home; and people in housing need who are unable to access a declining stock of social housing. We need a healthy private rented sector. Even if that sector is less secure than owner-occupation or social renting, and in many cases, less attractive, it is none the less an important element of the residential mix in central London.
The growth of the unplanned and deregulated hospitality economy is already eroding the ability to provide homes. Indeed, the purpose behind the original legislation that the Government are seeking to change was
“to protect London’s existing housing supply, for the benefit of permanent residents, by giving London boroughs greater and easier means of planning control to prevent the conversion of family homes into short-term lets.”
Around 3,000 properties are estimated to be in use as short-term accommodation in Westminster alone. That figure is almost half as much again as the total number of Westminster’s homeless households who are in temporary accommodation, who are of course in many cases increasingly being forced out of the borough in which they live. In some cases, they have lived in the borough for decades, even their whole lives. I am not suggesting that there is a neat match between the two kinds of accommodation, but the figures are striking.
Westminster council’s estimates show a loss of housing stock equivalent to seven years’ worth of housing supply. That figure is simply extrapolated from the 7,300 enforcement actions taken with regard to the alleged unauthorised use of property for short lets since the millennium. Further deregulation can only add to the loss of homes to commercial use, as it becomes easier and less risky to change to commercial use, and harder for the local council to detect abuse. It cannot be a coincidence that Camden council found 923 flats being offered on Airbnb in October last year. That figure is up 37% on the previous three months, so over the months that followed the Government’s introduction of that clause in the Deregulation Bill, the amount of property advertised as lets of this kind has soared.
What an irony it is that at the very moment when the Government are seeking further deregulation, other cities such as Paris are looking into tightening regulation to protect their city. We are going in the opposite direction. The Parisian authorities are so worried about the drain on residential property that they are enacting measures to bring the situation under further control.
It is not only the loss of accommodation in the longer-term residential sector that is a concern; even without short-term lets, the private rental market has a downside, which is the massive turnover of population, with a one-in-three churn in the electoral register in Westminster annually. A short-term-lets economy exacerbates that trend dramatically. As Westminster council has said, there is a
“proven negative impact…arising from short-term letting, as longer-term...residents are forced out, the consequences of which include an increase in anti-social behaviour, reduced security and a higher fear of crime for permanent residents in the vicinity of properties used for short-term let purposes.”
The 18 Westminster amenity societies, in a joint representation, added:
“Short-term letting is causing a major problem for some permanent residents in a number of these amenity societies, particularly in cases where short-term lets are regularly made. There can be real problems of anti-social behaviour (and even intimidation), noise, refuse collection problems and similar issues. The Council’s dedicated ward budget, which reflects the wishes of a particular ward community, has in three cases set aside funds to tackle the problem.”
To that can be added further concerns, including inconsistent standards within the hospitality sector, potentially leading to undercutting on health and safety standards; the lack of security checks on guests; and the potential for fraud, including housing benefit fraud.
The findings of the London Councils survey of local authorities are therefore unsurprising: 92% of responding boroughs said that short-term lets caused problems with noise and nuisance; 92% said that the issue led to a loss of permanent accommodation; 75% said that it caused a loss of community identity; 58% said that it caused a heightened fear of crime; and 25% said that it increased crime and fire safety risks. All the findings were confirmed by local residents replying to a survey that I undertook in selected blocks of flats in high-risk areas. With only a few exceptions—there were some people who felt strongly that home owners should be able to do as they wished with their property—residents reported concerns. One Lancaster Gate resident described her experience in a mansion block of flats:
“People are turning up and buzzing the doorbells for keys to various flats”
all the time. She said that there are three, four, five or six people to a flat and they stay for only three or four days. She said:
“I think I am now living in a hotel because of the groups of people coming in and out the whole time...It is harder for us to know our neighbours and there is no community cohesion.”
A Maida Vale resident, also from a block of mansion flats, talked of the
“constant stream of strangers in my block, leading to an increased risk of burglary, noise and more.”
Another lady from Lancaster Gate described all-night parties and
“damaged communal areas with walls scratched and rubbish left everywhere”,
and a resident of Queensway said:
“Long-term leaseholders in blocks of flats find that short-term residents do not respect the communal areas of the building”
“the majority of flats are sub-let...it needs constant vigilance to keep civilised standards in a block I have lived in for forty years.”
I am most grateful to my hon. Friend for giving way again; she is very generous. She has identified clearly the problem. It is with mansion flat blocks, and her constituency has even more of those than mine does. Many long-term residents, a lot of whom are now elderly, simply want the quiet enjoyment of their own home, but find themselves living in a highly disruptive atmosphere, often with groups of young people who do not take care of the property because they are there for days or weeks at a time and who are making their lives a misery.
My hon. Friend is absolutely right. This is a common theme. This often, but not exclusively, affects older residents, who describe their experience as one of being completely stranded in what used to be a neighbourly block, where they knew people, felt a sense of security and had the quiet enjoyment of their homes. Now, they find the constant movement of people in and out very bewildering and alienating, and find that it causes or is linked to a number of practical problems.
Another resident wrote to me to say that
“this will increase problems related to noise and nuisance for Westminster residents from the short-let tenants. It’s already happening within my own apartment block, and I’ve had to complain to Westminster Council 24-hour noise hotline due to loud parties and excessive noise every week from short-let tenants in my block. This is making me want to sell my home and move to a safer, quieter neighbourhood outside of Westminster.”
Of course, none of this means that all visitors cause problems or that all landlords, whether professional or casual, are careless of the consequences of their letting. That is far from the case. It is the cumulative impact and the nature of the high turnover in the visitor and tourist economy that is often the problem; it is not the behaviour of any single person or group of people. These blocks of flats—the properties are largely flats—were not designed to be part of the hospitality economy; they were designed to be part of a residential community, and they have changed.
In addition to the impact on residents and neighbours, Westminster council—I am sure that this is also true of other local authorities—is investigating some 1,600 properties for violations of the short-term-let rules with a staff of four, at a time of massive reductions in funding and staffing. Some councillors are having to use ward budgets for this purpose—I do not think that is what ward budgets were intended for—as complaints have risen. There have been 360 complaints in the last 12 months.
If resources were going on enforcement action against the home owners renting out their home for a few weeks while they are away—against the very people whom the Government claim the deregulation is aimed at helping and relieving the pressure on—money could be saved, but of course that is not the case. Enforcement action is aimed at the de facto commercial landlord, and the new deregulated environment will make that harder and costlier to pursue, with a requirement to meet a higher burden of proof. The reality is that a bigger burden will fall on councils that are increasingly ill equipped to deal with it.
The Government seem to accept the need to limit the extent to which professional landlords can take advantage of the opportunities offered by higher incomes from inner-London lettings; otherwise, presumably, they would abandon all restrictions, rather than simply change the limit to permit 90-day letting under the Deregulation Bill. Unfortunately, that is likely to work better in theory than in practice. As the Covent Garden Community Association explained to me:
“Some amateur landlords are causing just as many problems. Not only will it be very difficult to prove who is a genuine resident but short lets even by genuine residents can be very disruptive and insecure...we are hearing complaints about this sort of thing all the time now, with an estimated 200 flats in Covent Garden alone available to rent by the night on Airbnb at any one time.”
I say to the Minister that there is still an opportunity to use the Deregulation Bill to meet the legitimate and indeed cross-party concerns raised by civic and amenity societies and local authorities in central London. By amending it to give individual London boroughs the right to override any relaxation of planning requirements for short lets that the Secretary of State might introduce, and by making it clear that local authorities could restrict lettings in respect of residential properties that were not the sole or main residence of the lessor, many of the risks could be offset. The Minister should take that opportunity.
We think that it would also be useful to consider the findings of the review of property conditions in the private rented sector before proceeding. It would be useful if the Minister could provide further information on that. Finally, we expect regulations to be tabled, and they offer greater scope for local flexibility in response to what are obviously varying pressures.
However, local authorities and the communities that make up their areas need to be listened to. In the spirit of localism, to which we all pay tribute, the Government need to understand that it is local authorities that understand their communities, and this is a particularly excellent example of where decisions need to be taken closer to the ground, balancing a wish to reduce unnecessary bureaucracy against the pressing need to sustain healthy, safe and vibrant neighbourhoods, even and perhaps especially when these are on the fringes of the hospitality heart of the world’s greatest city.
The Government, through the legislation we are considering, are taking forward proposals that will tackle out-of-date legislation from the 1970s. Section 25 of the Greater London Council (General Powers) Act 1973 makes it illegal for London residents to rent out their homes to visitors on a short-term basis. Londoners who want to rent out their homes for less than three months are required to apply for planning permission from the council. That burden does not apply anywhere else in the country. We want just to update that legislation, to give London residents the freedom to let their homes on a short-term, temporary basis without the unnecessary cost and bureaucracy of applying for planning permission. We also want to ensure that we maintain the important provisions for the protection of London’s housing supply and residential amenity. That goes directly to the point raised by the hon. Member for Westminster North (Ms Buck), and I will come back to that in a few moments.
Section 25 provides that the use of a
“building, or any part of a building”
for “temporary sleeping accommodation” for less than 90 consecutive nights is a change of use, for which planning permission is required. London local authorities can take enforcement action against an unauthorised change of use. As a result, London residents failing to secure planning permission face a possible fine of up to £20,000 for each offence.
Clause 33 of the Deregulation Bill grants a power for the Secretary of State to make regulations in respect of short-term letting. Our intention is that regulations will set out the circumstances in which temporary sleeping accommodation in London would not require planning permission. It will also allow for the exclusion of particular residential premises, and residential premises in particular areas, from any relaxation of section 25.
We all know that the internet is creating a new world in which to live and do business. It has made it much easier for people to rent out their property; references have been made to Airbnb, for example. It allows residents to supplement their incomes and offer new experiences for consumers. Last summer, nearly 5 million overseas visitors came to the capital. Some of those visitors, as well as British residents, want to experience London as a local. That means staying with Londoners who live in London permanently, or in their homes while the resident is away on holiday. We know that thousands of London properties and rooms are currently advertised on such websites. However, each of them is potentially in breach of section 25 as it stands. There is uncertainty for householders as to whether their local authority will take planning enforcement action against them for unauthorised short-term letting.
That is the point I was making. There is an uncertainty for residents if they do not know whether any given local authority would take action. If the local authority is not using that power, however, it will not miss it after the change in the legislation.
Planning legislation for the capital needs to catch up with our 21st-century way of living. Every year, thousands of visitors enjoy their holidays in Londoners’ homes. Such short-term letting already supports major events, such as tennis at Wimbledon. Our proposals will not only benefit London’s strong tourism industry by expanding the competitively priced accommodation offer; it will allow families to earn some extra income by making their home or spare room available to visitors. It offers an alternative to hotels and guest houses, so it can support the wider tourism industry. In addition, such accommodation helps those who are temporarily working in the capital or searching for a place to live by expanding the pool of competitively priced accommodation.
Residential homes provide a type of accommodation that is different from the average hotel or guest house. Renting a room in a person’s home, or renting their home while they are away, provides an opportunity to travel and live like a local, and it caters for a different type of client. Websites advertising householders’ rooms and homes indicate that a wide variety of accommodation is available in different locations, many of which are outside the central hotel zones.
I do not think anybody objects to people renting out rooms in their homes. In any event, such people will not be caught at the moment. I do not think anybody objects to people renting out their property for Wimbledon or when they are away on holiday. The problem is the commercial, organised letting of large numbers of flats in single blocks, which effectively turns residential blocks into hotels or “aparthotels”. That is what we want local discretion to prevent.
I suspect, therefore, that the hon. Gentleman will be pleased to support the Government’s proposals. If he looks back at my opening remarks, I think that that will deal with some of his concerns. I will go a bit further in a second.
London is a great city, as the hon. Member for Westminster North has outlined. Our proposed step forward gives Londoners the opportunity to be part of a huge industry and supplement their income. We want to be leaders, not followers, and we want to open up our great global city even further. Where other cities and countries may wish to shut down, we want to move forward.
I want to make it clear that through our reforms we want only to give London residents the freedom that is enjoyed in the rest of the country: to let out their homes on a short-term, temporary basis without the unnecessary cost and bureaucracy of applying for planning permission. We do not seek to provide new opportunities for short-term letting on a permanent or commercial basis. We fully recognise that London’s homes should not be lost to investors who will use them exclusively for short-term lets, and our reforms will not enable that. Through regulations, we want to provide certainty and consistency for residents in all London local authority areas. We want them to know when householders will be permitted temporarily to short-term let their property without the need for planning permission. The regulations we will introduce will clarify for London residents what is permissible, so they can be confident they are within the law. We will look to strike an appropriate balance between allowing freedom for occasional short-term letting by residents, as well as—this goes directly to the point made by the hon. Member for Hammersmith (Mr Slaughter)—maintaining the important provisions of the existing legislation to protect London’s housing stock.
I know there are concerns that our deregulation of section 25 could lead to a loss of permanent housing stock for Londoners at a time when London needs more new homes. However, as we seek only to allow residents to let out their homes while they are away, those properties will not be lost to the short-term rental market from London’s permanent housing stock. We will not be providing new opportunities for short-term letting on a permanent or commercial basis.
This is the heart of the worry. If it is difficult now for local authorities to enforce against properties they believe are part of the short-term letting sector when one merely has to prove that that is the case, will it not be far more difficult to enforce when the local authority has to demonstrate that the property has not been let for more than 90 days?
Our proposals are designed to ensure that we bring things up to date, which is why I have said that we want to make sure that we get the regulations right. It is important that we move forward and allow people to have the right flexibility. We must not be scared away from doing the right thing because something has been done incorrectly in the past. We want to move this forward and get it right for the future. We must recognise the world in which we now live, rather than harking back to something from the past that did not work.
As at present, it will still be open to property owners to seek planning permission from their local authority if they want to change the use of their premises. It will also, therefore, remain for local planning authorities to determine whether an unauthorised change of use has taken place and whether they should take planning enforcement action in the public interest, so that protection remains.
It has been suggested that our proposals might lead to an increased loss of amenity for London residents as a result of people’s behaviour. Reference was made earlier to antisocial behaviour in neighbouring accommodation on a short-term basis. Our proposed reforms will do nothing to weaken the duty on a local authority to investigate such complaints of statutory nuisance from people who live in its area, or to take action against those responsible.
I know there are concerns that people who currently short-term let property through internet sites are somehow permitted to circumvent not only section 25 but other vital measures, such as health and safety regulations and fire orders. That is not the case. I can confirm that our proposed change to the legislation will not provide a short-cut to important protections, beyond allowing householders temporarily to short-term let their property without applying for planning permission. Clause 33 of the Deregulation Bill provides a regulation-making power. The regulations will be subject to the affirmative process for statutory instruments following Royal Assent, which will enable Parliament to scrutinise the detail of the proposed deregulation. We recognise that there is considerable interest in ensuring that we get the changes right. We will continue to work closely with the London local authorities to ensure that the measures brought forward meet householders’ aspirations of temporarily letting out their homes or spare rooms but that, importantly, they retain the key purpose of section 25, which is to keep London’s homes for those who live and work permanently in London.
NHS Funding (York and North Yorkshire)
It is a privilege to serve under your chairmanship, Mrs Riordan. I am delighted once again to have secured an opportunity to address the important issue of health care funding in York and North Yorkshire and, ultimately, the formula used to calculate the per patient funding from which clinical commissioning groups—and, before them, the primary care trusts—derive their money. Other North Yorkshire and York MPs and I have been campaigning on this issue since 2010, and I am delighted that my hon. Friends the Members for Skipton and Ripon (Julian Smith) and for Harrogate and Knaresborough (Andrew Jones) are here to support me this afternoon. I strongly believe that the nettle has to be grasped on what I accept is a difficult issue, albeit one that cannot continue to be ignored.
The quality of local health care is of the utmost importance to many, if not all, people because, ultimately, it is something upon which we all come to rely at some point in our life. Health care provision is a measure of the local community’s economic well-being and happiness, and it is in our moral and economic interest to ensure the widest availability of health services, the shortest waiting lists and that the most impressive health outcomes are available to all, which I stress. Ensuring such health care standards for all is truly one of the Government’s most essential roles. Indeed, I am sure that all hon. Members from North Yorkshire, both those who are here and those who are not, will agree that health-related concerns crop up frequently in our constituency mail. That is certainly the case in my constituency, as I am sure it is in yours, Mrs Riordan. As such, I welcome the £2 billion of health care spending promised by the Government for this financial year in the autumn statement. That injection of cash has led to every area’s budget increasing ahead of inflation in the recently released allocations. It is for such reasons that I believe the Government can stand proudly on their NHS funding record.
I have called this debate, however, to address the fair allocation of funding and the impact on health care delivery due to a funding formula that works to my CCG’s disadvantage. In a previous debate on this issue I outlined my concern that the now-abolished primary care trusts would pass on their historical debts to the new CCGs. Vale of York CCG inherited a deficit of some £7 million in April 2013 due to the current funding formula. NHS England has acknowledged that the previous York and North Yorkshire PCT received approximately £17 million less than the allocation should have provided for the local population demographic because the funding is phased in over time. Although I am pleased to say that Vale of York CCG has cleared the deficit it inherited, it is still struggling to offer many services that constituents have a right to expect. Allocations made for the newly formed CCG in 2013-14 were a straight uplift of the historical allocations, which resulted in a postcode lottery for certain health care services in my area.
Why does Vale of York CCG, in particular, receive such a poor allocation? The Government decide how much money should be allocated to each CCG. Officials begin by dividing the total budget by the number of people living in each respective area. Money is then added or taken away to account for local characteristics, including the proportion of people claiming benefits, the teenage pregnancy rate and the number of people who leave education early. That is where the problem lies. Of the 10 characteristics, nine reduce the amount of money allocated to our area. That disparity in the allocation is due to the funding formula failing to take account of both the rural nature of the region and, most importantly, age. Instead, the current formula provides a significant weighting that awards additional funds to areas with high levels of social deprivation. The allocations for 2015-16 have now been announced and, once again, Vale of York CCG has received, by a substantial margin, the lowest per capita funding of all the CCGs in the area. Although I recognise that health needs are generally greater in more deprived areas, the current formula provides far too much weighting for deprivation and insufficient weightings for age and rurality.
Age and rurality are even greater problems in my constituency and in other North Yorkshire constituencies because York and North Yorkshire have the highest proportion of over-85s in the north, but Vale of York still receives among the lowest funding per head of any northern CCG. The area also has a high number of people in care homes, with a typical GP practice informing me that up to 50% of home visits are taken up by care home residents, who account for only 2% of patients on the practice’s roll. The distribution of health care costs is strongly age dependent, and it is difficult to argue against that. On average, it costs approximately eight times more for the NHS to care for a patient over 85 than for a patient in their 40s, which, of course, is due to elderly people being more likely to have additional health problems. We are all living longer, which is obviously a good thing, but we are living longer with more complicated conditions. Age is increasingly becoming a defining factor in health care funding.
Alongside age, the formula does not account for the additional cost of providing health care services in sparsely populated rural areas. Those additional costs are reflected, among other things, in longer average journey times for ambulances and community health staff, such as health visitors. There is also a need to provide additional smaller hospitals in rural areas in order to retain accessible and essential services for those communities.
The distortion in the funding formula has led to certain areas being awash with money, which in the past has sadly led to well publicised vanity health care projects, whereas York and North Yorkshire have consistently struggled to balance the books, resulting in their continuing to take difficult decisions on health care provision. Those decisions have had a massive impact on the quality of life of many of my constituents, hampering their ability to work and affecting their careers.
To my mind, Vale of York CCG does not provide some procedures due to the funding formula. I have been contacted by many constituents over the past few years regarding their inability to receive pain-relief injections free on the NHS. I have been actively campaigning for the removal of those charges for all who require such injections. I am sorry to say that the charges are symptomatic of the postcode lottery due to the current funding formula. The CCG reviewed its position on pain-relief injections and concluded that the injections are not clinically beneficial, which is why it decided to retain the charge, but I would argue that the injections can dramatically improve people’s quality of life and should be offered free of charge. Pain-relief injections are offered free of charge by many other CCGs across the country and across our region.
Alongside pain-relief injections, another procedure that has not been available through the Vale of York CCG is IVF treatment. In fact, for a long time the Vale of York was the only health authority in the country not to offer any free IVF treatment. I know from many constituents who have contacted me about the issue that infertility has an awful effect on people’s lives, causing stress and depression, and with the potential to tear otherwise healthy relationships apart. It must be extremely frustrating for someone to know that treatments are available just a few miles away but are inaccessible to them; nevertheless, that has been the reality in many parts of my constituency for a number of years.
I was pleased to hear the CCG announce in late December that it will now offer at least one cycle of IVF. Although that falls well short of the three cycles recommended by NICE, it is a welcome step in the right direction.
I apologise to my hon. Friend for missing the start of his speech and congratulate him on securing this debate. This may tempt him toward a conclusion, but does he agree that spending more on primary care in the Vale of York and other North Yorkshire CCGs would keep people out of hospital, which would obviously be to the greater good of the health service and those living in North Yorkshire?
I entirely agree with my hon. Friend. Given the rurality of the whole of North Yorkshire, which I mentioned at the start of my speech, we know that providing health care services is difficult and expensive. That is part of the argument for why the funding formula must be adjusted. At the same time, it must be more cost-effective to deliver services in people’s homes and offer more accessibility. Nevertheless, as my hon. Friend will know from the situation in her constituency, it is important that we also keep small hospitals open and accessible. I know that that is an important issue in the constituency of my hon. Friend the Member for Skipton and Ripon. This debate is all about ensuring that we have a fair formula so that we can deliver those services.
On that point, when we are here in London it is difficult for people fully to comprehend the distances involved for both patients and their families in North Yorkshire. The local provision from the hospital in Ripon and Castleberg hospital in Settle in my constituency is valued really highly by families and patients alike.
My hon. Friend is absolutely right that that is fundamental to a fair health care system and to fair health care for all. Through this debate I want to show how important that is for our area. We need a fair funding system that can deliver health care across not only York and North Yorkshire but the whole country. We must ensure that areas such as York and North Yorkshire do not suffer while others benefit. That is why we must get the funding formula revised.
Returning to IVF, the treatment now offered by Vale of York CCG does not help those who have been denied access to treatment, as have many people in my constituency over many years. They have either paid thousands of pounds privately or are now past the eligible age criteria for access to IVF. Despite that welcome news from the CCG, people living in our area had no access at all to IVF treatment for some time.
Alongside certain procedures that have been denied to many of my constituents, another area that has really felt the strain is A and E, which has hit the headlines in the past 24 hours. I wholeheartedly welcome the Government’s £700 million increase to the NHS budget to deal with well-known winter pressures. That shows the Government’s foresight: they knew that the issue was looming and so put that money in. Nevertheless, altering the funding formula would also help areas that are constrained by their budgets, because A and E funding ultimately comes through CCGs.
Finally, I want to turn to the controversial issue of clinical exceptionality and the impact that it has had on several of my constituents. Where a treatment is not routinely commissioned by the local health authority, clinicians must submit individual funding requests on behalf of their patients, which are then decided by a special panel. In order to achieve funding, the GP is required to prove that their patient is clinically exceptional from the referenced population. Or, to put it more plainly, they must be suffering more than other sufferers of the same condition.
That is, just as it sounds, an extremely difficult task for already busy GPs. It also results in an extremely tragic situation wherein a small group of people who suffer with a rare condition slip through the net and do not receive the treatment that their doctors feel that they need. Their condition is too rare for the particular treatment to be routinely commissioned, but not rare enough to prove that they are clinically exceptional and therefore eligible for individual funding.
One young constituent of mine suffers with severe gastroparesis, as well as diabetes. His devastating condition effectively prohibits his stomach from doing the job that it is supposed to do. As a result, he feels almost permanently nauseous and vomits up to 30 times a day. His clinicians believe that the most effective treatment for him is to have a gastro-pacemaker fitted at a cost of £25,000. That may seem like a lot of money, but as my constituent is unable to work and his mother has had to leave work to care for him, the cost to the state is far greater each year. The alternative treatments that he currently receives, such as morphine, also come at great cost to his health and well-being.
I have been working for some time on behalf of my constituent and alongside his clinicians to try to obtain the necessary funding for the treatment he so badly needs. The most frustrating thing for him is to know that other patients under the same clinicians, who do not suffer as badly as he does, are being accepted for funding because they live in areas that do much better out of the existing formula than York. Sadly, I fear that the lack of funding in our area is causing the individual funding request panel to interpret the rules of clinical exceptionality much more rigidly than our neighbours in, for example, Leeds.
My nine-year-old constituent Ben Foy, of Strensall, has also been a victim of the deeply unsatisfactory situation. Ben suffers with narcolepsy and cataplexy after having the swine flu vaccine, and he is known to fall asleep suddenly up to 20 times a day. Along with Ben’s family and clinicians, I have tried numerous times to obtain funding for sodium oxybate to treat his condition, but we were repeatedly told that we had fallen short of proving his clinical exceptionality.
To sum up, as it stands the funding formula is clearly causing a disparity in how health care is delivered across Yorkshire, as well as across the country. It is imperative that we move toward a funding formula that gives much greater weight to age and that recognises rurality and its associated higher cost of health care provision, while scaling back on the amount given for deprivation. We cannot continue to have, as was previously the case with PCTs, CCGs in the deprived areas of Yorkshire and the Humber receiving substantially more per capita and consistently under-spending their allocation, at the expense of CCGs in areas such as mine. Time and again, we are seeing patients being refused or pushed away from treatment because of the funding formula.
Ultimately, I accept that it is a difficult decision for the Government, the Department of Health and the Secretary of State. Along with colleagues, I have met the Secretary of State and Ministers numerous times to discuss the issue. As I say, I know that it is a difficult decision, but I fundamentally feel that we have protected the NHS budget during the past five years and we have seen more money go into the NHS over that time, which is the right thing to have done, but now we must ensure that we have a funding formula that backs that investment up and can deliver a fair health care system for all.
Thank you, Mrs Riordan, for calling me to speak. It is a pleasure to serve under your chairmanship this afternoon.
I start by congratulating my hon. Friend the Member for York Outer (Julian Sturdy) on securing this debate, with the support of our hon. Friends the Members for Skipton and Ripon (Julian Smith), and for Malton (Miss McIntosh), and I congratulate them all on their contributions to the debate. I am very aware of the personal interest of my hon. Friend the Member for York Outer in health matters affecting his constituents, and of course his interest in NHS allocations, including this question of fairness for rural areas.
I will also take this opportunity to pay tribute to all the North Yorkshire MPs who have worked so hard together on this issue since 2010: my hon. Friends the Members for Selby and Ainsty (Nigel Adams), for Skipton and Ripon, for Thirsk and Malton, and for Harrogate and Knaresborough (Andrew Jones), the hon. Member for York Central (Sir Hugh Bayley), my right hon. Friend the Member for Richmond (Yorks) (Mr Hague), and my hon. Friend the Member for Scarborough and Whitby (Mr Goodwill). I know they have had one meeting, if not more, with the Secretary of State for Health, and as a group they have been an effective and forceful lobby on this important issue, which we in the Department of Health all take seriously.
Of course, the whole House will agree that good-quality patient care is something we all expect, regardless of which part of the country, or indeed which county, we live in. As my hon. Friend the Member for York Outer has signalled, the question is how we work within the overall NHS budget—I welcome his acknowledgement of the Government’s increasing that budget—to determine how funding for each area should be assessed and decided. He made the key point: that it must be done in a way that is fair to all citizens and patients, wherever and whoever they are, and that where someone lives should not in any way unreasonably distort their access to health care. It is the NHS—the national health service—and those initials should mean something.
My hon. Friend will be aware that I, too, come from a very rural constituency—Mid Norfolk—where many of the issues he has identified chime, including ambulance response times and the extra time that clinical staff and patients take to travel around. Of course, there are other issues and problems, which he has highlighted: hidden deprivation, ageing and elderly populations, and isolation and loneliness compounding conditions such as dementia, making it harder to set up initiatives such as dementia cafés.
Health funding is an issue I have taken an interest in for a long time. Years ago, I did some work in County Durham to unpack the index of local conditions and the standard assessments in local government spending. When we unpack those formulae, we discover that those used to allocate funding for deprivation are all inner-city indicators: they are all about high-rise blocks, the percentage of black and minority ethnic people, and density. They are all urban indicators, as if only urban areas really experience deprivation. So my hon. Friend is raising an important point, which goes to the heart of much of the way that Whitehall allocates funding.
I will say something about how allocations within the NHS are made under the arrangements we have put in place. As my hon. Friend is aware, NHS England is the independent organisation responsible for managing the budget and the day-to-day workings of the NHS. It supports clinical commissioning groups—the local groups of GPs and other health professionals who commission NHS services on behalf of their patients. To make sure that the taxpayer has a say in how that money is spent, the Government provide direction and strategic ambitions for the NHS through a document called “the mandate”. The current 2014-15 mandate was reviewed and updated in December. There are eight key areas, which are about making general improvements; the Government deliberately leave the NHS free to make decisions about how these objectives should be met. They are: helping people to live well for longer; managing ongoing physical and mental health conditions; helping people to recover from episodes of ill health or injury; making sure that people experience better care, and integrated care; providing safer care, with a greater emphasis on patient safety; promoting NHS innovation; supporting the NHS to play a broader role in society; and making better use of our health resources.
NHS England has been given £98.7 billion this year, rising to £101 billion in 2015-16, to achieve the objectives in the mandate. I welcome my hon. Friend’s support for the extra £2 billion that the Secretary of State recently announced. NHS England has the responsibility to ensure that that money is well spent.
The first thing to say on the financial aspect of the mandate is that we have protected NHS funding in this Parliament, as my hon. Friend acknowledged. In 2014-15, all CCGs received a funding increase matching inflation. Furthermore, like all CCGs in England, North Yorkshire CCGs will benefit from the £2 billion of additional funding announced in the autumn statement. As I say, those CCG allocations and the formula used to decide what they should be are the responsibility of NHS England. NHS England itself commissions some services directly, including all primary care, as well as making allocations to individual CCGs. So these allocations to CCGs, although they are crucial, are only one part of a broader picture. In making those allocations, NHS England relies on advice from the Advisory Committee on Resource Allocation. As my hon. Friend will be aware, ACRA provides advice on the share of available resources provided to each CCG, in order to support equal access for equal need, as specified in the mandate.
NHS England does not set income on an equal “cost per head” basis across the whole country. Instead, allocations follow an assessment of the expected need for health services in an area, and funds are distributed in line with that, which means that areas with a high health need, including rural areas, should receive more money per head. There have sometimes been suggestions that a single per capita payment should be made across all CCGs, but I am not sure that that would not in fact lead to further discrepancies. As my hon. Friend will be fully aware, the key question is what overall weighting should be given to a range of factors, including age, disability, rurality and disease prevalence. As he himself acknowledged, there is no simple answer that would please everyone; this process requires the making of difficult judgments.
Without knowing that background, it can sometimes be hard for people to understand what are misleadingly presented as huge anomalies in allocations to CCGs. In the Vale of York, the funding is £1,067 per head; in my constituency of Mid Norfolk, it is £1,050; and in central Manchester, an urban area with an urban CCG, it is £1,085. I appreciate that those small differences add up over large populations, but they are not huge variations. The objective is to ensure a consistent supply of health services across the country, with health funding following —as best the system can map it—health need. That is one of the reasons why the data steps that we are putting in place are so important to allow us to monitor disease and health need.
NHS England has reviewed the funding formula and made welcome changes that take into account three important factors in driving health care need: population growth, deprivation and the impact of an ageing population. That should go some way towards helping to address the points my hon. Friend made.
NHS England now believes, and tells us, that it has a funding formula that sets recurrent allocations to CCGs more accurately and fairly, which is what the formula is supposed to do. However, I welcome the scrutiny that my hon. Friend and other colleagues from North Yorkshire are rightly insisting that it be put under.
By reflecting changes in population around the country and better targeting of pockets of deprivation, the NHS should be able to offer the best services to patients where they need them. I know there is a perception in North Yorkshire that the area is relatively underfunded. However, the NHS in North Yorkshire has benefited from increased funding, and when the Vale of York CCG’s funding is compared to that of other CCGs across the country, it is evident that it is not a significant outlier in terms of either funding per head of population or the level of funding relative to the formula. I appreciate that those are average figures; my hon. Friend will know better than I do the specific details of his own constituency.
At a time of continued pressure on the public finances, the additional funding we have provided for the NHS underlines the priority that this Government place on it. It means that the NHS will continue to benefit from stable, real-terms increases in funding, which will allow us and NHS England to get those formulae more and more accurate. Next year, the recurrent allocations of all CCGs in North Yorkshire will grow by 1.94%, an increase of almost £17 million. I am delighted that these increases will ensure that CCGs, including those in North Yorkshire, can continue to meet ever-growing demands for services, while investing in new services.
As time is short, with my hon. Friend’s permission perhaps I could write to him on the specific points he raised about back pain and IVF.
As Ministers, we are responsible and ultimately accountable to Parliament for that. However, I am conscious of the time, so perhaps I could pick that point up in a letter to my hon. Friend.
As I said, I welcome the attention my hon. Friend the Member for York Outer and other North Yorkshire MPs are bringing to this issue, and I hope I have signalled that I consider it a substantive concern. Citizens in this country, rural or urban, demand and expect a national health service—rightly so, because they have contributed to it—and they expect national access on a fair basis. The structure we have put in place is really about giving NHS England the clinical freedom to ensure that funding decisions are made on the right basis. No system will be perfect, but as Ministers we are absolutely committed to ensuring that the system we have is as accountable and transparent as possible, and to providing the security of funding to allow that process to be pursued.
I know from my own experience in County Durham and in my Norfolk constituency that these are important issues. It is about ensuring that our citizens in rural areas get equal access to health services. My hon. Friend the Member for York Outer and other colleagues are doing exactly the right thing in raising this issue. I will happily address in writing the points I have not had time to address this afternoon. I look forward to writing to colleagues with more detailed answers to the specific points they have raised.
Question put and agreed to.