House of Commons
Tuesday 27 January 2015
The House met at half-past Eleven o’clock
[Mr Speaker in the Chair]
Oral Answers to Questions
The Chancellor of the Exchequer was asked—
1. What recent estimate HM Revenue and Customs has made of the amount of uncollected tax in the UK. 
Her Majesty’s Revenue and Customs published its latest tax gap estimates on 16 October 2014. In 2012-13, the tax gap was estimated at £34 billion, 6.8% of total tax due.
The Government’s own figures suggest that the tax gap has increased by £3 billion. Independent experts say that the tax gap could be up to £120 billion. In North Ayrshire, the local tax office has been closed by this Government, and since 2010, 10,000 people in the Treasury have lost their jobs, despite the fact that every tax inspector brings in far more—in taxes—than they cost. Do the Government believe that they should rethink their strategy?
The reality is that the tax gap for 2012-13 was lower than in any year under the previous Labour Government. As for the yield—the money that is brought in by HMRC as a consequence of its activity—that has gone up by £9 billion since 2010-11, and is forecast to be £26 billion this year. That is a very good record.
Will the Minister confirm that the compliance tax yield for this year has been revised up to £26 billion, which is an increase of £9 billion since this Government came to office?
My hon. Friend is absolutely right to make that point, and there has been an increase—[Interruption.] It is a point that bears repeating. Members really should take in the fact that, under this Government, we have seen a significant increase in HMRC’s yield. HMRC is more effective than ever in dealing with tax evasion and tax avoidance.
Two thirds of people getting tax credits are in work, so why does the Chancellor want to cut tax credits again? That will penalise hard-working families.
I suspect that, a couple of weeks ago, the hon. Gentleman walked through the Lobby in support of the charter for fiscal responsibility, which requires us to find £30 billion of savings, either in tax increases or in spending cuts. If he is not prepared to take action in that area, he has to tell his constituents where he is prepared to take action.
I congratulate Her Majesty’s Treasury on its successful efforts to reduce the tax gap. Where are the main hiding places that people are using to try to avoid tax?
My hon. Friend raises an important question to which I could give a lengthy reply. But what I will say is that, as a Government, we have taken action, for example, to improve the automatic exchange of information between various jurisdictions, so that there is nowhere for people to hide their money. The net is closing in on those who have evaded their taxes, and we are increasingly effective at dealing with tax avoidance as well.
With economic growth now showing signs of slowing and wages stagnating, is the Minister not worried that the amount of income tax and national insurance that he said he would collect is failing to live up to expectations? Will he tell the House by how many billions of pounds income tax and national insurance receipts have fallen short because of low wages, compared with the original Office for Budget Responsibility forecasts back in 2010?
We are aware that, since 2010, the economy has had to face challenges, which in 2010 were not anticipated by the OBR to occur in the way that they did. We have had to deal with the eurozone crisis, the high commodity prices at the time and the aftershocks of the financial crisis. The consequences have been significant, but if we want wages to rise we need to improve productivity. That is about improving our education system, and having more apprentices and a competitive tax system, and that is what this Government are delivering.
The answer is that income tax and national insurance receipts are down by a staggering £95 billion over this Parliament. Is it any wonder that the Minister and the Chancellor have failed so woefully to eradicate the deficit, and when will he realise that it is the low-wage economy that is the recipe for more borrowing, more welfare spending and more debt?
We discovered this morning that in 2014 the UK was the fastest growing major western economy. Employment is at a record level and unemployment has fallen dramatically, contrary to the Opposition’s predictions—but, yes, we have got further to go to reduce the deficit, which is why we need a Government who are prepared to make difficult decisions. All that we have heard from the hon. Gentleman is that he is going to put up fees on gun licences, which is not going to solve the deficit.
Am I right in thinking that under the charter for fiscal responsibility, to which everyone recently signed up, we have made it clear that part of the savings that we are going to make involves bearing down on tax avoidance? Indeed, we have set out clearly exactly where we are going to save every penny of the £30 billion that needs to be saved. How is it possible for anyone to sign up to a charter for fiscal responsibility without making it clear where they are going to make those savings?
My right hon. Friend is absolutely right; the Opposition have given no indication of the balance between tax and spending and how they are going to find that £30 billion. At a time when Labour Back Benchers are saying that Syriza shows the way while those on the Labour Front Bench apparently support a £30 billion fiscal tightening, all we get from the Opposition is chaos.
2. What recent representations he has made to the EU on the cap on bank bonuses. 
The Government keep their opposition to the EU-wide cap on bonuses, but we withdrew our legal challenge in November 2014 after it became clear that it was not likely to succeed. We believe that the cap is flawed, and will just serve to put up fixed salaries, but instead of pursuing the legal challenge we are looking at other ways of building a system of pay in the banking system that only rewards excellence and clearly promotes responsibility.
Can the Minister tell the House how much the Chancellor spent on legal fees alone in that failed legal challenge? Was that not a huge waste of money when the priority should have been to help those people most in need?
No. The amount spent was £43,000. The Government believe fundamentally that we need to have the toughest regime in the world of any global financial centre on pay, and that is what we have. We have ensured that bankers will be remunerated in future on performance and that pay can be clawed back. We have put in place a system that is far better and far more accountable than anything that the previous Government attempted.
In the light of all the hard work by the Government to ensure that bonuses are held back by banks to secure better behaviour by staff and greater stability for banks, is not the bonus cap a crude measure that will increase bank instability and bad behaviour by bankers?
My hon. Friend is exactly right. The Government wanted to challenge that cap because it would push up fixed pay, which means bankers being paid not for performing but for simply turning up and raises prudential risks associated with higher fixed costs. It was vital to the interests of this important sector to the UK that we introduced a better regime, and I am delighted that the Chancellor has written to the Governor of the Bank of England in his role on the Financial Stability Board to ask him to look at other ways of ensuring accountability.
3. What assessment he has made of the effects of recent trends in the price of oil on the economy; and if he will make a statement. 
5. What assessment he has made of the effect of falling oil prices on households. 
The fall in the oil price clearly means that certain sectors such as the North sea face real pressure, which the Chief Secretary and I are determined to help them with, but overall this is a good thing for the United Kingdom and for British families. Today’s GDP figures confirm that the recovery is on track, and our plan is protecting Britain from the economic storm with the fastest growth of any major economy in 2014. However, the international climate is getting worse, and with 100 days to go to the election, now is not the time to abandon the plan and return Britain to economic chaos.
We have all noticed that we no longer hear about the cost of living crisis. Could my right hon. Friend tell me precisely how the change in oil prices has affected the retail prices index and how that compares with wage inflation?
Inflation is at 0.5% and wages are growing at three times that rate. If the oil price is fully passed on—and we have put pressure on the petrol and utility companies to do so—British families will on average be £750 better off. If we had accepted the ludicrous price freeze proposed by the Opposition we would have locked in those high oil prices and people would not see the benefit in their utility bills.
The good folk of Brigg and Goole have noticed that the price of a gallon of petrol has fallen significantly and they welcome that. Many of my residents, however, are off the grid and their heating oil bills have not necessarily fallen as they should have. What steps can the Chancellor take to put pressure on heating oil companies to make sure that the cost of heating also falls for those residents off the grid, in line with oil prices?
My hon. Friend has been a champion for his constituents and for all the 1.5 million people who are off the grid and rely on heating oil to warm their homes. That price has fallen by 20%, so people are seeing the benefit of the falling oil price, but we continue to put pressure on the heating oil companies, and we have met them in the Treasury to continue to reinforce the argument that those prices must be passed on and must continue to be passed on.
The oil industry has told us that the softening in the oil price has highlighted the underlying problem in the North sea, which is the high cost of doing business there, driven by an up to 81% tax on production. Instead of waiting till the Budget, will the Chancellor take urgent action on investment allowances and on a cut to the supplementary charge?
The Chief Secretary and I certainly recognise the pressure on the North sea producers. We want to make sure that we continue to extract the maximum amount of oil from the North sea basin. That is why we cut oil taxes at the autumn statement, published a consultation on the investment allowance and made it clear that further action may be required at the Budget.
May I draw it to the House’s attention that what the hon. Gentleman calls the softening of the oil price would have done disastrous damage to the finances of an independent Scotland? The Scottish National party’s projections for its oil revenue were out by almost threefold. It is a reminder of the strengths of the United Kingdom that we can bear pressures such as a falling—or, indeed, a rising—oil price across the entire UK.
Industry and economic experts say that thousands of jobs in the North sea oil sector are at risk, yet both the UK and the Scottish Governments seem to be passing the buck, rather than taking the urgent action that is needed. Will the Chancellor give a commitment to bring forward tax measures immediately to support the industry, as we have called for, rather than delaying for another seven weeks until the Budget?
As I said, we have already cut the supplementary charge. I announced that in the autumn statement and it came into effect at the beginning of this year. We have launched a consultation on an investment allowance. We regularly meet the industry; we met industry representatives last week. They think the Budget is the appropriate time to make further announcements, if there are further announcements, on the North sea oil and gas tax regime, but the hon. Lady and the industry have my assurance that we will do everything we can to support the North sea oil and gas industry during this difficult time. Of course it is impacted by the fall in the oil price. We want to make sure that we get the maximum amount of oil out of the North sea and that the record investment that we have seen over the past year is sustained.
Given the financial short-termism of the previous Government, I welcome the Chancellor’s comments about a shale gas fund. When he is Chancellor after the next general election, will he consider expanding the concept to create a North sea sovereign wealth fund for the benefit of the country as a whole?
Of course, our challenge is to eliminate the deficit and to get our debt falling. Sovereign wealth funds are built up by countries that run consistent budget surpluses, which is exactly what we need to do in the United Kingdom. In particular, I would like to see some of the revenues from the shale gas industry used to support local communities. That would be a boost to communities across the country, especially in the north of England.
Although the Government cannot control the world oil price, they can do things such as drive down the costs in the industry. If the oil price remains low and perhaps drops further to the level where it costs more to take the oil out of the North sea, that is bad not just for the economy of Aberdeen and north-east Scotland, but for the economy of the UK.
I agree with the hon. Lady and I know that she is deeply involved in these issues as the Member of Parliament for Aberdeen South and chairs the all-party committee on these issues. We have to work out how we protect the industry as best we can from a rapid fall in the world oil price, and we must make sure that the brilliant skills, jobs and investment in north-east Scotland continue. That is why we anticipated the challenge by launching the consultation in the autumn statement and making immediate cuts to the tax regime. We have to take further steps over the coming year because we are determined that this brilliant industry will have a brilliant future.
Will the Chancellor confirm that when the oil price halves, as we have just seen, that is likely to be extremely good news for the British economy? Will he also confirm that this fall in the oil price is particularly good news for the 70% of car owners who need cars to get to work? The House will realise that no Chancellor will want to commit himself now, but will he at least agree that there is now great merit in a period of stability in fuel duty?
My hon. Friend is right. As I said at the beginning, the fall in the oil price, for all the challenges it poses in the North sea, is good for the British economy and good for British families. It is being felt at the pump, where petrol is now cheaper than when this Government came into office. One of the reasons why is that we abolished Labour’s fuel duty escalator. As a result, petrol is 20p per litre less than it would have been had we stuck with the shadow Chancellor’s disastrous tax plans. We have to make sure that motorists feel the full benefit of the falling oil price. As I say, it was a good move to abolish that disastrous escalator.
4. What assessment he has made of the effect of lowering the rate of national insurance on levels of employment. 
6. What assessment he has made of the effect of reducing employers’ national insurance contributions on employment. 
This Government inherited damaging plans from the previous Government to increase the jobs tax. We responded by reducing the burden of national insurance. Since then, we have introduced an employment allowance that cuts national insurance for almost 1 million firms, and now we are going to cut national insurance for employing under 21-year-olds and young apprentices. These measures have contributed to record falls in unemployment. A rise in the jobs tax of the kind contemplated by Labour would have the reverse effect and destroy jobs.
I am very grateful to the Chancellor. Will he join me in congratulating the entrepreneurs and risk takers who, across my constituency, have stepped up to the plate since 2010—so much so that we now have 60% fewer people claiming out-of-work benefits? What further measures can my right hon. Friend deliver to ensure that the economic recovery continues in my part of North Yorkshire?
My hon. Friend is absolutely right that unemployment in his constituency has fallen. Twelve thousand extra jobs have been created in his constituency. That is because local businesses are benefiting from the employment allowance, and there is more to come with the cuts to national insurance for employing under-21s and apprentices. One of the reasons businesses are coming to his constituency is that he is such a champion of his constituency as a place to invest and employ. He goes out of his way to bring businesses and jobs to his constituency. That is why unemployment has fallen so fast there.
It seems to me that we would be wise as a nation to reduce taxation on the activities that we wish to encourage. I therefore very much welcome the reduction in employers’ national insurance, which has created jobs in my constituency, and I suspect in every constituency around the country. Does the Chancellor agree that we would do well to push on with these reductions in employers’ national insurance, which, to all intents and purposes, is a tax on jobs that discourages their creation?
My hon. Friend is absolutely right that national insurance is a tax on jobs—
He is a champion!
My hon. Friend is a champion of businesses in his constituency. That is one of the reasons unemployment has fallen in Windsor and 2,000 businesses in Windsor are benefiting from our employment allowance. We are going to go on reducing national insurance on employing 21-year-olds and apprentices. The alternative path—the path offered by the Labour party—is to put the jobs tax up. That would increase unemployment and return Britain to the economic mess it was in when Labour was last in charge.
The lower-paid, particularly those who are earning £15,000 a year or less, should benefit from the Chancellor’s decision to raise the personal income thresholds, but will he also look at raising to the same level the threshold at which national insurance contributions are made, so that the lower-paid pay neither income tax nor national insurance contributions on £300 a week?
We increased the employer’s threshold when we came into office to reverse the damage done by the jobs tax increase proposed by the previous Labour Government. We have used the personal income tax allowance as the best method of lifting people out of income tax. It stands at £10,600, and our long-term economic plan proposes to raise it to £12,500. I am happy to work with the hon. Gentleman on other measures we can undertake to support employment and jobs in Northern Ireland. Is it not absolutely striking that on a question about the jobs tax and a question about unemployment, not a single Labour MP gets up to speak?
7. What progress his Department has made on supporting businesses. 
This Government champion British businesses. We are delivering a significant programme of reform to enable businesses to grow, expand and, importantly, become successful. The reforms are all part of the Government’s long-term economic plan to secure business-led economic recovery.
The number of new business start-ups in my constituency has increased by 100% since 2010. Does the Minister agree that creating a good business environment, with lower taxes and incentives to invest, is crucial to the future of the black country economy in the west midlands, part of which I represent?
My hon. Friend is absolutely right. [Hon. Members: “Is he a champion?”] He is, indeed, a champion, and a strong voice for his constituency and his constituents. He is of course right in every respect. This Government are backing business every step of the way. Our long-term economic plan is making it easier to start and grow businesses, as he has seen across his constituency.
Figures published by the Bank of England last week show that net lending to business is still negative. After four and a half years of this Government, when can we expect the figures to go positive, and will we see out the last 100 days of this failed Government, who need a fresh Government to do the job for them?
To put it bluntly, this Government have turned around not only the economy, but the business environment. This Government have backed British businesses and business lending every step of the way, which is in stark contrast to a Labour Government, under whom that would only go backwards.
Does the Minister recognise that when the consultation on tax reforms for the North sea finishes, it will be crucial to businesses in the north-east of Scotland for the Budget to set in place permanent reforms for the long term, not just for the crisis?
My hon. Friend touches on a very significant point. The reality right now is that the reforms are all about long-term economic security. This Government have worked assiduously to ensure that every measure undertaken, whether to back businesses or to create the right tax environment for businesses—he has championed that in his constituency—is the right way forward.
What discussions has the Minister had with her colleagues in the Department for Business, Innovation and Skills who, in answer to a recent question, admitted that they expect to spend less than £1 million of the employer ownership fund, which was allocated £30 million to help businesses? What will she do about this failure to help businesses?
I emphasise again that this Government have supported businesses and lending to businesses. That is in stark contrast to the failed policies of the Opposition, and to the fact that the hon. Lady’s party would just put up business taxes and take away the support given to small businesses under this Government.
Defined Contribution Pensions
8. What assessment he has made of the further steps which are necessary to ensure the fair treatment of defined contribution pension customers in response to the recent market reports published by the Financial Conduct Authority; and if he will make an assessment of the potential merits of introducing a second line of defence protection for such pension schemes. 
We welcome the Financial Conduct Authority’s announcement yesterday that it will introduce new rules in April to protect consumers accessing their pension pot. The rules will introduce a second line of defence, with pension providers required to give consumers wanting to access their pension pot very clear risk warnings and to highlight the fact that guidance from Pension Wise or regulated advice can help them to avoid making a poorly informed decision.
I thank the Minister for that answer. I welcome the fact that the FCA, perhaps at the last minute, recognised there was an issue and took the right action yesterday. What more will she do to ensure that when people make free choices about their investments after April, they buy the right thing, not make a terrible mistake?
I congratulate my hon. Friend on expressing the importance of a second line of defence. The Government are determined to give pensioners the opportunity to make their own decisions about what to do with their pension savings. Nevertheless, it is vital to ensure that they have reasonable protections.
There were reports yesterday that some people who exercise these rights might face large tax bills that they did not know about. Will the Minister be absolutely clear about what measures will be put in place to ensure that people are not disadvantaged, because she knows, as I do, that people are already being approached informally to get them to exercise these rights?
I reassure the hon. Lady that we have sought to give people the opportunity to make their own decisions about what to do with their lifelong savings. That is far better than in the past, when they were effectively told, “You buy an annuity and that’s that.” We are putting in place clear protections, with a criminal measure on scamming and on pretending to be the Government’s pensions guidance service, and there will be proper guidance, with fully qualified guiders who are able to help people through the process. There is now a further line of defence, because pension providers will be required to point out to people the vital importance of taking guidance or regulated advice.
9. What assessment he has made of the implications for his policies of recent trends in unemployment figures. 
Since the Government came to power, employment has increased by 1.75 million and now stands at its highest level ever; unemployment has come down by almost 600,000; and the number of jobseeker’s allowance claimants has fallen by more than 40%. That is one of the many ways in which the stronger economy that we are building is leading to a fairer society in this country.
Does my right hon. Friend know that unemployment in my constituency is down to 1.3%, which is precisely half what it was at the last general election and one of the lowest figures in the north-west of England? Does he agree that without the Liberal Democrats and the coalition Government, we would not have had the political stability that was essential for the recovery to take hold?
I wholeheartedly agree with my hon. Friend. Not only has unemployment halved in his constituency, but employment has risen by 1,300 since 2010. That is testimony to the work of Liberal Democrats and the Government in creating stability and to his role of supporting and championing local businesses in the north-west of England.
A striking feature of the recent trends in unemployment is the increase in youth unemployment, which has risen for three months in a row. In the figures that were published last week, it rose by 30,000, which is the biggest jump for almost two years. Why is it that while overall unemployment is coming down, youth unemployment is going up? Why are young people losing out?
I am sorry to have to correct the right hon. Gentleman, but youth unemployment has come down by 171,000 over the past year and is 175,000 lower than when the Government came to power. In his constituency, it is down 53% since 2010—a fact that I am sure he will join me in welcoming. I would agree with him that we need to continue for a number of years with the successful policies that are reducing unemployment in this country, to ensure that every young person has the opportunity to make the best of their life.
May I congratulate the Front-Bench team on their economic policy and their long-term economic plan? Unemployment in South Dorset has halved over the past five years. Does the Chief Secretary agree that to hand the country back to the Opposition in a few months’ time would be an absolute disaster for the economic future of this country?
I agree that the right course for the country is to continue with the balanced, sustainable, fair action that we have taken to deal in a common-sense way with the country’s financial problems. Lurches away from that path are offered by the Labour party and, I am afraid to say, the hon. Gentleman’s party. That is why it is necessary to have the Liberal Democrats to keep the country on the straight and narrow.
Although unemployment in Northern Ireland is lower than would be expected at this point in the economic cycle, growth has not reached out to many of the regions of the United Kingdom, including Northern Ireland. What steps are the Government taking to address the concentration of growth in the south-east of England and the fact that it does not extend to the regions?
I do not accept the hon. Gentleman’s characterisation, because we see strong economic growth in London and the south-east and in Scotland, and the economy of the north-west of England has been growing well, particularly in employment. We are seeing a more balanced pattern of growth and job creation than in previous economic recoveries.
None the less, the hon. Gentleman is right to say that there are significant problems of unemployment in Northern Ireland. That is why we have put in place a range of policies to help support the Northern Ireland economy, some of which we will be debating this afternoon.
11. What progress he has made on his fiscal consolidation plans. 
The Government inherited the largest deficit since the second world war. Since then, we have made substantial progress on reducing the deficit. Borrowing has already fallen by more than a third since 2009-10 and is forecast to have fallen by half this year as a share of GDP. The Government’s consolidation plans have been central to the reduction of the deficit.
I thank my hon. Friend for that answer. Given the eye-watering amount of British taxpayers’ money that is spent on paying the interest on our national debt, I am pleased that the Government have already reduced the annual structural deficit by half. Does he agree that it is vital to continue with the policy of reducing the annual structural deficit in order to tackle our national debt?
I completely agree with my hon. Friend, who is right to make that point. We need to go on and run an overall surplus, to ensure that our public finances are sustainable over the longer term.
Is the Office for Budget Responsibility not right to say that stagnant wages have led to more borrowing? Is that not the key reason why the Government have missed their borrowing targets by more than £200 billion?
If we want wages to increase, which we do, we need to improve our education system, ensure that we have a welfare system that makes work pay, improve our infrastructure and have competitive tax systems. In brief, we need a long-term economic plan. That is what we have got with this Government, and it is not what we would have with the Labour party.
My hon. Friend will recognise that getting the deficit under control is vital if we want a strong economy. For all the posturing that we have seen today from the Labour party about the NHS, does he recognise that Greece, which had a smaller deficit to the one we had in this country when we came to power, had to cut spending on health services by 14%? Does he agree that only a strong economy can deliver a strong health service?
I completely agree with my hon. Friend, who puts it well. We want a strong NHS, but a strong NHS requires a strong economy, and that requires the Government’s policies to continue.
In the long-term economic plan—[Hon. Members: “Hurray!”] I would wait for the second part of the question. In the long-term economic plan, is missing a target by 50% evidence of success or failure?
We have turned the British economy around, and we grew faster in 2014 than any major western economy. Employment is increasing and unemployment is falling, including by 40% since 2010 in the hon. Gentleman’s constituency. That is a success.
12. What recent representations he has received on creating a northern powerhouse. 
We are making good progress in building a northern powerhouse. Over the past year, private sector employment in the north has increased by more than 200,000, a faster increase than the national average and faster than in the south. We want to sustain that by investing in new transport, new skills and new science, by devolving power and by bringing our northern areas closer together into that powerhouse.
May I applaud the Chancellor and the Government for their work on creating a northern powerhouse? Will he ensure that rural communities participate in that wealth growth, and that rural broadband reaches farms and rural businesses that want to drive the rural economy and economic growth?
My hon. Friend is absolutely right that we want our rural communities in the north to be part of the powerhouse. It is not just about connecting the cities; it is about ensuring that the rural economy is a vibrant part of the northern economy. Superfast broadband is a key part of that, and, as she well knows, we have made special efforts to develop it in North Yorkshire. Rural transport is also incredibly important, as is supporting agriculture. The investment that we are making in agricultural science will benefit agriculture all over the country, including in her constituency.
The Chancellor will have noticed that, for the first time in a recessionary period, the unemployment figures in Scotland—our northern powerhouse—are consistently better than in the rest of the UK, as the SNP Government, where possible, have followed different economic policies. Is his opposition to proper economic powers for Scotland based on a fear of being further outperformed by the Scottish Government? Is he afraid of the competition from a real northern powerhouse?
I am delighted for Scotland that unemployment has fallen and it is seeing growth. I remember, however, that the SNP predicted that our economic plan would cause unemployment to rise in Scotland and shrink the Scottish economy. That has not been the case because Scotland has been part of a stable United Kingdom that is following a long-term economic plan that is benefiting the entire country.
20. On 4 November at Treasury questions, I raised the issue of Brierfield Mill, the largest redundant mill complex in Lancashire and situated in my constituency. Following that, my right hon. Friend the Minister for Universities, Science and Cities visited the project on 16 January. Now, inexplicably, the Lancashire local enterprise partnership has failed to bid for even a penny of funding as part of the second round of the growth deal. Will my right hon. Friend agree to meet me urgently to discuss Government support for that important project? 
I am well aware of the economic potential of the Brierfield Mill development and when I met my hon. Friend in Nelson recently we talked about those benefits with local businesses. He is a champion of that development and it is extraordinary that the Lancashire LEP and, in particular, Lancashire county council have not promoted the project. He is promoting the project because he is a champion of his constituency and I will happily meet him to see how we can progress the Brierfield Mill project and bring more jobs to the Pendle constituency.
The Centre for Cities recently reported that for every 12 new net jobs created in the south-east of England, only one is created in the rest of the UK. What is the Chancellor doing to address that two-tier economy?
The hon. Gentleman says it is a two-tier economy, but youth unemployment is down by 45% in his constituency and unemployment down by 31%. I agree that the Labour Government in the Welsh Assembly are doing damaging things to the Welsh economy, but thankfully the UK Government are promoting Wales and the Welsh economy and, as a result, we are seeing jobs being created. I am happy to continue to come forward with policies that support Wales and its economic development.
The north-east chamber of commerce recently said:
“Businesses are surging into 2015 on a wave of sustained growth and positivity”,
and unemployment is falling faster in the north-east than anywhere else in the country. Will the Chancellor ensure that the north-east is properly connected to the northern powerhouse and that the necessary infrastructure investment is delivered?
I assure my hon. Friend that that will be the case. The north-east is an incredibly important part of the northern powerhouse, and that is why we are investing in road and rail links there. We are also putting investment into science there, for example at Newcastle university, and of course in his constituency he has seen steelmaking begin again after it ended under the Labour Government. People will have a clear choice at the general election.
Tax Credits and Employment
13. What proportion of recipients of tax credits are in employment. 
Seventy-one per cent. of households in receipt of tax credits are in employment.
I thank the Minister for that confirmation that more than two thirds of people getting tax credits are in work. How can she claim to be helping working families when the Chancellor wants to cut their tax credits again, causing real-terms economic pain?
Let us put this into some context. For a start, tax credit spending rocketed under the previous Government and throughout this Parliament we have made it abundantly clear that we support those with low incomes. Let us not forget either that the impact of Labour’s great recession is still being felt. We continue to help people with the cost of living through the increases in personal allowances, the freeze in fuel duty, cuts in council tax and, of course, by reducing the cost of child care.
Working tax credits are in effect a form of corporate welfare for employers who could pay higher wages, especially if tied to increased skills. Will the Minister continue her conversations with the Minister for Skills and Equalities about ways in which we can create a combination of those two, perhaps in the form of tax credits for training, such as proposed by Premier Inn?
I thank my hon. Friend for his suggestion. He is right that more can be done through working with business and learning from their suggestions.
17. How can the Minister claim there is no cost of living crisis when average full-time wages are down by £2,000 a year, when huge and increasing numbers of workers are dependent on state benefits to make ends meet, and when the gap between chief execs’ salaries and the people who work for them is growing all the time? 
Let us be clear. There are a couple of points I would like to make. The Government have shown that the only way to improve and increase living standards is by tackling head-on the country’s economic problems, which are down to the legacy of the previous Government, and by supporting those who do the right thing and aspire to work. I hope the hon. Lady welcomes the fact that in her constituency things have improved, with employment down substantially by 47% and youth unemployment down by 52%.
Tax credits have helped many people, but it is also true that some have been prevented from taking a promotion or a salary increase because they would lose more in taxpayer-funded benefits than they would gain from their employer. That has to be wrong. Does my hon. Friend agree that as universal credit is rolled out across the country, so we return to the crucial principle that work always pays? I am afraid that that got lost under the previous Government.
My hon. Friend is absolutely right. He mentions the very important universal credit roll-out. As it rolls out—[Interruption.] It is already being rolled out, and it is going well. As it rolls out, more and more people will benefit. He is right to point out that this is about both the value of work and aspiration. We are the only party that stands for aspiration and value in work, and inspiring people to get off benefits and back into work.
14. What recent estimate he has made of the effect on household budgets of tax and benefit decisions taken in the present Parliament. 
Since 2010, I have published regular distributional analysis of the impact on households of our reforms to tax, welfare and public spending. It is the most comprehensive analysis available. The most recent analysis we published, alongside the autumn statement last month, shows that the wealthiest continue to make the biggest contribution towards reducing the deficit. By 2015-16, the net contribution of the richest 20% will be larger than the remaining 80% put together.
Today, the second independent report in as many weeks shows that proportionately the Government have hit the poorest and those with small children the hardest. Today, half a million more children are living in absolute poverty than when the right hon. Gentleman walked into the Treasury. Will he tell us why, instead of tackling that, he supported tax cuts for millionaires?
Those analyses ignore some of the most important and most progressive policies put in place by the Government. They ignore the pupil premium, which is investing money in the life chances of young people. They ignore the extra early years education provided to three and four-year-olds, and to the most disadvantaged two-year-olds. They are not included in those analyses, but they are helping to ensure that young people have better life chances under this Government.
Does the Minister not agree that it is important to note that real wages are rising, real disposable income is rising, child poverty is down and inequality is down under this Government?
It is very important to note all three of those facts, but it is also important not to be complacent. There is a lot more to do to ensure that we continue to deliver the successful growing economy that is creating jobs, because ultimately getting into work is the best route out of poverty for families.
I am not surprised that the Chief Secretary to the Treasury does not want to acknowledge the full truth unveiled last week by the Institute for Fiscal Studies’ figures. Its report shows clearly that tax and benefit changes under this Government have left households £1,127 a year worse off on average, and that families with children have been hardest hit of all. Does that not make a complete mockery of the Government’s claims that they would be the most family-friendly Government ever?
As I said, the published analysis is incomplete because it ignores public expenditure. Public expenditure is a very important part of fiscal consolidation, but it is the shift in public expenditure, towards such things as early years education, the pupil premium and supporting disadvantaged young people through the education system, that is a vital part of improving life chances. I hope the hon. Lady will want to recognise that the measures the Government have taken have been aimed at improving the life chances of people. That is why we are making so much progress on attainment in schools, reducing child poverty and so on.
T1. If he will make a statement on his departmental responsibilities. 
The core purpose of the Treasury is to ensure the stability and prosperity of the economy.
We in Stratford-on-Avon are rightly proud of our world-class chamber orchestra, the Orchestra of the Swan, which, as well as playing to packed audiences in Stratford, is busy exporting British culture to the US and China. What assessment has my right hon. Friend made of the extra jobs and growth resulting from the new tax relief for theatres and orchestras?
The new tax relief for theatres has been a real success. It has been taken up by many theatres and is supporting regional productions. Separately, at my hon. Friend’s request, we have also helped the Royal Shakespeare Company to take its plays to China. Orchestra tax relief, the consultation on which we announced last week, will be another huge boost for British culture and music. We will set out further details in the Budget about how it will work, but it will be there to support a thriving orchestra industry—if that is the right word!
First, on a note of consensus, today is Holocaust memorial day. Following our conversation last night concerning today’s report by the cross-party Holocaust commission, on which I am proud to serve, will the Chancellor confirm the cross-party agreement to fund the commission’s recommendations, alongside ongoing funding, for the rest of the decade, for the vital work of the Holocaust Educational Trust, to ensure we have a new and permanent memorial and that future generations never forget that terrible atrocity?
Turning to today’s GDP figures, is the Chancellor, like me, concerned that economic growth is slowing? With just 100 days until the election, will working people be better off than when he became Chancellor, or will they be worse off?
First, this being the 70th anniversary of the liberation of Auschwitz, we should remember the inhumanity and the suffering of those who died and those who live with the memories of the holocaust, and we should vow as a nation to keep their memory alive. The right hon. Gentleman and Members from other political parties served on the Holocaust commission, the chairman of which, Mick Davis, briefed the Cabinet today on its proposals for a permanent memorial and an education learning centre. I made it clear in the Cabinet meeting that the Government would provide £50 million to support this brilliant plan, and of course we will continue to fund the work of the Holocaust Educational Trust, which takes Members and many school children to Auschwitz to see for themselves the horror that happened there. Across the House, we can come together to commemorate this day and ensure that the holocaust is never forgotten and that we never repeat its mistakes.
I hope you, Mr Speaker, will allow me a slight change of tone for a couple of seconds. The GDP numbers, which the shadow Chancellor complains about, show that Britain’s was the fastest-growing major economy in the world in 2014. He kept telling me to listen to the IMF—well, the head of that organisation said that few countries were driving growth like America and the UK. Growth is improving, the deficit has been reduced and unemployment is falling, and the President of the United States says we must be doing something right. When the shadow Chancellor complained about the Prime Minister’s going for dinner at the White House, he said, “I haven’t been neglected. They invited me in and gave me coffee and biscuits.” That is all the endorsement he is going to get for his economic plan anywhere in the world.
It is good we have cross-party agreement fully to fund the Holocaust commission’s report.
If things really were fine and if the economy really were fixed, people would be better off, but instead they are worse off, and the Chancellor would have balanced the books, as he promised, but he has not—he has completely failed to do it. It is because of that failure on the deficit that he is now planning spending cuts in the next Parliament that the IFS calls “colossal” and that the Office for Budget Responsibility says will take us back to levels in our economy not seen since the 1930s—before the NHS existed. Every developed country with spending as low as he is aiming for has widespread charges for health care. Is that not the real Tory economic plan?
We have a free-at-the-point-of-use national health service, which we are proud of and will continue to fund. What is clear is the total confusion in Labour’s health policy today. This morning the Labour leader said he was going to use his so-called mansion tax to pay down the deficit; six days ago the shadow Chancellor said that money would be used to pay for his NHS plan. It is total confusion today. The only way to have a strong national health service is to have a strong economy.
Let me end on this note. We read in the last couple of days that the shadow Chancellor has been sidelined from the general election:
“In a major humiliation, party bosses have quietly shunted”
“out of the media spotlight”.
Let me reach across the Dispatch Box and offer the hand of friendship. Let us resolve that we are both going to put him at the centre of this general election campaign.
T2. By sticking to our long-term economic plan, huge strides have been made towards reducing the deficit—something that seems to evade the shadow Chancellor. Does my right hon. Friend agree that there is only one party that can be trusted to take the difficult decisions needed for prosperity in this country and for sound public finances, and it is the one that he and I represent? 
My hon. and learned Friend is absolutely right. In Lincolnshire and across the country, people have seen unemployment fall and businesses grow. We have got to stick with the long-term economic plan, particularly at a time when the global economic risks are increasing. By working through that plan, we can deliver that economic security for his constituents and mine, and make sure this country has a brighter economic future.
T4. Is the Chancellor aware that of the 150,000 people employed in Coventry, 50,000 of them—mainly women and young people—are in part-time, low-paid jobs? What are the Government going to do about it? 
Of course we want to get unemployment down further, and for those who want full-time work, we want to make sure it is available. However, I would point out that, in the hon. Gentleman’s constituency, youth unemployment is down by 73% over this Parliament and unemployment is down by more than a half, so we have got to go on with our long-term plan, which is delivering those jobs in Coventry. Eighty per cent. of the jobs created in the UK at the moment are full time, so we need to sustain that plan, not go back to the chaos we saw under the Government he supported.
T3. May I suggest that the Chancellor heed no criticism from the Labour party about deficits, given that it more than doubled the national debt when last in power? As we have heard, the Government have done much to help small businesses, which is why unemployment is falling across the country and in my constituency. As the country’s finances continue to improve, will he look further to ease the tax burden on small businesses—particularly corporation tax—which are very often the backbone of our local economies? 
My hon. Friend is right that small businesses are absolutely central to our country’s economic growth and job creation in the future. We have cut small companies corporation tax in this Parliament. From April, we will have a single corporation tax, as it is consolidated around 20%, which removes a lot of the bureaucracy. On top of that, we have taken the smallest businesses out of business rates, and the employment allowance has helped with the national insurance bills of small businesses. Of course I will bear in mind anything else we can do to help small businesses. We have got some measures in the pipeline, but there is clearly more to do.
T6. This Government are demonising those on benefits, while doing little about tax evasion and avoidance, which, as we have heard, have risen significantly on their watch. Today sees the launch of the Tax Dodging Bill campaign, as 85% of British adults say that tax avoidance by large companies is morally wrong, even when it is legal. Why will the Chancellor not impose penalties for breaches of the general anti-avoidance rule, as we have called for? 
First, it was this Government who got the base erosion and profit shifting process running with the OECD, looking to deal with the international rules. It was this Government who announced at the autumn statement that we are bringing in a diverted profits tax to deal with some of the contrived and artificial behaviours that people are worried about. It was also this Government who introduced the general anti-abuse rule and it is this Government who are consulting on bringing in penalties for it. I have to say, it is not a bad record.
T5. I commend the Chancellor’s aim of running an overall budget surplus in 2019-20 and cutting the national debt so that the next generation are not saddled with punitive taxes. Does he agree that this is a case of simple fairness, not ideology? 
My hon. Friend is absolutely right. Countries such as Canada and Sweden, both of which have quite strong social democratic traditions, have forms of balanced budget rules, or rules where surpluses are run in good times. That has enabled them to bring their public finances under control and their debt down. They did not endure the hardship we saw as a result of the financial crisis here in the UK. We propose that countries should run a surplus in good times. That is the only sustainable way to get our national debt down. If we do not do that, we leave Britain exposed to whatever economic shocks the world throws at us.
T7. The Chancellor will be aware of the importance of the success of Newcastle international airport and of the need for successful businesses to plan ahead. He will understand, then, how the possible cut in air passenger duty north of the border is felt as a threat. Will the Chancellor give an assurance to the business of the Newcastle international airport and to other potential businesses affected that we will match any cut in APD funding north of border? 
The hon. Gentleman raises a serious point, and there is agreement on it across the political divide. The devolution of air passenger duty to Scotland raises the potential for real pressure to be put on airports in north-east England, but also on Manchester airport, which is partly in my constituency. We will of course have to see what the Scottish Parliament does when the powers are devolved, but the hon. Gentleman has my assurance that we will work together to ensure that we minimise the impact on the north-east if this happens, and that we will protect regional airports in England. We have a couple of years to work this out—it does not have be done tonight or tomorrow—and we can work out a plan that protects the brilliant Newcastle, Manchester and other regional airports.
This Treasury team abolished Labour’s unjustifiable and unfair beer duty escalator and delivered two historic successive cuts in beer duty. We still pay more tax on our beer, however, so our British brewers are not getting a fair deal in comparison with their European counterparts. Will the Treasury make it a hat trick?
During his time in Parliament, my hon. Friend has been a champion of the beer industry, small pubs and small brewers across the country—and a very effective champion he has been, too. Of course I cannot make any commitments about the Budget at this stage, but I welcome his recognition of the progress made on this subject during the course of this Parliament, and I will certainly take his recommendations for the Budget very seriously.
Britain has an enormous and persistent trade deficit with the European Union—clear evidence of a misaligned exchange rate. The significant weakening of the euro in recent days will make the position even worse and cause damage to British industry. When are the Government and the Bank of England going to take seriously the need to achieve and sustain an appropriate sterling-euro exchange rate?
This Government do not target a particular exchange rate. Successive previous Governments found to their cost that doing so was difficult and damaging. What we do is ensure that Britain is competitive. I think the best thing to do to support exports is to make sure that our British businesses are taxed in a competitive way; they have great skilled work forces working for them—[Interruption.] They are chuntering away on the Opposition Front Bench. I seem to remember that when the Labour leader was asked recently when Britain would join the euro, he said it depended on how long he was the Labour leader. It is still official policy to join the euro and tie the currency up to the eurozone—with all the ensuing chaos that would follow.
Is the Chancellor aware that since 2010 unemployment in my constituency is down by a staggering 1,000? What assessment has he made of the role of small business start-ups in reducing unemployment?
Small business start-ups have been central to job creation. We have helped them with the employment allowance and the enterprise investment scheme, and we have given the new enterprise allowance to young unemployed people to help them to start businesses—and that has been a great success. We have in place many initiatives to back our brilliant small businesses in Norfolk and across the country.
Considering the economic modelling carried out by one of the Treasury’s own economists, Professor Blake, what further progress has been made on reducing VAT on tourism, which would benefit all regions and particularly coastal regions in the UK?
We have looked at that, but there is a significant cost involved in making the changes. On the point of helping tourism, the hon. Lady will be aware of the substantial increase in Northern Ireland and other places over recent years and, secondly, the coastal communities fund provides a lot of support to many of the areas that benefit from tourism.
Cutting beer taxes, raising income tax thresholds and stopping the petrol tax increases proposed by the Labour Government have helped the Evans household and, probably, a number of other household budgets throughout my constituency. In the next Budget, will the Chancellor please keep calm and carry on cutting taxes?
I will not make any commitments in relation to the Budget, but my hon. Friend is right to point out that our support for the pub industry and for motorists has provided huge boosts for industries and families in Lancashire and throughout the country. Of course, we do not encourage people to mix the two.
Last but not least, and very pithily, Alison McGovern.
Will the Chancellor confirm that he has ruled out a further VAT increase in the next Parliament?
Our plans do not involve a VAT increase, because we are prepared to make difficult decisions on public expenditure, including decisions on the welfare budget. The hon. Lady and her colleagues voted for £30 billion of consolidation. If they are not prepared to do that by achieving expenditure savings, they must be contemplating big tax rises. With 100 days to the election, we know the choice: it is between a competent Conservative plan that is delivering growth, and a return to economic chaos under the Labour party.
Several hon. Members
Order. I apologise to colleagues whom I was not able to accommodate, but, as usual in the case of Treasury questions, demand massively outstripped supply.
Before I call the hon. Member for North Antrim (Ian Paisley) to ask his urgent question, I must remind the House that the inquest into the death of Mr Gareth O’Connor, although stayed, is still sub judice. I have agreed to waive the sub judice resolution in order to allow an issue of national importance to be raised, but I ask Members in all parts of the House to be very careful in making any reference to the inquest. Members should also take care to ensure that their comments do not impede any future prosecution. Questions about the on-the-run scheme and the dates of the crimes concerned would be in order.
(Urgent Question): To ask the Secretary of State for Northern Ireland to make a statement about recent developments relating to the on-the-run letters which have permitted a second fugitive to evade justice.
On Monday 26 January, the coroner conducting the inquest into the death of Mr Gareth O’Connor, who disappeared in May 2003, directed that the inquest should be stayed pending an investigation by the Police Service of Northern Ireland into one of the suspects in Mr O’Connor’s murder. The suspect was part of the administrative scheme dealing with so-called on-the-runs, and was in receipt of a letter from the Northern Ireland Office informing him that he was not wanted for arrest by police forces in the United Kingdom. This case is specifically covered on pages 107 and 108 of the Hallett report on the on-the-runs scheme, where it is described as “error 2”. The fact of the error has therefore been in the public domain for some time, and the case is not a new development.
The Police Service of Northern Ireland is investigating the suspect’s case, and will be considering whether charges can be brought against the individual concerned. I spoke to the Chief Constable of the PSNI yesterday, and I understand from him that this is a live police investigation. I also briefed the Justice Minister—in brief—on the case. The police will investigate where the evidence leads them. In the circumstances, it would not be appropriate for me to comment further on the specifics of the case.
As for the OTR administrative scheme, I set out the Government’s position fully in my statement to the House on 9 September. That followed detailed consideration of the report by Lady Justice Hallett, which was published in July. I made clear in my statement that the scheme was at an end, and that there was no basis for any reliance on letters received by so-called OTRs under the scheme. There is no amnesty, immunity or exemption from prosecution. Those who received letters under the scheme should be in no doubt: if there is considered to be evidence or intelligence of their involvement in crime, they will be investigated by the police, and if the evidence is sufficient to warrant prosecution, they will be prosecuted.
I thank the Secretary of State for her answer. The most disturbing aspect of what she has told the House today is the fact that the O’Connor murder relates to a post-1998 murder that occurred in 2003. We have been consistently told that the names of the OTRs were critical to securing a 1998 peace agreement, yet this murder post-dates that. Will the Secretary of State now agree to publish all the names with all the letters? Will she publish correspondence between Baroness Scotland and the right hon. Member for St Helens South and Whiston (Mr Woodward), whom I informed earlier I would be mentioning in the House, in terms of the relationship between that correspondence and the murderer of Mr O’Connor? Will the Secretary of State estimate how many other errors there are in this catalogue of errors and accept that the Government and the Hallett review conclusion that there is a single error is now without foundation?
Will the Secretary of State now consider legislation formally to annul the value of all these letters, to put meat on the bones of what she has said: that these letters are without value? Does she agree that Gerry Kelly must be formally investigated for how these letters have been distributed and for whom these letters have been requested? What compensation is now being considered for the families of those who have suffered as a result of Mr Downey’s activities and as a result of the actions by the murderer of Mr O’Connor, because these people cannot get justice by any other means and must now be entitled to some form of compensation?
As is clear from the conclusions of the Hallett report, this letter should not have been issued; it was issued in error. For a number of reasons I do not think it would be appropriate to make public the names of the individuals who received letters under the scheme, not the least of which is that doing so could prejudice a future prosecution and make it more difficult to secure a conviction.
In relation to the number of errors, Lady Justice Hallett identified in her report two errors in addition to the one made in the case of Mr John Downey. She also identified a further 36 cases considered by Operation Rapid where she believed there was a risk that the wrong test had been applied. She did not conclude that there were actually errors in these cases, but she proposed that they should be a priority for further investigation because the risk of error in those cases was higher than in others.
In relation to legislation, as I briefed the House in September, it is clear to me that the most effective means to guard against future collapses of trials and future abuse of processes defence is to issue a clear statement indicating to anyone who received a letter under the scheme that it is not safe to rely on those letters—that they should not be relied on—and that is what I did. The option of legislating on these matters was carefully considered, but the conclusion is that legislation would not be as effective as a clear statement at the Dispatch Box that the scheme is at an end and these letters should not be relied on, not least because of a risk that errors have been made in other cases.
I thank the Secretary of State for the response to the urgent question. She will be aware that as well as the 36 cases identified by Hallett as being perhaps the most worrying, we were told by the then assistant chief constable, now the deputy chief constable, of the PSNI that 95 people who received letters are connected through intelligence to almost 300 murders. That is a very serious situation indeed. Will the Government ensure that the PSNI has the full resources to look into all those cases not in the period of as long as nine years that the PSNI estimates it may take it, but very quickly so that the Government can decide whether there is a need for legislation to make it absolutely clear that nobody can rely on these letters to protect them from prosecution?
I am grateful to the Chairman of the Select Committee on Northern Ireland Affairs for his question. It is of course important that the PSNI has appropriate resources for its investigations under Operation Red Field relating to OTRs, as is the case for all other matters for which it has responsibility. I welcome the fact that the agreement on a final budget for the Northern Ireland Executive for 2015-16 allocated an additional £20 million to the PSNI. There is also the Stormont House agreement, which commits the Government to contributing £150 million to aid Northern Ireland in its treatment of legacy cases. I will look carefully at how that money should be appropriately deployed in the coming weeks.
On the question of legislation, I do not think I can really add to my previous answer. Having considered this carefully, the most effective means to ensure that we do everything we can to remove barriers to justice is a clear statement indicating that this scheme is at an end and these letters should not be relied on. That is what I have done. Legislation would not take us further and, I believe, would not be the right option in this instance.
As the hon. Member for North Antrim (Ian Paisley) suggested, the revelation yesterday regarding the collapse of the inquest into the murder of Gareth O’Connor has caused further concern and anxiety in Northern Ireland. Our thoughts today should be with the O’Connor family. Like so many of those left behind, they sought justice and truth about what happened to Gareth in 2003. They have waited 12 long years for an inquest into the death of their son, and the thought of preparing for a week-long inquest would have been harrowing for the family. This development made a highly stressful situation even worse.
News of another error from the administrative scheme for the on-the-runs is devastating, following the catastrophic error in the Downey case last year. We have apologised for the Downey error, and do so again for the error in the O’Connor case. In the same way as this scheme never offered amnesty, it was also never intended to cover alleged offences committed after the signing of the Good Friday agreement. Doubly troubling is the delay in the coroner and the family being made aware of the error. The Northern Ireland Office and the police knew about the case—indeed, it was referred to in the Hallett report.
I have several questions for the Secretary of State. Why did the Northern Ireland Office not ensure this family were told of the error in the immediate aftermath of the publication of the Hallett report? Secondly, further to the question from the Chairman of the Select Committee, in view of the financial pressures facing the PSNI, how long does the Secretary of State estimate it will take to review all the cases covered by the OTR scheme? I do not believe she has clarified that in her answer to the House today. Finally, on a related matter that has caused similar concerns, can the Secretary of State update the House on investigations into the missing information regarding royal prerogatives issued before 1997?
I thank the shadow Secretary of State for his questions. It is useful to remind the House that this scheme never offered an amnesty, and that it was designed to give individuals who were not wanted an indication that they were not wanted by police, so the letters issued in relation to the Downey case and this one were clearly issued in error.
On the Chairman of the Select Committee’s question about the connection between the 95 individuals and intelligence or indications relating to 300 crimes, these are of course matters for the police to investigate, but I would emphasise that a connection to intelligence or evidence is not necessarily sufficient to justify arrest or prosecution.
I welcome the shadow Secretary of State’s repetition of the apology he gave on behalf of the previous Government for the errors made in these cases, and I, of course, am happy to reiterate the apology I made on behalf of this Government for the pain and hurt caused to all families affected by the OTR scheme. I think there is consensus that the scheme should, at the very least, have been handled in a much more transparent way.
I acknowledge that the way the family in this case found out about the connection to the OTR scheme was very problematic. My understanding is that the PSNI has issued an apology for that, and I join in confirming that apology. It is, of course, as I said in response to the previous question, important that the PSNI is properly resourced for all its functions, which is why the Government have provided extra security funding of £230 million and one reason why we have provided funding for help in investigating the past. Even with those additional resources, it is clear that Operation Red Field, the investigation into all the OTR cases, will take some years.
The Secretary of State is to be congratulated on bringing some transparency to this scheme, via the Hallett inquiry. Such transparency was needed, because the previous Government set up the scheme and kept it under the carpet, if not secret from the nation. Does she agree that it was one of the shabbiest deals they did, notwithstanding the shadow Secretary of State’s apology? Will she further reassure me, the House, the country and the courts that she has taken legal advice on her statement that nobody can rely on one of these letters any more?
I have taken into account a number of factors in deciding how to respond to the Hallett report, and they of course include legal advice on the best way to guard against further trial collapses as a result of abuse of process. My right hon. Friend has referred in clear terms to his view of the scheme. As I said, I think there is agreement that it was deeply unfortunate that the scheme was not handled in a more transparent way. That is something for which I have apologised, but I emphasise once again to the House that it was never an amnesty and it was never a scheme to let people wanted for arrest get off without arrest or prosecution; it was, from the start, intended to be a scheme that merely indicated to those who were not wanted by the police that that was the factual position at the time in question.
The Secretary of State has repeatedly said that individuals should not rely on the OTR letters as the police carry out their duties. Does she agree that the law-abiding community in Northern Ireland would see much greater strength in that reassurance whenever they saw people with an OTR letter in their possession standing in the dock and the judge carrying out his duty, despite their having possession of a letter?
It is, of course, important for all crime to be properly investigated in Northern Ireland and for those guilty of offences to be brought to justice, regardless of whether or not they have an OTR letter.
We all want to see people with a strong case against them standing trial to see whether a jury will convict them. Will the Secretary of State revisit her legal advice on her statement that these letters should not have any great effect on a trial, to make sure that, in the light of this new decision, it remains correct and there is no need for further action by this place?
I am certainly happy to do that, and I discussed the matter with the Chief Constable yesterday. Just to reiterate, the Northern Ireland Office stands ready to take any further steps that might assist in removing barriers to prosecution. My current view is that the best way to guard against future problems in relation to abuse of process is a clear statement that these letters should not be relied on, and that is what I have made and issued to this House in September.
The PSNI has already confirmed that Operation Red Field will take at least three years, so I am glad the Secretary of State is looking directly at how she can assist with the funding. This was a Northern Ireland Office scheme, not a devolved scheme, and so the review should not come from the Northern Ireland budget. Is she in a position to shed any light on the allegations that have been made in the media that this individual was issued with a letter in respect of crimes that predated 1998 but which included a crime for which they were wanted in 2003, and that the tag of “wanted” on their file was then changed subsequent to the issue of that letter to “not wanted”, which would have made this incredibly difficult to detect?
For the reasons I have given, I am reluctant to get into the specifics of this case. As I have mentioned, the hon. Lady will find some further detail on these matters on page 108 of the Hallett report. In particular, there is a real concern that the offence in question was a post-1998 offence.
Having done three operational tours in Northern Ireland, I fully appreciate that some areas are murky and remain so, and these 200 letters were a shabby effort to sign up to the peace deal. Will the Secretary of State tell me how long it will take to investigate these 95 people who have received letters? As we understand it, through intelligence, they are connected to 300 murders, so how long will it take to pursue this and ensure that proper justice is done?
As I have said to the House, it will, unfortunately, take some years to go through all the OTR cases. That is why we will need to give serious consideration as to whether some of the extra funding provided as a result of the Stormont House agreement to deal with matters relating to the past can be used in some way to assist the PSNI in this important work.
In response to the question that my hon. Friend the Member for Bury South (Mr Lewis) asked about why the family and the coroner were not involved in July when Hallett produced the report, the Secretary of State said that it was “problematic”. That is not good enough. We want to know what has been going on since July. We have been told earlier that the police are now investigating this case, but what have they been doing since July? And what has the NIO been doing since July?
The NIO has been involved in a number of matters implementing the conclusions of the Hallett report. They include consideration of this case by the policy board set up as a result of Lady Justice Hallett’s conclusions. We also implemented a number of her conclusions through my statement to the House to provide clarification of the status of the scheme. That also covers the recommendations that she made in relation to removing barriers to prosecution. The PSNI has also made progress on the matters in Lady Justice Hallett’s recommendations on how it deals with police databases and the PSNI’s liaison with other police services in the United Kingdom.
What about this family?
We have to bear in mind that deployment and disclosure of information in relation to these individual cases needs to be handled with the greatest care, because any disclosure presents risks in relation to future prosecutions. That is probably one of the reasons why the information came out at the time that it did. So we need to reflect carefully on these matters. It did come out in an unfortunate way; I reiterate the apology I made earlier to the family for how they learned of this matter, but we all need to take care on the disclosure of information about this scheme, because none of us would want to be responsible for the collapse of a future trial.
I am reflecting and thinking of the O’Connor family from Newry today. Will the Secretary of State confirm, notwithstanding the content of the Hallett report, that no further errors will be revealed?
No, I am afraid that I cannot give that confirmation. The Hallett report was clear in its conclusions about the management of the scheme: it was not properly managed and the risk was not properly managed. Anyone reading the Hallett report must expect that further errors will come to light. As I told the House earlier, Lady Justice Hallett highlighted 36 further cases as ones where the risk of error is higher than in others. That is one reason why nobody should be relying on these letters; because of the errors in the way the scheme was managed, it is likely that other errors will come to light.
The Secretary of State will know that I have raised the position of the victims on a number of occasions, and they are at the core of the whole issue. Many victims will never see justice because of these OTR letters. My hon. Friend the Member for North Antrim (Ian Paisley) made a point about printing the names. Is one reason why the Government will not print the names of those with OTR letters and the royal pardons that they were received by some people who have been elected to this House and are currently elected to the Assembly?
Let me emphasise that the issue of an OTR letter does not necessarily lead to the result that it did in the John Downey case. The judgment is clear: the reason why the trial collapsed was that the letter was incorrect. Mr Downey was wanted, but he was sent a letter indicating that he was not. The issue of an OTR letter does not give immunity from prosecution; it never did and it will not do so in the future. On the disclosure of names, I have said to the Northern Ireland Affairs Committee on many occasions that, by disclosing names, there is a risk that I would jeopardise future prosecutions, make them more difficult and increase the risk of an abuse of process. That is why I will not disclose names in relation to this scheme or be drawn on categories of individuals who might have been part of it.
Does the Secretary of State agree that we should not have short memories when it comes to Northern Ireland? The fact is that 3,600 people were killed during the civil war. Rather than condemn the previous Government, we should acknowledge the risks that they took to make Northern Ireland the fantastic place that it is today.
I have certainly always tried to be objective and measured in how I view the actions of the previous Government on these matters. In relation to OTRs generally, there certainly are some differences between the parties, not least of which is the opposition of the Conservatives and the Liberal Democrats to the Northern Ireland (Offences) Bill. In relation to this scheme and the way in which Northern Ireland matters were handled generally by the previous Government, I do not doubt their sincerity. They were motivated, I am sure, by a wish to see the process move forward and to secure peace and stability for Northern Ireland. The key problem that was revealed by the Hallett report was that, unfortunately, the scheme was not managed in the way that it should have been, and that gave rise to risks. Errors were made, which, unfortunately, could jeopardise future prosecutions.
At a time when yet another OTR is issued a covert letter to escape jail, British soldiers—funded by legal aid—are being investigated for a shoot-out with terrorists which led to the much-deserved deaths of those terrorists. Does the Secretary of State not accept that the legal system and the rule of law are being undermined by the fact that while some individuals are not being charged for their terrorist activities, British soldiers are being investigated?
For some, confidence in the legal system has been shaken by the OTR scheme. But that is a reason to be very clear that it was not an amnesty; it never was. It was a scheme designed to ensure that individuals who were not wanted by the police were told that that was the case as a matter of fact at a particular point in time. It is important that the scheme is described in such a way to provide as much reassurance as possible to the people who have been understandably distressed by what has happened.
The Secretary of State will recall that much of the negotiations in relation to the Stormont House agreement revolved around concerns to protect the option of the inquest process into the future. Does it not strike her as somewhat disappointing that after parties such as the SDLP and Sinn Fein argued to defend that very process, an inquest has been compromised by what has happened in relation to this discredited OTR scheme? Although we will not join the call for the publication of the names of everyone who received letters, we ask the Secretary of State to assure us that those letters and the details around them will be shared with the new bodies that will be dealing with the past, which were set up as a result of the Stormont House agreement. In that way, no one else can be surprised by events in the way that they were with this twisted and terrible case.
I agree with the hon. Gentleman that inquests were a key matter that were considered at great length in the Stormont House agreement talks. Although we could not build a consensus on the way to reform inquests, we did reach a consensus on the fact that the inquest system needs to be reformed because, at the moment, it is not working effectively enough to give proper answers to families. I am working with the Justice Minister and others in the devolved Executive to do everything we can to take that reform process forward; it is vital that we do that. Disclosure was also debated at length, and I can assure the House that the Government are committed to the fullest disclosure in relation to the new bodies to be set up under the Stormont House agreement. But when it comes to onward disclosure, we will of course need to put in place national security measures, which are broadly equivalent to those that apply in respect of current institutions. In conclusion, I wish to pass on my condolences to the O’Connor family, who must have been distressed and upset by recent events.
I am sure that the Secretary of State will understand why the people of Northern Ireland are cynical about her oft-repeated mantra that no one can rely on these letters, when we have already had two people relying on them, and she has indicated today that there could possibly be another 36. Will she tell the House who was responsible for the error, and what the nature of the error was? In that way, we can at least determine whether this was a deliberate action to ensure that a killer was not brought to justice or a genuine mistake.
The Hallett report indicates that the error may well have originated within the PSNI, but we should not rush to judgment on that. As I have said in relation to the John Downey case, wherever the error arose, the problem was that the scheme was not designed to guard against errors or to pick up on them when they were made. The overall responsibility for the errors still rests at ministerial level. There is a consensus on both sides of the House that the Ministers in power at the time need to take responsibility for what happened, even if, at the end of the process, the error may have been made by the PSNI. It is a matter on which we should not rush to judgment. The hon. Gentleman may wish to look at page 108 of the Hallett report to assess how the error occurred.
Motion for leave to bring in a Bill (Standing Order No. 23)
I beg to move,
That leave be given to bring in a Bill to make provision for the registration of voters by registration officers; and for connected purposes.
Mr Speaker, as you and many Members of this House may know, I have been raising the issue of voter registration since 2001. In that time, we have seen massive and far-reaching changes to the way in which we register to vote in order to empower citizens with the ability and confidence to cast their vote come election time. What I propose in this Bill will work towards increasing the number of people registered to vote, particularly those who are least likely to be registered to vote, which includes young people.
Since 2001, we have seen the number of non-registered voters increase. I do not wish to shy away from the arguments about why people are not registered to vote, but first let me say that, according to revised figures from the Electoral Commission last year, some 7.5 million people were missing off the electoral register in 2010. But even in the past 18 months, England, Wales and Scotland have collectively gone through the biggest change in the way people register to vote since the Great Reform Act 1832. The move to individual electoral registration has seen 5 million people fail to transfer over from the household register to the new individual electoral registers, and 1 million people have fallen off the electoral register completely.
I have been working with the fantastic group, Bite The Ballot, which is a neutral cross-party youth democracy group, to bring forward this Bill to tackle the under-registration of young people in England Wales and Scotland, and to make registration easier with an “opt-in” option on Government forms.
The first part of this Bill seeks to emulate what is now practice in Northern Ireland. Following the transition to individual voter registration in Northern Ireland in 2002, there was a marked decrease in the number of people registered to vote. In 2008, to tackle that problem, the chief electoral officer for Northern Ireland was given the power to request information from post-primary schools to pre-populate electoral registration forms for those eligible attainers.
The schools initiative, according to the chief electoral officer for Northern Ireland, is the most productive part of his community engagement programme. His office visits 182 schools between mid-September and early November each and every year, and has successfully registered 50% of the total eligible youth population via the scheme alone. Bite The Ballot, which has five years’ experience in inspiring attainers and young people to register, tells us that face-to-face engagement is the best way of ensuring that young people register, so I say, why not follow best practice in Northern Ireland, and follow suit in the rest of the United Kingdom? By visiting schools and colleges, and running voter engagement sessions, our youngest citizens can be inspired to begin their lifelong democratic journeys as active, engaged citizens.
The Bill also seeks to open up the avenues to registration with a simple opt-in tick box on all Government forms. The measure is similar to the USA’s “Motor Voter” Act of 1993, which has enabled a massive 32% of American voters to register through interactions with the state. It would empower citizens to register to vote when filling in, for example, applications for a renewed driver’s licence, a passport and benefits, or when enrolling with a GP. The system I am advocating would only ever operate on an opt-in basis to protect the individual’s private data and identity. Having moved to a system of online registration, that type of data sharing is surely not beyond the skill of the Government Digital Service.
The Government have just announced £10 million to aid local authorities and national organisations in the task of registering people to vote. That is welcome, and must be spent on activities that work and are known to work. School and college visits, as Bite The Ballot proves, work. Enabling people to register when they interact with Government services, as the Americans have proved, works. My Bill seeks to make the UK’s system of voter registration as easy, engaging and accessible as possible. I believe that the two proposals I make in the Bill go some way towards achieving that.
In conclusion, may I pay tribute to you, Mr Speaker, for your support for the issue of registration and turnout, including your support for lighting up the Victoria tower with a big X on voter registration day next week, and your support for online voting by 2020?
Question put and agreed to.
That Chris Ruane, Mr Russell Brown, Nic Dakin, Mr Clive Betts, Mr Kevan Jones, Mr George Howarth, Mr Mark Williams, Mr Elfyn Llwyd, Jim Shannon, Jessica Morden and Mark Durkan present the Bill.
Chris Ruane accordingly presented the Bill.
Bill read the First time; to be read a Second time on Friday 6 March 2015 and to be printed (Bill 163).
Corporation Tax (Northern Ireland) Bill
[Relevant documents: First Report from the Northern Ireland Affairs Committee, Session 2010-12, Corporation Tax in Northern Ireland, HC 558, and the Government response, HC 1767.]
I beg to move, That the Bill be now read a Second time.
The Bill provides for the devolution of a rate-setting tax power to the Northern Ireland Assembly and would allow Northern Ireland to set its own rates of corporation tax. Just under five years ago, the Conservative party went into the general election with a commitment in our Northern Ireland manifesto to produce a Government paper examining the mechanism for changing the corporation tax rate in Northern Ireland. The pledge subsequently formed part of the coalition’s programme for government. It was part of our strategy for rebalancing the Northern Ireland economy from over-dependence on the public sector by revitalising private enterprise and attracting new investment.
The commitments in the Conservative manifesto and the programme for government were fulfilled a little under four years ago, when the Government launched a consultation on rebalancing the Northern Ireland economy and on the potential for devolving corporation tax powers to the Executive and the Assembly. The response to that consultation was near-unanimous support from Northern Ireland’s political leaders and the business community for the devolution of corporation tax. We have worked tirelessly since then on the technical details needed to make devolution possible.
My predecessor, my right hon. Friend the Member for North Shropshire (Mr Paterson), whom I welcome to the Chamber today, established a joint ministerial working group with the Treasury and Executive Ministers in late 2011 to work through the main questions of contention. In the economic pact that we signed with the Northern Ireland Executive in June 2013 on the eve of the G8 summit, we committed to further progress and a final decision in principle on devolution no later than the autumn statement of 2014. In that autumn statement my right hon. Friend the Chancellor said that
“we recognise the strongly held arguments for devolving corporation tax-setting powers to Northern Ireland. The Treasury believes it can be implemented provided that the Northern Ireland Executive can show that they are able to manage the financial implications. The current talks will see whether that is the case. If it is, the Government will introduce legislation in this Parliament.”—[Official Report, 3 December 2014; Vol. 589, c. 314.]
As I informed the House on 7 January, following extensive negotiations, those cross-party talks reached a successful conclusion on 23 December with the Stormont House agreement. That agreement, which also covered crucial legacy issues such as flags, parading and the past, sets a path for the Executive to put their finances on a sustainable footing for the future. That has paved the way for us to go beyond the commitments we made in our manifesto in 2010 and to introduce the Bill to devolve corporation tax rate- setting powers to Northern Ireland. Unlike the Opposition, the Government believe in lower taxes for business because we understand that businesses thrive when they are free to get on with what they do best, unencumbered by burdensome regulations and excessive taxes.
That is why since 2010, the Government have cut the main rate of corporation tax from the 28% we inherited from Labour to 21% today. It will fall still further to 20% in April, giving the UK the joint lowest rate of corporation tax in the G20—a competitive edge that Labour wants to deny British business, as the Shadow Chancellor is committed to reversing that reduction. The small profits rate has also been cut to 20%. Those tax cuts are a central part of the Government’s successful long-term economic plan to make the UK as a whole more competitive, supporting business investment and job creation— something that would be jeopardised by a return to the high-tax, high-spending, high- borrowing policies of the previous Government.
The Secretary of State will be aware that the UK Government-sponsored Silk commission, which was set up in Wales a number of years ago, reported that if corporation tax were devolved to Northern Ireland, consideration should be given to devolving it to Wales and the other devolved Parliaments. Can she enlighten the House on the Treasury’s thinking, now that a decision has been made for Northern Ireland, on the other devolved Parliaments?
Careful consideration has been given to the devolution settlements across the United Kingdom. The Government have made it clear that the fact that Northern Ireland shares a land border with a low corporation-tax jurisdiction means that the case for reform is strong for Northern Ireland, but it is not made out in relation to the rest of the United Kingdom. Northern Ireland is different from the rest of the country, because the history of the troubles has left its economy with a high dependence on the public sector. That is another reason why Northern Ireland is different, and corporation tax devolution could provide a boost to growing the private sector in Northern Ireland. While there is a clear case for doing this in Northern Ireland it would not be the right move for other parts of the United Kingdom.
Has any assessment been carried out about the level at which Northern Ireland should set its new rate of corporation tax, given what the Minister has just alluded to—our competitiveness with the Republic of Ireland, which has a rate of 12.5%? Has any research been carried out by the Treasury on that?
The principle of the Bill is that that becomes a matter for the Northern Ireland Assembly and the Executive. It is for them to make the choice and decide whether to go ahead with implementation of a reduced rate. Obviously, there is a great deal of support for bringing down the rate of corporation tax in Northern Ireland to the same level as in the Republic of Ireland. I know that the hon. Gentleman’s party colleague, Minister Foster, would like to see it reduced still further. Those matters are not provided for in the Bill because the Bill vests that choice with the Northern Ireland Executive once commencement has taken place.
As I was saying in response to the intervention, Northern Ireland has a unique position within our United Kingdom. The land border that it shares with a very low corporation tax environment in the Republic of Ireland puts it at a significant competitive disadvantage when competing for inward investment into the island of Ireland. Northern Ireland is also more dependent on the public sector than most other parts of the UK. Estimates vary as to the extent of this dependence, but it is generally accepted that around 30% work in the public sector, compared with about 20% in the rest of the UK. Some surveys put the dependence on the public sector at even higher levels.
Economic prosperity as measured by gross value added per capita is still some 20% below the UK average and has been so for a number of decades. Of course, Northern Ireland faces a range of difficult issues flowing from the legacy of the troubles. All these challenges need to be overcome if Northern Ireland is to compete successfully on the national and global stage for jobs and for investment. None of this is to say that Northern Ireland does not have some amazing entrepreneurs and some hugely successful businesses that are truly world-beating. Under this Government unemployment in Northern Ireland has fallen in every month for the past two years and the record of foreign direct investment is strong, not least because of the efforts of the Northern Ireland Executive.
But for all the great businesses we have in Northern Ireland, the blunt truth is that there are just not enough of them, so the Government are convinced that to boost the private sector and enable Northern Ireland to perform even more strongly in attracting inward investment, we need to go further. We need to provide stronger incentives for Northern Ireland firms to invest in growth. The Bill before the House today will give the Assembly a powerful tool to help them do this, enabling Northern Ireland to take a decisive step forward towards rebalancing its economy.
The Bill provides a further demonstration of this Government’s general commitment to devolution, which we have shown in many ways, including with the Scotland Act 2012. We are making progress on implementing the Smith commission proposals for further powers for Scotland over tax and welfare to be transferred to the Scottish Parliament. Draft legislative clauses were published on 22 January.
Is my right hon. Friend aware of the data which suggest that almost twice as much will be raised from companies moving from Great Britain to Northern Ireland than from those moving into Northern Ireland from overseas? If that is the case, does she think it fair that Members from Northern Ireland may vote on the UK-wide corporation tax rate as well as their own, when they are effectively competing with our constituents?
I emphasise that the new system is designed to deal with artificial avoidance. A number of measures are in place to prevent abuse of the new system; I will come to those in a moment. In relation to voting on taxation matters, my hon. Friend will be aware that ensuring that the devolution settlement is fair to the English as well as to the rest of the United Kingdom is an important matter under consideration by the House and by the political parties. I am sure it will be extremely important that we get the right outcome to ensure that the devolution settlement is fair across the board, but it is also crucial that we have a coherent and unified tax system.
I take on board the issue raised by the hon. Member for Amber Valley (Nigel Mills). Does the right hon. Lady agree with me, though, that Northern Ireland would want to avoid corporation tax devolution and any subsequent reduction by the Assembly leading merely to brass-plating of companies in Northern Ireland? For us to benefit from the economic out-turn of investment, we need people who are involved in creating employment and raising skills levels as well.
As the hon. Lady will hear when I get further into my remarks, the approach in the Bill is to focus on genuine economic activity which generates jobs. We want to minimise the risks of matters such as brass-plating and artificial avoidance schemes, so the Bill maintains the coherence of the corporation tax system as a whole and also provides an incentive to bring genuine economic activity to Northern Ireland and assists in that rebalancing process.
The Wales Act 2014 came into effect on 6 January, providing the legislative framework to support the implementation of recommendations made in the first report of the Silk commission. As my right hon. Friend the Secretary of State for Wales has told the House, he continues to take forward discussions on the next steps for devolution in Wales. The debate continues on the most effective way to ensure that devolution operates in a fair way with regard to England, as one of the component nations of the United Kingdom.
Turning back to Northern Ireland matters, the devolved system for corporation tax rates set out in the Bill reflects the following overarching Government goals: we want to attract genuine economic activity to Northern Ireland, minimise additional administrative costs for business, keep the costs of a reduced rate for the Executive at a proportionate level, and ensure as much consistency as possible between the new NI provisions and the main UK corporation tax regime—and of course we need to comply with legal requirements.
The legislation does not cut off Northern Ireland from the rest of the UK tax system or establish a separate and distinct corporation tax regime for Northern Ireland. Control over what is taxed remains a matter for the UK Government and this House. The Bill devolves only the power to vary the rate, so Northern Ireland’s trading regime remains firmly and clearly within the overall UK corporation tax system. The Bill will insert new part 8B into the Corporation Tax Act 2010 and amend the Capital Allowances Act 2001. These changes would give the Assembly the power to set a rate of corporation tax for certain trading profits, based on a proposal from the Northern Ireland Executive. That would be a decision for Northern Ireland, independent of the UK Government or this House. It will give the Assembly and the Executive a powerful economic lever to drive potential growth and enable it to be exercised on the basis of the wishes of Northern Ireland voters, taxpayers and businesses.
Efforts are made to minimise the scope for artificial tax avoidance, as I said in response to interventions. Existing anti-avoidance measures will continue to apply, including the UK targeted anti-avoidance rules and the general anti-abuse rule, and further protections may be introduced before implementation. The overall structure of the devolved regime has been designed to limit the opportunities for avoidance, as I told the House in response to interventions.
A new Northern Ireland rate would cover trading profits, such as those associated with manufacturing and providing services. Other profits—non-trading profits, such as those associated with property income—that do not generate jobs or economic growth in the same way will continue to be subject to the UK-wide rate. Similarly, activities such as lending, leasing, and reinsurance offer significant scope for profit shifting without the benefits of bringing substantial new jobs, so these, too, will be excluded from the Northern Ireland provisions.
To promote continued success in Northern Ireland in attracting back-office functions, companies with excluded trades and activities may make a one-off election for the back-office functions of those excluded trades or activities to qualify for the Northern Ireland Office regime. This is an example of the UK Government’s responding specifically to areas of activity where Northern Ireland has demonstrated its great strength in attracting inward investment. It will not apply to the oil and gas or long-term insurance sectors, which have their own separate regimes and will not be included in the new devolved arrangements. Allowances and credits remain reserved to Westminster to help to maintain a common tax base across the United Kingdom and to prevent unnecessary new complexity from being added to the tax system.
However, a number of rules will be amended to reflect the new circumstances. For example, if there is a lower rate of tax in Northern Ireland, research and development tax credits, capital allowances and creative reliefs for the film, TV and computer game industries will be adjusted to ensure that they continue to be broadly equivalent in value to those in Great Britain. That means that Northern Ireland can continue to be just as attractive a location for successful projects such as “Game of Thrones” and other film and television productions.
The devolved tax regime will also operate differently for larger and small businesses. Larger businesses will need to divide their profits between Northern Ireland and Great Britain, as they do now between the UK and other countries. This effectively means that they will treat their Northern Ireland trading activity as a separate business from their activity in the rest of the UK and allocate the appropriate amount of profit to Northern Ireland. We recognise, however, that this would be burdensome for smaller businesses. Indeed, the issue of potential administrative burdens on small business was one of the key concerns brought out by the 2011 consultation, and the matter was raised by Northern Ireland Executive Ministers on a number of occasions at the ministerial working group. Therefore, if at least 75% of such a business’s staff time and staff costs relate to work in Northern Ireland, then all their trading profits will be chargeable at the Northern Ireland rate. If not, they will be chargeable at the UK corporation tax main rate. This simple in/out test will mean that the majority of small and medium-sized enterprises are spared the burden and cost of apportioning profits.
As I made clear in my previous statement to the House, the Bill’s progress through Parliament is dependent on the Executive parties delivering on their commitments in the Stormont House agreement. Those include agreeing and delivering a 2015-16 budget that works, legislating for changes to the welfare system, and taking the steps required to put the Executive’s finances on a stable footing for the long term. I warmly welcome the progress that is under way on those three crucially important matters, with, for example, the recent agreement on a budget for 2015-16. Given the practicalities of implementation, the earliest point at which reduced rates could come into effect is April 2017. The Bill contains a commencement clause meaning that these devolved powers will be switched on for the planned start date in 2017 only if the Executive can demonstrate that they have succeeded in the third goal of achieving sustainable public finances. This is in line with the approach used for other tax devolution measures in other parts of the UK.
The Government have been very clear that devolving corporation tax rates is not an end in itself. Certainly, on its own, it is clearly not the answer to all the economic challenges facing Northern Ireland. If the full potential benefit of corporation tax devolution is to be realised, a number of areas of economic reform need to be addressed, such as planning, skills and infrastructure. However, given the land border that Northern Ireland shares with a lower-tax jurisdiction, it is difficult to think of any one policy which, on its own, may potentially have such a transformational impact on the Northern Ireland economy—
And, I believe, on the hon. Lady’s constituency.
Does the Secretary of State agree that, as regards potential visits and potential locations for foreign direct investment, there is a need to address the historical legacy of under-investment and regional imbalance if the issue of corporation tax is to have any meaningful benefit in pump-priming the local economy?
I know that the Northern Ireland Executive are committed to doing all they can to ensure that the effects of boosting the private sector and enhancing prosperity are felt throughout Northern Ireland. All Administrations grapple with the difficult problem of how to ensure that economic prosperity is appropriately spread. I believe that corporation tax devolution—coupled with a focus on other areas of economic reform such as skills, planning reform and investment in infrastructure—is a crucial way to enhance the private sector and boost prosperity throughout Northern Ireland. I am sure that the hon. Lady will be aware of some of the many difficulties that have been experienced in border areas over the years. People living in border areas stand to benefit as much as everyone else in Northern Ireland from a potentially significant and welcome impact in achieving the rebalancing of the Northern Ireland economy that we all want to see.
Members of the business community have told me on very many occasions that they are convinced that this is the right measure for Northern Ireland. They believe that it will boost the indigenous private sector, both large and small, as well as attract foreign direct investment, and will provide an effective means of rebalancing an economy which for decades has been over-dependent on the public sector. They have therefore strongly welcomed the Government’s introduction of this Bill. I am very grateful for the support for this measure shown within the Northern Ireland business community.
The Government will use our very best endeavours to get the Bill on to the statute book before the Dissolution of Parliament. This legislation has strong support in Northern Ireland. Moreover, the whole of the UK will benefit if corporation tax devolution can help to drive economic growth and rebalancing, and help to deliver a prosperous and stable Northern Ireland.
The Secretary of State alludes to the need to get the legislation on to the statute book, and I hope that progress is now being made towards that. Does she agree that beyond that stage, the next Government, and the next Prime Minister and Secretary of State, will have a central role in helping the Northern Ireland Executive in terms of overseas trips and inward investment to ensure that maximum advantage is taken of the opportunity to get the most benefit out of corporation tax reduction?
I agree that if the benefits of a reduced corporation tax rate for Northern Ireland are to be realised, that needs to be accompanied by a determined effort to sell the benefits of Northern Ireland to the world. I am absolutely 100% certain that if my right hon. Friend the Member for Witney (Mr Cameron) is Prime Minister in the next Parliament, that is exactly what the UK Government will be doing, because he is completely committed to Northern Ireland and believes that it is a wonderful place. That is why he takes every opportunity to tell the rest of the world what a fabulous place it is, and why he brought the G8 summit to County Fermanagh.
Turning to the mechanics of passing the Bill, any delay would be a great mistake. I therefore very much welcome the support that the Bill has received from hon. Members from Northern Ireland, who have rightly highlighted the importance of corporation tax devolution to their constituents and the potential benefits it could deliver. I welcome, too, the recent U-turn by the Leader of the Opposition, who last week confirmed that Labour will facilitate the passage of the Bill. I am most grateful for that. That recognises the firm and consistent support for the change from the five parties in the Northern Ireland Executive, as well as the fact that this new piece of devolution has a key part to play in the Stormont House agreement.
Will the Secretary of State explain at what point the Opposition ever said they would oppose the devolution of corporation tax to Northern Ireland in this Parliament? Can she give a date and a time when the Opposition said that?
I seem to remember that when I reported to the House on the Stormont House agreement just a few weeks ago, the shadow Secretary of State was distinctly lukewarm in his approach to corporation tax change, and called for more consultation despite the fact that we had a very extensive consultation back in 2011. If he is now an enthusiast for corporation tax devolution, I welcome that and thank him for coming on board for a project which, of course, the Conservatives have been championing for many years. It is great that Labour has seen the light at last.
In closing, I want to pay the fullest possible tribute to my right hon. Friend the Member for North Shropshire, who picked this issue up off the floor where it had been left by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), championed it, and put it firmly back on the political agenda here in Westminster and in Northern Ireland. It is in no small part due to his determined and dogged support that this ground-breaking Bill for Northern Ireland is before the House today.
Taking the Bill through Parliament shows that the UK Government are delivering on the commitments the Conservative party made to Northern Ireland at the last general election, and it demonstrates real progress on implementing our side of the Stormont House agreement. The agreement addresses issues that threatened the credibility, the stability and even the continued existence of devolution, and if it is fully and faithfully implemented, it will help us to build a Northern Ireland where politics works, the economy grows and society is stronger and more united. The agreement enables Northern Ireland to take a further step along the road towards a more stable, prosperous and confident future, and I warmly commend the Bill to the House.
On his visit to Belfast last week, my right hon. Friend the Leader of the Opposition spoke of the inextricable link between peace and stability and economic and social progress in Northern Ireland. He was right to do so: without stability, the business confidence necessary for investment and growth will inevitably be undermined; without economic and social progress, stability will be fragile as people see little or no evidence of a peace dividend. The interdependency between the economy and the peace process should be at the forefront of all our minds as we debate the Bill.
For Northern Ireland to move forward there is an urgent need for private sector jobs and growth as part of a long-term rebalancing of the economy. Both further increases in global inward investment and support for new local start-up businesses and small businesses with the potential to scale up will be crucial to progress in Northern Ireland in the coming years.
We should use every opportunity to celebrate the remarkable progress that Northern Ireland has made since the end of the troubles. There are no greater reminders of that than recent achievements such as Derry/Londonderry’s success as the city of culture, and Belfast’s holding the world police and fire games and turning pink for the Giro d’Italia last year. Those amazing events boosted the economy and brought communities together.
In the past few months, there have been major job investments supported by Invest Northern Ireland, including in more than 800 posts at PricewaterhouseCoopers in Belfast, and in almost 500 posts at First Derivatives in Newry. The services sector has recouped almost all the jobs lost during the recession. In recent years, there has been a significant increase in direct foreign investment to Northern Ireland. UK Trade & Investment figures for 2013-14 showed an increase of 32% in inward investment projects compared with the previous year. Northern Ireland outperformed all other nations in that regard: England, including London, achieved 11% growth; Scotland achieved 10% growth; and Wales achieved 18% growth. In 2014 alone, 50 new foreign direct investment projects were secured in Northern Ireland. That significant progress and international interest have been possible because of the leadership of the First Minister and Deputy First Minister, supported by the Northern Ireland Executive.
It must be said, however, that that investment is from a low base, and has inevitably been constrained by the consequences of the global banking crisis. We must acknowledge that the Northern Ireland economy still in fact faces real difficulties in relation to its economy overall, which is not working for the many or reaching kitchen tables in Northern Ireland.
Northern Ireland’s recovery continues to lag behind that in the rest of the UK. Last week’s labour market statistics show that unemployment is still gradually falling—we welcome the fact that it currently stands at 5.8%, a six-year low—but youth unemployment in Northern Ireland is stubbornly high at 19.2%, which is above the UK average of 15.4%, and over half of unemployed people have been out of work for a year or more. Northern Ireland has the highest inactivity rate of all UK regions. The earnings of a typical full-time employee in Northern Ireland fell by 1.4% in 2014, according to the official annual survey of hours and earnings. There has been a very disappointing loss of momentum in the private sector. For example, Ulster Bank’s purchasing managers index for January shows that business recovery in Northern Ireland has slowed, and output has dropped in the main sectors of manufacturing, construction, retail and services.
The Bill recognises many of the unique challenges that Northern Ireland faces. It shares a land border with the Republic of Ireland, where corporation tax is 8.5 percentage points lower than in the UK, and its society is emerging from conflict, with all the challenges that that presents. The public sector employs nearly one in three workers in Northern Ireland compared with fewer than one in five in the UK as a whole. It is therefore right that rebalancing the economy is a priority for the Northern Ireland Executive.
It is clear from the Stormont House agreement and the commencement clause in the Bill that the final transfer of the powers will not take place until April 2017 at the earliest. That ensures that there is adequate time for the proper impact assessment and consultation that the Opposition feel is essential in the interests not only of Northern Ireland, but of the rest of the United Kingdom.
For all those reasons, as well as out of respect for the existing political consensus in Northern Ireland on this issue, we will not seek to divide the House. Moreover, I want to make it very clear that, assuming we have reasonable time for an acceptable level of scrutiny, we will work with the Government to facilitate the passage of the Bill in this Parliament.
As the Secretary of State has set out, the Bill will give the Northern Ireland Assembly the power to set the main rate of corporation tax in respect of certain profits, while control over the corporation tax base, including reliefs and allowances, will remain with the UK Parliament. The devolved rate will apply to all the trading profits of micro and small and medium-sized enterprises if the majority of employee time and costs fall in Northern Ireland. The devolved rate will apply to all the profits of large companies attributable to a Northern Ireland trading presence. Certain trades and activities will be excluded from the scope of the rate, including lending and investment activities. Her Majesty’s Revenue and Customs estimates that the changes will affect 34,000 companies of all sizes in Northern Ireland, including more than 26,000 SMEs, with the exact impact depending on the conditions.
The Opposition accept that the devolution of corporation tax and its subsequent reduction could play an important part in boosting private sector investment in Northern Ireland, alongside a range of other measures.
I am happy that the Labour party is supporting the UK Government’s proposal to devolve corporation taxes to Northern Ireland. The Labour party is also in favour of fully devolving income tax to Scotland, yet it opposes the devolution of any major taxation powers to Wales. Why is Wales being offered an inferior deal?
We believe that Northern Ireland has special circumstances—a land border with the Republic of Ireland, and a society emerging from conflict—that are incredibly important in this context.
I welcome this measure for Northern Ireland, and I think that it will inevitably come to Scotland when we have a large Scottish National party group in Westminster. The argument about the land border is a strange one, because there are many places on land borders that have different rates of corporation tax. Logically, that could lead to a situation in which corporation tax was set island-wide in Dublin. I would not like to see such a situation, but that is the logic of the argument about the land border.
The hon. Gentleman’s party has long advocated the devolution of corporation taxes in Scotland, but the fact is that it did not push very assertively for that during the Smith commission negotiations. Equally, Scotland has enough to do getting on with the very considerable devolution package on which there is tremendous consensus.
The point I want to make to both hon. Gentlemen is that the idea that the devolution of corporation tax is a panacea is a fundamental mistake. I will develop that argument further; astonishingly, it was noticeably absent from the Secretary of State’s speech. The PricewaterhouseCoopers report “Corporation Tax—Game changer or game over?” found that the devolution of corporation tax would be “no magic bullet” for Northern Ireland. It concluded that there was
“no evidence that the Republic of Ireland’s low Corporation Tax, by itself, attracted the high levels of foreign direct investment…that fuelled the Celtic Tiger economy.”
When the Secretary of State did a lap of honour and a hastily arranged photo opportunity in Lisburn earlier this month, she failed to address a number of issues—she has repeated that failure today—that her successor and those on the Treasury Bench will not be able to duck. Any responsible Westminster Government and Northern Ireland Executive will have to address these issues before 2017.
First, the current Government’s commitment to the final transfer of powers is highly conditional. The agreement states:
“The powers will only be commenced from April 2017, subject to the Executive demonstrating that its finances are on a sustainable footing for the long term including successfully implementing measures in this agreement and subsequent reform measures.”
Sometimes, the Secretary of State does not emphasise that high level of conditionality.
Secondly, should Northern Ireland reduce its corporation tax rate to that of the Republic of Ireland, it would lose at least £300 million from its block grant. Budgets would have to be cut. In the awful event of the Tories being re-elected, that £300 million cut would increase substantially as a result of the promised return to 1930s levels of public expenditure.
Thirdly, slashing and burning the state, rather than having a long-term plan to rebalance the economy, is opposed by all Northern Ireland’s parties. Fourthly, severe cuts to school, further education, higher education and adult skills budgets, as well as reduced funding for infrastructure, would moderate the potential benefits of reduced corporation tax. It is investment in skills and infrastructure that will make the biggest difference to private sector jobs and growth, alongside corporation tax devolution.
Fifthly, the Secretary of State has failed to acknowledge the plain truth that significant reductions in corporation tax must be used to stimulate investment, not to inflate excess profits or pay at the top. As my right hon. Friend the Leader of the Opposition said on his visit last week, Northern Ireland faces no greater challenge than inequality. My party is seeking to address that through the independent Heenan-Anderson commission, which is attracting much support and interest in Northern Ireland.
The cost of living crisis has hit Northern Ireland’s families hard. Northern Ireland consistently records the lowest rates of private sector pay in the UK. One in six workers are classed as low paid and a quarter earn less than the living wage. Wages have fallen by £1,683 a year since 2010. One in five children in Northern Ireland live in poverty. Northern Ireland continues to have the highest claimant count of any region in the UK—at 5.7%, it is double the UK rate.
Unless this legislation is carefully managed to ensure that it does not benefit only those at the top, it will not only fail to enhance growth, but perpetuate the horrendous inequality that is leaving too many people in Northern Ireland at the margins of the economy and of their communities. It will also be important, as the hon. Member for South Down (Ms Ritchie) said, to ensure that the whole of Northern Ireland benefits from the legislation—not just Belfast, but Derry/Londonderry, Strabane, Portadown and Newry.
Finally, it would be the ultimate folly if in 2017, as Northern Ireland was preparing to align its levels of corporation tax with the Republic of Ireland, the UK was exiting the European Union. No part of the UK would suffer more than Northern Ireland from the inevitable impact on economic co-operation between the north and the south.
We will enable the passage of the Bill in a spirit of transparency about the potential gains, but with an awareness of the risks. Not only is that the responsible stance for a party that seeks to govern the country in four months’ time; it is right because we have a duty to be honest with the people of Northern Ireland about the difficult choices that lie ahead. The Executive are right to make private sector jobs and growth top priorities as they strive to build a better shared future, but they are also right to reject the slash-and-burn approach to the state that is being pursued with such relish by this unfair and incompetent Tory-led Government.
An incoming Labour Government will not only balance the books in a responsible way, but work with the Northern Ireland Executive to pursue an active industrial strategy that will boost private sector jobs and growth, while tackling the chronic worklessness and poverty of those at the margins of the economy and society in Northern Ireland. We will transform the economic pact between Westminster and the Executive by setting goals to expand the creative industries and other sectors that build on Northern Ireland’s strengths. A shared aim should be to encourage young people who go away to study and travel to return home to Northern Ireland when they are ready to settle down. That will be possible only through the creation of well-paid, high-skilled jobs.
The Bill opens up new opportunities for Northern Ireland, but it will require political leaders to make difficult choices and to ensure that the potential gains benefit the many and not the few. As I have said, the devolution of corporation tax is not a panacea, but if handled properly, it could be part of a new economy that works for working people and leaves far fewer people behind. Ultimately, that is how the Bill will be judged.
I was never quite sure that we would see this day. I heartily congratulate my successor as Secretary of State and the Financial Secretary on following this proposal through from the dark days when it was knocked on the head.
For the benefit of the shadow Secretary of State, I will go over the history of the proposal, because he does not realise the enormous benefit that it could bring to Northern Ireland. I see it as the coalition Government’s opportunity to deliver a long-term benefit to Northern Ireland as big as that brought by the Belfast agreement.
When I was appointed shadow Secretary of State for Northern Ireland, most of the major negotiations had gone through, although we had not quite got policing and justice through. I made it my business to go to Northern Ireland every week. I found an economy that was dependent on public spending for 77.6% of its GDP. We all know the horrible historical reasons for that, but it was clearly unsustainable.
On my weekly visits, I found world-class businesses and very skilled people. There were businesses that had come in, often tempted by the generous grant regimes, that were very pleased with the quality of the work force and the education of the staff. However, time and again, we found cases of large investment opportunities being missed because of corporation tax. The hon. Member for East Londonderry (Mr Campbell) is not here, but I remember a very clear case where a big investment could have gone to East Londonderry, but it went to Letterkenny. With the deepest respect for Letterkenny, it is quite a small provincial town.
I pay tribute to the right hon. Gentleman for all the work he did in Northern Ireland as Secretary of State and before that. He had several meetings in my constituency with companies. I want to put it on the record that he was a great enthusiast for this proposal, which has eventually arrived.
I thank the hon. Gentleman for his kind comments.
I would like to stress that this has ultimately been a team effort. I will list the people who have been involved. This proposal came from a black moment. I have cited the examples that I saw on the ground in Northern Ireland. At the time, a parallel process was going on. The last Government had asked Sir David Varney to conduct a report on the benefits of introducing a lower rate of corporation tax for Northern Ireland. In parallel, significant major figures in the business community were involved. The sadly late Sir George Quigley, to whom we should all pay tribute, had made significant representations. The Northern Ireland Affairs Committee had been involved, as had the Institute of Chartered Accountants in Ireland, led by Eamonn Donaghy.
Varney came up with a lukewarm response. He said, quite rightly, that corporation tax was not the only answer and that a skilled work force was also needed, as had been successful in the Republic. However, he missed the big picture that, time and again, major investment projects went to the Republic because of a lower rate of tax. The late Brian Lenihan, who was the Irish Finance Minister when I was shadow Secretary of State, said that the corporation tax rate was the “cornerstone” of the Republic of Ireland’s “industrial policy”. It therefore seemed bizarre that Varney looked not at the real advantages, but at the disadvantages.
I remember the crushing disappointment when the then Chancellor, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), knocked the proposal on the head. There was a conference at Stormont and then a bigger conference at Hillsborough. I remember Sir Tony O’Reilly waving his arms around and making a great burlesque speech about the advantages of lower corporation tax. Sir George Quigley was also there. Then the Chancellor knocked it on the head and came up with a number of palliative measures that were typical of him. I remember writing letters in subsequent weeks to try to get to the detail. He had stood up in public and said, “These measures will bring the same advantages as lower corporation tax,” but frankly, there were a lot of fiddly little deals that did not deliver. That was a black moment.
I remember sitting next to the late Sir George Quigley, by complete chance, and going over the matter. He was bitterly disappointed because the whole business community had been looking to the proposal. One reason why it had been knocked on the head was that the British state could not afford the forgone tax. At about the same time, we had the Azores judgment by the European Commission, which we could pray in aid. It said clearly—Varney took this conclusion—that corporation tax could be devolved. Lisbon had tried to reduce a tax arbitrarily in the Azores region and was told firmly that there were three conditions.
First, there had to be a democratically elected assembly with a clear jurisdiction over a defined geographical area. Northern Ireland qualified. Secondly, that assembly had to have complete decision-making powers, which could not be interfered with by central Government. Thirdly—it is a pity that the Scottish nationalists are not here to listen—there could be no compensation from central Government for the forgone tax, which had to be borne by the local assembly. For the record, Scotland pays about £2.5 billion in corporation tax, so if it dropped to the rates we are talking about it would have to find £1 billion. Perhaps the Scottish nationalists might consider that when they come back into the Chamber. Sadly, the figure is much lower for Northern Ireland because there are no FTSE 100 companies. Corporation tax is currently about £500 million.
We therefore came up with the idea, in accordance with the Azores judgment, of knocking the forgone tax off the block grant. Government spending in Northern Ireland is £23 billion—£13 billion raised locally and £10 billion from the block grant. If tax went down to Republic of Ireland levels, there would be a reduction of £200 million in the block grant. That is a very small investment to bring to Northern Ireland the sort of businesses that would come in.
That idea began to take shape. Following the dark days after it had been knocked on the head at the conference that I mentioned, two things happened. First, we set up a report by the TaxPayers Alliance, the investigation group, on corporation tax. Secondly, and I think more importantly, Sir George Quigley got together with others and pulled together a key group of people, to whom I pay tribute. There was Sir George, who at the time was chairman of Bombardier; Victor Hewitt, the head of the Economic Research Institute of Northern Ireland; Eamonn Donaghy, the head of tax at KPMG, who has been tireless throughout; Graham Gudgin and Neil Gibson, economists at Oxford Economics; Professor Mike Smyth, professor of economics at the university of Ulster; and finally Mike Hall, a tax partner at Ernst and Young. They formed the key Northern Ireland Economic Reform Group, and their report, which came out in February 2010, said categorically that if corporation tax in Northern Ireland changed from 28% to 12.5%, it would result in the creation of 80,000 new jobs over a 20-year period.
The previous year, there had been the terrible murder of Police Constable Stephen Carroll in Craigavon, which was an appalling event. We all know how divided the communities in Craigavon, Portadown and Lurgan have been. I remember clearly during one of my visits going to the great pharmaceutical company Almac, which employs about 2,000 people. The chief executive said, “If you can get this through and get corporation tax rates down to the level of the Republic, we’ll double the business and we’ll double the work force.” My direct response to the shadow Secretary of State and doubters in the Labour party—I am delighted that they have come on board today and said that they will support the Bill—is that they should think of the benefits to Northern Ireland, not just economically and socially but politically, of a further 2,000 people being on pharmaceutical-level wages and injecting money into their communities. The Labour party should get its head around that long-term benefit.
On that basis, and with strong support from the Prime Minister, I committed in March 2010, on behalf of the Conservative party, to devolve corporation tax. That became a manifesto pledge in our Conservative and Unionist manifesto. Although we did not quite win the election, that pledge was continued as part of the coalition programme. At the same time, there was real enthusiasm for the idea across the business community. In October of that year, Grow NI was formed, involving pretty well every business organisation—the CBI, the Institute of Directors, the Federation of Small Businesses, the chambers of commerce, the Northern Ireland Independent Retail Trade Association, Manufacturing Northern Ireland and about a dozen others. They lobbied people not just in Westminster but in Stormont, and importantly they got support from all five political parties in Northern Ireland. I pay tribute today to all those parties—I had endless discussions with them at that time, and they all came together. I think it was a unique event—I am not sure whether we had ever got all parties allied on a single policy before.
Key to that process was the Financial Secretary to the Treasury, who was then the Exchequer Secretary—I am pleased that he is in his place. He completely got on board with the long-term benefits not just for the Northern Ireland economy but for the UK economy. To pick up on the comments of my hon. Friend the Member for Amber Valley (Nigel Mills), if we can make Northern Ireland more economically viable, it will be of real benefit to our constituents in Shropshire and the east midlands. It will reduce the need for the block grant if the economy prospers and grows well. There is a massive UK-wide reason for supporting the devolution of corporation tax, and the then Exchequer Secretary really got that point.
My hon. Friend the then Exchequer Secretary and I went to Kelvatek, a splendid example of a Northern Ireland business, led by John Cunningham. All five political parties came along and we launched the consultation. It is important that the shadow Secretary of State understands that there was a lengthy consultation throughout 2011, and there were further launches for Grow NI, including the big launch at the Lyric theatre. There were about 750 responses to the consultation, and they were overwhelmingly in favour of the idea of devolving corporation tax.
That autumn, with the help of the then Exchequer Secretary, we began joint meetings involving the Northern Ireland Office, the Treasury and the Northern Ireland Executive. The first was in December 2011, and the last one in which I was involved was in June 2012. After that, I was delighted that my successor took up the baton. She has manoeuvred around Whitehall with great skill, because there was considerable hostility to the idea and real nervousness about it among significant elements of the establishment here. It is a tribute to her skills that we have the Bill today.
The Bill is quite something. This is a day that we will remember—as I said, in the long term, the benefits will be equivalent to what the last Government did in the Belfast agreement. It could help to create long-term prosperity and bring to disadvantaged communities the wealth that the shadow Secretary of State mentioned. The key thing is to get the message across. I would like members of the local parties to go back to Northern Ireland tonight with a clear message. The start date in the Bill is April 2017, and it is incredibly important that not only local businesses but UK and foreign businesses have a clear signal of what will happen on that date.
I pay tribute to the right hon. Gentleman for the work that he did in Northern Ireland. People have a great deal of respect for the contribution that he made.
May I ask the right hon. Gentleman a specific question? If, at the same time as corporation tax is devolved, the skills budget is slashed and there is inadequate investment in Northern Ireland’s infrastructure, what will the consequences be for the foreign direct investment that he keeps going on about?
I have cited the figure that state spending in Northern Ireland is £23 billion, which is a significant amount from public funds. With his obsession with public expenditure, the hon. Gentleman does not understand the concept of growing the cake. The reduction in corporation tax will lead to an increase in private activity. I have mentioned the figure of a £200 million reduction in the block grant, but the hon. Gentleman assumes that the size of the cake will be static, which it will not.
The local parties must grab this opportunity and make a clear statement that there will be a dramatic reduction in corporation tax from April 2017. I would happily go below 12.5%, but it must be that at most, to answer the question that the hon. Member for North Antrim (Ian Paisley) asked. The bigger the drop, the bigger the message that will be sent out around the world. My message was that I wanted to turn the whole of Northern Ireland into an enterprise zone. If we do that, the cake will grow, so the figure of £200 million is for the birds. There will be significant internal investment from companies such as Kelvatek, significant investment from the rest of the UK, and foreign direct investment. There will be more economic activity, which will rapidly make up for that modest reduction of £200 million. That money will stay in Northern Ireland hands, but it will be in business and private hands rather than state hands.
I therefore hope that the local politicians will go back to Northern Ireland with a clear determination to build on today. Although this is a dramatic day, all that the Bill does is provide the powers. The real trick in the long term is to make a clear statement that, as in the Republic of Ireland, there will be absolute determination to keep corporation tax low. That was what the Republic did through its most difficult time, and we can see the benefits there.
This is a great day for Northern Ireland, and I congratulate everybody involved, including all the political parties. I am delighted that the Labour party has come onside, and I congratulate the people in the Northern Ireland Office and the Treasury who have come up with a fiendishly complicated-looking Bill. I wish it well.
I trust that I will do what the shadow Secretary of State did and give a balanced view, from a Northern Ireland perspective, of where we see the Bill taking the Northern Ireland economy and the impact that it will have on the economy.
It would be churlish if we did not acknowledge that considerable work has gone into the proposal. It has taken many years, and as the right hon. Member for North Shropshire (Mr Paterson) indicated, a large number of people have been involved in making the case for the devolution and then doing what was necessary to bring it about.
I pay tribute to the right hon. Gentleman for the role that he has played in this change, although I would point out that the cudgels were first taken up by the leader of my party, who was then Finance Minister in Northern Ireland and was convinced that the decision made after the Varney report was published was incorrect. He started the ball rolling on this issue in Northern Ireland. Many businesses also supported the campaign.
I also pay tribute to the work done by the Financial Secretary and his officials during the time that I was the Finance Minister in Northern Ireland. I know that sometimes we made progress and then were knocked back a bit, and it was frustrating at times. But many of the issues addressed during those discussions were essential if the issue was not to fall foul of European legislation or decisions by the European Court. Much of that groundwork was very necessary.
One of the things that drives this change is the desire in Northern Ireland to transform our economy. Our region has not always been in the economic doldrums. In fact, for a long time during the 20th century, Northern Ireland was a driver in the UK economy. We had world-leading, world-renowned industries that drove a healthy economy. Many of those industries declined because of changes in world demand, distribution patterns and global trends, which also coincided with the start of the troubles. As a result, major industries declined and Northern Ireland was an unattractive place for new private sector companies, resulting in an unhealthy increasing dependence on the public sector.
One of the aims of the Northern Ireland Executive is to rebalance the economy as well as to grow it. To do that we need the right economic levers, but—as the Secretary of State said and the shadow Secretary of State alluded to—there is no point having those levers in our hands if the right conditions do not exist. I agree with the Government—although some frustration is felt back home on this point—that it was right for them to insist that the Executive have a budget that showed the tax change was sustainable and that we could absorb its impact. It was right that we should not pay money annually to the Treasury because we had not concluded the welfare reforms, because that was of course a drain on the resources that were available to the Executive.
The conditions that were laid down were correct and the Executive has now proposed a budget, although it has not been supported by all the parties. Some parties, even though they are in government and their Departments would benefit from the savings in the budget, have taken an irresponsible attitude. They think they can benefit from the budget and at the same time distance themselves from the more difficult aspects of it—
And you would never have done that.
I seem to have hit a sore spot or at least the tender parts of the body politic among those parties that have engaged in such activity.
We have to get the welfare reform proposals through the Executive, but agreement has been reached and I hope that, as this Bill makes progress, we will also see the passage of the welfare reforms in Northern Ireland, albeit with changes—mostly secured by my party—to the Welfare Reform Bill that will make it less draconian. Indeed, I think that some of the changes in the Welfare Reform Bill will have to be revisited by this Parliament at some stage.
Will the hon. Gentleman give way?
I will, because I know that the hon. Lady is feeling sore from some of my remarks.
I assure the hon. Gentleman that I am not feeling sore in any way. He is avoiding the reality to suit a certain political situation. He used to be a sceptic about corporation tax, but he has had a damascene conversion. Notwithstanding that, can he tell us what measures will be introduced to achieve the benefits of welfare reform for the people of Northern Ireland?
If the hon. Lady is not feeling sore from some of my remarks, she is more brazen than I thought she was—[Laughter.] As she has not yet heard the rest of my speech, she does not know what I am going to say or the balanced arguments that I am going to make about corporation tax.
Everyone who has spoken so far has suggested that there is widespread support for the Bill in Northern Ireland. That is, of course, not true. The Green party opposes it, but then that party opposes economic growth apparently, according to its latest manifesto. I can understand, therefore, why it would not want to see any measures that would encourage economic growth in Northern Ireland. I do not know how the Green party expects us to tackle our unemployment or standard of living problems with no economic growth, but in any event it opposes the Bill.
The other opponents of the Bill are the trade unions, which are organising a one-day strike against it and other measures some time in March. At the same time as they complain about youth unemployment and the low-wage economy, they oppose a measure that has the potential to address all of those issues and want to strike against it. I do not understand their logic.
The only other party that opposes the measure is the traditional Unionist voice, but I think that is because we support it. That seems to be the rationale for anything it does.
All parties in this House are agreed that tax incentives can be beneficial in stimulating business growth. Some may disagree about the actual form the tax incentive should take or the degree to which it should be used, but there is an undeniable correlation between such incentives—be they small business rates relief, corporation tax reductions or oil industry taxes—and growth. Shareholders are attracted to putting money into businesses, which in turn have more profits to plough back into investment. Tax incentives can also give businesses a competitive edge over those in other countries. That is the rationale behind the Bill and no one can deny that it will have an effect.
In Northern Ireland there is an additional reason to make the change in that we share a land boundary with a country that has had a lower corporation tax rate. Some people say that this will not have a beneficial effect, but it is significant that, even when the Government of the Irish Republic were having to slash public expenditure and incur the wrath of the population by reducing wages in the public sector, putting up taxes, introducing new charges for water and so on, the one area for which they were fiscally responsible and did not make any changes was corporation tax. They had obviously judged that when it came to fighting for business, corporation tax—albeit along with other measures—was a shock and awe tactic they could use to try to attract businesses to the Irish Republic. That is a significant argument.
I have a degree of scepticism about economic modelling. As I am sure the Financial Secretary would tell us, we can put whatever finely tuned assumptions we want into economic models, but they can be upset fairly quickly. In the next 15 years, it is estimated that output in the Northern Ireland economy will grow by 11%, creating about 37,500 jobs. Any economic model must come with a warning that the assumptions on which it is based can change fairly rapidly. However, the estimate has been made using the economic data we have at present: assumptions, past trends, information from other economies and so on. In Northern Ireland, we cannot afford to ignore that estimate, even if it is not totally correct, especially if it will grow the private sector and bring in well-paid, above-average jobs.
We had concerns about a number of issues. We did not want a Bill for people who simply moved their profits to Northern Ireland and did not create jobs. There is no benefit to us in having companies with just a brass plate outside the door, but no substance. I believe the Bill addresses that issue, as much as it can, by indicating that it will benefit trading profits only. In addition, there will be strict investigation by the Treasury of companies who try to move profits. As I understand it, there will be a charge for ensuring that compliance measures are put in place to avoid such scenarios.
If we do that, what about small businesses? Many small businesses, especially in the construction industry, have a substantial amount of work in Great Britain because of the decline in the construction industry. We did not want small businesses to have huge administrative costs imposed on them for differentiating where they made their profits. I welcome the proposal in the Bill that businesses based in Northern Ireland with 75% of their activity and employment there, will be exempt on all their profits. That should cover 99% of small businesses in Northern Ireland so there should not be administrative costs for small businesses.
Oil and gas is excluded from the legislation. I hope that very shortly, despite the endeavours of the Social and Democratic and Labour party Environment Minister, we will have a substantial oil and gas industry that can exploit the shale gas resources that we believe are buried under the ground in Northern Ireland. There may be some who play the populist line and say, “Let’s just keep those resources there. After all, they’re nasty CO2-producing fossil fuels.” I want them to be exploited for the benefit of the people of Northern Ireland and the United Kingdom. The profits from those companies would not currently be subject to the corporation tax arrangement, but I hope that if and when we develop such an industry, Northern Ireland will benefit from the kinds of promises that have been made to the north-east of England, including a sovereign wealth fund to take in part of the profits from those businesses and plough them back into public expenditure projects. I understand, however, why that has not been included at present.
On financial sector profits, there were two issues. I was not all that supportive of the argument about why those nasty banks, who nearly destroyed our economy, should benefit from reductions in corporation tax, paid for by reductions in the block grant. I understand the emotional rhetoric in that argument, but I am more concerned that the profits of banks and other financial institutions are much more volatile and more easily moved without detection than the profits of manufacturing or other companies. One has only to look at the difference between 2007-08 and 2008-09, when banks’ profits changed from £255 million to £45 million. That kind of volatility in tax revenue was a compelling reason why we should not include the profits of financial institutions in the Bill. I am glad that the Government have responded to that.
I very much welcome the hon. Gentleman’s remarks. It is important to bear in mind that certain activities relating to banks and financial services can fall within the scope of a new Northern Ireland rate, in no small part because of the election provisions in relation to back-office functions. For example, the kind of work that is currently done in Northern Ireland by Citigroup could fall within a new reduced Northern Ireland rate.
That was exactly the point I was going to make. Having said that there are exceptions to this, the exemptions are important because one of the fastest-growing sectors in the higher wage end of the Northern Ireland economy has been those back-office financial services jobs. We would not want to lose the ability to attract them. There is provision in the Bill to allow for that. Whether they are brought as separate or spur companies to the main company, they will nevertheless be subject to the new regime.
There are some dangers. One danger we have heard about time and again—it was alluded to by the shadow Secretary of State—is the potential loss of public sector expenditure. Under the Azores ruling, we will have to pay for whatever the forgone revenue happens to be. That will depend on the rate we eventually set. At maximum, it could be about 3% of the current revenue budget available to Northern Ireland. In the current circumstances, to try to find that immediately would be very difficult, which is one reason why the decision to introduce this will not be implemented until at least 2016-17. That will give the Executive time to plan.
We must remember, however, that the reduction in the block grant and money available for public expenditure in Northern Ireland will be offset by the expansion in other parts of the economy. Yes, that is a gamble, but can we politicians in Northern Ireland sit on our hands and do nothing, knowing that public expenditure is going to tighten, regardless of whether there is a Labour or Conservative Administration, given how heavily reliant we are on public expenditure? That would be wrong. The shadow spokesman wants to know the reason for my alleged conversion. This is one of the issues to weigh in the balance. Can we just drift along, knowing that regardless of which party is in government at Westminster the public sector is going to contract, and make no provision for expanding the private sector?
I agree entirely with the hon. Gentleman. On the reduction in the block grant, however, we do not know what the block grant will be in 2017. It might be higher than expected, in which case perhaps the consequential drop would not be felt. It could also be argued that the recent agreement at Stormont House already mitigates any reduction.
Given the comments from the hon. Gentleman’s party and the Labour party, I suspect the grant will not be higher. Furthermore, we still have to deal with our dependence on public sector expenditure. It is being squeezed all the time, and therefore we need to look at rebalancing the economy.
I agree that public finances will continue to be under pressure and that therefore we need to grow the private sector to counterbalance that. Does the hon. Gentleman agree, however, that Northern Ireland’s reliance on the public sector is even worse than the Secretary of State mentioned, because many of the privately owned companies are almost entirely reliant on Government contracts? It is not just about those directly employed in the public sector; it is about the number of private businesses that rely on the public sector for their employment.
That is one of the reasons, of course, that some people say the public sector accounts for as much as 62% of employment in Northern Ireland. Some of it is disguised in the way the hon. Lady suggests.
We have to consider whether we can simply sit on our hands. However, there is a second consideration for the Northern Ireland Executive. Yes, there is some risk attached to the policy; all economic policies carry some risk, but in measuring and trying to balance that risk, we have to consider the impact of the policy elsewhere, especially in areas similar to Northern Ireland. I have already mentioned the approach of the Republic of Ireland Government.
As the changes to the rules on accounting and disclosure come forward, I know that some of the financial services issues might be addressed, but we have not touched on the ongoing cost of the devolution of corporation tax, which is currently reckoned to be about £300 million. However, as the economy grows, a formula will be imposed in respect of the loss of revenue, and given that there could be a substantial reduction in corporation tax in Northern Ireland, the formula must not be draconian. For example, if it was set at an unrealistic rate, based on the performance of better performing regions or of the UK economy as a whole, the burden could become substantially higher as time goes on. We need clarity on that issue.
The right hon. Member for North Shropshire said that from this day on the Executive should be proceeding with this matter, but we cannot do so because the Bill has not yet been passed. I know he is enthusiastic, but I think his enthusiasm has run away from the reality: the Bill has to pass its stages as normal.
I said that the Northern Ireland parties should make an announcement now about what they intend to do with the powers once the Bill has passed. If such an announcement were made, in the two years between now and April 2017, local businesses, UK businesses and, above all, foreign business could begin to plan in the knowledge that they would benefit from a much lower rate of tax. The hon. Gentleman is right—we have to pass the Bill, and I am delighted it has the support of the Opposition—but it is vital that, from today, the local parties say what they would do with these powers, on the basis that the Bill will pass before Dissolution.
On the last point, given that the ongoing cost is not known yet, there remain some issues to resolve.
There is a challenge, not for politicians, but for the businesses that have campaigned for the devolution of corporation tax. As the shadow Secretary of State said, those businesses have a responsibility not to use their profits simply to pay higher salaries for managers, for shareholders or for vanity projects. Having campaigned for this change, and given its implications for expenditure in Northern Ireland, they have a responsibility to ensure that the additional money that results from forgoing tax revenue is invested in their companies to increase productivity, make them more competitive and create better-paid jobs. Only then will this campaign have been a success.
It is a pleasure to follow the hon. Member for East Antrim (Sammy Wilson), who drew on his experience in the Northern Ireland Assembly to make a very useful speech. I also congratulate the Secretary of State on introducing the Bill, which has taken a good deal of skilful negotiation, and on doing so before the election. It would have been easy to push it back. I think the whole House is grateful to her.
I also pay tribute to my right hon. Friend the Member for North Shropshire (Mr Paterson). I had the pleasure of working with him in opposition when he thought outside the box and came up with this idea. Yes, it had been discussed to some extent, but it had not been fully discussed in this place. At the time, there was opposition, as there always is when somebody comes up with a radical new idea, but he had the foresight, determination and courage to press ahead, and when he became Secretary of State, he made it clear that it was one of the most useful things we could do for Northern Ireland. We are now seeing the benefit of his work.
A few years ago, this proposal was the first thing the Select Committee looked at when we wanted to find something that moved us away from the orange and green issues and the security situation—serious though it was—to look at different ways of helping the people of Northern Ireland. We thought that the economy was one way we could do that. We took evidence from a great many witnesses—businesses, trade unions and very many other people—and eventually came up with a report that recommended the devolution of corporation tax to the Assembly. I should point out that it was not a unanimous decision. Several Committee members had concerns or reservations, a number of which have been addressed by the hon. Member for East Antrim. However, we felt that the benefits would be overwhelming and that we could address the problems that the decision might throw up.
As has been said, Northern Ireland is the only part of the United Kingdom that shares a land border with another country, and that country happens to have corporation tax at a much lower rate. As has been pointed out, southern Ireland—the Republic of Ireland—stuck to that policy through thick and thin. I remember going to see the EU Commissioner when the Select Committee was looking at the issue. He was rather dubious about the Republic of Ireland’s low level of corporation tax and expected that it would have to roll over, give way and increase the rate. However, as I said to him, that might have been okay in the short term, but what would it have done for the Republic of Ireland’s longer term prospects? I am glad that that country won the day.
I recognise—I say this as a Unionist—that there was some concern about setting the rate of corporation tax in Northern Ireland to match that in the Republic, as though that was somehow giving up or compromising on Britishness. It is nothing of the sort. We have a single electricity market across Ireland. Ireland is promoted as one for tourism—I think we could do more on that—and there are experiments with common visa arrangements. All that is sensible. To me, that is not about green or orange; it is not about Britain or a united Ireland. These are sensible measures. Giving the Assembly the ability to cut the rate of corporation tax in Northern Ireland to compete with the south would be a simple and sensible arrangement, and there is a need to do it.
As we have seen from the economic statistics, which have been discussed in the House and repeated many times, Northern Ireland lags behind on many measures when compared with the rest of the United Kingdom. It is doing okay—it is improving and getting there—but it really needs a boost to move it along rather more rapidly. That is why, interestingly, as well as most members of the Committee and most witnesses agreeing with the proposal to devolve responsibility for corporation tax to the Assembly—along with every political party in Northern Ireland, which is rather unusual—the Irish Government agree with it too. I have heard the Taoiseach on more than one occasion say that he thinks it would be a good idea for Northern Ireland to be able to have the same level of corporation tax. He does not see it particularly as a threat; he sees it as a sensible move.
The Committee also found that corporation tax in itself is not necessarily the silver bullet. It is not going to transform the whole economy—other measures are needed, such as improvements in the planning regime and many other areas—but it is a good headline grabber. It will grab the attention of the business world, and that can only be a good thing. For example, just a few weeks ago the Committee travelled to Belfast and had a meeting with Senator Gary Hart, who was over to help with the discussions. We put the point to him, and he said the change would remove one of the reasons for not investing in Northern Ireland, because when people look from afar and see the island of Ireland, where are they going to go? Of course, other factors come into play too, but if corporation tax is 12.5% in the Republic and 20% in Northern Ireland, surely that is a draw towards the Republic of Ireland. He said he would be willing to try to set up a trade delegation from the United States to come to Northern Ireland with a view to exploring the investment opportunities. That has to be a very positive move indeed.
Again looking from afar, it is not just that Northern Ireland shares a land border with the Republic of Ireland that is a compelling reason for making this move. Northern Ireland is also part of an island off an island. If it is exactly the same as the rest of the United Kingdom, what is the benefit of investing in Northern Ireland? We have to ask ourselves that question. What will draw companies to Northern Ireland rather than investing on the mainland? If everything is the same, perhaps they will not do that, but if things are more attractive in Northern Ireland, surely companies and investors will consider their options in the Province. To an extent, it is the same with the United Kingdom, which is one of the very many reasons why I am not for making ourselves exactly the same as the European Union. If we are exactly the same as mainland European countries such as Germany or France, what is the attraction of coming to the United Kingdom and investing here? There has to be a reason for people to come here, and it is up to us to give them that reason.
I want to touch on another point, which is slightly off the issue, but which is important when we consider the extent of the benefit that reducing corporation tax might bring. When we were in the United States on a Select Committee visit about 18 months ago, we discussed this issue—very positively—and a number of others, but one thing that came up time and again was the violent scenes that we see on our television screens and which are flashed across the world. No matter what this place or the Assembly does on tax or any other incentives, it is destroyed in a single night, with a single vision of any violent scenes or paramilitary activity that is flashed across the world. Nothing could drive people away from Northern Ireland in a worse way or more quickly than that. Anybody in a republican organisation or a so-called loyalist organisation who engages in such activity is betraying the people they purport to represent. They really ought to bear that in mind.
There are a number of issues that perhaps need to be looked at in greater detail. I am not making a criticism, but I would ask the Secretary of State whether she has given any thought to how the Bill might be considered during its Committee stage. As I understand it, it will be considered in Committee upstairs. However, there are a number of issues that still need discussion, so it might be an idea to consider holding the Committee stage on the Floor of the House. As we move towards the election, sometimes the Chamber is not as heavily used as it might be at other times. Maybe we could consider discussing these issues in a way that allowed all Members to take part, rather than just a few Members upstairs.
I understand why this change cannot be introduced absolutely straight away, but I am a little concerned that it is being pushed back two years. A lot can happen in two years. However, while we have the full agreement of people in all the political parties in Northern Ireland—on this issue at least, if not on any other—let us take advantage of that. Let us drive this forward as quickly as we can.
Does the hon. Gentleman not accept that, first, budgetary planning must be put in place to deal with the payment that will come off the block grant? Secondly, as many firms make investment decisions over a long period, it makes sense to announce the change soon, but for payment to be in two years’ time, because that will reduce the cost to the Northern Ireland Executive, while at the same time attract firms that are thinking about investment now, but which will perhaps not implement it for a couple of years.
The hon. Gentleman makes a very reasonable point, which I suppose goes back to the point made by my right hon. Friend the Member for North Shropshire, who said we should get on at least with saying what we are likely to do, as that will start the ball rolling.
We also have to be careful not to expect too much of the Assembly when it comes to looking like an efficient decision making machine and getting this matter devolved. As everyone in this House knows, it was not designed for the purpose of being an efficient decision making machine; it was designed to bring people together to bring about peace, and there can be no greater cause than that. That issue has already started to be addressed through the Stormont House agreement; nevertheless, the Assembly is not the most effective machine. It has its problems—there is of course the need for votes on both sides to be in a majority. All that is not how this place works; nor would we get very much passed if we worked in that way. The Assembly was set up in that way for a different purpose, so I do not think too much store should be set by that. We should get on with this proposal in any case.
There are other important matters, including planning. Skills and education are important, too. We must ensure that we have a skilful and well educated work force in Northern Ireland, and then it becomes important for Northern Ireland to retain the people it educates. So many times we see a number of countries training and educating their people well, only to see them attracted to work abroad rather than bring the benefits of their skills and education to their own country. We need a peaceful society in Northern Ireland for that to happen—otherwise we will continue to lose people—and we need to create the sort of prosperity that people want to enjoy. If we can do all that, I think we will ensure that future generations are able to enjoy greater prosperity and greater peace than was available to past generations.
I join fellow Northern Ireland Members in acknowledging not just the enthusiastic contribution from the right hon. Member for North Shropshire (Mr Paterson), but his long-standing role on this issue. I know that when he was Opposition spokesperson on Northern Ireland, he took a deep interest in the issues facing the community in different parts of the country, and he was particularly interested in helping those who were trying to develop the economy. I recognise that he had a particular sympathy with the case that was being made, but giving Northern Ireland the capacity to differentiate itself in respect of corporation tax was not getting much of a hearing from the then Government.
I recall chairing the Enterprise, Trade and Investment Committee in the Assembly during some of those years, and in that capacity I had meetings with David Varney, who had been asked to produce a report by the British Government. It was quite clear from my conversations with David Varney and when we collectively as an all-party Committee met him that he was picking up different sentiments from across the political parties, and certainly from the permanent Government. A particularly sceptical attitude was notable on the part of certain quarters in the civil service, who may or may not have been speaking for their Ministers. The strong suggestion was made that the case noisily being put collectively by the Northern Ireland parties via the business groups—I recall the late Sir George Quigley doing great work on this—was not being matched by what was being said in private. That is what the Government were saying.
That might have reflected some trepidation about the possible impacts of the change or the price that would have to be paid for making it, but it was always the case that a price would have to be paid when it came to corporation tax. I remember when the Business Alliance had its first meeting about corporation tax. I recently heard that that ball was thrown in by Peter Robinson when he was Finance Minister. This was back in late 2002, after the Assembly had been suspended, and it went into 2003. Some of us said then that the issue would come down to whether we were prepared not just to seek the devolution of corporation tax, but to pay the price for such devolution, and that we needed to prepare for that conversation. At that stage, some of the parties said no, as they did not think that was needed, so the issue was ducked.
To be honest, I do not think we shaped up enough to make the case as well as we might have done. That was not the first time that the issue of capacity in relation to corporation tax was raised because it came up in the negotiations leading to the Good Friday agreement. Some of us said that we wanted to build in capacity for fiscal discretion, particularly in relation to corporation tax and some other taxes that had an economic impact. That was certainly the SDLP’s position.
The right hon. Member for Torfaen (Paul Murphy) was chairing the detailed negotiations on strand 1, and that is often forgotten, when everybody else claims all sorts of credit for the peace process. He honestly reflected that he was under strictures from the Treasury not to encourage too much discussion on the issue, but he nevertheless facilitated and allowed it. It just so happened that there were not too many takers among the Northern Ireland parties for it at that time. Perhaps people did not believe that we would get an agreement at that stage. There were certainly not many takers. With the exception of the SDLP, which put forward arguments about corporation tax and other matters, and the Alliance party, which favoured the Scottish-style proposal of 3% on income tax, there were no other takers for according fiscal discretion to the Assembly. The argument and the case were made, but for whatever political reasons, people did not embrace them.
So the argument was put back on the table by the Business Alliance between late 2002 and early 2003, but it particularly came back into play with the restoration of devolution in 2007. To be honest, the question arises as to why more of a case for it was not made when the terms for restoring devolution were discussed. Some of us raised the issue again during all those negotiations in 2005, 2006 and 2007, but there were no takers or backers for it. Perhaps people needed the confidence of seeing a more settled phase of devolution before they could fully turn their minds to the issue.
Perhaps if we had achieved the devolution of corporation tax much earlier, we would have been much further down the road when it came to all the benefits it can offer. We are told that all this opportunity and prosperity can come on the back of this corporation tax differential, so would it not have been much better if we had done this years ago—at a time when we had a much healthier budget management situation for the devolved Executive?
Given that the hon. Gentleman’s party holds the environment portfolio in the Executive, does he agree that one way to get the full benefit of corporation tax devolution is by making Northern Ireland more competitive by reforming the planning system? It would be good to see back on the agenda in the Assembly the amendments that were debated on the reform of judicial review and planning, because it seems that the system is getting in the way of some important and worthwhile infrastructure projects in Northern Ireland.
I think that is a very unfair criticism of previous Ministers of the Environment who presided over that very system for many years and who are here. Yes, we hold that portfolio at the moment and, yes, we have made significant moves and improvements. What we did not agree with was the attempt to abandon planning criteria on the basis of the say-so of the First Minister and the deputy First Minister by designating a particular area. We thought that would lead to controversy, and the resistance to it came not only from the SDLP Minister but from many stakeholders, including many economic representatives, who were very sceptical about this strange approach. There are straighter and better ways of improving the planning system in Northern Ireland and of making it more efficient and more effective.
Many people have raised the issue of Northern Ireland’s competitive position compared with the south of Ireland. We need to remember that the sort of factors at play in the south of Ireland’s very successful drive for inward investment and its successful growing of its indigenous companies to become increasingly global players—to be acquired and, indeed, to conduct acquisitions themselves—go beyond just the corporation tax regime. They include the very significant long-term investment in further and higher education—not just at university level, but at the level of the institutes of technology. Many people are going to graduate from the technical universities as well, and this has happened alongside heavy investment in infrastructure and a very responsive and better managed planning system to deal with the needs of companies. The planning system in the south might have been long and delayed for some infrastructure projects, but when it comes to industrial projects, it has moved with a fleet of foot, and Northern Ireland does not compare well with that.
Like others, I believe that corporation tax on its own is not a silver bullet, a magic bullet or any other type of bullet. We in Northern Ireland are not meant to like bullets nowadays, but we sometimes find ourselves talking about them in contexts such as this. The fact is that we need to consider other policy measures as well. The Executive will be put under some strain by the budget scenario that they will face over the next few years when it comes to the other drivers that will be needed to maximise the benefits of corporation tax in a way that would compare favourably with the success of the south.
Mine is a border constituency. The Foyle constituency contains the city of Derry, or Londonderry as some Members would be quicker to call it, and many people in the constituency work in businesses across the border. The right hon. Member for North Shropshire referred to investments in Letterkenny. Many of my constituents work there, and there is strong cross-border co-operation. Something that is good in Letterkenny is good for Derry, and something good in Derry is good for Letterkenny.
There are firms that are paying 12.5% in corporation tax, but that does not mean that we have full employment in Derry. Some Derry firms are in nearby Donegal, and firms there that are Derry-based and originated in Derry employ many Derry people. A peripheral border region will face other infrastructure challenges, and the corporation rate on its own will not deliver high employment.
We must ensure that the Bill does not create unnecessary complications or confusions for the firms that would benefit from it, or create reputational problems for the region and its governance. The Chairman of the Select Committee, the hon. Member for Tewkesbury (Mr Robertson), wanted to know whether some clauses would be taken on the Floor of the House during the Committee stage or whether the entire Bill would be dealt with upstairs, but, in any event, we shall need to go through all the detail. I agree with the hon. Member for Bury South (Mr Lewis) that the Bill requires the fullest and best possible scrutiny, so that we do not find ourselves surprised or confused by what may emerge later, whether it is the behaviour of businesses or the response from the Treasury or Her Majesty’s Revenue and Customs. We may be confronted by patterns and practices that we did not anticipate, or that we assumed would be dealt with by measures in the Bill.
The Bill introduces not just the capacity to devolve corporation tax in the sense of allowing the Assembly to set a different headline rate, but a whole calculus in relation to the effects on the block grant. There is what could almost be called a new ecosystem of company definitions: for instance, the Bill defines Northern Ireland regional establishments, Northern Ireland small and medium-sized enterprises, and Northern Ireland rate activity. All that will clearly provide a field day for the accountants and others who will have to work their way through it and take companies through it, but we, as legislators, will have to be careful when dealing with those terms. We shall need to understand how they will operate in practice, and how they will be interpreted. We shall need to know how the relevant profits will be measured, not least the relevant intellectual property profits.
The Bill states that the Government—the Westminster Government—will retain full control of allowances and credits, and I can see the case for avoiding an arrangement whereby the regional Government would be responsible for both the headline rate and for allowances. The devolved Government might well be susceptible to particular pressures from particular sectors for specialised allowances. That could create more difficulties and confusion, and it could also create a risk of some regional disrepute. There is, rightly, an increasingly worldwide movement in favour of more transparency in respect of tax matters and the conduct of taxation. We in Northern Ireland are not in the business of trying to create twilight zones in relation to tax adherence, and we recognise the need for a proper balance.
Today a Tax Dodging Bill campaign is being launched by a very active alliance that includes Action Aid, Christian Aid and Oxfam. The aim is to broaden efforts to create greater transparency in respect of corporate taxation, to establish new standards, and to bring about the introduction of a Bill in the next Parliament. I support the campaign, and was involved in many of the preliminaries. I must make it clear that there is no tension or contradiction between supporting the principles of that campaign and supporting Northern Ireland’s capacity to set its own differential rate of corporation tax.
Other Members have talked of the need to balance the economy, Growing our indigenous private sector while also attracting more inward investment and investment from industries that can partner our local companies is hugely important, and the corporation tax measures can open some windows for us in that regard. However, it is not just a question of rebalancing the economy; we must rebalance the region. The west of Northern Ireland—not least my own constituency—is clearly lagging behind in terms of both infrastructure and employment. We must ensure that, we well as the corporation tax rate, we have other instruments that have been properly developed. We need infrastructure investment to underpin shared growth across the region, and we also need significant advances into tertiary education.
People refer to corporation tax as a game-changer, but most people and businesses in my constituency are clear about the fact that the single biggest game-changer for us would be an expansion in higher education. That is not just needed to enhance the university status of the city of Derry; it is needed in Northern Ireland, which is, in effect, exporting a university campus every year. Given what is happening in the south of Ireland, the north will lose out very badly if it decides that corporation tax is the only thing on which it wishes to compete with the south. We are not competing with the south, or indeed this country, on further and higher education.
However, we also need to recognise this is not just about competing with the south. There has been almost an obsession with Northern Ireland’s competition with the south in relation to corporation tax. We need to recognise that the game is changing when it comes to competition in cities and city regions. Important things are happening on this island. For instance, enterprise zones have developed and taken on a different life. As we have heard from the Opposition, it is not a question of “Life on Mars”, or a return to the 1980s. Enterprise zones have had different effects in different areas, and some have been more vibrant than others. More and more Opposition Members want them in their constituencies, along with city deals and growth deals.
Cities and other locations in Northern Ireland are not just competing in economic terms with parts of the south, but with places on this island as well. Alongside the latitude on corporation tax, I should like the Executive to pursue the idea of creating their own version of city deals, and recruiting support from the Treasury and any other support that is needed from Whitehall. That is what happened in Scotland in connection with the city deal for Glasgow. Therefore we could, and should, be developing more tools, rather than leaving everything to corporation tax alone.
The hon. Member for East Antrim (Sammy Wilson) and others raised issues to do with the financial sector, and I think it is right that there are limitations and qualifications there. People would have been very sceptical if a corporation tax measure for Northern Ireland had meant that the banks were freely able to move their brass plates or some of their offices purely to avail themselves of lower corporation tax. I do not think people in Northern Ireland would want that, and certainly people elsewhere would not want it. Would it happen? Well, we suddenly saw at one point during the Scottish referendum campaign that banks were saying they might move, depending on the result. That would have been the first bank run in history in which the banks were going to move yet the money was going to stay, but that was what was being talked about, so there is reason to believe that might happen.
We will have to tease out in Committee or at another time some of the questions around the financial sector and other sectors in terms of the interpretations and implications of what does or does not count as a back office. Similarly, questions have been raised around what we have been told about the calibration that will be done in relation to allowances and credits, so that, for instance, the film industry and other creative industries may be told that there will be a clawback of some of their other allowances and credits if they are in Northern Ireland, to take account of the benefit they are getting in terms of corporation tax. We need to tease out whether people actually have to have those benefits and receive them before the clawback will take place, or whether they will be told that on paper they could benefit from that as they are in a different corporation tax environment and that therefore they are in a different environment as far as the allowances and credits are concerned. So the question of when some of these things are triggered or kick in is important.
There are similar issues in relation to the impact on the block grant. If we are going to start with assumptions being made as to the opportunity cost in revenue terms of the lower rate of corporation tax for Northern Ireland, this issue arises: once we know what it actually is, will adjustments be made year on year to the block grant, so that if less is forgone in one year than was anticipated, that will be made up in next year’s block grant? Similarly, will more come out of the block grant if there is deemed to have been more uptake in relation to the corporation tax differential? We need to tease out more detail.
The credit union movement is very dear to many people in my constituency. The credit unions are strong in my constituency. They pay corporation tax and they would like to think that they will not be counted as benefiting from the lower rate, because they are rooted in the community and exist totally for, and are dedicated to, the community, so they will not be salting away profits in an egregious way. They will not be abusing the system, and they want assurances that they can be protected and that they will not be treated in the same way as the banks in terms of the protection against any possible undue benefits going to the financial sector.
On procedure, the hon. Member for Tewkesbury (Mr Robertson) has made the point that he would like this Bill to be taken on the Floor of the House. I believe it could be, and certainly significant clauses could be taken on the Floor of the House, so that if and when issues arise in a few years’ time, none of us has the excuse of saying that we did not know and we were not in on that. I am not afraid of the questions that arise from the Scottish position, the Welsh position or anything else, so I do not agree with those who say we should just take this away in secret Upstairs, and that we cannot afford to answer any questions that might arise. I think we can address those questions.
It is my belief that, as this plays out, Northern Ireland will end up with lower rates of corporation tax but probably not for long, because I think a deal will be done in future that sees corporation tax devolved in some form or other to Scotland, and I think that on the back of that there will be strong pressure to say that the corporation tax rate in England must come down further. The Government who have produced this Bill are a Government who have reduced corporation tax throughout this Parliament, as the Secretary of State said in her opening remarks, and I cannot believe that they will not be committed to trying to reduce corporation tax if they are in government in any future Parliament—and of course they would use the lower rate of corporation tax in Northern Ireland and Scotland to drive that measure and catch the Opposition in the same way as they think they caught the Opposition today.
I congratulate the right hon. Member for North Shropshire (Mr Paterson) and the Secretary of State on getting this proposal into the starting gate and add the support of the Liberal Democrats to getting it to the finishing post.
I recognise that I am no expert on Northern Ireland. In fact, I think this is the first time that I have stood up in the House to speak on Northern Ireland issues, and I ought therefore to pay tribute to one of my illustrious predecessors as Member for Redcar, Mo Mowlam, who of course played an important role in the progress towards peace in Northern Ireland.
The hon. Member for Foyle (Mark Durkan) in his extensive speech talked a lot about the detail that needs to be worked out. We recognise that that is the case, and there may be some devils in that detail. This could turn out to be quite complex when we come to look at the interactions of this proposal with all the various existing proposals. We all know that tax competition works between countries, and it is particularly evident where there is a hard border. I vividly remember the Belgium-Luxembourg border when I lived over there, where there were about 20 garages all on one side of the road due to the difference in petrol taxes. The hon. Member for South Down (Ms Ritchie) again raised today the question of VAT tourism, and I pay tribute to her for her campaign, particularly as I also represent a coastal community and would very much like to see the same move.
The Republic of Ireland has a headline corporation tax rate of 12.5% and that is what we are mainly addressing here today. However, it is not the 12.5% that gets all the US technical companies to register in Dublin and that gets Marks and Spencer doing its mail order through Dublin; instead, it is some very special arrangements in Ireland, and I certainly would not want to see future pressure to align Northern Ireland with those arrangements. I believe the Ministers should be addressing some of those arrangements in Dublin rather than opening any doors towards further alignment with what happens in Ireland, because I think we all recognise that some of those arrangements are deeply damaging to the UK as a whole.
I noted that Northern Ireland Members rightly referred in their speeches to the unemployment rate and the economic situation in Northern Ireland and the reliance on foreign direct investment. I very much identify with that as an MP from the north-east of England. In unemployment and other such criteria, in all the tables where Northern Ireland is top—or bottom, if we want to look at it that way—the north-east of England tends to be the next region. My constituency is 31st out of 650 for unemployment and my biggest private sector employers are Saudi Arabian, Korean, Thai, Indian and Singaporean, so I know what foreign direct investment means and how important it is to areas like mine.
Therefore, I have a question for Ministers. I recognise that foreign direct investment is not a zero-sum game but there is an element of that. If a company is choosing where to go, it only makes one decision. What assessment have Ministers made of the effect on the rest of the UK of encouraging more foreign direct investment into Northern Ireland? I am not saying I disagree with this measure, but I think it is important to note that in some cases it will switch investment from other parts of the UK. Indeed, as the hon. Member for Foyle said, because of the different corporation tax rate the rest of the UK will, in effect, become a foreign country and Northern Ireland may attract investment from UK companies that otherwise would have gone elsewhere in the UK. That is an important thing to remember and to consider.
I am also concerned about potential further devolution of corporation tax and, ultimately, a race to the bottom, as the hon. Member for Foyle said. I am particularly concerned about the situation in respect of Scotland and the north-east of England, which of course borders Scotland. The logic of this measure—that we have to move towards aligning corporation tax rates in Northern Ireland with those in southern Ireland because those countries share a border—suggests that we should not allow Scotland or Wales to deviate from the corporation tax rate on this large island that we inhabit. It would be argued in this place that we need to align the English rate with the Scottish and Welsh rate. I very much support what the hon. Member for Foyle said—that that may be a path we want to go down, but let us do so knowingly, at least. A different rate in Scotland could be very damaging to the north-east, which, I repeat, is England’s poorest region.
It has rightly been pointed out that corporation tax rates are not the only consideration. According to an Ernst and Young study, corporation tax comes only sixth on the list of things that foreign direct investors look for. However, it is very important to half of them and has some importance to most of the rest, so it is not unimportant—it is just not the most important thing.
I am sure the Minister is expecting me to talk about avoidance possibilities, given that I often do in such debates. I note that the Government have included various measures in the Bill to exclude activities such as investing, and trades such as lending and property, and the Bill does not give the Northern Ireland Executive power over reliefs and allowances. However, once we get into the detail, we may find that if the rate goes down to 12.5%, the way some of the reliefs and allowances in the UK are drawn means that they will interact strangely. HMRC needs to check all that out as part of the process.
It is always worth applying a bit of game theory when looking at new taxes, tax reliefs or changes in taxes, because if it is possible to imagine a tax avoidance scenario, it will probably happen. Does the Minister recognise that the Bill puts a new transfer pricing interface in place? At the moment, when corporations transfer goods backwards and forwards to Northern Ireland, there is no corporation tax difference, so there is no incentive to do anything strange with transfer prices. This arrangement will give an incentive to shade transfer prices in a particular direction. Does the Minister agree, and what resource will he put in place to deal with that? According to a Public Accounts Committee hearing that I participated in, HMRC has less resource on transfer pricing than each of the big four accountancy companies, so it is not an area in which we are currently heavily staffed.
Of course, transfer pricing is not just about products; it is also about royalties and management fees, and I imagine that if a bank has a back office in Northern Ireland, it will become a highly profitable operation under these new arrangements, because there will be an incentive for the management fees to be as high as possible.
Can the Minister confirm that corporate financing operations will not qualify for the lower rate, which might allow profit shifting of the sort we see to Luxembourg and other countries? Will he confirm that such operations cannot be concealed within a genuine trading operation? Here I am thinking of the regular movements of capital and interest within a manufacturing company, for example. Can he confirm that there will be no hidden financing and profit-shifting operations through interest payments and similar means?
The Bill is designed to encourage foreign direct investment, but in effect the rest of the UK also becomes foreign from a corporation tax point of view. What assessment has the Minister made of the moves that might happen from the rest of the UK and the loss of tax that they might incur? The expression “brass plate” has been used many times today. I believe that the Bill is written in such a way that that will not happen, but I hope the Minister will confirm that.
The legislation will be tightly drawn, but I ask that the Minister resist any further calls from the Northern Ireland Executive to compete with Dublin on special arrangements or to get power over reliefs, which would create new complexity within the UK tax system.
I do not think it right to say that the cost of these measures will be the entire difference in the tax rate on the tax base of Northern Ireland. If that were true, there would be no point in doing this. The whole point is that these measures will encourage economic activity in Northern Ireland, so there should be quite a payback of tax; otherwise, why do it? What assessment has been made of that?
Can the Minister say a bit more about the constraints that the UK Government are putting in place on the overall cost of these measures? What constraints, if any, are there on the rate that the Northern Ireland Executive could choose? Would zero be allowable? I should be interested to hear the Minister’s answer.
I am conscious that other Members, particularly from Northern Ireland, wish to speak. I look forward to hearing the Minister’s response.
I am pleased to be able to speak in support of the Bill. Much has already been said and I do not want to repeat the points that have been made; rather, I want to set out why I believe the Bill will be good for Northern Ireland. I also want to sound a note of caution on those issues to which we will need to give some thought here in Westminster and in the Assembly, in order to ensure that we maximise the Bill’s impact on economic growth.
We are all aware of the need to rebalance the Northern Ireland economy. At the moment, we are more reliant than any other part of the United Kingdom on the public sector, and our private sector often struggles to be competitive because of particular disadvantages. For example, the private sector companies that compete internationally are often at a significant disadvantage because of energy costs. So there are a number of issues that put us at a competitive disadvantage compared with our nearest neighbours, but despite that, we are one of the best-performing regions in attracting foreign direct investment, and we do an excellent job of getting those companies to come to Northern Ireland.
One of the issues that corporation tax might assist us with is ensuring that with those companies come with not just back-office jobs but jobs with good salaries, and good profits that will then be out-turned and benefit the wider economy. So there are real opportunities to change the kind of foreign direct investment we can attract and to build on the reputation we have been able to grow overseas for being a good destination for investment.
As others have said, Northern Ireland is unique in having a land border with another country, the Republic of Ireland, which has a much lower rate of corporation tax. It is right that we should seek to be competitive with that country, but we should also not forget that we have other advantages that it may not. So we should not always seek simply to balance our taxes against its taxes; we should look to be competitive on a range of fronts. When companies are coming to make their investment, they will look at not only tax regimes, but a host of other issues that will influence their decision. I want to focus briefly on some of those towards the end of my remarks.
Devolving corporation tax rate-setting powers to the Northern Ireland Executive, when complemented by other measures, has the potential to help transform our economy, increasing growth, productivity and exports. So the Bill is a timely move to facilitate that growth. When the Northern Affairs Committee dealt with the issue, we found strongly that not only business, but local politicians, particularly those represented in the Executive but also some outside the Executive, were in favour of this measure. I must pay tribute to the hon. Member for East Antrim (Sammy Wilson), in that, although he has been sceptical about the issue, he has today given reasons why there needs to be caution about the fiscal modelling on which people have based their projections for the future. Although we may be able to address corporation tax, we cannot control the global economic picture, which will also dictate the amount of foreign direct investment we can achieve. So we should not set our sights too high in terms of the number of jobs that that may create. We have projections we can use as a basis and we can look at the evidence from other regions, but we have to accept that other factors will influence how big an impact this measure will have.
It is important that we weigh those factors carefully when setting the rate—that will be a matter for the Assembly, which will need to give them due consideration. I agree with other Members who have said that we would want to do that quickly, I also think we need to carry out due diligence in setting the rate, to ensure that we know exactly what it will cost the Northern Ireland Assembly in block grant and exactly how we will manage the bridging period between making the cut to the block grant and seeing some reward from the economic investment that will follow. We will also need carefully to examine the long-term impact this measure will have on the wider economy. So although it is good that we are making these moves today—I commend the Secretary of State and her team for upholding their part of the Stormont House agreement at this stage, while, almost simultaneously, the Assembly is today upholding one of its parts of the agreement on the budget issues—I hope we will see an opportunity for the Assembly to take more responsibility over its financial measures.
I also wish to commend the Secretary of State for her work on the Bill, which will ensure that if the Assembly does not show a responsible way forward on the budget and if we are not able to get our finances in order in the next few years, this move will not go ahead. It is quite simple: we cannot continue with a situation where we make promises beyond the money we have to fulfil them and where we make commitments on public sector expenditure that are not covered by the block grant or by revenue raising that is available to us already. We need to get our financial house in order, so that we are able not only to make the corporation tax reduction, but convince the people of Northern Ireland that we have the capability to manage our finances in a way that is for their benefit. There is a gap between what the politicians would like to be able to do and what the Northern Ireland public trust them to do, particularly on financial matters. That gap needs to be closed quickly over the next few years, by dealing with the budgetary matters before the Assembly both today and over the next few weeks.
It is important that after the Stormont House agreement we have bought some more time in which to be able to make those transformations to the economy, but all parties will have difficult decisions to make. Where the money comes from to pay for the corporation tax devolution will be one of a number of difficult decisions that will have to be taken. Whatever the colour of the Westminster Government after the next election, it is clear that nobody is arriving with a pot of gold and none of us can expect that huge amounts of money will be available that are not available now for public sector investment. I accept that some in this House wish it were otherwise.
It is hugely important for us to be realistic in our projections and in the promises we make to the public we represent, and to recognise that corporation tax is only one of a number of avenues we can pursue to grow our private sector. A low rate of corporation tax alone will not attract all the investment needed to grow Northern Ireland’s economy. Other corresponding measures will need to be taken in order to make Northern Ireland an attractive place in which to base a business or company, so let me briefly discuss some of them. Some are relevant to Westminster, whereas others will ultimately be dealt with by the Assembly. It is important for us to consider them, because that mix will allow companies to have the confidence to come to Northern Ireland.
The first and foremost issue is stability and good governance. The Stormont House agreement offered us an opportunity to deal with some of the issues associated with political stability, but, as hon. Members know from my response, I believe many of those were, unfortunately, parked and could still be the undoing of the good progress made thus far. I want local parties to commit to dealing maturely with those issues, which are politically sensitive, so that we do not have the kind of situation we have had recently, where lots of years of talking to companies and encouraging them to come to Northern Ireland and consider us as an inward investment opportunity are written off on the basis of a few nights of rioting, which is projected worldwide and damages our reputation irrevocably.
We need to have stability and maturity around political decision making. The opportunity is there for that to happen, and I hope that all parties will grasp it. They should stop the petty arguments over peripheral issues and try to pull together to create the sort of stability that is beneficial for business, public sector growth, and small and medium-sized enterprises. Those SMEs suffer greatly when we have traffic disruptions as a result of bomb alerts and bomb hoaxes. Such an incident happened in my constituency just this week. The whole city, including the train service and local roads, was brought to a standstill. We cannot afford for that to continue, so we must deal with the politics to bring about that stability.
We also need to ensure that there is good governance. As I have said, the Stormont House agreement has given us an opportunity to look at right-sizing our civil service and to do so in a way that will not force people into compulsory redundancy. That agreement was good for Northern Ireland, but we still have to find other employment for people, which is where corporation tax could play an important role.
There are other issues to consider. Members have mentioned infrastructure and planning, and, as a civil engineer, it would be wrong of me not to address that matter. We need not just significant investment in that area, but reform, because we cannot deliver the infrastructure investments that are needed in Northern Ireland with the current amount of money that we receive from the block grant and the emphasis that the Assembly gives to the matter. Some restructuring will be required if we are to ensure that our infrastructure is not an impediment to further economic growth.
We also need to consider issues of connectivity. The challenge rests not just with the Northern Ireland Assembly, but with the Treasury and other Departments here at Westminster. The hon. Member for East Antrim mentioned the fact that, for a long time, Northern Ireland was a driver for the UK economy. In my constituency, we had the largest shipyard anywhere in these islands and the world’s largest roadworks. We were not in any way regarded as peripheral because, at that time, connectivity was largely through ports, and we had an excellent port in Belfast. The situation has now changed and most of our exports go by plane. We are reliant on air transport. Heathrow is the main cargo hub for the UK and the main cargo export point for goods and services going from Northern Ireland. Unless we resolve the situation at Heathrow, no amount of reduction in corporation tax will encourage people to invest in Northern Ireland.
We need to retain our connectivity to London, and also through London and beyond to other business destinations so that we are not remote for those who wish to come and invest and do business in Northern Ireland. It is crucial that decisions about airport and runway capacity in the south-east are resolved, because it is a matter of importance for the country as a whole and for Northern Ireland in particular. Being on an island and off an island, we are absolutely reliant on air transport for our connectivity.
It would be remiss of me not to mention air passenger duty since I have repeatedly complained about it. We are double taxed with air passenger duty, which has an impact on our connectivity and on the cost of doing business. Although the problem needs to be addressed UK wide, it has a much greater impact on Northern Ireland than on any other region. We have no alternative way to make our way to London, to the main hub, other than to use air transport, and we are penalised for that because of the lack of through carriers. We have to pay air passenger duty twice: once to get to London and then onwards to whatever destination we take.
Another area of concern is brass plating, which the Bill tries to address. Northern Ireland does not want to become simply a front for companies that are doing business elsewhere and creating economic growth and employment elsewhere but benefiting from the low tax regime in Northern Ireland. There is no benefit to us or to the UK from that. We want to encourage companies that will set up their main operations in Northern Ireland and create employment and real economic growth. Those companies will not be the only ones to benefit; all of the firms that service those companies that pay the corporation tax will also potentially benefit from being able to attract those larger companies in. It is important that we deal with actual economic activity, and I welcome the fact that work has been done on that.
Another brass-plating issue of interest to me and to the hon. Member for Foyle (Mark Durkan) is international tax transparency. I do not want to stand over any system that would allow people from other regions to create a false front in Northern Ireland that would result in money being taken out of other economies in need of funds, whether they are in the third world or other parts of our own country. That is not good for international development, and it is important that there is tax transparency at the heart of the measure. We want real investment and real economic growth, and we want real jobs to be created as a result. I am glad that that has been acknowledged and considered in the Bill.
Something else that is required is skills. If we do not have the right skill set we will not be able to attract the quality jobs that we seek to attract, and it is hugely important that we do that. My colleague, Dr Stephen Farry, is doing that very effectively through the Department for Employment and Learning, and there is a mechanism that would allow a small levy—about 0.6%—to be placed on those companies that benefit from the corporation tax reduction. The levy could be ring-fenced to pay for skills investment. Companies could draw down some of that money for in-house training and partnership training with universities, and the remainder could be used for other skills investment. That should be a consideration in the way in which the Bill is structured. No one will want to benefit from our tax laws if they have to pay something towards investment in skills unless they intend to have employment and training as part of the work they do when they come to Northern Ireland. Those are the kind of added-value jobs that we need and want, and some form of skills levy would be helpful to avoid brass-plating and to support the Executive’s emphasis on skills investment and development.
Finally, the Chairman of the Select Committee on Northern Ireland Affairs, the hon. Member for Tewkesbury (Mr Robertson), discussed the importance of differentiation in Europe as a way of attracting new business to Northern Ireland. People come to Northern Ireland because they see it as a good stop-off point between, for example, the US, the south American countries and the European Union. They see us as a gateway to European markets. When we debate the European Union in Parliament let us not forget that many of those who locate their businesses in Belfast, Derry and other places do so because they see Northern Ireland as part of the EU and a good way to make those connections. We need to be careful when we talk about withdrawing from the EU—I have no problem with differentiation within the EU—as we need to be conscious of the impact that that would have, despite what we may do on tax regimes.
All those things are important. Some of them are in the gift of Westminster; some are in the gift of the Assembly. However, we have taken an important first step with this Second Reading. As we proceed with a detailed consideration of the Bill I trust that we can look at how we ensure that we experience the maximum benefit in Northern Ireland. I stress again that unless we have a stable, integrated future in Northern Ireland it will not be an attractive place for large businesses. When the due diligence is done, one of the most important considerations is stability. We need to create that stability as a starting point, and from there this measure will give us an opportunity to make prosperity part of the package that the peace process can deliver.
It is a pleasure to follow the hon. Member for Belfast East (Naomi Long). I should like to begin by saying that this measure is entirely the right thing for Northern Ireland. Those of us who serve on the Select Committee have all seen how hard it is to compete when a neighbour a short distance away can offer a much lower rate of corporation tax. I wholeheartedly support the notion that we should allow Northern Ireland to choose its own corporation tax rate, especially on trading profits. In fact, I would even support the principle that lower business taxes drive growth. Over the past five years in the UK, we have reduced our corporation tax rate from 28% to—in a couple of months’ time—20%, which is important in helping to drive growth in the whole country.
That leads me to my first concern. Part of the argument for making that reduction is that we recover money that we lose in corporation tax by attracting more investment: more companies make more money and pay more corporation tax as there are more profits. Even though corporation tax is set at a lower rate we begin to recoup some of the costs. With more employment, we would expect increases in income tax and PAYE. Greater economic activity will result in more VAT, and more property transactions will give rise to more stamp duty. Those are the key ways of recovering what is lost through lower corporation tax.
It is not entirely clear how much of those increased tax takes will go to Northern Ireland and how much will be kept by the UK as a whole. When the final deal is done and a calculation is made of by how much budgets are reduced, that net cost needs to be worked out to ensure that it is fair to Northern Ireland and fair to the rest of the UK. There will need to be a breakdown of the overall impact of behavioural change as a result of a lower tax rate in Northern Ireland, if that is what results. I assume we expect to see a rate of 12.5%, or perhaps a little lower to make it competitive.
We seem to be devolving taxes haphazardly, creating a mishmash. We ought to look forward a few years and ask, for all our taxes, “What should our tax system look like? What taxes will we devolve and to where? How can we best achieve a sustainable, sensible tax system as a result of that?” One way of doing that would be to set a federal income tax rate and a federal corporation tax rate that apply throughout the UK. Once those were set, each area could choose its own rate as well, so there could be a federal corporation tax rate of, say, 10% and Northern Ireland could choose 0% as its local rate, and England could choose a rate as well.
What we have in this Bill is a complex way of doing that for one area of the country. I accept the reason for doing that just for Northern Ireland initially, but if there is pressure from Scotland and Wales, this mishmash of a system will be hard to act on and it will be very unfair on England. How will we work out the rate that we want? With the devolution of corporation tax, I suspect that the easiest competition will be between Northern Ireland and the rest of the UK, because we have the same currency, much the same legal system, the same VAT system and the same income tax system. In fact, for almost any sensible business, the east midlands is a far more attractive place to do business than Northern Ireland. I would say that, because my constituency is there, but we have the right skills, the right location and all manner of advantages.
Does the hon. Gentleman agree that the sort of business decisions we are talking about are long-term decisions, and if the tax system appears to be moving around wildly among countries year by year, companies will not use it because they will not be able to rely on a long-term future?
The hon. Gentleman is right. That is why we should look ahead and see what our tax system should look like. Nobody in the UK wants a business man with a business based in Amber Valley or Redcar to think, “I could save half my corporation tax by moving to Northern Ireland.” That may help Northern Ireland, but it will not help the mainland. It will not help UK plc to attract more inward investment. We want fair competition. I accept that competition is good and that if we get investment somewhere in the UK, that is better overall, but we want investment coming in from outside, not moving around within the UK.
As a matter of fairness, if parts of the UK are to compete on corporation tax, those parts should not vote on the rate elsewhere in the UK. If Northern Ireland wants to set its own corporation tax, let us let England, Wales and Scotland set ours. If we devolve it further, the same fairness should apply. People in my constituency should be able to say, “Yes, we are competing, but we can choose whether to compete or not.” I hope that before April 2017 some sort of mechanism is in place to ensure fairness. Devolving taxes without first settling that is dangerous in constitutional terms. I am not sure it would be tolerable for Scottish MPs, for example, to set their own income tax and then to set ours as well. I accept that that is probably more of a problem than corporation tax, but it is an example of the unfair tax system that we could end up with.
An excellent Library paper that runs through the research shows on page 13 that, looking at the behavioural response to a lower rate of corporation tax in Northern Ireland, even by year 4 we would see that profit shifting from the rest of the world into Northern Ireland would have an impact of £30 million a year, but that profit shifting from Great Britain to Northern Ireland would have an impact of £60 million a year. That is twice the impact of new foreign direct investment. Tax-motivated incorporation would have a potential impact of £45 million —even more than foreign direct investment into Northern Ireland. I hope that the measures in the Bill will reduce the likelihood of the latter possibility. The easiest way of competing will be to move around within a regime rather than try to attract investment into the UK that would not have come here in the first place.
That leads me to look at how cluttered some of these proposals will make the corporation tax system. This is not a simple set of things to understand. A company that has its tax base in Great Britain and Northern Ireland will have to work its way through some fairly complex situations. There were simpler options. We could have just had an allocation key that worked out one profit and then how much of it would be taxed in Northern Ireland and how much in the rest of the UK, based on employees and sales. It could have ended up a bit like the awful EU tax base that was thought up. However, within the UK, that might have worked, being easier to understand and removing some of the distortions of attempts at tax avoidance. Taxation based on sales is much harder to fix.
There are still some gaps in these proposals. It is absolutely right that we have stopped allowing finance companies to get the lower tax rate. Otherwise every large corporate would have had a finance company based in Belfast doing its finance for the rest of the UK and moving profit over there artificially. That would have been unacceptable.
How do we stop other things happening that we might not like? What about intellectual property planning? If I move all my brand names over to Northern Ireland, can I charge large royalties in the rest of the UK and artificially move profit in that way? That is not caught by the restrictions in the Bill. It is not moving jobs or creating real value; it is just moving assets around a regime and trying to get a tax advantage.
On the flipside, there are some wrinkles in how we have tackled the finance company exemption. Under the definitions in clause 17, I am not sure what happens in the case of a company trading in Northern Ireland that makes a lot of profit, ends up with some cash at the end of the year, and thinks, “Okay, I’ve got another important investment project in 18 months’ time, so perhaps I’ll lend this cash around to somewhere else in my group of companies and make a bit of interest income.” It is then engaging in a lending activity. Has that blown it out of the whole lower rate because it now has an excluded activity, or is only the interest taxed at the higher rate, and because it is a very small part of its activity, that is okay? I am not quite clear about how we tackle real, practical situations such as that.
I am not convinced that the situation for small and medium-sized companies is entirely fair. The hon. Member for East Antrim (Sammy Wilson), who is no longer here, said that some construction companies in Northern Ireland end up with lots of building work on the mainland because that is where the work has been. If, during the year, such a company gets a big contract on the mainland, it then has to track whether the profit from that becomes more than a quarter of its total activity. If it is 26% by the year end, it pays 20% corporation tax on the whole of its profits, whereas if it is 24% at the year end, it pays 10% on the whole of its profits.
I accept that for the vast majority of SMEs that do not trade on the mainland and operate just in Northern Ireland, that will be a very simple situation, and one small contract will not hurt. However, I suspect that SMEs trading in both areas will be in a worse position than a large company, because a large company that had 26% of its activity on the mainland would still get the lower rate for most of its profits, but a small company will lose it for most of its profits. Perhaps there could be a way of allowing an SME to elect to be in the large company regime if that better reflects its needs. Another option would be to have two separate companies and split their activities, but that does not strike me as a very easy situation. There are some issues that may lead to unintended complexities.
We need to think through exactly which activities we do not want to qualify for the lower rate. We have a new diverted profits tax coming, whereby if someone moves an activity that ought to be somewhere else, we will try to tax it at a higher rate than our UK standard rate. Under one of the provisions, someone who is being taxed at a rate of less than 80% of the UK rate will be caught. Clearly, Northern Ireland is likely to have a tax rate of less than 80% of the main UK rate. If a Northern Ireland company has an internet trading business or a mail order business in Belfast and takes careful steps to avoid having an establishment on the UK mainland, could that company be caught by the diverted profits tax, triggering a higher rate than if it was in the UK? How can we stop people artificially putting trading activity using very few employees into Belfast, rather than doing it on the mainland, to get the lower rate? I accept that no one wants the rate to apply to activity involving no employees, but I sense that certain activities that do not require much labour might be moved, which is not what we intend.
I welcome the principle of the Bill. I have some concerns about rushing it through now without thinking about how it affects the UK as a whole—we need to do that if we are to get a tax system that is sustainable in the long term—about how cluttered we are making our corporation tax system and about whether things in the Bill’s details might make the system work in a way that we do not want, but I suggest that we think through such issues in Committee.
I thank the Government for keeping their part of the bargain in trying to push the Bill through the House before Dissolution.
I again pay tribute to the right hon. Member for North Shropshire (Mr Paterson), as I did in an intervention. He was very modest in what he said about his role. I understand that it was a team effort within the Government, but I must say that he was outstanding in the number of meetings he held with business organisations in my constituency, such as the manufacturing focus group and the chamber of commerce. He put across the case for devolving corporation tax very well, and all credit to him for his enthusiasm. He was also very enthusiastic about enterprise zones, as has been mentioned, and other parts of the different regions of the United Kingdom are starting to raise that whole issue.
The Chairman of the Northern Ireland Affairs Committee pointed out that we debated this matter and produced a report some time ago, and I remember what one of the economists said. People say that if someone brings 20 economists into one room and tries to get them to agree, they will find it very hard. My hon. Friend the Member for East Antrim (Sammy Wilson), who is an economist, is not in the Chamber, or I would certainly get a very smart response from him.
I asked one economist at what point between one and 10—given a clean sheet—he would put corporation tax, and he was quick to say that he would put it somewhere in the middle. We all agree that the measure is a great move for the future of Northern Ireland, but it is not a panacea or silver bullet, and we need to bring together a lot of things to make it work. The economist reckoned that other factors need to be looked at, including fast-track planning, which has been discussed, the whole planning structure, research and development, and education, which was also raised earlier. It has just been announced that we will get two new regional colleges—one in the town of Banbridge, and one in the Craigavon area—which will benefit my whole constituency. The colleges recently made a presentation about the number of courses and higher level apprenticeships that will be provided. As the hon. Member for Belfast East (Naomi Long) said, skills are vital for any organisation that comes to Northern Ireland, so there needs to be a skills base. A lot of elements therefore need to be brought together for the whole package to work.
Everyone in this debate has broadly welcomed the Bill, but it has been sensible of many of those who have spoken to put in caveats and not to make promises that we might not be able to keep in five or 10 years. The point was made that when companies decide to invest in other regions or sit down to write business plans, they do not plan for just six or 12 months, but for three, four or five years. We do not want to make rash promises, only for companies that plan to come into Northern Ireland to find, all of a sudden, that it does not work. Today we have the coalition Government, but things could change on 7 May. We might have another Government. Will they have the same principles and ideologies as this Government? It is therefore important that we do not make rash promises.
My constituency of Upper Bann is the second largest manufacturing base in the Province outside Belfast, with companies such as Moy Park, Almac and Thompson Aero Seating. It has a lot of good companies, such as bakeries and agri-food businesses. Many of those companies would benefit from the lowering of corporation tax. I declare an interest in the agri-food sector and refer to the Register of Members’ Financial Interests, because my family business would also benefit. The benefit will be felt across the constituency. At the worst economic times, unemployment in Upper Bann rose to 8.5% or 8.6%. As of last week, it was down to 5.2%. Even at the best of times, it never fell below 4% or 4.5%, so we are heading back to where we were in the good old days.
We need to encourage our young people to stay in the United Kingdom. The hon. Member for Foyle (Mark Durkan) made the point that every year we lose a campus to other countries. I still help young people on a regular basis to fill in forms and visas to go to Australia, New Zealand or China. We need to encourage young people to stay and protection needs to be put in place. We have heard about issues such as brass-plating. That needs to be definitive and there are a lot of issues that need to be teased out. That can be done as we go through the Bill over the next few weeks.
I broadly welcome the Bill. It will bring great benefits to Northern Ireland. It is important that every part of the United Kingdom and every country looks to its advantages over other countries. We have to look for the competitive edge. If this brings the competitive edge for Northern Ireland, that is good news, because we have sat alongside the Republic of Ireland, with its 12.5% rate, for many years. As was said earlier, throughout all the difficult economic times, with the Celtic tiger losing its buzz and all the rest of it, it still held on to the corporation tax rate. Even when the European Union threatened to take it away, the Republic of Ireland stood its ground and won the day. We need to continue with this proposal. I think there are good days ahead for Northern Ireland.
We were promised an economic bonanza after 1998. Whatever people’s interpretation of the Belfast agreement, there was no economic follow-through. It was like the ghost of Banquo—it was there, but it did not turn up. The ghost of economic benefit did not end up being delivered. This is the opportunity to deliver the economic benefit for Northern Ireland that has been absent for the past 15 years.
My hon. Friend is correct. This is an opportunity for Northern Ireland to deliver that economic benefit. We need to encourage not only businesses throughout the Province, but the next generation. I do not know about other MPs, but when I go to universities and schools in my area, people say, “What’s the point of staying in Northern Ireland? There’s nothing here for us. There’s no jobs; there’s no nothing.” We have to give them a reason to stay.
It is the role of Governments to create the environment and circumstances in which business can thrive and move forward. My hon. Friend is right that there is an opportunity to do that, and we need to grasp it, but we must do so in a balanced and measured way. We must not make false promises that may come back to bite us in the coming years.
Like other right hon. and hon. Members, I broadly welcome the devolution of the power to vary the Northern Ireland rate of corporation tax. I cast my mind back to 2006, when I was a Member of the Northern Ireland Assembly while it was a shadow Assembly. My hon. Friend the Member for Foyle (Mark Durkan), who was my party leader at the time, appointed me to an all-party committee dealing with building and growing the economy in Northern Ireland. We took evidence, in sessions spanning a six-month period, from a range of people, some of whom were pivotal in raising the issue of the Northern Ireland Executive and Assembly having the ability to set our own rate of corporation tax. Central among them were the late Sir George Quigley, and Mr Hewitt from the Economic Research Institute of Northern Ireland. From the research that we carried out, we found that one of the impediments to a prospective Northern Ireland Executive setting corporation tax was the Azores judgment. We had to consider how the principle that it established could be circumvented so that we could achieve that power.
It was agreed in the committee’s report that other incentives were required to pump-prime the local economy. Chief among them were incentives in how small and large-scale developments were dealt with in the planning process. We said that we needed to equip our young people with skills and expertise, and that we needed manufacturing and industry to locate in Northern Ireland. I represent a constituency that was outside the area where foreign direct investment was located, and we said that we needed the visits that are normally the precursor to such investment. We wanted to see a balanced approach to regional development in the location of manufacturing, business, the financial sector and new types of infrastructure, so that we could underpin and grow our economy. Those factors remain the same and are still important to growing our economy.
As the shadow Secretary of State indicated, we still have a youth unemployment level of about 19%, and we still have a high level of economic inactivity. Our education and further education sectors are therefore important in making a contribution to growing our economy. Above all that, as my hon. Friend the Member for Foyle and the hon. Member for Upper Bann (David Simpson) said, is the need to ensure that our young people stay in Northern Ireland, are educated there, gain their vocational training and academic qualifications there, and invest that training, knowledge and know-how in developing our economy. Nobody would disagree with that.
Other measures are required because while we are a public sector economy, tourism is also a principal economic driver in my constituency. I have talked to the Minister about this on several occasions, but I repeat my request for a reduction in VAT on tourism and tourism products, which I see as a UK measure. Such a reduction would pump-prime the sector and create the necessary jobs. The economic modelling for such a change was carried out by the Treasury, so the research is available.
We also have the evidence of the south of Ireland, which—notwithstanding its economic difficulties—has been able to keep its rate of VAT on tourism at 9%, compared with ours of 20%. Representing a border constituency in the north of Ireland, I have many constituents who are involved in tourism and other businesses and have to compete with that VAT rate. That is extremely difficult with mobile investment and people who live in the north but work in the south, and vice versa. Those issues must be addressed.
Another issue within the remit of the Department of Enterprise, Trade and Investment and BT is proper and adequate access to broadband. Preference should be given to business centres so that they have immediate access to superhighway broadband, which they need to help build small to medium-sized businesses. That should be a priority.
I have several questions about the Bill. No doubt the details will be teased out in amendments to the legislation, but I also wish to raise them now. The Bill is 87 pages long and I have no doubt that it was drafted well in advance of the outcome of the Stormont House agreement. Is the engagement on the details between the Northern Ireland Executive, especially the Finance Minister, and Treasury Ministers still ongoing, or was the examination of the detail of the Bill carried out by the cross-ministerial working party on corporation tax? Or was the work solely done by the Treasury? I would also like to know what discussions were held with Northern Ireland authorities about applying the EU definition of small and medium-sized enterprises. We need clarity about the discussions and the agreement that was reached about the 75% threshold to be applied to determine what constitutes a Northern Ireland regional enterprise. We need that clarified in case any traps or restrictions are buried in the detail of the Bill.
At the moment, our principal economic lever is public expenditure and we all know that we face budgetary challenges, whether in the broader UK or in the Northern Ireland context. We all need to be aware of what will confront us down the road. My questions also concern implementation and the cost to the block grant. While the rate will be set by the Northern Ireland Executive and Assembly, what modelling and analysis did the Treasury do on the impact on jobs and the cost to the block grant of differential potential rates? I find it hard to believe that such work has not been carried out: if it has, when was it carried out and can that analysis be made available in the Library and that information be communicated to Members?
As a result of undertaking research for this debate, I know that way back in February or March 2011 the Minister came to Lisburn and presented a Government consultation paper, which stated:
“In order to meet the fiscal autonomy condition, the NIE would need to bear the full fiscal consequences of changes in tax revenues resulting from a new Northern Ireland corporation tax rate. This means that Northern Ireland’s block grant would be adjusted to reflect the fiscal costs of a reduction in the rate of corporation tax.”
Has any modelling been done in that respect? What specific work has been done?
The Treasury paper suggests that critics of corporate tax devolution have pointed out that receipts from corporation tax are one of the most volatile categories of tax revenue. As the Institute for Fiscal Studies has observed, over time they vary substantially more than total receipts or national income, and replacing an element of the block grant with these revenues carries a considerable risk to the devolved Administration. Has modelling been done in that respect?
About four months ago, in October 2014, Her Majesty’s Revenue and Customs published more detailed estimates for the shares of UK taxes arising in England, Wales, Scotland and Northern Ireland. Those estimates suggested that Northern Ireland’s share of corporation tax revenues had declined in the past few years and is now at about 1.2% of UK onshore corporation tax receipts. To increase those receipts and ensure they are invested in our local economy and in the businesses the hon. Member for East Antrim (Sammy Wilson) talked about, does the Minister not agree that there is a need to ensure not only that there is a greater regionally balanced location of foreign and direct investment, but that existing businesses are sustained in the local economy?
The Treasury paper also looked at the potential long-term impact of a cut in corporation tax boosting profits and consumption, thus increasing receipts based on consumption, and indicated that risks would be attached. It stated that if the tax cut failed to attract as much investment as expected, the Northern Ireland Executive would need to make up the difference. I am conscious of the challenging budgetary difficulties. Similarly, the risk associated with profit shifting from the rest of the UK would lie with the Northern Ireland Executive. Has that possibility been investigated fully, and what is the current prevailing view of the Treasury and the Northern Ireland Office? Have fluctuations in tax revenues for a small corporate base been factored in?
Professor Trench, professor of politics at Ulster university, gave evidence to the Northern Ireland Affairs Committee in 2011. He stated then that,
“to comply with EU law, a substantial and irrevocable cut in the block grant will have to be made, based on present tax receipts.”
Has that perspective been considered and is it reflected in the proposed legislation?
The hon. Member for Belfast East (Naomi Long) and the hon. Member for East Antrim referred to the issue of brass-plating, which has been factored into the Bill. I would hope that whatever is factored in is vigorous and robust. Chapter 17 relates to businesses excluded from claiming the new tax rate, including those lending and making investments, those undertaking investment management and those engaged in reinsurance. In addition, any back-office activity is excluded. What is meant by back office? The Bill does not say and just gives the Treasury the power to define it. It is a pretty fair bet, however, that some of the most mobile activities in the UK, such as accounting, data processing and even many call centres, will be back-office activities and so excluded. Further clarification is needed in that area.
In welcoming the Bill, I must add that we intend to table amendments in Committee to reflect our various concerns. We want a Northern Ireland economy that continues to grow and ensures that young people who have emigrated can come back and invest in the local economy, and that those with academic, degree-level educations or vocational training can deploy their skills and expertise in our economy for the betterment of the people. The litmus test for the Bill will be whether it brings continual benefit to the local population.
In conclusion, I welcome the devolution of corporation tax. I hope that, along with other incentives, it brings significant benefit to the people of Northern Ireland; that our local economy grows; that our people stay; and that business is underpinned and promoted. I can think of two areas in my constituency, Kilkeel and Warrenpoint, with significant entrepreneurial skill and activity. One is a harbour importing and exporting and the other is a fishing port seeking proper port status, because it is now involved in an initiative to utilise its marine and engineering skills. I hope that the Bill, along with other incentives from other Departments here at Westminster and in the Northern Ireland Executive, will achieve that better deal for the people I represent.
It is a pleasure to speak in this debate, and I thank the Government for bringing the Bill before the House under the Stormont House agreement. Obviously, the DUP is in favour of the Bill. We have concerns about its delivery, but we are committed to the devolution of corporation tax. I thank the right hon. Member for North Shropshire (Mr Paterson) for his contribution. I understood it was his baby back when I entered the House. He always says it was a team effort, but certainly every conversation we ever had when he was Secretary of State was about corporation tax. It is good to see it being delivered; I am sure he is especially pleased.
The power to set our own rate of corporation tax could be a game changer for the economy, if done right, and could help to create thousands of jobs. My hon. Friend the Member for East Antrim (Sammy Wilson) said that 37,500 jobs could come out of it. I am not sure how accurate that figure is, but if that is the potential figure, there is clearly an opportunity here to do something significant, diminishing our reliance on the public sector and generating wealth for our citizens. For years now, we have faced difficult economic circumstances, with people forced to tighten their spending and unemployment rising, and this has the potential to deliver what we need.
I made it my business to speak to business men—mostly in my constituency—and gauge their opinion about the devolution of corporation tax, and there was a general feeling in favour. They were keen because they could see the benefits coming through to them, but they saw that it was a 10-year plan and that it might take some time to get to where we wanted to be, and they had concerns about how it would be delivered over that period. They also had concerns about the planning system in Northern Ireland—the hon. Member for South Down (Ms Ritchie) mentioned fast-track planning. We have to do something because the planning system is so slow and cumbersome it defies belief.
Although unemployment rates are better in Northern Ireland than in the Republic, we have always struggled to compete with the latter’s attractive corporation tax level, as the shadow Secretary of State pointed out earlier, and it is little wonder, given that its tax rate is 12.5%, compared to our 21%. The ability to set our own tax rate will make that a thing of the past and put us in a better place to compete with the Republic of Ireland, as well as with our Scottish, Welsh and English counterparts. Competition is vital for any economy and ours is no different, so naturally anything that will assist us is most welcome. Devolving corporation tax has the potential to do that.
Allowing us to set our own rate of corporation tax is supported by all five parties in Northern Ireland, as well as the parties in this place. Clearly the benefits are recognised by all. As the Secretary of State has said, it would provide a major incentive for domestic businesses to invest further in Northern Ireland and significantly increase foreign direct investment. That is what we want: real jobs for our people. Given that we share a land border with a jurisdiction with significantly lower corporation tax, this measure has the potential to create thousands of new jobs and stimulate growth in Northern Ireland’s private sector, leading to a stronger, more stable and more lucrative economy.
We have already witnessed change in the last five years in Northern Ireland. In fact, we have already seen a large number of foreign and domestic businesses opening and expanding into our Province. That is great, but we need more opportunities and better employment. We want to encourage more businesses to open up and enjoy the benefits and fantastic work opportunities that Northern Ireland has to offer. Belfast has been described as a small city with a big heart, and it certainly is the up and coming place to invest. That said, however, sometimes big businesses need that little bit of extra motivation. If a low corporation tax rate does not help them to make their minds up, I do not know what will. It would certainly put us on a much more even playing field with the Republic of Ireland, with which we share a land border.
I want to make a quick comment about connectivity and the importance of the air corridor between Heathrow and Belfast City and Belfast Aldergrove. We want to ensure that it is put in place in such a way that we can be part of growing the economy. Just last night, the talk on the news back home was about the new rail links between Belfast and Dublin—to increase their connectivity and, I would suggest, take it away from Northern Ireland. I am concerned that we need to match our neighbour when it comes to those things.
There is no doubt about the benefits that devolving corporation tax will bring, but there are several things we need to consider before its implementation. Fortunately, we have until 2017 to make this a reality. That gives us the time to ensure that when corporation tax is devolved, we have the necessary resources in place to take best advantage of it. My main aim is to see unemployment fall. I believe that the best way forward, coupled with lower corporation tax rates, is for the Department of Employment and Learning to develop a way for students to get real jobs. That might mean creating more apprenticeships, promoting particular skills and helping young people to get experience in the workplace through courses in schools and techs.
Our colleges are working to try to ensure that people are qualified, experienced and able to take up employment opportunities, but I sometimes think that the further education colleges and businesses—with the opportunities that will come off the back of this—need to work more closely together. I understand that we have a dearth of engineers in Northern Ireland. Again, something needs to be done about that. So many young constituents come to me with concerns about getting jobs or houses, because although they have hard-won degrees, diplomas and certificates, they cannot get the necessary experience. I have no doubt that if further education colleges and schools create policies to march alongside tax policies, including on corporation tax, we will see much lower unemployment rates among our young people. That has to be a priority.
I also want to see real reductions for businesses. The week before last, I was talking to a business man who runs a very successful company in my constituency, Mash Direct, which employs 170 people—I understand that the Secretary of State took the opportunity to visit the factory. The company produces simple but attractive foodstuffs and has increased its work force. However, he told me that it was cheaper for him to import vegetables rather than grow his own—he has his own fields round there and is also co-operative with the farmers in trying to ensure that the products he uses for his factory are grown locally. However, he can buy vegetables from south America for less than it costs to grow them in a field in Newtownards. That is ludicrous. Devolving corporation tax will help him to compete better, and that is an advantage. While being ever mindful of better rates for businesses, we need to ensure that there is something in place to protect those who have these issues.
The agri-food business is important in my constituency. Pritchitts, Willowbrook Foods and Rich Sauces are all companies that have thrived over the last few years, employing almost 1,000 people between them. We also have the Akin pharmaceutical industry. These are businesses that have grown over the last few years, and the change in corporation tax will help that growth to continue, which is their ambition, and to employ more people.
I have been approached by many business owners in my constituency, some of whom use their buildings and are delighted at the announcement on devolved tax power, while others are extremely concerned because they do not use their premises. There needs to be some sort of protection or exemption clause for such people. That needs to be considered in the next two years, because we cannot expect business owners to pay corporation tax on vacant properties; that would be unfair. Instead of promoting the economy and creating more jobs, it could have the reverse effect, particularly when Northern Ireland is made up of so many small and medium-sized enterprises—30,000 micro-businesses to be precise, which is 89% of our community. Although we want to encourage big business, we do not want to forget about those who account for such a large part of our economy.
Let me express one more concern that I feel needs to be addressed before implementation in 2017. This is not something that will be unique to Northern Ireland, as it has been raised across the United Kingdom, but I am referring to the issue of holding companies. The hon. Member for Amber Valley (Nigel Mills),who spoke in the diverted profits tax debate in Westminster Hall, asked me about this matter. The issue is clear: we do not want to see a brass plate on an office that is lying vacant; we want to see jobs. It is the jobs that grow the economy and bring in the wages, which then brings money to the Treasury through tax. That is what we want to see. This is an issue of great concern.
A company may come into the United Kingdom and open a holding company in Northern Ireland. This means that it could put any profits made elsewhere back into the Northern Ireland branch, saving on corporation tax. Concern about that was expressed in the Westminster Hall debate. Big US companies such as Starbucks, Google and Amazon have all been accused of tax dodging entirely or of paying considerably less than they should. What steps will be taken to ensure that this same practice does not happen with corporation tax in Northern Ireland?
Undoubtedly, I believe that the benefits outweigh any drawbacks, but in order fully to profit from this proposal, the issues I have raised need to be addressed. I am hopeful that, with this legislation, Northern Ireland can become even more successful and really begin to compete in the business sector on the world stage.
It is a pleasure to wind up this debate on behalf of the Opposition. We have had an interesting and, I think, high-quality debate. It is an important issue which has been the subject of many discussions over a number of years. I am particularly pleased that so many Members from across Northern Ireland contributed, and I am pleased, too, that, unlike in more recent outings when the Minister and I have been opposite each other on Treasury matters, this has been a slightly longer and meatier debate, not over so quickly. It is a reminder of the good old days when this Parliament was a little busier. That was welcome.
We heard from the former Secretary of State, the right hon. Member for North Shropshire (Mr Paterson), who I thought was right to point out the potentially significant benefits of the Bill, which we also acknowledge. As my hon. Friend the Member for Bury South (Mr Lewis), the shadow Secretary of State, said in his speech, perhaps the former Secretary of State did not quite hear that part of my hon. Friend’s remarks. We say simply that the devolution of corporation tax will require some difficult choices to be made to fulfil the conditionality envisaged in the Stormont House agreement and the Azores judgment. There is a trade-off. We acknowledge that the economic benefits of the change cannot be fully realised without additional changes, particularly investment in skills and infrastructure, to which I shall return a little later. We certainly acknowledge the potentially significant benefits for the people of Northern Ireland through corporation tax devolution.
The hon. Member for East Antrim (Sammy Wilson) was absolutely right to highlight the risk of brass-plating. We need to ensure that these measures have a substantive effect—and I am sure we will return to those issues in the Public Bill Committee.
The hon. Member for Tewkesbury (Mr Robertson), the Chair of the Select Committee on Northern Ireland Affairs, spoke, and his Select Committee has done a huge amount of work on this agenda. I pay tribute to it for that.
The hon. Member for Foyle (Mark Durkan) was right to say that the devolution of corporation tax was not a magic bullet, and to point out that the successes achieved by the Republic of Ireland—particularly from the mid-1990s onwards—had as much to do with higher education funding and investment as with a lower corporation tax rate.
I was pleased that the hon. Member for Redcar (Ian Swales) asked about transfer pricing and profit shifting, and I echo his questions to the Minister. I am sure that we will return to them in detail in Committee, but it would be helpful if the Minister set out some of the Government’s early thoughts about ways of ensuring that the Bill does not provide more opportunities for the exploitation of transfer-pricing and profit-shifting rules.
There was much talk of the dependence of the Northern Ireland economy on the public sector, but, as the hon. Member for Belfast East (Naomi Long) rightly observed, the private sector in Northern Ireland is also heavily dependent on public sector contracts. That is one of the systemic issues with which we shall need to get to grips if we are to achieve a true rebalancing of Northern Ireland’s economy.
The hon. Member for Amber Valley (Nigel Mills) highlighted some technical details to which I hope the Minister will return, probably in Committee rather than today. He spoke of the interplay between the behavioural change among businesses responding to what will potentially be a much lower corporation tax rate and other changes that the Government envisage, particularly in relation to the diverted profits tax.
The hon. Members for Upper Bann (David Simpson) and for South Down (Ms Ritchie) made powerful points about the importance of encouraging more young people in Northern Ireland to stay there, because they are the future of Northern Ireland. The hon. Member for Strangford (Jim Shannon) rounded off the debate very well by pointing out that, while businesses are very much in favour of the measure, we must ensure that the reform delivers for the whole of Northern Ireland and that the benefits are shared throughout the population.
As the shadow Secretary of State said, peace and stability in Northern Ireland are inextricably linked with the increased economic and social progress that Northern Ireland needs. There is an interdependence between the economy and the peace process. I think that there is consensus in the House that if the peace process is to thrive, Northern Ireland will need more private sector growth and investment as part of a long-term rebalancing of its economy. It has long been argued by some that devolution of corporation tax to Northern Ireland so that it can ultimately set a lower rate in order to compete with the Republic—given the sharing of a land border—would enable Northern Ireland’s economy to be rebalanced more quickly, and would lead to sustained economic growth.
Labour Members are committed to supporting measures that increase inward investment in Northern Ireland and support the rebalancing of its economy, and we acknowledge that the devolution of corporation tax could play an important role in the achievement of those objectives. However, as I said earlier, it will require a trade-off between corporation tax reductions and spending cuts. It is important for us to give proper consideration to the long-term as well as the short-term implications for Northern Ireland and for the United Kingdom as a whole. We agree that the 2017 timetable set out in the Stormont House agreement allows time for that consideration, and we will not oppose the Bill. We will co-operate with the Government to ensure that it can be scrutinised appropriately and dealt with speedily during the current Parliament.
The Bill will devolve the rate-setting power for corporation tax in Northern Ireland to the Northern Ireland Assembly for trading profits only, and subject to a commencement order. It will devolve the power to set a corporation tax rate, but will not devolve control of the base. The Northern Ireland rate would apply to all the trading profits of a company if that company was a micro, small or medium-sized enterprise, and if the company’s employee time and costs fell largely in Northern Ireland. In that context, “largely” is defined as at least 75%. In the case of large companies, the rate would apply only to profits that are attributable to a Northern Ireland trading presence. The Northern Ireland Assembly will not be able to set the rate for non-trading profits, such as income from property.
Earlier in the debate, I asked the Secretary of State if she had taken any advice or guidance about what level of corporation tax Northern Ireland should consider. Does the Opposition spokesman have any view on that? Indeed, is the current inquiry set up by the Labour party in Northern Ireland even considering that?
I am afraid that on this occasion I must give the hon. Gentleman a similar answer to that from the Secretary of State. This Bill is looking at the devolution of this power. It is not for me to say to the Northern Ireland Executive, or Northern Ireland politicians of any description, what that rate should be. Once this Bill passes and we hit the 2017 timetable, that will be a matter for the representatives in Northern Ireland and nobody else.
There are a number of issues, and they have been touched on by Members. We all need to consider them deeply as this progresses both through the House and in the further discussions that will take place as a result of the Stormont House agreement.
First, as has been said, the impact of the Azores decision is important. The devolution of corporation tax needs to be done in a way that ensures it is not caught by EU rules on state aid. In order to meet the third of the three conditions set out in that judgment regarding fiscal autonomy, the Northern Ireland Executive would need to bear the full fiscal consequences of changes in tax revenues resulting from a new corporation tax rate so the block grant would be adjusted to reflect the fiscal costs of a reduction in the corporation tax rate. That is an important issue, and we heard from the hon. Member for South Down about amendments she and her colleagues might want to introduce to address the impact and the modelling behind how some aspects of that would work in practice. There will be a trade-off with public spending cuts and some difficult choices will therefore have to be made, and it is important that those impacts are fully considered and thought through, particularly because, as I said earlier, even the private sector in Northern Ireland is highly dependent at this stage on Government contracts.
The £300 million adjustment that might be required is a burden that may well increase if Northern Ireland were to have a much lower corporation tax rate that then increased the cost and the offsetting from the block grant. The hon. Member for East Antrim asked some questions about the formula that will be imposed in order to calculate the forgone tax by the rest of the UK. It would be helpful to have some clarification from the Financial Secretary on how that formula will operate in practice. I am sure we will address the detail in Committee, but we would like an outline of his thinking now.
Conditionality is attached to the Stormont House agreement. The financial annex adds conditionality to the progress of this Bill, in order to ensure that any changes are fiscally sustainable, stating that there must be
“a clear commitment to put the Executive’s finances on a permanently sustainable footing for the future.”
The Secretary of State did not in her opening speech labour too much the issue of putting the Executive’s finances on a stable footing for the future. There is some detail in the financial annex to the agreement, but that is an important condition that has not necessarily been well ventilated in the debate we have had thus far. Again, however, I am sure we will return to that issue in Committee.
Many Members highlighted the fact that the headline rate of corporation tax is not a panacea. It does not in and of itself result automatically in economic growth, and it was only one of a number of reasons, as many commentators and academics have said, why the Republic of Ireland experienced its economic miracle from the mid-’90s onwards. None of us in this House should see it as a panacea. Investment in skills in particular is just as important, as is investment in infrastructure and, as Members have said, looking at planning rules. All these issues will be crucial. It would be a mistake to think that Northern Ireland’s economy will automatically rebalance just because it has a lower rate of corporation tax—a rate more on a par with that in the Republic of Ireland. That alone will not achieve what we all want, which is a thriving and growing Northern Ireland economy. Other changes will be needed, and it would be helpful to hear from the Financial Secretary the Government’s thinking on some of them.
We have talked a lot about corporation tax not being the only way to achieve economic rebalancing, but as the hon. Member for South Down pointed out, the Institute for Fiscal Studies said in its 2013 green budget that it is a tax which, over time, can vary substantially in revenue terms, and much more so than total receipts from national income. We will need to hear more about how the volatility of corporation tax might impact on the Northern Ireland economy, and particularly about any modelling the Treasury has done on its impact on Northern Ireland’s finances.
As I have said, we recognise that there are potential gains for the people of Northern Ireland from this measure. However, we want responsibly to consider and ventilate the risks it also poses, which we will carefully scrutinise as we progress. We will also carefully consider anti-avoidance measures, to ensure that the Bill does not simply become an opportunity for businesses to brass-plate and base themselves in Northern Ireland, with no other economic benefits for the people of Northern Ireland. I look forward to the debate in Committee.
We have had a helpful and wide-ranging debate on a Bill that will allow the Northern Ireland Assembly to set a different rate of corporation tax from the rest of the United Kingdom, and enable Northern Ireland to encourage genuine investment that will create jobs and growth. It will help rebalance the Northern Ireland economy away from dependence on the public sector, and I welcome the support it has received from all parts of the House. Representatives of six different political parties have spoken in support of it. That mirrors the support received beyond this Chamber—from businesses in Northern Ireland that have long argued for this reform, and we are delighted to have introduced it.
The debate has been relatively lengthy and many contributions were made. I am conscious that there is a further debate to follow, so I am a little constrained by time, but let me see if I can address most of the points that were raised.
I thank the shadow Secretary of State, the hon. Member for Bury South (Mr Lewis), and the hon. Member for Birmingham, Ladywood (Shabana Mahmood) for their support. I think it fair to say that Labour has been somewhat sceptical about devolution of corporation tax. The shadow Secretary of State challenged my right hon. Friend the Secretary of State on the question of when they expressed opposition to it. I am tempted to quote the right hon. Member for St Helens South and Whiston (Mr Woodward), who said at the 2011 Labour party conference that the proposal to cut corporation tax was “a huge gamble” that
“risks making a bad situation worse.”
He urged the then Secretary of State to
“think twice before he leaps.”
To be fair, such scepticism is consistent with Labour’s general position on corporation tax. Whereas the two parties in this Government have cut corporation tax in this country, and five parties in Northern Ireland want to cut corporation tax there, Labour wants to increase the rate across the UK. Whether it is comfortable positioning itself to the left of Sinn Fein on this matter I am really not sure, but that is where it is.
I hesitate, Madam Deputy Speaker, to stray too far from the terms of the Bill, but the Financial Secretary is well aware that our manifesto commitment is to raise the headline rate of corporation tax from 20% to 21% and to put every single penny of that money towards a cut and then a freeze in business rates, which will primarily benefit small and medium-sized businesses. Will he at least acknowledge that that is a business-friendly measure?
The sense of direction in increasing corporation tax would be a mistake. I will not detain the House for long on this matter, but I also note that Labour’s pledge is to have the lowest corporation tax rate in the G7, which would allow it to increase corporation tax to 26%. That would be a major reversal of the progress made by this Government. However, I am sure you would like me to return to the issue of Northern Ireland, Madam Deputy Speaker.
Let me add my tribute to those that have made to my right hon. Friend the Member for North Shropshire (Mr Paterson). Having worked with him in opposition and in government on this policy, I can testify to the vision, tenacity and infectious enthusiasm he has shown. He demonstrates, as does this Bill, what can be achieved by a Minister with his determination and vision, and he deserves much of the credit for the progress that has been made. He also rightly paid tribute to the current Secretary of State, who has demonstrated great skill in making progress on this matter. He put a lot of the momentum into the process, but it has also required her talents to bring us to this point.
The hon. Member for East Antrim (Sammy Wilson) made an excellent speech about the history of this progress. He and I have had many conversations and meetings on this matter. He described the progress by saying that we would go forward a bit and then back a bit, and that at times it was frustrating. I can tell him that I shared that experience, but he made a good case for the progress we have made. He also made an important point about the Republic of Ireland’s resistance to raising corporation tax at times when it faced great financial difficulties. That point was also made by my hon. Friend the Member for Tewkesbury (Mr Robertson), the Chair of the Northern Ireland Affairs Committee, who described how important it was to the Republic of Ireland to maintain low rates of corporation tax and to grow the private sector.
My hon. Friend made a couple of other points that I wish to address. He mentioned timing and said it would take a couple of years before this measure comes into effect. As has been said by a number of hon. Members, it is important that we set a sense of direction so that businesses can see where things are going in future years, but it takes some time to implement a change of this sort. Therefore, the 2017 timetable is as fast as is realistic. He also asked whether we should have the Committee stage on the Floor of the House or upstairs. That is largely a matter for the usual channels, but given that we want to make progress as quickly as possible and that a limited amount of time is left in this Parliament, it is right that we take every opportunity to make progress on this as quickly as we can. The fastest and easiest way of doing that is by holding the Committee stage, which will involve detailed scrutiny of some 87 pages of legislation, upstairs.
The hon. Member for Foyle (Mark Durkan) rightly made the point, as did a number of other hon. Members, that other issues will drive growth and this measure should not been seen as a silver bullet. He also said we should not create a new twilight zone where businesses and individuals can play the tax system to their benefit, and I will deal with that briefly in a moment. My hon. Friend the Member for Redcar (Ian Swales) made similar points about tax avoidance and also mentioned the impact of this measure on the UK more widely, and I will deal with that in a moment also.
The hon. Member for Belfast East (Naomi Long) made an excellent speech. A couple of points worth highlighting are the need for Northern Ireland to get its financial house in order and to have sustainable public finances, something that is well recognised, and the fact that political stability is important for providing the environment for economic growth in Northern Ireland. I agree with her on that.
My hon. Friend the Member for Amber Valley (Nigel Mills) brought his technical expertise to this debate. He raised a number of points that are probably best addressed in Committee. I do not know whether he was making an application to serve on that Committee, but he certainly raised a number of important points.
The hon. Member for Upper Bann (David Simpson) talked about grasping the opportunity to help economic growth in Northern Ireland. The hon. Member for South Down (Ms Ritchie) made a similar point. She also highlighted other matters, and talked about how to help the Northern Ireland economy. She asked about our engagement with the Northern Ireland Executive. I can assure her that, over the course of many years, there has been significant engagement, that the Northern Ireland Executive have been involved in discussions on the joint ministerial working group and the subsequent design process, and that we have kept the Northern Ireland Executive informed of progress in the design of legislation and taken their views into account when agreeing the final design. There have also been regular discussions at official level between the Executive, Her Majesty’s Revenue and Customs and the Treasury. I am grateful to the Executive for their co-operative approach at ministerial and official level, and that engagement is continuing.
To conclude the debate, the hon. Member for Strangford (Jim Shannon) also highlighted additional challenges that Northern Ireland faces, including improving the planning system and ensuring that the skills base and education system is working for Northern Ireland, and all of those were good points.
Let me pick up on a few of the issues to emerge from the debate. The most significant point, which was raised on a number of occasions, was ensuring that this is about real economic activity. This is not about profit shifting or a brass plate. I can assure the House that we very much share that view. This is not about finding a way in which companies can reduce their tax base through contrived or artificial arrangements, but about encouraging jobs and growth in Northern Ireland. We will ensure that HMRC has the capacity to deal with these matters. For example, when dealing with transfer pricing matters, HMRC will have a risk-based approach to ensure that the system works, so that we do not see the type of activity that so concerns Members.
On the subject of HMRC capacity, I know the Minister is talking mainly about its powers and where it is sited, but has any thought been given to the regional capacity that it will need in relation to these new discrete considerations that will apply in Northern Ireland, because that might lead to a revision of HMRC’s projection for its staff needs in Northern Ireland?
The important issue here—it was also a point raised by my hon. Friend the Member for Redcar—is ensuring that there is the capacity to deal with the transfer pricing issues. Transfer pricing is a highly skilled and specialised discipline within HMRC. It is important that the transfer pricing team has the capacity to deal with those matters. That is best done on a centralised basis rather than having people dispersed around the United Kingdom. The hon. Gentleman and I have had many conversations over a number of years on the issue of HMRC’s presence in Northern Ireland. Let me stress that this is a matter of ensuring that we have the right skills, that the customer relationship managers work closely with businesses and that there is a good understanding of how this differential rate will work and be applied.
It is worth pointing out that it will not be possible for companies to set up a brass plate to benefit from a lower rate in Northern Ireland. The rules require a permanent physical presence in Northern Ireland and, more fundamentally, a calculation of Northern Ireland’s trading profits based on the profits that the Northern Ireland activity would have made as a stand-alone entity. That separate enterprise approach coupled with the exclusion of investment profits from the Northern Ireland regime should ensure that common international tax avoidance arrangements cannot be replicated within the Northern Ireland regime. As a Government we have a proud record of progressing the international debate on the issue, and we are not going to allow an opportunity for abuse in our system.
On the block grant adjustment, the Stormont House agreement sets out that the block grant will be reduced to reflect the tax revenues forgone by the UK Government as a result of devolving tax powers. We will continue to work with the Northern Ireland Executive on the detailed mechanics to ensure that the Northern Ireland block grant is reduced appropriately. The reduction will depend on the rate that is set by the Northern Ireland Executive. To answer a point made by my hon. Friend the Member for Redcar, there are no particular restrictions on that. Conceivably, it could be a 0% rate, but that would have to be paid for and it would be expensive. An estimate of the cost to the Northern Ireland Executive of a 12.5% rate is in the region of £300 million by 2019-20, which is when the steady state will be in place. That will depend on a number of factors, not least the growth of the economy.
I am conscious of time and the fact that there is another debate to be had, but let me conclude by saying that there is a strong case for action in this area. The Northern Ireland economy is significantly more dependent on the public sector than the rest of the UK, with about 30% of workers employed there, compared with about 20% in the rest of the UK. The Northern Ireland corporation tax rate of 21% has to compete with the rate in the Republic of Ireland of 12.5%. If corporation tax is lowered in Northern Ireland, about 34,000 businesses in Northern Ireland stand to benefit, including 26,500 small and medium-sized enterprises.
The Northern Ireland Executive will have greater power to rebalance the economy towards a stronger private sector, boosting employment and growth. Northern Ireland will attract more investment and become more competitive, boosting the entire UK economy and the standard of living of people across Northern Ireland. The Bill is conditional on the Northern Ireland Executive continuing to work to balance Northern Ireland’s budget to ensure that people across the UK can benefit from the stronger economy and fairer society that this Government have been building. I hope that the House will give the Bill a Second Reading, and that we have the support of the whole House.
Question put and agreed to.
Bill accordingly read a second time.
Corporation Tax (Northern Ireland) Bill (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Corporation Tax (Northern Ireland) Bill:
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 12 February 2015.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Consideration and Third Reading
(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.
(7) Any other proceedings on the Bill (including any proceedings on consideration of any message from the Lords) may be programmed. —(Dr Thérèse Coffey.)
Question agreed to.
Corporation Tax (Northern Ireland) Bill (Ways and Means)
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Corporation Tax (Northern Ireland) Bill, it is expedient to authorise:
(1) any increase in charges to corporation tax by virtue of a resolution made by the Northern Ireland Assembly setting the Northern Ireland rate of corporation tax, and
(2) any increase in charges to corporation tax by virtue of the Act. —(Dr Thérèse Coffey.)
Question agreed to.
Business without Debate
INSURANCE BILL [Lords]
Motion made, and Question put forthwith (Standing Orders Nos. 59(3) and 90(5)), That the Bill be now read a Second time.—(Dr Thérèse Coffey.)
Question agreed to.
Bill accordingly read a Second time.
Motion made, and Question put forthwith (Standing Order No. 63(2)), That the Insurance Bill [Lords] be committed to a Committee of the whole House.—(Dr Thérèse Coffey.)
Question agreed to.
Motion made, and Question put forthwith (Standing Order No. 118(6)),
That the draft Misuse of Drugs Act 1971 (Amendment) Order 2015, which was laid before this House on 17 December 2014, be approved. —(Dr Thérèse Coffey.)
Question agreed to.
Young People in Care
I beg to move,
That this House notes the Second Report from the Education Committee, Into independence, not out of care: 16 plus care options, HC 259, and the Government’s response, HC 647; welcomes the progress made and the commitment to improve the care provided to these vulnerable young people shown in the Government’s response; regrets that the Government has not gone further by exploring with local authorities how to ban the use of bed-and-breakfast accommodation for this age group and by moving to inspect and regulate all accommodation provided to children in care; and calls on the Government to do all it can to improve the accommodation and care given to these young people.
The motion stands in my name and those of other members of the Education Committee, many of whom I see across the Chamber.
I am pleased to lead this debate and to have the opportunity to discuss our report, “Into independence, not out of care: 16 plus care options”. The reason we are here is that the issues considered in our report will have far-reaching consequences for some of the most vulnerable young people in our society. We were moved to inquire into this subject by our concern, raised during previous work on child protection, that the needs of older children in the care system were not being properly met. The horror stories we heard about children being placed in unsuitable and unsafe accommodation, often far from home, made it a matter of crucial importance for us to explore what could be done to improve the situation.
During the inquiry, we took evidence from charities and experts, from the Minister, whom it is a pleasure to see on the Front Bench, and from those closely involved in providing care services to young people but, as I think my colleagues will attest when they speak during the debate, the most important and powerful evidence we heard was from young people themselves who were in care or had previously been in care. We were grateful to those who were brave enough to come and speak to a bunch of MPs and speak about often troubling periods of their lives and about their experiences.
Our inquiry looked at the kinds of accommodation that are provided for young people aged 16 and 17 who are looked after by local authorities—young people still in care; the suitability, safety and regulatory nature of alternative accommodation; whether the “Staying Put” principle whereby young people are allowed to stay in their accommodation for a longer period should apply to those in residential children’s homes; and whether the provision of alternative accommodation should be extended to the age of 21. We made a series of recommendations in each of these areas, all of which are important and many of which were picked up by the Government response, which was published in October 2014. Others may wish to touch on some of those issues, such as “Staying Put” or ensuring that young people’s voices are heard in planning their care.
I hope the Minister will forgive me if I concentrate on two areas where we think the Government should have gone further towards making the changes that we want to see in order to deliver a vision which I know we share with the Government of improving care for these young people. In doing so, I stress the fact that as a Committee we do not doubt the Minister’s commitment to addressing the problems faced by older children in care, nor do I think that progress has not been made: it has.
For example, the new pupil premium plus has seen funding to support children in care at school increase by £1,000 per pupil. Children are covered as soon as they enter care and 10,000 more children in care now benefit, bringing the total to 50,000. The care leavers strategy that the Minister launched in late 2013, which encompasses action across a range of Departments, from the Department for Work and Pensions to housing to the Department for Business, Innovation and Skills, is giving care leavers a helping hand as they enter adult life. The Ofsted single inspection framework is doing a better job of drawing together data and insight into the lives of older young people and making sure that local authorities can be held to account for the provision that they give them. That is all good news.
Our disagreement today is over how fast we should now move towards tackling what my Committee sees as matters needing urgent attention: the regulation of accommodation provided to children in care, and the use of bed-and-breakfast accommodation for that age group. I shall start with bed and breakfasts. The Department for Education guidance says that bed-and-breakfast accommodation is not suitable.
One young person told us of being placed in a B and B as an emergency placement—I repeat, emergency placement—for three weeks. She was the only young person in the building and older residents would come knocking on her door asking her to join them in their rooms, which was an incredibly frightening experience. Imagine being that child, sitting behind the door, waiting for the next knock. For vulnerable young people, many of whom have self-esteem issues and who are desperate for love and attention, such an environment leaves them at the mercy of people who are keen to exploit their situation and weakness.
So why, we asked, is bed and breakfast still being used? We found that it is used mainly as emergency accommodation in cases where a young person needs shelter urgently and nothing else is available. At least, that is the reason we were given, although when we met young people as we travelled around the country we heard about people being kept there for a long time, such as the young lady I mentioned. It was argued that if the local authority did not have the option of using bed and breakfasts, then young people could be even worse off. In our report, we recommended that the Department consult local authorities in order to determine a reasonable time frame to allow them to build up capacity so that there could be a total ban on using B and Bs and they could follow the example of Wiltshire, for instance, which has built up a resource such that it does not need to use them. We also say that there should be a strengthened requirement for local authorities to commission sufficient emergency facilities.
In its response, the Department accepted our recommendation on temporary measures and asserted that there should be a limit of two working days on the time that a young person could spend in a B and B. That is welcome, but it still falls short of an outright ban. Many children enter B and B accommodation in an emergency on a Friday night, so the limit of two working days means that they could still be there on the Tuesday evening. The Government response said:
“We want to test further the arguments for and against the flexibility for local authorities to use B&B where it is the best way of meeting a young person’s needs. Over the coming months, the Department for Education will undertake work with stakeholders to better understand these issues.”
We welcome the seriousness with which the Government have taken this, but we do not think that is good enough. Young people are being failed now—as we speak—and no amount of stakeholder consultation will disguise that reality. I urge the Minister to set out what the DFE has learned from the consultation to date and when we can expect further action on this issue, with a view, in the opinion of my Committee, of moving towards an outright ban.
The other issue I want to raise is the regulation of “other arrangements” for looked-after 16 and 17-year-olds. Some Members unfamiliar with this area of policy many wonder what “other arrangements” are. They include placements in a family or domestic setting where the adults responsible for their care are not approved as foster carers; foyers, which are meant to offer integrated housing, learning and personal development services, and other kinds of supported accommodation; and placements in independent accommodation with “floating support” where housing support workers make regular visits—or are supposed to. Ofsted’s single inspection framework assesses the experiences and progress of care leavers through scrutinising a representative sample of 25 tracked cases. Individual properties or settings are not inspected. That would not be an acceptable approach towards other settings, and it should not be acceptable for the accommodation in which some of the most vulnerable, abused young people in our society are placed.
We therefore recommended that the DFE consult on a framework of individual regulatory oversight for all accommodation that falls within “other arrangements” to ensure suitability, while allowing for diversity of provision. Many will ask why, as a Conservative, I am so keen on regulation. I, and my Committee, think that children who are as vulnerable as these young people—they may have learned to have a very tough exterior, or a streetwise front, but are in fact deeply vulnerable—deserve to have their accommodation individually inspected to ensure that the injustice they have suffered so far in their lives is not compounded further by a failure of oversight by those in loco parentis, namely us.
Ministers said that they wanted to maintain what they described as the “flexibility” of current arrangements, emphasising that they will hold under-performing local authorities to account when poor practice is uncovered. However, that logic is not applied to the quality and safety of settings for children and young people across the rest of the DFE’s remit. If there were a consistent approach in saying that a sample approach delivers better outcomes, one would expect that to be found across the piece, but it is not. Childminders, foster carers, residential children’s homes, secure training centres, schools, sixth-form colleges and further education colleges—each of those is individually inspected. It cannot be right that we do not do the same for the accommodation of 16 and 17-year-olds who have had an extremely tough start in life. As a society, we owe them that.
I ask the Minister to think again, or at least to explain why he believes that a new regulatory framework will not lead to the improvements in quality that we have seen in other settings that are individually regulated by Ofsted. I know that he cares deeply in both a personal and a professional capacity about making improvements. I hope that I have fairly stated that I recognise that the Government and the Minister have made significant strides in improving outcomes for such young people. He has done a lot of great work, and I sincerely hope that he will now take further steps to ensure that young people on the cusp of leaving the care system get a fairer, safer start in life.
It is a pleasure to follow the Chairman of the Education Committee, the hon. Member for Beverley and Holderness (Mr Stuart), who provided a very good summary and analysis of our report.
Like other Committee members, the hon. Gentleman will have heard from or met those from the Alliance for Children in Care and Care Leavers. They have given me a copy of their requests for inclusion in the manifestos of all parties. One of their points is that the average age at which young people leave home is 24; yet young people leave care at 18 and, sadly, it is often earlier—at 16 or 17—for the most vulnerable and disadvantaged children or young people in our society. As the Chairman of the Committee said very well, they are the group most in need of support, but we expect them to fend for themselves and to go into independent living.
The point about the difference in treatment at different ages and the way in which we, as supposed corporate parents, allow that to happen, says everything we need to know in summary, and the detail has now been published in our report. The life chances of children in care—whether in education, employment, relationships or housing—are all significantly lower than for other people in society. For example, many of the prison population were in care as children, and 60% of children in care have some kind of mental health problem.
The young people we met told us their stories, as do those who have met other Members at other times. Our report shows that leaving care is one of the key stages in their lives. It is very often a harsh cut-off date, whereas other young people usually have no arbitrary leaving date. Many young people go away and come back, so they leave home over a period; some parents would say that their young people never leave, as is sometimes their experience. However, that is not the case for this group of particularly vulnerable young people, so our recommendations are important.
Our chapter on “Staying Put” gives the figures for those who leave care as 16 and 17-year-olds, and for those who leave on their 18th birthday. A remarkably high number—in the thousands—leave care before they are 18, and many more do so on their 18th birthday, when they are no longer regarded as looked-after children. The questions we want to pose to Ministers and, for that matter, potential Ministers are: is everything being done to ensure that children do not have to leave care if they do not want to, and do local authorities and others apply pressure to get young people to leave? I have heard such a point more than once, and we refer to the financial pressures in our report’s conclusion, where we recognise the resource constraints in relation to the difficulty of extending “Staying Put” arrangements in residential homes.
One of the witnesses who gave evidence to the Committee was Ben Ashcroft, the author of “51 Moves”. He is involved in a campaign to extend residential care to the age of 21, which is as it should be. If as a society we have accepted that it is right for young people to stay in foster care until they are 21, it should be the same for those in residential care. As our report says:
“the young people in question have already experienced troubled and disrupted childhoods and are far too important for their welfare not to be prioritised.”
If we are serious about ensuring that support is available, we need to ensure that local authorities have the money. My council has lost more than 40% of its funding since 2010 and many other local authorities find themselves in that situation. If this Government or any future Government are serious about making a difference for these vulnerable young people and children, they, as well as local authorities, need to ensure that the resources are available. If that does not happen, we will continue to spend far more in later years on looking after the adults that the children and young people become, whether through the high cost of prison, the benefits system or mental health care.
If we are talking about finding extra money to fund the long-term solutions that our report suggests, has the time come to consider which Departments or budgets it will come from? The justice budget and the health budget are two possibilities, but the housing budget, the Department for Work and Pensions budget and the education budget also spring readily to mind.
As we heard from the young people we met and as other young people have told me, when young people leave care, they are often leaving a situation where everything is done for them, with little preparation for having to look after themselves. All too often, they have no concept of how to pay the rent or other bills, how to shop or cook, or how to get education or work. It is no wonder that so many of them end up struggling. A third of young people who leave care end up homeless between six and 24 months afterwards. That is a staggeringly high proportion.
Does the hon. Gentleman agree that a percentage of young people leave care homes not because they are forced to do so, but because of difficulties that they experience in their lives? Such young people become vulnerable and can then be trafficked and cannot be found again.
The hon. Gentleman is absolutely right. He is talking about people who leave residential care. The Committee came across evidence of that during our inquiry on residential care and I suggest that he reads the report. It is worrying that society loses track of such a high number of young people.
In this inquiry, we found a clear need for action, whether by doing better with existing resources, providing extra resources or both.
Further to the question from the hon. Member for Upper Bann (David Simpson), we recommended in this report that there should be greater awareness of the right of young people who leave care and get into difficulty to come back into care. The Government said that they would look into that more closely. Perhaps the Minister will reflect on that in his remarks and let us all know what progress has been made.
I thank the hon. Gentleman for making that point. He is absolutely right.
We made recommendations about better preparation for young people who are leaving care, including through the development of life skills. We highlighted a number of areas where support was crucial, based on the evidence that was presented to us.
The concept of instant adulthood has been raised with me. It describes the sudden change in the lives of people who have been very much looked after and who have had everything done for them and everything provided for them. It describes how corporate parenting is not working in the way we would expect for this group of young people. The concept of corporate parenting had been used as a way of identifying how we should look after such young people.
A point that has been made to me is that young people must value the support that they receive. It is not good enough for the authorities to describe what type of support should be available and who should provide it. Young people often have relationships with those they do not necessarily want supporting them, whether a social worker or somebody else they come across while they are in care. It is really important to listen to young people in deciding who is best placed to provide support for them. It is a matter of trust—I have heard that word mentioned a number of times.
I refer the House to my entry in the Register of Members’ Financial Interests.
The hon. Gentleman is talking about the “Maintaining positive relationships” part of the Select Committee’s report, which I thought was interesting. It mentions how we can do better with personal advisers, but it also refers to sibling groups. Does he share my concern that a report issued today by the Family Rights Group shows that half of all sibling groups are split up in foster care? Does he think that more could be done, as those children leave care, to re-establish relationships with other family members that have been denied them in the care system? That could prove important in anchoring them and giving them stability, so that they can move into adulthood with trusted relatives.
I am extremely grateful to the hon. Gentleman for making that point. As an adoptive parent of a sibling group, some of whom are still in care, I know from experience that that is incredibly important to my own children. He hits the nail on the head—sibling groups should be kept together wherever possible, and every effort should be made to keep siblings in touch while they are in care and into adulthood. As he says, we touch on that in the report. Such relationships can really help young people as they leave care and move into adulthood. What came out strongly in the evidence that we took, and in the evidence that I got from elsewhere, was the importance of a young person having someone to advise and support them, whether it is a sibling group, a friend, a trusted professional adviser or the parent of a friend.
I have had some good information provided to me by Barnardo’s, with examples of what goes on. It says that there are a number of examples of good practice around the country. The Chairman of the Education Committee mentioned what goes on in Wiltshire, and I am aware of good practice by Barnardo’s in Merseyside, for example, where it provides support not just for care leavers but for other young people in the same age group.
Barnardo’s also gave me examples of nightstop, crash pads, supported lodgings and supported housing projects. Crash pads are short-term emergency supported lodgings. They are temporary forms of family-based accommodation, with placements lasting up to eight weeks. They provide specialist support to young people who need somewhere to live on a short-term basis.
Supported lodgings provide family-based support to vulnerable young people aged 16 to 25 who cannot live with their own family and are not yet ready for independent living. Young people are provided with places to live in the homes of local people, from whom they receive varying levels of practical and emotional support, enabling them to develop the confidence and capability to live independently. Young people normally stay in supported lodgings for up to two years, but they can also be used to provide shorter-term emergency housing.
Supported housing projects offer high levels of support to young people for up to two years, although some have a small number of emergency beds available at short notice for a few days at a time. They tend to house a group of young people with more complex needs, and they usually have 24/7 on-site support from staff.
I give those examples to address the point made by the Chairman of the Committee about emergency accommodation—what is sometimes called bed and breakfast. Some of those examples are from Barnardo’s and other providers. I hope that the Minister and shadow Minister will look at what is out there already, because if we are to provide the range of alternatives that our report calls for, we should learn from good practice and share and apply it, so that—in the shortest possible time—better opportunities are available for this group of young people. I hope that the Minister will take my comments on board and perhaps respond when he winds up the debate.
As has already been said, our report made recommendations on bed-and-breakfast accommodation, on staying closer and on the regulation of all external accommodation—to name but a few. The recommendation I wish to discuss today is on the lack of “Staying Put” arrangements for the 9% of our young people—some would argue that they are the most vulnerable 9%—in residential care homes.
First, let me remind the House of some of statistics about these vulnerable young people, our nation’s 70,000 looked-after children. Everybody will surely agree that this country’s record in helping that most vulnerable group when they leave care has been nothing short of appalling in the past. Of the 7,000 19-year-olds who were in care at 16, 36% were not in education, employment or training and only 6% of all care leavers are in higher education, compared with 43% of their peers. Less than 26% of children in care obtain five good grades at GCSE, compared with more than 70% of their peers, and 23% of the adult population in our jails have had experience of the care system. Around a quarter of those living on the streets have a care background and care leavers are four or five times more likely to commit suicide. About 47% of looked-after children aged between five and 17 show signs of psychosocial adversity and psychiatric disorders, which is higher than the most disadvantaged children living in private households. Physical and mental problems also increase at the time of leaving care.
As we know—the Chairman of the Committee mentioned it in his speech—and to the Government’s huge credit, they have allowed young people who are fostered to remain with their carers until they are 21, if they wish, if their carers agree and if it is considered to be in their best interests. That is in an attempt to address the many serious challenges care leavers face. All young people in foster care are offered enhanced support up to the age of 21. For young people in foster care, that is one of the biggest and most fundamental changes to their support when they leave care, and it has been widely applauded as a significant change in the right direction for that group of young people.
The big scandal, however, is that the extension to foster placements excludes the 9% of young people in care who are in children’s homes. Those young people have a wide range of needs and challenges. What most have in common is that they are vulnerable. That vulnerability is exacerbated by the stigma attached to residential care among politicians, the public and, sadly, some in the social work profession. Ministers appear to see living in a family as the best option for children in care and the only setting in which children will thrive. That is not reflected by some social workers, who see children’s homes as the last resort, as a place for children who have failed family placements and as somewhere the more challenging young people can be placed. Many of the public see children’s homes as places where naughty children are sent. Historically that view was compounded by some local authorities who used children’s homes to accommodate their more challenging young people.
The Education Committee’s recommendation was that young people living in residential children’s homes should have the right to remain there beyond the age of 18, just as young people in foster care now have the right of staying put until the age of 21. We recommend that the Department for Education extends “Staying Put” to residential children’s homes.
Despite the evidence taken in our inquiry, the Government do not agree. They said that too many children’s homes are not of sufficient quality and that the immediate priority is to improve significantly the quality of residential care. To be fair to the Government, they are doing that. They said that the evidence for placing such a duty on supporting the “Staying Put” arrangements for young people in foster care is robust. We do not have the evidence for children’s homes, as they were not covered by the plans.
The Government said that there are a number of practical and legal issues we would need to consider and test out. There would be vulnerable adults living in homes with much younger vulnerable children—despite the fact that that happens in many households throughout Britain. In addition, a children’s home accommodating three care leaders and one child would technically no longer be a children’s home. The Government also mentioned money, and that has to be taken into consideration, particularly in these economic times.
None the less, the Department recognised that those challenges should not be viewed as insurmountable barriers. It said it was working in collaboration with charities to consider some of the issues associated with “Staying Put” and residential children’s homes. Natasha Finlayson, from the Who Cares? Trust, confirmed that that work was in progress. The Minister confirmed all that nearly a year ago, when I secured an Adjournment debate on this very issue.
In fact, a scoping report was requested from the Minister from a collaboration between the National Children’s Bureau, the Who Cares? Trust, Action for Children, Barnardo’s, Together Trust, the Centre for Child and Family Research, and Loughborough university. Their work was published only yesterday, after a year of working on the scoping exercise. A stakeholder workshop identified four different options for residential care “Staying Put” arrangements, which formed the basis of a consultation with young people. Overall, the scoping exercise showed that care leavers from residential homes would prefer to have options, rather than a one-size-fits-all approach.
My hon. Friend is making a good case for what is a very difficult solution for kids in residential care homes, but does he not recognise that the “Staying Put” exercise is largely staying put with carers, which is more easily achieved through foster care, for example? In residential homes, workers tend to move on. Indeed, the average stay in residential homes is rather short, so there is not that attachment. Would it therefore not be better to try to establish options, which he is now describing, that form links with foster carers and others to give a proper bonding and link with advice and support, which one does not get from an attachment to a building that is a residential care home? That is rather different to a foster care relationship, which the young person will have been in for many years in many cases.