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Oral Answers to Questions

Volume 601: debated on Tuesday 27 October 2015


The Chancellor of the Exchequer was asked—

Tax Credits

1. What assessment he has made of the potential effect of proposed changes to tax credits on child poverty. (901797)

2. What estimate he has made of the administrative cost of proposed reforms to tax credits announced in the summer Budget 2015. (901798)

4. If he will bring forward transitional provisions for the proposed changes to the tax credits system. (901800)

Last night, unelected Labour and Liberal peers voted down the financial measure on tax credits approved by this elected House of Commons. That raises clear constitutional issues that we will deal with. We will continue to reform tax credits and save the money needed so that Britain lives within its means, while at the same time lessening the impact on families during the transition. I will set out these plans in the autumn statement. We remain as determined as ever to build the low tax, low welfare, high wage economy that Britain needs and the British people want to see.

Six thousand, eight hundred children in South Shields are growing up in families who rely on tax credits. One of my constituents told me, “Tax credits at the moment only just make it possible for families to feed and clothe their children as it is. If this Government keep making cuts on those of us who are lowest paid we may just give up hope.” The public, the experts, some of the Chancellor’s own MPs and the other place all agree that his plans will victimise working parents and their children, so will he please give my constituents some hope and shelve these ridiculous tax credit cuts?

We will give the hon. Lady’s constituents, and indeed the constituents we all represent in this House, support by continuing to deliver economic security in this country—economic security that has seen unemployment fall in her constituency by 44% since 2010. One of the ways we deliver economic security is by controlling our welfare bill and making sure this country lives within its means. That is what we will continue to do.

The Chancellor has singularly failed to listen to the SNP and to this House when we have said that he needs to think again about tax credits. He sounds like he is keener on dealing with peers than on listening to them, so how about he listens to the people and just drops these tax credit plans once and for all?

This House of Commons voted three times for the changes that were rejected by the House of Lords. I am sure that we look forward to the support of the Scottish National party on that constitutional question. I would make this point to the hon. Lady’s constituents: we need to have a welfare system that works. We need to move to a lower welfare, higher wage economy. We do that by introducing the national living wage and having a welfare bill that the country can afford. That is the best thing we can do for the security of the people she represents.

If the Chancellor had listened to the evidence from the outset, he would not be in this mess. If his Back Benchers had voted with their consciences, there would be an alignment of opinion between this House and the other place. Instead of manufacturing a phoney constitutional crisis, why will he not put his toys back in the pram and appreciate that he needs to go back to the drawing board with his failed policy that hits working people the hardest?

We will deliver the welfare savings that we were elected to deliver in this Parliament. We will help people in the transition to that lower welfare, higher wage economy. I remember a time when the Labour party used to support moving from welfare to work; it has entirely abandoned that approach. We will be the party that stands up for working people, and working people need controlled welfare and a country that lives within its means.

Does the Chancellor agree that whatever our views may be in this House on the tax credit dispute, in overturning the settled will of the elected Chamber, the unelected Lords has exercised the powers of a Chamber of Parliament in the tax area, whereas for at least 100 years it has been well established that it has, and should have, only the legitimacy of a consultative assembly?

The Chair of the Treasury Committee makes an important point. Of course, on only five occasions in recent decades has the House of Lords blocked or rejected a statutory instrument, but never on a financial matter. We heard a whole range of opinions yesterday—from Lord Butler, the former Cabinet Secretary, to constitutional experts such as Vernon Bogdanor—telling us that this was unprecedented. We are going to have to address it—the Prime Minister has made that very clear. That is what we have to do to make sure that the elected House of Commons is responsible for the tax-and-spend decisions that affect the people of this country.

I have written to the Chancellor about a lady in my constituency, Stacey, to whom I have talked at length. She earns only £11,000 a year and says that £31 a week is being cut from her budget. I know that the Chancellor will meet me to discuss that. Surely the point is that we should have the conversations here, and he will listen, and that ultimately we will be held responsible and chucked out. What is not right is that unelected people, who never have to stand again, should decide how the people are taxed and how we spend our money.

I agree with my hon. Friend on the constitutional point, which is a matter that the whole House of Commons will want to address. I take very seriously the point he raises about his constituent. I have made it clear that we will listen with regard to how we make the transition to a lower welfare, higher wage economy. When we introduced controversial welfare changes in the last Parliament, such as the removal of child benefit from higher earners and the introduction of the welfare cap, we made changes, having listened to Parliament, to smooth the transition to both those important reforms. Of course we will listen to the House of Commons in this respect, but the end goal is clear: this country cannot have an unlimited welfare budget that squeezes out other areas of public expenditure. We cannot have a situation whereby we have 1% of the world’s population and 4% of the world’s economy, but 7% of the world’s welfare budget.

May I urge the Chancellor to stick to his guns on tax credits? Gordon Brown spent billions of pounds he did not have on tax credits, to try to buy votes at the 2010 election. Does the Chancellor agree that there is no painless way out of huge debt and that people would do well to remember that before they ever elect a free-spending Labour Government again?

I completely agree with my hon. Friend. Spending on tax credits went up three times during the last Labour Government, yet working poverty increased during that period. In other words, it had completely the opposite effect from that intended. The people who suffer when the country loses control of its public finances are, indeed, the low paid. They are the people who get turned out of work. It is not the richest in the country or the trade union barons who lose their jobs when that happens; it is the poorest in the country. What we can deliver for them is economic security. So, yes, we will listen on the transition, but we are determined to deliver controlled welfare and economic security for the working people of this country.

The Children’s Society estimates that 10,000 children living in 5,100 families in Rotherham will be punished by the tax credit changes. What transitional provisions will the Chancellor put in place to support them?

I will set out at the autumn statement how we make sure that we smooth the transition to the lower welfare, higher wage economy that the people of Rotherham and the rest of the country want. We have to make choices in this country. Are we prepared to see our country decline, our budget go out of control and jobs lost, or do we want to continue delivering the economic security that sees a record number of people in work and that has seen employment increase in Rotherham?

The average taxpayer in this country now pays £2,000 a year in extra tax just because of the Government’s debt interest payments. Is not it time that we saw that debt tax on this country’s payslips, so that those who believe they can spend with impunity, including the unelected Chamber, recognise the cost it will provide to future generations?

My right hon. Friend is quite right to call it a debt tax. Indeed, one of the largest items of Government spending is paying the creditors we owe, who fund our national debt. That crowds out the spending that we could be putting into our education and transport systems. We have, of course, taken forward an innovation proposed by a Government Back Bencher in the last Parliament, and we now send a tax statement to every taxpayer so that they can see how much we spend on debt interest and how urgent it is that we remove this deficit and reject those who want to borrow forever.

On the constitutional point, will the Chancellor read out the specific sentence in the Conservative party manifesto where he promised he would cut tax credits?

I am very glad that the hon. Gentleman has a copy of the Conservative manifesto. It is an excellent document, which says we are going to deliver better schools for people, we are going to put more money into the national health service for people, we are going to invest in transport for people and we are going to make £12 billion of welfare savings.

It is good to see the Chancellor in listening mode. There is another group that can assist practically but which we are not talking about—companies. Are our companies in listening mode about the measures that they can take in moving their employees to the national living wage much more rapidly? What can the Chancellor say about what they are doing to help on this issue?

My hon. Friend makes a very important point. The savings we make in welfare are part of a package that includes a national living wage. Although the national living wage starts to come in next year, over 200 major companies—such as Sainsbury’s, Morrisons, Costa Coffee and many others—have already, since the Budget, introduced wage increases that match what we are proposing to do by statute, so we are already seeing the benefits of the national living wage coming into effect before it is even introduced.

We know that there are 500,000 more children in poverty since 2010—[Hon. Members: “No.”] There are 500,000 more children in poverty since 2010, and there will potentially be 4 million children in poverty by the end of this Parliament. If the Chancellor is in listening mode, knowing that he does not need to make these cuts to balance the budget, why does he not listen to those who say, “Stop now with the policy of tax credit cuts”?

I am afraid that the hon. Gentleman is just not correct on the numbers. Child poverty is down by 300,000 since 2010, and the number of children in workless households is now 500,000 fewer than it was when the Government came to office. The truth is it is difficult to take any lectures from Scottish National party Members about balancing the books. They made forecasts for their oil revenues that would have left Scotland with a £30 billion black hole if they had ever got their way. We will go on delivering economic security for the people of Scotland, and indeed the rest of the United Kingdom, by taking the difficult decisions that his party ducks.

The Chancellor is in denial—absolute denial. Did not yesterday, 26 October, demonstrate two things—the Chancellor has lost his political touch, and his chance of being Prime Minister has just gone up in a puff of ermine-clad smoke?

As ever, when pressed, all that SNP Members want to talk about is party political gains, rather than sorting out the mess that this country was in six or seven years ago. As a result of the changes we have made, there are hundreds of thousands more people in Scotland with jobs, businesses are investing in Scotland, as they are across the United Kingdom, and we will go on making those changes. The hon. Gentleman can go on praying in aid a House of Lords that he has spent his whole life campaigning to abolish. I will go on delivering the reforms to our economy that are needed to help Scotland to continue to grow.

At the end of the previous Labour Government, nine out of 10 families with children were eligible for tax credits, some of whom earned up to £60,000. In other words, they were paying their taxes and then getting some back. Is it not better to reduce taxes in the first place so that people keep more of their hard-earned income?

My hon. Friend speaks for her Lincolnshire constituents and for the whole United Kingdom in saying that we want to move to a lower tax, lower welfare, higher wage society. We took such a step in the Budget by increasing the personal allowance to £11,000. We also cut taxes for business, reducing corporation tax and expanding the employment allowance so that smaller businesses could take on more people. It is all about continuing to deliver the record levels of employment we see in our country, and indeed the growing economy that today’s GDP figures confirm.

May I remind the House that for 3 million people out there who have done everything asked of them and have been bringing up their children and going to work, this is not a constitutional matter? Those people will lose £1,300 a year. Given what happened in the other place last night, may I reassure the Chancellor that if he brings forward proposals to reverse the cuts to tax credits, fairly and in full, he will not be attacked by Opposition Members; indeed, he will be applauded? Can he assure us that whatever proposals he brings forward, he will not support any that an independent assessment demonstrates will cause any child to be forced to live below the poverty line?

I am, of course, happy to accept any proposals that the hon. Gentleman puts forward—[Interruption.] I am happy to listen to those proposals, but there is a difference between those who say, “We want to make no savings to welfare at all; we want to abolish things like the benefit cap; we are not prepared to make any savings at all to the tax credit system”, and those who say, “Yes, we want to move to a lower welfare society, but we want help in the transition.” If the hon. Member for Hayes and Harlington (John McDonnell) has proposals to help with the transition, of course I will listen to them, but if he is again promoting uncapped welfare and unlimited borrowing, I do not think that the British people will listen to him.

The Chancellor has a choice before him: he can push on with tax giveaways to multinational corporations, and press on with cuts to inheritance tax for the wealthiest few that he announced in the summer Budget, or he can reverse those tax breaks for the few, and instead go for a less excessive surplus target in 2019-20. He can avoid penalising 3 million working families with cuts to tax credits, and stick to his self-imposed charter. Is he prepared to listen to reason on this matter? Is he, or any Government Member, prepared to step up and show some leadership on this issue?

Let us remember that we inherited a tax system where City bankers were paying lower tax rates than the people who cleaned for them, and multinationals were paying no tax at all. We have introduced a new tax to ensure that multinationals do not divert their profits, and we increased capital gains tax precisely to avoid that abuse of tax rates. We will not take lectures from the Labour party about a fair tax system.

In a way, the hon. Gentleman reveals what he believes, which of course I completely respect. He says that we should abandon our surplus rule and run a deficit forever, but I profoundly disagree with that central judgment. If we borrow forever and are not prepared to make difficult decisions on welfare, we will condemn this country to decline. As a result, people will become unemployed and living standards will fall. That is not the Britain I want to see. We will go on taking difficult decisions to deliver that lower welfare, lower tax, higher wage economy, and this elected House of Commons will continue promoting the economic plan that delivers that.

Scotland: Fiscal Framework

5. What recent discussions he has had with Ministers in the Scottish Government on a future fiscal framework for Scotland. (901801)

I am currently in discussions with the Scottish Government on the design of their new fiscal framework. We met on four occasions, and after each meeting a joint statement was released providing details of the items covered. Talks have been constructive, and we are hopeful of coming to a final agreement in due course.

Does the Chief Secretary to the Treasury remain committed to a funding formula based on Barnett, as promised in the vow and referred to by the Smith commission?

The Government remain committed to the Barnett formula and to delivering all aspects of the Smith agreement during the fiscal framework, and in the Scotland Bill that is currently before this House.

Will the excellent Minister think again on that answer, because my constituents have £2,000 less per person on public expenditure than constituents in Scotland and we pay the same taxes? How can that be fair?

It is worth noting that the Barnett formula will continue, but diminish in importance. For the first time, more than half the Scottish Government’s budget will come from Scottish taxpayers rather than a grant from the UK Government. That will add extra accountability to the Scottish Government.

Employment Trends

We have a record number of people in work. Today’s GDP data show that Britain continues to outperform other western economies, but there are clear global risks and there is still much more to be done to fix our economy. In the autumn statement, we will take more steps to ensure the recovery is felt right across the country, make long-term investments for the future, and, crucially, continue to make the tough decisions required so that Britain lives within her means.

The total number of unemployed in my constituency is 219, with youth unemployment at only 36. Will my right hon. Friend join me in praising institutions such as the Henley college, which is providing excellent apprenticeship training?

It is very good to hear about the success the people in my hon. Friend’s constituency have had in finding work over recent years and the clear business confidence that exists in Oxfordshire. The Henley college is doing an excellent job in making sure that young people have the skills they need to take the opportunities now out there in the jobs market. We will, of course, go on helping such institutions by increasing the number of apprentices we fund in this country, so that we deliver the 3 million apprenticeships mentioned in our election manifesto.

Unemployment in my constituency has fallen by 50% since 2010, but, given the recent news about the difficulties in Caparo in the west midlands, we must not be complacent. Does the Chancellor agree that we need to do more to invest in training and skills, such as the new advanced science, engineering and technology centre at Halesowen college, so we can equip local people with the skills they need to take future opportunities?

I visited with my hon. Friend a number of the very successful businesses in his constituency; they are exactly the kind of small and medium-sized businesses that are the backbone of the British economy. They need help with their training, and Halesowen college can help to provide that training to the young people in the area, so they can get the jobs that are being created in his area.

The Chancellor claims he is on the side of working people but, as far as I can see, he has been afraid to publish an impact assessment of changes to working tax credits on people taking up or remaining in work. Will he guarantee, given last night’s decision and the delay, to look at that and that, in any proposals, he will include an impact assessment on people taking up work, increasing their hours or staying in work and how that affects employment levels?

We have published an impact assessment, an equalities assessment and a distributional analysis of the measures we produced in the Budget. None of those were ever produced by any Labour Chancellor, so we continue to provide the information that people seek. What matters above all is getting the central judgment right about fixing our economy, making sure we deal with our deficit, and going on delivering economic security for the people the right hon. Lady represents.

The Chancellor is fond of telling us about 2 million more people in employment, and then he usually does a little facial lap of honour of the Chamber. Has he estimated how many of those 2 million people would be hit by his proposed changes to tax credits? How many would he be comfortable with still hitting in any revised changes?

The measures to save welfare—as I say, we will help with the transition—come alongside the increase in the national living wage, the increase in the personal allowance and the action we have taken to cut social rents. They are all part of a package that is delivering economic security to the people in Northern Ireland and across the United Kingdom. The hon. Gentleman remembers what the situation was like five or six years ago in Northern Ireland: high unemployment, a lack of business investment and people looking for work. Now we are in a situation where jobs are being created and people are finding work. Do I say that everything has been done that needs to be done? Absolutely not. We have more to do to bring jobs and investment to Northern Ireland. Let us work together to make that happen.

My local council keeps bleating on about cuts, saying how they are going to affect everybody living there. But, on the front page of a newspaper, a management consultancy company that the council brought in said that in my constituency and the region, 10,000 jobs are going to be created over the next five years. [Interruption.] Yes, very lucky. Does the Chancellor agree that his economic policies have put that on track and that my area of the world is going forward, making it better for the people who live there?

My hon. Friend is absolutely right. As a result of the combination of him being a very effective local MP and the fact that we have a Conservative Prime Minister and a Conservative Government, we are delivering more jobs into my hon. Friend’s part of Lancashire. Indeed, I remember on visits with him seeing the work being done on the link road to the port, which for decades—including when there were Labour MPs representing the constituency—was campaigned for, but never delivered. Now it is actually being built and delivered as a result of my hon. Friend’s local efforts.

Contrary to what the Chancellor believes, my party does want to deal with the deficit; we just think he is going about it the wrong way. We are worried about certain employment trends. The Solar Trade Association, for example, has warned that up to 27,000 jobs could be at risk due the Government’s announcement of the withdrawal of support for solar energy schemes. What steps do the Government propose to take to avoid large-scale redundancies and this employment trend in the solar industry and what support will the Government offer to the industry?

Of course we are in a constant dialogue with the solar industry, and solar energy use has dramatically increased over the last five years, but so have the costs of that technology. Quite reasonably, then, we have reduced the subsidy going to solar. There has to be consistency in what Labour Members argue for. On the one hand, they say, quite reasonably, “Please deal with the energy prices that are affecting the steel industry”, but then their spokesman gets up and says, “Please add more cost on to energy bills in order to subsidise renewables.” The trouble is we cannot have both.

Large-scale Redundancies

I recognise that all job losses are deeply concerning for those affected. In the case of large-scale redundancies, the Jobcentre Plus rapid response service can provide support for affected workers. The rapid response service stands ready to provide support, and is already working at Kellingley colliery in my hon. Friend’s constituency. We may consider further intervention in exceptional cases where the impact is particularly significant.

I, too, welcome the support and retraining packages for steelworkers. As my right hon. Friend rightly says, several hundred workers at Kellingley colliery are facing redundancy later this year, and a further 240 power station workers at Eggborough are going through a consultation and are very worried about their future and their jobs at the station. Will the Chief Secretary urgently meet me to discuss a similar support and retraining package for those workers in my constituency?

I totally recognise the difficulties faced by many people in my hon. Friend’s constituency. One thing I will say is that my hon. Friend is a real champion for jobs in his constituency. Only last week, he ran his fifth annual jobs fair for his constituents, and that is part of the reason why unemployment there went down by more than 1,000 in the last Parliament. I will, of course, be happy to meet my hon. Friend to discuss further what training and support is available for the constituents affected.

Seventeen hundred people in Redcar have lost their jobs, and throughout the north-east it is expected that total job losses will be 9,000. Will the Minister tell those people how long it will take for his measures to take effect and for them to have jobs again?

We are taking a number of measures in relation to steel. We are tackling unfair trade practices, and voting and speaking on that basis at EU summits. We are doing something to deal with high energy bills and we are making sure that more public contracts go to UK steel producers. At the end of the day, the one thing the UK Government cannot do is deal with the world steel price at the moment. We are offering comprehensive packages, particularly in Redcar, and we are making sure that the situation is as good as it can be at the moment.

Research and Development

The Government have made a long-term science capital commitment, investing £6.9 billion in the United Kingdom‘s research infrastructure up to 2021. In the last Parliament we maintained the ring-fenced science budget, in cash terms, at £4.6 billion per annum, and in 2013 we provided £1.75 billion of support in research and development tax credits. Further decisions on support for research will be made as part of the forthcoming spending review.

The Government’s record on R and D does not match their rhetoric. Only yesterday, some of the leading companies in the United Kingdom expressed the fear that the Government’s reported plan to replace R and D tax credits with interest-paying loans could hit R and D investment and send it abroad. Will the Minister reassure Parliament and business that R and D grants will continue to be made available to help our businesses to innovate and remain competitive?

Future plans for R and D tax credits are, of course, a matter for the spending review, but I disagree with what the hon. Gentleman has said in the light of what we have done in the last five years. According to a recent evaluation by Her Majesty’s Revenue and Customs, each £1 of tax forgone on R and D tax credits stimulates between £1.53 and £2.35 of additional R and D investment. During the last Parliament, the Government increased the generosity of the R and D tax credit scheme for small and medium-sized enterprises from 175% to 270%.

Both the Chancellor and the Prime Minister recently visited the Manufacturing Technology Centre, which is in my constituency. Does the Minister agree that such collaborations between the academic world and manufacturing industry show the way forward?

I absolutely agree with my hon. Friend, particularly when it comes to innovation. The Global Innovation Index ranked the United Kingdom second in the world in 2013. We have been ranked first for the reach, impact and well-roundedness of our research and first for our research productivity, which is 3.87 times the world average.

Northern Powerhouse

10. What plans he has to provide local authorities within the northern powerhouse with additional funding and powers to raise funds to support those authorities in carrying out newly devolved responsibilities. (901806)

By the end of this Parliament, local authorities will be able to retain 100% of local taxes to spend on local services, and areas with city-wide elected mayors will be given even greater flexibilities in relation to business rates. Each devolution deal will be bespoke, but the deal agreed last Friday with the North East combined authority includes a new £30 million-a-year funding allocation which will bring together funds to deliver a 15-year programme of transformational investment in the region.

The north-east is keen, indeed determined, to slip Whitehall’s leash, but some fear that hard-pressed civil servants will seek to devolve cuts while retaining control of spending. To avoid that, will the Chancellor commit himself to complete transparency in respect of the budgets of the devolved functions, and to publishing the full funding figures for the years before and after the spending review?

Of course we will publish information, but I remind the hon. Lady that the deal that was signed last Friday commits us to £30 million a year of additional funding. If she does not think that that is a good deal, perhaps she should listen to Simon Henig, the chairman of the new North East combined authority. He is a member of her own party, but it seems that she does not want to listen to what has been said by a member of her own party. He said:

“The agreement being signed today will bring significant economic benefits and opportunities for businesses and residents.”

The hon. Lady should be welcoming that.

25 . Last week’s announcement of £130 million for the new “China cluster” at Airport City Manchester, and the announcement of a new flight from Manchester to China, further underpin the northern powerhouse. Is it not clear that, for all the Opposition’s droning on about regional policy over recent decades, it is this Government and this Chancellor who are delivering a clear vision for the north? (901821)

Last week’s state visit by the President of China was exceptionally successful, including the Manchester leg of his journey. Various announcements have been made in Manchester concerning the northern powerhouse, but particularly important was the announcement of the first direct flight connecting Manchester and the northern powerhouse region to China. I am sure that that will prove vital to the connectivity of the northern powerhouse, and will ensure that inward investment is brought into the region.

Last week, credit rating agency Moody’s concluded that the Chancellor’s decision to fully devolve business rates to local authorities will lead to an increase in council debt levels and fragmentation of the creditworthiness of local government, and will leave many local councils, including Lancashire County Council, with their credit rating downgraded. In the light of that analysis, what safeguards can the Chancellor promise will be put in place to ensure that poorer areas of the country, including in the Government’s so-called “northern powerhouse”, do not lose out on vital revenue as a result of this Government’s reforms?

The hon. Gentleman needs to know that over many years a large number of local authorities have been calling for precisely this kind of devolution of the tax base so that they have control over their own decisions and the funding given towards them. Many of the local authorities calling for these additional powers have been the Labour authorities in inner-city areas, particularly in the north and the northern powerhouse. We intend to deliver on that to make sure that there is devolution in this area.

Bank Stability

11. What progress his Department has made on implementing ring-fencing proposals to enhance the stability of major banks. (901807)

The Government are fully committed to implementing a robust and effective ring-fencing regime, and we remain firmly on track for the separation of banks by January 2019. We passed the last legislation implementing the Independent Commission on Banking ring-fencing recommendations this year, and the Prudential Regulation Authority is currently consulting on the second tranche of implementation rules before publishing the final rules this year.

I thank the Minister for that answer. In 2012, the then Governor of the Bank of England said that unless these regulations were tightly specified there was a risk of their being watered down before implementation in 2019. We now see Barclays joining RBS and Lloyds in requesting significant waivers. Will the City Minister reconfirm the Government’s commitment to Vickers and the design principles within the legislation?

Of course, the Government remain as committed as ever to implementing a robust ring-fencing regime, as recommended by the Independent Commission on Banking. Obviously, I am not going to comment on speculation about how individual banks would like to implement their ring-fencing rules, because that is a commercial decision for banks, as long as they remain compliant with the considerable restrictions imposed by the legislation. Their deadline is the start of 2019.

There is a lot of crying wolf and worried bleating from the banks on this subject of ring-fencing. Is the Minister aware of any banks that have decamped to foreign parts because of it?

The Government are delighted that the UK recently, once again, topped the poll as the No. 1 location for a global financial centre. We believe that our legal system, language, geographical location and brilliant skilled workforce, and many other factors, contribute to this being an excellent place to locate a global financial services firm.


My hon. Friend is absolutely right to highlight the importance of increased productivity, which, along with growing employment, will drive growth, raise living standards and ensure a better quality of life for our citizens. Our productivity plan set out a range of reforms designed to make sure that the UK remains a dynamic, open and enterprising economy, supported by long-term public and private investment in infrastructure, skills and science.

Does the Minister agree that the recent report by the Governor of the Bank of England highlighting Britain’s membership of the European Union in positive and authoritative terms suggests that if we make sure that we do get productivity right and do protect our financial services, the prospects for our economy will be very good, both dynamically and in terms of growth?

As my right hon. Friend the Chancellor has noted, the best outcome for the UK economy is that we achieve major economic reform of the EU. We want the UK to play a leading role in creating a dynamic, competitive and outward-focused Europe, delivering prosperity and security for every country in the EU, particularly by accelerating the integration of the single market.

One important factor in increasing productivity is ensuring that companies are able to invest in new plant and machinery. Is the Minister convinced that banks are doing all they can to lend to companies to ensure that they can make such investment to improve productivity?

The hon. Gentleman is right to identify the importance of private investment. It is one reason why we have brought in the highest ever permanent level of the annual investment allowance, and of course banks play a crucial role in identifying those opportunities.

Does the Minister agree that raising productivity is the route to raising living standards for everybody, and that this Government’s commitment to cutting corporation tax, our historically high investment in infrastructure and the planning reforms will all contribute to achieving that aim?

I agree with all that. It is rising productivity that underpins rising real wages and therefore improving living standards.

Mr Speaker,

“We don’t export enough; we don’t train enough; we don’t save enough; we don’t invest enough; we don’t manufacture enough; we certainly don’t build enough, and far too much of the economic activity in our nation is concentrated here in the centre of London.”

The Chancellor may recognise his own words from his Mansion House speech in July. Why was he so damning of his own record?

My right hon. Friend the Chancellor has been absolutely consistent in identifying the need to rebalance the economy and export more. I am afraid that this country’s productivity gap has existed for a very long time—I am not even going to try to pin the blame entirely on the previous Labour Government; it has existed for longer than that. We need to fill that gap and address the shortcomings that our economy has had over a long period. The productivity plan that this Government are bringing in is doing just that.

I thank the Minister for his answer. The Chartered Institute of Personnel and Development has said that his productivity plan is “fatally undermined” by insufficient measures to improve the skills of the workforce. Could that be just one reason why the UK’s productivity gap compared with other G7 countries has widened to the largest on record since 1991?

The hon. Lady is right to identify the importance of skills, and that is why human development is absolutely at the heart of the productivity plan. The apprenticeship levy is a really important structural reform to help the delivery of 3 million apprenticeships. Then there is the network of institutes of technology and all the excellent work being done in the Department for Education, working on basic skills, including English and maths, which we know are vital and of such high value in the marketplace to both employers and employees.

Personal Allowance

The Government are committed to raising the income tax personal allowance from £10,600 to £12,500 by the end of this Parliament. That is alongside our commitment to raising the higher-rate threshold to £50,000. More than 30 million individuals will benefit from those changes. This year’s summer Budget confirmed that the personal allowance will increase to £11,000 next year and to £11,200 in 2017-18.

I thank the Minister for that answer. Raising the personal allowance is one of the most powerfully progressive things that we are doing in moving towards a lower tax, higher pay society. Income tax cuts will mean that nearly 5,000 people in my constituency will be lifted entirely out of paying income tax. Does that not show that Conservatives are on the side of working people?

My hon. Friend is absolutely right. Those working 30 hours a week on the national minimum wage will be taken out of income tax altogether and kept out of income tax. That contrasts with the position in 2010 when people earning just £6,500 were paying income tax. Those people have recently seen an increase in their marginal rate from 10% to 20%.

Raising the personal allowance is not a panacea; it will do nothing to address the deep levels of poverty among the working poor. Is the Minister concerned at all at recent Office for National Statistics figures showing that 6 million jobs pay less than the living wage?

The best way to address poverty is to ensure that we have a strong economy—jobs growing, increasing productivity, making sure that we have the business investment that we need. This Government are delivering a pro-business approach that is good for job creation, which is why there are more people in work than we have seen ever before.

Topical Questions

But for the Government’s defeat in the other place, 4,000 struggling families in east Hull would have lost, on average, £1,300 a year. Now that the Chancellor is in listening mode, would he please commit to dropping this vicious assault on hard-working families?

In Kingston upon Hull, which the hon. Gentleman represents in this House, unemployment has fallen by 32% since the Government came to office in 2010. That is because we have delivered economic security and committed to the fact that Britain should live within her means. Yes, of course we will listen, as I have said, during the transition we make to that lower welfare, higher wage economy, but we have to go on making savings in our welfare budget or else it will crowd out spending on our national health service and education system. That will mean that Hull does not have the resources it needs to thrive and prosper.

T6. Wage increases reduce the burden of tax credits on the taxpayer. What assessment does the Chancellor make of wage increases in my constituency, in the west midlands and in the UK? (901792)

We have very strong wage growth at the moment in the west midlands and across the country. That is, of course, very welcome. The introduction of the national living wage will benefit, I think, around 300,000 people in the west midlands, including my hon. Friend’s constituents. That is part of a package to support the working people whom she represents and to give economic security to that west midlands engine that we all want to see.

T2. Following last night’s votes, the Chancellor said that he would listen. Will he confirm that he will not be writing to the 3 million families before Christmas delivering the devastating news that their tax credits will be slashed? Surely the Chancellor—an aspiring future Prime Minister—does not want to go down in history as Scrooge delivering devastating news to millions of people. Or does he? (901788)

T7. The channel tunnel and port of Dover are very important pieces of national infrastructure. When there are disruptions to services, as we saw in chaotic scenes this summer, they cause misery for people in Kent. Will my right hon. Friend agree to meet me and other Members from Kent to discuss what funding can be made available to find a long-term solution to managing road freight in Kent and ending the misery of Operation Stack? (901793)

Of course I would be very happy to meet my hon. Friend and other Kent MPs affected by the traffic jams that build up when there is disruption at the channel tunnel. We have made available Manston airport as a temporary measure to help alleviate the congestion caused by Operation Stack. There is a proposal from Kent about a much bigger investment in a longer-term solution and I will be happy to talk to my hon. Friend and his colleagues about that.

T3. Given the growing evidence that fixed-odds betting terminals are being used as a prime vehicle through which to launder money, will the Chancellor assure the House that there will be a prominent focus on the machines in his upcoming anti-laundering action plan? (901789)

The hon. Lady will be aware that we are in the process of considering how we implement the fourth anti-money-laundering directive. We will be looking closely at the evidence, and I encourage her to get in touch with me.

T8. The Black Country local enterprise partnership has done an excellent job in bringing jobs and investment to the black country, but does the Chancellor agree that the time has come for local enterprise partnerships to work together with the west midlands combined authority to deliver further growth, jobs and investment for the west midlands region? [Interruption.] (901794)

I hear the hon. Member for Wolverhampton South West (Rob Marris) saying, “Well said!” Let me make this point. In the west midlands we have the real prospect of a further big devolution to the combined authorities with an elected mayor. We are working with the local authorities, the three excellent local enterprise partnerships and the local MPs. We are close to an agreement, but let us try to get it over the line. That would give the people of the west midlands the control over local decision making that we have now given to the people of south Yorkshire, Manchester, the north-east and Teesside.

T4. In my constituency, there are 9,000 families with children claiming tax credits. Some 5,500 of those are working families. The Chancellor said that he is listening but has dismissed every proposal so far. Millions of families need him to change course and make work pay. Will he listen now and introduce transitional relief so that those working families will not be out of pocket by £1,300? (901790)

We are listening, and we are listening in particular to what we can do to help with the transition to the lower welfare, higher wage economy that we want to see in the hon. Lady’s constituency and across the country. We will also take steps, as we always do, to ensure that work pays by increasing the personal allowance—we are committed to increasing it to £12,500 in this Parliament—by introducing the national living wage, which will help many thousands of people in her constituency, and by supporting the businesses in her constituency, without which we would not have the jobs that are now employing local people.

Since 2010, more than 37,000 of my constituents have had their taxes cut, enabling them to keep more of what they earn. Some of them have begun to accumulate savings for the first time. Can the Chancellor assure my constituents that the Government will continue to cut their taxes and support them with their future saving?

I can absolutely give that assurance to my hon. Friend, who represents his constituents in Bolton so well. We will go on delivering lower taxes to help the working people in his constituency. We will also ensure that we go on supporting savings in his constituency. We are introducing a new savings allowance and a help-to-buy ISA to help the people he represents to get on the housing ladder.

T5. The Chancellor seems to have taken issue with being told to think again by the other place last night. Will he now reflect on how thousands of my constituents—people who work hard and do the right thing—must feel at the prospect of losing thousands of pounds every year as a result of his actions? (901791)

As I have said, the people who suffer the most when the economy fails and when the country fails to control its public finances are precisely the people the hon. Lady is talking about: the low paid. They are the people who lose their jobs. They are the victims of economic insecurity. We are determined to deliver economic security and a controlled welfare bill—which, after all, the people she represents have to pay for through their taxes—and we will set out how we will ease the transition to that lower welfare, higher wage economy.

The coalition Government freed pensioners from mandatory annuities and encouraged saving through ISAs and auto-enrolment. However, tax relief on contributions to pensions is expensive and favours higher-rate taxpayers much more than others. Does my right hon. Friend agree that that is an area in which sensible reform could be considered, in order to help to balance the budget without disincentivising saving?

My hon. Friend is right to say that we have taken significant steps to encourage saving, not least by giving pensioners control over their pension pots in retirement and by trusting those who have saved all their lives with the money that they have earned and put aside. He is an expert in these matters, and he will know that we are open to consultation on the pensions taxation system at the moment. It is a completely open consultation and a genuine Green Paper, and we are receiving a lot of interesting suggestions on potential reform. We will respond to that consultation fully in the Budget.

T9. Will the Chancellor confirm that there is nothing in the passing of the charter for budget responsibility that will restrict the Scottish Government’s ability to borrow, which is already enshrined in statute under the Scotland Act 2012? (901795)

I am happy to confirm that the deal we struck with the Scottish Government on capital borrowing remains intact. Indeed, we want to strike a new agreement with them involving a new fiscal framework, and we are having a good discussion around capital borrowing powers, resource borrowing powers and the mechanism to ensure that Scotland genuinely sees the benefits and bears the costs of any decisions taken by the Scottish Government. That represents the true nature of devolution, which I am sure the Scottish National party wants to see, so let us make sure we get that agreement.

I welcome my right hon. Friend’s comments last night on transitional arrangements, but does he agree that we simply must reform this crazy tax credit system, which enforces low pay, and that we will take no lessons from the Opposition, who have failed cities such as mine when it comes to helping the working poor? This tactic of bribing our lowest earners and most vulnerable people, not to improve social mobility or to help them but simply to win votes, is deplorable and must end in this country for good.

My hon. Friend makes a powerful point: we have created a welfare system that subsidises low pay, and surely it is better to increase that pay. That is why we are introducing the national living wage and I know that will help many of the people my hon. Friend represents in Plymouth.

T10. Under the devolution deal, the Chancellor has committed £30 million a year to create a new investment fund for the north-east. Will this be wholly new money or will existing grants be cut? Where is the guarantee that he will not be robbing Peter to pay Paul? (901796)

It is additional new money and it is a long-term commitment to the north-east of England. Of course, we could not have reached this agreement without the support of the local Labour council leaders who have come together through the combined authority to strike what I think is an historic deal. There has been lots of conversation over many years about devolving power to the north-east; now we are going to have the elected mayor with powers that are currently exercised in London being exercised in the north-east. That is proper devolution.

Last week Mudgley cider producer Roger Wilkins told the local press that cider is

“an agricultural lubricant, an agricultural wine for the working man”.

Will the Chancellor continue to support hard-working people and lubricate the Somerset economy by cutting tax on cider?

I very much remember my visit, I think with the Prime Minister, to a cider producer in my hon. Friend’s constituency before the election. It turned out to be an extremely productive visit of which he is the living representative. He will know that in 2010 we reversed the cider tax that was being proposed by the previous Labour Government and we have been able to help cider producers. I think the industry is incredibly important and I will take what steps I can to support it in the future.

The Resolution Foundation has found that all tax and benefit measures announced, including the national living wage, will push an additional 200 children into poverty by 2016. Two thirds of those children will be in working families. By 2020 up to 600 further children will be pushed into poverty. Chancellor, you said you would listen to the Lords, and indeed the bishops, last night; will you now share with the House what constructive action you will take to protect the poorest families and children?

The hon. Lady raises her question in a perfectly fair way. I will listen to the concerns that have been raised in this, the elected Chamber, about the transition of the welfare reforms we have put forward precisely so that we continue to help working families. Those families are best helped when we have economic security, a controlled welfare budget and a system where we do not subsidise low pay but we increase wages through the national living wage. We will make sure in the autumn statement that we help working families.

I did not want to interrupt the question because I understood the hon. Member for St Helens South and Whiston (Marie Rimmer) was getting to her point. I understand why Members like to put their inquiries directly to the Minister, but may I please appeal to Members not to use the word “you” in their questions? We go through the Chair in debates for good reasons. I have no proposals on these matters. The Chancellor might have; we shall see.

Over the last three years unemployment in Tamworth has fallen faster than anywhere else in the country. As my right hon. Friend is in listening mode, will he tell the House whether he has heard any sensible representations from the shadow Chancellor or others about how to decrease business taxation and regulation to create more jobs in the west midlands?

I am sorry to say I have not, because the only proposals that have so far been put by the Opposition are for an increase in business taxation—that was in their election manifesto—and a wealth tax, which at the weekend, the shadow Chancellor was talking about potentially introducing in this country. So his proposals—and to be fair to him he has been entirely consistent on this for 30 years—are essentially for a high tax, big state economy where, frankly, private businesses do not have such a big role to play. I think that is the wrong direction for our country.

That is a very decent proposal for the autumn statement, to which we will give proper consideration. People who have been in Parliament with me for the last 14 years know that my view is pretty clear—we should have an elected House of Lords—but of course that view has not prevailed in this Chamber in the years I have been both on the Opposition and Government Benches. However, I do think that while we have an unelected House of Lords, it should respect a constitutional convention that has existed for 100 years, and we need to look at that now.