Committee stage in the Commons
- Speaker
The Chairman of Ways and Means (Sir Alan Haselhurst)Conservative- Quote
- I call Mr. Stephen Timms to move the order of consideration motion. Ordered, That the Order in which proceedings in the Committee of the whole House on the Finance Bill are taken shall be: Clauses 7, 8, 9, 11, 92, 14, 16 and 20.—(Mr. Timms.)
- Source
- View in Hansard ↗
- Speaker
- The ChairmanConservative
- Quote
- I am very grateful to the right hon. Gentleman; otherwise we might never have started at all. Clause 7 Charge and main rates for financial year 2010
- Source
- View in Hansard ↗
- Speaker
Mr. Mark Hoban (Fareham) (Con)Conservative- Quote
- I beg to move amendment 1, page 3, line 16, leave out ‘28%’ and insert ‘25%’. After that rather shaky start, Sir Alan, I am sure that the rest of our Committee proceedings will move more smoothly. Clause 7 sets the main rate of corporation tax at 28 per cent., but the amendment—which I also tabled in Committee to last year’s Finance Bill—would reduce that to 25 per cent. We have tabled amendment 1 for the same reasons that applied last year. We believe that the headline rate of corporation tax is uncompetitive, and that it impacts on the UK’s attractiveness as a place to do business. If we are to look forward to how the economy will develop once the recession is over, we need to think about making sure that we are as competitive as possible when compared with other nations. Some may argue that now is not the time to think about reducing the headline rate of corporation tax and that we should focus first on the current economic and fiscal crisis, but I do not believe that we can afford to ignore the UK’s competitive position at this time. I shall set out in more detail why I think the amendment is important and necessary and why I believe the Committee should support it. Five years ago, Britain had the fourth lowest corporation tax rate in the EU. Now, even after the reduction in the headline rate from 30p to 28p in the 2007 Budget, we have the 19th lowest rate. The average in the OECD is 22.5 per cent., so Britain’s rate is some 5.5 per cent. higher than that. We need to address that. Without a change, we are likely to find ourselves slipping further down the OECD table and putting ourselves at a competitive disadvantage to other members of the OECD, the G20 and the EU.
- Time
- 15:49
- Source
- View in Hansard ↗
- Speaker
Mr. Geoffrey Robinson (Coventry, North-West) (Lab)Labour- Quote
- We can take it for granted that everyone wants to reduce taxes when they can, and no doubt we will come on to how much the proposal would cost and how the Opposition intend to pay for it. On the point of comparison, however, does the hon. Gentleman agree that our present 28 per cent. rate is distinctly lower than the various forms of corporation tax in France or Germany, taken together? They are our principal competitors, so there is not a great deal to be gained from the comparisons that the hon. Gentleman makes.
- Time
- 15:49
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- The hon. Gentleman has long experience of business, both in the UK and overseas. He will understand the importance of remaining competitive and of always being vigilant about what other nations are doing. Tax has become an increasingly important issue when it comes to the location of businesses and, given that both capital and labour are very mobile now, we need to pay attention to it. It is not good enough to say, “Okay, France and Germany have higher rates than we do.” We need to look at the broad perspective, because there are other countries that are happy to compete for inward investment and people to join their work forces.
- Time
- 15:49
- Source
- View in Hansard ↗
- Speaker
- Mr. RobinsonLabour
- Quote
- Will the hon. Gentleman confirm the fact that we have a more competitive corporation tax rate than France or Germany?
- Time
- 15:49
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- But we have also slipped down the table: our rate used to be the fourth lowest, and now it is the 19th lowest. We can pick and choose our comparisons, but the reality is that we have moved down the league table. That is what we need to reflect on. I would not want always to benchmark myself against the performance of the French and German economies. The Prime Minister has always boasted about how we have performed better than other countries, but I do not think that that is a very fruitful route to go down.
- Time
- 15:49
- Source
- View in Hansard ↗
- Speaker
David Taylor (North-West Leicestershire) (Lab/Co-op)Labour- Quote
- Is it not potentially misleading to concentrate solely on the rate of corporation tax? We have to include comparators such as incentives, concessions, allowances and the regulatory frameworks in other nations. The headline rate of corporation tax may or may not be a significant factor in decisions to invest or relocate.
- Time
- 15:49
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- The hon. Gentleman makes an important point. I do not argue that my proposal is a magic bullet—that all our problems would be dealt with overnight by reducing the headline rate from 28 to 25 per cent. Within the confines of the debate, I hope to touch on that briefly later in my speech. He is right: there are other factors that businesses bear in mind when thinking about the location of their business. They include the predictability and certainty of the tax system, which again are perceived to be weaknesses in the UK tax regime. Our tax system is not seen to be as predictable and as certain is it could be. In attracting businesses to the UK and keeping in the UK those that are already here, I am the first to accept that the amendment is not a magic bullet.
- Time
- 15:49
- Source
- View in Hansard ↗
- Speaker
Mr. John Redwood (Wokingham) (Con)Conservative- Quote
- Is my hon. Friend, like me, concerned to see Shell, for example, deciding to locate its headquarters and taxable operations in Holland rather than here, because the Dutch have a lower tax rate? Does he think that the Irish rate is extremely attractive to many businesses thinking about an English-speaking location? Is he worried by the flight of much of our insurance industry out of this country for tax reasons?
- Time
- 15:49
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- My right hon. Friend makes some important points. I shall discuss later some of the companies that have relocated from the UK to overseas jurisdictions because of tax regimes and rates. A number of Lloyd’s-based insurers have moved to Bermuda, in part for regulatory reasons, but in part because of the rate of corporation tax in Bermuda. Canada is setting a clear policy goal of having the most competitive rate within the G7, because the Canadians recognise how easy it is to move from one jurisdiction to another, particularly among English-speaking countries, and how important tax is—perhaps following the Irish example, where a very low corporation tax rate was set to attract businesses into the country.
- Time
- 15:49
- Source
- View in Hansard ↗
- Speaker
Mr. TimmsLabour- Quote
- rose—
- Time
- 15:49
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- People regard such tax policies as a way to gain competitive advantage and we need to bear that in mind. When I first spoke on a Budget from the Dispatch Box, in 2006, when the right hon. Member for Normanton (Ed Balls) was Economic Secretary, the Government dismissed this issue as though it did not matter. I thought that that was a disappointing, short-sighted view of the importance of tax to attracting businesses to the UK. The present Financial Secretary is much more aware of these matters and I expect us to discuss some of the reforms to the taxation of foreign profits later. The Government have been slow on the uptake, however, which has damaged our competitiveness. I thought that the right hon. Gentleman wished to intervene earlier. Does he wish to do so now?
- Time
- 15:49
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- I am grateful for the invitation. The hon. Gentleman was getting on to firmer ground when he talked about comparisons with other G7 countries. I think that he will acknowledge that, since 1997, the UK has had the lowest corporation tax rate in the G7.
- Time
- 15:49
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- But Canada has stated a clear ambition in that respect, and our competitors are to be found outside the G7 as well. The very fact that we have had to expand to the G20 demonstrates the importance of other nations as competitors to the UK. Let me give a few examples of countries with lower tax rates than ours. My right hon. Friend the Member for Wokingham (Mr. Redwood) referred to the Netherlands, where the corporate income tax rate is 25.5 per cent. Norway and Sweden are in line with us, but Canada—a member of the G7—has a rate of 19.5 per cent.; our position in the G7 is therefore under threat from Canada. Within the EU, the Czech Republic, one of the new accession states, has a rate of 21 per cent., and Portugal, Greece, Denmark and Austria all have a rate of 25 per cent. Although the rate in Germany is a central Government rate, clearly there are federal rates, too. The headline rate in Germany is 15.83 per cent. There are a range of views. We can pick and choose, but the general picture is that we have moved backwards, not ahead, in the league tables; that is the point that we want to make.
- Time
- 15:49
- Source
- View in Hansard ↗
- Speaker
- Mr. Geoffrey RobinsonLabour
- Quote
- Surely the point is that when we make a judgment we have to take the most meaningful comparators. We could include whatever country we liked from across the world, if we took what the hon. Gentleman says literally and took it to its logical yet absurd conclusion. Surely it is therefore right to consider the members of the G7, which are our real competitors in such areas. Perhaps focusing on that at this point of time, when we are at a crossroads, is not the most relevant thing to do. He has to see the matter in that context.
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- I think that this argument about the G7 is a bit sterile and a bit stale. It says that the G7 economies are the only ones that we should care about, yet we held the G20 summit in London just last month because we recognised that the global economy is changing. Countries that were previously of relatively little economic importance to the world are becoming increasingly important to the shape of the global economy. We cannot rest on our laurels by assuming that the G7 will always remain in pole position; we cannot take that view. If that was the view that the hon. Gentleman took when he was in government, I am disappointed and surprised at him.
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
Stewart Hosie (Dundee, East) (SNP)Scottish National Party- Quote
- I agree that the G7 argument is spurious. Workers in my constituency have recently lost their jobs to Hungary and China. We will never compete with those countries on wage costs, but does the hon. Gentleman not agree that a reduction in corporation tax simply helps to create a competitive package? It would at least make it a tough decision, and not an easy choice, for boards of directors to move their businesses elsewhere.
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- The hon. Gentleman makes an important point about his experience of jobs in his constituency moving to China and Hungary. There may be situations in which we cannot compete with such economies, but we should make sure that we have the best possible competitive environment—an environment that will encourage businesses to invest in the UK, and ensure that businesses based in the UK see our tax system as a reason for being here.
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
Kerry McCarthy (Bristol, East) (Lab)Labour- Quote
- The right hon. Member for Wokingham (Mr. Redwood) drew a comparison with Ireland. During my time on the Treasury Committee, its Conservative members frequently made comparisons with Ireland; they said that its tax rates and deregulation were important pull factors for companies that chose to locate there, or that it was always a threat that they would locate there. Given the economic situation in Ireland—businesses are closing down and leaving that country—is it really a valid comparison? Is that really the model that we should look to? Does that point not shore up what my colleagues on the Labour Benches have been saying—that we should be making a comparison with members of the G7 and our real competitors, such as France and Germany, instead?
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- Labour Members say, “The Irish economy has collapsed, so we should throw out the idea that low tax rates and a proportionate regulatory environment are means by which to achieve economic growth.” I know that that is a seductive argument, but part of the problem for the Irish economy, as I understand it, is that because of the euro there were low interest rates when the economy was booming. There was an asset price bubble in Ireland, which has burst, as it burst in the UK. Some of Ireland’s problems flow from that, rather than from the fact that it has a low corporation tax rate or a particular regulatory environment. We have to be careful to understand correctly the causes of success in Ireland, and the cause of its current economic problems. I would argue that its problems have to do with the macro economy, and the way in which the euro does not necessarily meet the needs of every economy in the eurozone—a point that my right hon. and hon. Friends would very much recognise. I suspect that even the Government recognise that point from time to time; that is probably why we are not in the euro. The convergence criteria have yet to be met, even if they are still being measured over in the Treasury.
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Kerry McCarthyLabour
- Quote
- Is the hon. Gentleman saying that the regulatory environment in Ireland is not a factor in its economic problems?
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- I am not sure that it is the main cause, which is the asset price bubble that built up because credit was cheap, thus enabling people to borrow, pushing up prices in the housing market. That is exactly what has happened in the UK. We have a solution in macro-prudential regulation and in giving the Bank of England greater control over the amount of debt in the economy, which will tackle issues relevant to the asset price bubble at a time when inflation rates are lower. The hon. Lady may be right to identify the lack of macro-prudential regulation as a weakness in the Irish economy, but it is a weakness, too, in our economy, which is why reform is needed.
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
Rob Marris (Wolverhampton, South-West) (Lab)Labour- Quote
- I am grateful to the hon. Gentleman for his usual generosity in giving way. These are difficult issues, but from looking at the figures in the Red Book, I would imagine that the Treasury has taken corporate relocation into account, so if the amendment were accepted, tax revenues in the United Kingdom would drop by £3.7 billion, as a rough estimate. Why is the hon. Gentleman not pursuing the logic of his position in going for the OECD average of 22.5 per cent. corporation tax which, again on those figures, would cut corporation tax revenues in the UK by £6.8 billion? Where is the money coming from?
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- I am grateful to the hon. Gentleman for raising the issue of costs, and I shall tackle it within the narrow confines of our debate. I think that that was his first contribution to the Committee of the whole House, but he has featured in previous Finance Bill Committees, bringing his detailed knowledge of explanatory notes to the fore. I hope that he will be tempted by the usual channels to serve on the Public Bill Committee again, because we missed him last year. It would be nice to see him again this year, taking part in debate on probably the last substantive Finance Bill before the general election. It is important that we have a competitive rate of corporation tax. One of the great strengths of the UK is that we have an open economy, which is the basis on which the City of London, the global financial centre, has grown. There has been a free flow of capital and people into London, which has made it a successful centre. The fact that businesses are prepared to move to this country means that—
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
Mr. Jeremy Browne (Taunton) (LD)Liberal Democrat- Quote
- rose—
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- Perhaps the hon. Gentleman wishes to add his support to the point I am making.
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I share the hon. Gentleman’s enthusiasm for the notion that the hon. Member for Wolverhampton, South-West (Rob Marris) should serve on the Public Bill Committee, but I would be interested to hear him develop his response to the intervention. Even if we were minded to support the amendment, there would be cost implications, so given that we have a budget deficit of £175 billion, is the hon. Gentleman confident that that cost gap can be bridged, and does he anticipate that the extra industry of the type that the right hon. Member for Wokingham (Mr. Redwood) often describes in these debates will be sufficient to generate the extra revenue to make up the shortfall identified by the hon. Member for Wolverhampton, South-West?
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- I had forgotten that we had the voice of fiscal conservatism to the left of our Benches. I will, as I said earlier, return to the issue of costs. However, I have not yet addressed the issue of whether we are dependent on an increase in tax revenue flowing from a reduction in corporation tax to fill the gap. We have not factored that into our costings—that would be a windfall to accounts. My right hon. Friend the Member for Wokingham is a great proponent of the Laffer curve, but I am a bit more cautious than him about its impact and banking those gains, as it were, at this point. I would rather have a cost-neutral package of reform—and I will explain how we will fill the gap in a minute—than presume that we would get an instant flow of tax revenues. As the fiscal environment improves, I hope that that means that more companies will want to come to the UK, which will strengthen the flow of tax revenues to the Exchequer. Goodness knows, we need it at the moment.
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
Mr. Robert Syms (Poole) (Con)Conservative- Quote
- I thank my hon. Friend for his generosity in giving way. Clearly, our financial problems are spread over more than one year, so a lower rate sends a signal. One would hope to keep companies in the UK, or encourage them to relocate to the UK, so that they would pay tax over three or four years. One year, if the figures are out, will not make much difference, but it will make a difference if a company is here for three or four years.
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- Indeed. A big part of the issue is sending a clear signal about what a tax regime’s direction of travel should be. One of the criticisms that people could make of the Government is that, at times, there has been a lack of clarity about that direction of travel. I shall touch on that in my remarks on clause 8.
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. Jeremy BrowneLiberal Democrat
- Quote
- I am grateful to the hon. Gentleman for giving way once more, and I am sorry for interrupting his flow. He said that the additional location or additional output of businesses were not factored into his financial calculations, so he has still not answered the hon. Member for Wolverhampton, South-West (Rob Marris), who made two points. The first was that, in his estimate, the cost would be £6 billion and he asked where the Conservative party would find that money; the second was to ask why the hon. Member for Fareham (Mr. Hoban) did not follow the logic of his own argument and reduce the rate to 22.5 per cent. I am thinking particularly of the first point: if there is not going to be extra industry and growth to bridge the gap, how does the hon. Gentleman propose to finance it?
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- I am just getting going on the amendment. I have said to both the hon. Member for Wolverhampton, South-West (Rob Marris) and the hon. Member for Taunton (Mr. Browne) that I will come to that point. I am not using a debating or rhetorical device to avoid answering the questions, but I want to deal with the issue in sequence. I ask them both to be patient; the day is still young.
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- We’ve got all night.
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- Indeed—we literally have all night. Let me continue to make the case for why it is important for us to deal with the issue. As I was saying, our economy is an open one. Businesses choose to locate here; we have few barriers to prevent them from doing that, and few that prevent them from moving offshore. Because we are so open, we cannot tax businesses on the basis that they have no choice but to stay here. The evidence has shown that businesses move. During the period covering the last Finance Bill, when we debated the same issue, companies such as United Business Media, Shire, Kraft, Experian and Google had moved outside the UK. To pick up on the point made by my right hon. Friend the Member for Wokingham, since then, Beazley, a Lloyd’s of London insurer; WPP, the advertising giant; Regus, which provides office services; Henderson, a major fund manager; and Charter, an engineering company have all done the same. The fact that they constitute a broad spectrum of businesses from a wide range of industries is telling. We have had warnings. Richard Lambert, the director general of the CBI, said: “In today’s world of global markets, companies have many more choices to make about where to invest their capital and their talent than they did in the past. Business tax is one of the most important considerations that firms have to take into account, and it is easily measured…business leaders believe the UK’s corporate tax regime is more burdensome than it was five years ago, and that this is making the UK less attractive as an international business location. The worry is that on current trends our position relative to other developed economies will deteriorate further over the next two or three years.” Mr. Lambert made that statement in 2006. Time moved on, but the CBI returned to the same point last year in its publication “UK business tax: a compelling case for change”, which concluded: “Comparatively high tax rates, increasing complexity and a lack of certainty are all contributing to declining tax competitiveness.” The report called for a more strategic approach to corporation tax. So the voices making the point are not only those of Conservative Members; people in industry are also making it. Richard Lambert touched on the point raised by the hon. Member for North-West Leicestershire (David Taylor): the issue is not only the rate but other aspects of the tax regime. I remind Members of what Mr. Lambert said: “increasing complexity and a lack of certainty are all contributing to declining tax competitiveness.” This theme has emerged elsewhere—it does not just come from the CBI. Last year, the City of London corporation published a report, “The Impact of Taxation on Financial Services Business Location Decisions”, which discussed how “sticky” London is with regard to business staying put in spite of the tax regime, not because of it. It compared the UK’s corporate tax regime with those of other financial jurisdictions, and found that the UK had among the worst scores in two categories: “Certainty of Interpretation” and “Attitude and Approach”.
- Time
- 16:00
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- Which one?
- Time
- 16:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- It is very clear who the Mayor of London is. [Interruption.] If I meant the lord mayor, I would refer to the lord mayor of the City of London. [Interruption.] I am not sure that the previous Mayor would have been that interested in the tax regime, whereas I think that Boris Johnson is a bit more interested in the competitive position of London compared with other jurisdictions. The executives interviewed for that report concluded that the UK’s reputation for predictable, competitive and constructively applied taxation is in decline, and the call was for a strategic policy on corporation tax.
- Time
- 16:15
- Source
- View in Hansard ↗
- Speaker
- David TaylorLabour
- Quote
- rose—
- Time
- 16:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- I happily give way before moving on to the favourite topic of the hon. Member for Wolverhampton, South-West—Canada.
- Time
- 16:15
- Source
- View in Hansard ↗
- Speaker
- David TaylorLabour
- Quote
- When a detailed analysis was done in 2006, it was found that the de facto corporation tax rate for larger companies in the UK was not 30 per cent., the official rate at the time, but 22.5 per cent. because of the activities of avoidance vehicles and companies. Is the hon. Gentleman reassured by their ingenuity? If this is such a crushing burden on British industry, why do the majority of FTSE 100 companies pay no tax, or nugatory amounts, and did so even before the recession reduced their profit base?
- Time
- 16:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- The hon. Gentleman had an Adjournment debate on this issue last week when we were debating the Second Reading of the Finance Bill; I am sorry that I could not listen to his remarks. There is an issue about the tax take and what a tax gap is. One comment made about research by the TUC is that it does not take into account some of structural reliefs that are in place in the UK tax system. It is important that companies pay the tax they are due to pay and do so promptly and fairly. However, we live in a complex global economy. Several of the companies listed in the FTSE 100 are not necessarily UK trading companies, so they will be subject to a different tax regime. It is a difficult comparison to make. Just as the hon. Member for Coventry, North-West (Mr. Robinson) picked holes in my analysis of where we are in relation to the OECD, some would pick holes in an analysis of the tax gap. It is not as clear-cut as people would suggest.
- Time
- 16:15
- Source
- View in Hansard ↗
- Speaker
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)Liberal Democrat- Quote
- I am interested in what the hon. Gentleman is saying about complexity and differences in the tax system. Before he moves on to Canada, will he expand on why he chose not to extend his proposed cut to ring-fenced profits and to apply it only to non-ring-fenced profits? I declare an interest as a shareholder in Shell, and an interest in North sea investments through my constituency and my membership of the offshore oil and gas industry all-party group.
- Time
- 16:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- The hon. Gentleman makes an important point. When I thought about the amendment’s impact, I considered whether it should deal with changing the ring-fenced profits rate as well, but I was conscious that that might take me into a new field of argument about oil taxation, which my hon. Friend the Member for Hammersmith and Fulham (Mr. Hands) will deal with in Committee. There is a complex set of interactions for us to discuss carefully, but I wanted a narrowly framed amendment to avoid detaining the Committee for too long. I turn to Canada, which the hon. Member for Wolverhampton, South-West mentions quite often. He prayed it in aid in relation to VAT in last week’s debate on the Bill. I do not know whether he has seen Canada’s aspiration for corporation tax rates, which was highlighted in the report produced by Bob Wigley for Boris Johnson. It stated that Canada’s mission statement on tax was that: “To improve productivity, employment and prosperity in an uncertain world, a bold, new tax reduction initiative will reduce the general federal corporate income tax rate to 15 per cent. by 2012 from its current rate of 22.1 per cent. The general corporate income tax rate will decline by 7.12 percentage points between 2007 and 2012—giving Canada the lowest overall tax rate on new business investment in the Group of Seven (G7) by 2011 and the lowest statutory tax rate in the G7 by 2012.” That is a very clear statement of intent from the Canadian Government about the direction of travel, and I am sure that people thinking about the relocation of businesses will take it into account.
- Time
- 16:15
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- For completeness, will the hon. Gentleman confirm that the separate provinces of Canada charge additional tax?
- Time
- 16:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- Indeed, and that is why I carefully quoted the report, pointing out that the quotation related to the general federal rate. The report flags up the scale of the reduction—7 percentage points—in the federal rate of tax. The Canadian Government believe that that will provide the lowest overall rate of tax on new business investment in the G7, which is a clear statement of direction. In thinking about how economies move out of recession and plan for the future, countries that can afford such tax changes will think very carefully about making them.
- Time
- 16:15
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- The hon. Gentleman is extolling, I think, the advantages of a country having the lowest corporation tax rate in the G7. Is he now confirming that he believes, contrary to what he said earlier, that that is a good thing?
- Time
- 16:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- I am not taking a position on where we should be in the league tables. I am saying that other countries are looking at how they can use their headline rate of corporation tax as a tool, to use the words from Canada, to “improve productivity, employment and prosperity in an uncertain world”. I am not suggesting that a target should be set for the UK’s headline rate of corporation tax; I am just pointing out to the Committee that it is an important tool that countries use to attract and retain businesses. We must be mindful of that when thinking about overall tax policy in the UK. I believe that there is a consensus on this issue. The Prime Minister said last year at the Institute of Directors conference: “Our aim is to reduce corporation tax even further when we can afford to do so...and we’re looking at how we’re going to do it.” I shall come to how we can pay for that in a second, but I shall wait until the hon. Member for Taunton returns to his place so that he can hear that bit of fiscal prudence. The Financial Secretary might remark that the Government have taken some measures to reform the taxation of foreign profits. I acknowledge that, although it has not been an entirely straightforward process and the Government have had a couple of consultations to attempt to get the right structure in place. The sense from industry is that that is now broadly in place, but no one should say, “The job is done, we have dealt with this issue, let’s move on to something else.” The listed publishing group Informa moved its tax domicile from London to Switzerland not long after the Budget, once it knew broadly what the shape of the taxation of foreign profits would be. We therefore cannot afford to rest on our laurels in any way, and that is why I tabled the amendment. Given the Government’s dire fiscal position, I appreciate that the room for manoeuvre is limited. When borrowing this year is £175 billion and next year’s forecast is for £173 billion, there is not much money left in the kitty to cut the burden of taxes. That is why the package we propose today is cost-neutral. We have long made it clear that our reforms to the headline rate of corporation tax, reducing it from 28 per cent. to 25 per cent., will be funded by simplifying reliefs and allowances. [Interruption.] Right on time, the hon. Member for Taunton returns. We will bring the rate of capital allowances more closely into line with the accounting measure for depreciation, which is meant to reflect the deterioration in value of assets over their life. That is how we will fund the package of reforms. We set out that position clearly when we announced the policy, and we will continue to use that approach of funding changes in the headline rate of corporation tax by simplifying the tax system and trying to align the accounting and tax definitions of profit more closely.
- Time
- 16:15
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- I am rather bemused by the hon. Gentleman’s explanation of the cost-neutrality, which makes it sound as though the amendment were mere window-dressing. It will not remove any tax burden on UK-based businesses if, taken as a whole, the package is cost-neutral, with counter-balancing increases from the business sector. It sounds like grandstanding and window-dressing.
- Time
- 16:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- The hon. Gentleman cannot have it both ways. He must either accept that our proposal is a funded tax package, or believe that it is grandstanding, which will do nothing for business. He can criticise us for one or the other, but just one at a time.
- Time
- 16:15
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- I thank the hon. Gentleman for his generosity in giving way. On the projections for corporation tax this year—I do not say he accepts those figures—the amendment would cost the Exchequer £3.7 billion. If he proposes a cost-neutral package, the £3.7 billion will be raised from businesses through other mechanisms—for example, changes in allowances. How would the amendment, as part of such an overall package, have any effect on whether a company decided to relocate to Switzerland? A company would examine the total tax burden, including allowances, not simply the headline rate of corporation tax.
- Time
- 16:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- I do not agree and I shall explain why. The hon. Gentleman argues that there is a clear relationship between businesses that pay corporation tax and those that benefit from capital allowances. He claims that they are alike in their profile, but I do not think that that is the case. The headline rate sends a powerful signal to business about the advantages of locating in the UK. Perhaps some businesses are not interested in capital allowances; that depends on the nature of the business—on whether it is service-oriented or invests more in capital equipment. There is a mixture of incentives, and there will be some winners and losers. However, it is important to send a signal about the direction of travel. There is no money available for tax cuts, so a funded package is the sensible way to send the right signal to business about the importance to us of the UK tax system’s remaining competitive.
- Time
- 16:15
- Source
- View in Hansard ↗
- Speaker
- Mr. Geoffrey RobinsonLabour
- Quote
- The debate is interesting. As the hon. Gentleman said, we often had it in the Treasury, and the headline rate seems attractive. However, as my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) said, the tax burden remains the same. Will the hon. Gentleman bear in mind the massive impact of £3.7 billion a year on capital allowances? It cannot simply be dismissed as a compensating factor. The problem with much of British industry, particularly the manufacturing sector, is the UK’s persistent tendency to under-invest in capital. Increasingly, we say that we will have cheaper and more flexible labour and we chase that market down, but it does not get us anywhere. Let us consider what the Germans have done. Germany is the biggest exporter in the world. Its manufacturing sector is strong because of its continuing capital investment in its industry. By how much would the £3.7 billion a year reduce capital allowances? Has the hon. Gentleman taken that into account? Can he give us that figure?
- Time
- 16:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- According to some examples, the general plant and machinery capital allowance will be about 12.5 per cent., and the long-life plant and machinery capital allowance will be about 6 per cent., bringing them more closely into line with the accounting rates of depreciation.
- Time
- 16:30
- Source
- View in Hansard ↗
- Speaker
- Mr. RobinsonLabour
- Quote
- Bringing those allowances into line with depreciation is no good at all. That means we will barely be investing at the replacement level, which was one of the big problems with the old General Electric Company. Tight though Lord Weinstock’s controls were, investment often ran at less than the depreciation rate. Manufacturing is a bit more in the spotlight now—rightly so, I think, and not just because I represent a manufacturing constituency in Coventry, in the west midlands—and it is regaining importance, given the imbalance that the collapse in the financial sector has caused, which we need to remove. However, having a target to drive capital investment down to the level of depreciation is a suicidal policy.
- Time
- 16:30
- Source
- View in Hansard ↗
- Speaker
- The ChairmanConservative
- Quote
- Order. We are beginning to lose track of who is making the speech and who is making an intervention. Let us try to keep interventions in proportion.
- Time
- 16:30
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- I am grateful to the hon. Gentleman for his rather lengthy intervention, because it enabled me to find a quotation. I will not hold a competition with hon. Members afterwards to see whether they know who the author was; rather, I will tell them. The quotation says: “Promote investment and growth—by…reducing tax-driven distortions on commercial activity, ensuring that business decisions are based on commercial rather than tax considerations; stimulating higher levels of foreign and domestic investment through a lower CT rate on a broader tax base”. That is a good summary of our policy. What particularly pleases me about that quotation is that it is from the Treasury, from a document entitled “Business tax reform: capital allowance changes”, a technical note from December 2007. Clearly, the debate has moved on since the hon. Gentleman was sat around the table watching TV with the former Chancellor—wherever he watched TV. That is why I said what I said earlier, when I teased Government Members about there being a consensus on the issue. The Treasury recognises the power of the argument. Indeed, the hon. Member for North-West Leicestershire (David Taylor), who is a great campaigner against the tax gap, will be very concerned about distortions in the tax system that led to particular types of behaviour. I just think that the hon. Member for Coventry, North-West should be a little more careful not to state the Government’s case too boldly.
- Time
- 16:30
- Source
- View in Hansard ↗
- Speaker
- Stewart HosieScottish National Party
- Quote
- Is there not a slight paradox, given the argument being made? Only last year, there were significant changes to plant and machinery allowances and a massive reduction in industrial buildings allowances, which was commented on at the time. I am pretty sure that the arguments made by the Government on that occasion were rather different from those that we have heard this afternoon.
- Time
- 16:30
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- Indeed. I am pleased that the hon. Gentleman, who is a fellow veteran of previous Finance Bill Committee proceedings, has reminded me of that. We have had debates in Committee about reformed capital allowances before. The Financial Secretary and I had a debate about the abolition of the industrial buildings and agricultural buildings allowances. [Interruption.] The Minister says from a sedentary position, “You were against it.” We argued that the issue should be explored in more detail—so that the competitive impact could be considered—and that the Government had rushed into things without proper thought. There are issues on both sides of the argument, although I take on board the important comment that the hon. Member for Coventry, North-West made about manufacturing. I know from my experience of visiting manufacturing companies in my constituency that compete at the top end, producing high value-added items that compete with the best—that is, if they are not the best in the world themselves—that there is a mixture of plant in those operations. There are some very old, faithful bits of kit in those factories, as well as some very new, modern equipment. It has been pointed out that the life of some of the more modern pieces is quite short, in relation to their contribution to the top end of manufacturing, and that they might therefore require a shorter depreciation period and a steeper write-off. We need to think about that. I do not wish to stray too far from the subject, Sir Alan, but one issue that has emerged from the economic crisis is the need to broaden the base of British business, and manufacturing is important in that regard. We must be mindful of that. We are not blind to the concerns expressed by the hon. Member for Coventry, North-West, but we do not want to see distortion in the tax system.
- Time
- 16:30
- Source
- View in Hansard ↗
- Speaker
- Mr. RobinsonLabour
- Quote
- Distortion in the tax system is one thing, and we have had the arguments about neutrality. I am sorry that I was not at the previous meetings of the Committee. May I just plead that we do not build into Conservative thinking the idea that the Treasury or the Department for Business, Enterprise and Regulatory Reform have ever had the policy—which the hon. Gentleman is now adopting—of reducing capital allowances down to the bare minimum of depreciation? That cannot be a proper theoretical or practical position to take up.
- Time
- 16:30
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- This is about trying to reduce distortions in the tax system to ensure that decisions are not being driven by tax considerations. The rate of the capital allowance is a cash flow issue. Over the life of an asset, a business will get full relief on that asset, assuming that it uses it until it is scrapped. It is a question of timing as to when that relief arises. I am sure that, at a later stage in Committee, we shall have a debate about the 40 per cent. first-year allowance being introduced in the Bill. Perhaps such a measure is right in a crisis, but for the purposes of the long-term reform and simplification of corporation tax, we need to look at reducing the distortions in the system. In so doing, we should consider reducing the headline rate of corporation tax. That would send a clear message to businesses, which are fed up with the complexity and distortions in the tax system. A lot of the tax planning that takes place is a consequence of the distortions that are built in to encourage particular types of behaviour. A less complex, more straightforward system would yield benefits to the economy as a whole and make it more attractive to inward investment. Companies’ compliance costs would also be reduced, and my old employer, PricewaterhouseCoopers, might not get quite the same revenue flow from tax planning as it had in the past. That might be a price worth paying, however. I have spoken for rather longer than I hoped to, but the Committee will be pleased to know that I have almost completed my remarks on this subject. It is important for Britain’s competitive position in the global economy that we have a corporation tax regime that is fit for purpose. Part of that can be achieved through tackling complexity, improving predictability and certainty, and having a proper consultation process in place. A fundamental part of the package, however, is to reduce the headline rate of corporation tax. The amendment is part of a package that would ensure that the measure was cost-neutral. Regrettably, I cannot table amendments that would increase the tax take, so I cannot propose the flipside to this package, which would change capital allowances. However, we have set out a clear package of measures to reform corporation tax, in order to improve the competitiveness of the UK economy. As we look beyond the recession, we need to ensure that we are competitive not only with the G7 but with other global economies, so as to make the best of the advantages that we have, to broaden the base of the economy and to bring wealth and prosperity back to the UK.
- Time
- 16:30
- Source
- View in Hansard ↗
- Speaker
- Mr. Geoffrey RobinsonLabour
- Quote
- Having been lucky enough to catch your eye, Sir Alan, I wish briefly to revert to the question of effectively reducing the capital allowances, which would come into effect in year one. Given the recession and its likely progression, immediate cash-benefit to companies is the very thing we need at the moment. Despite the seeming good news today, I think we all know that we are still in a precarious position and should not take anything for granted. The real need is for cash flows to companies now, so reducing capital allowances at this point in time would hit the very thing we need for the future, which is investment. The timing is particularly perverse. Apart from the wrong timing, we would be hitting the very area where we are already weakest, and the hon. Member for Fareham (Mr. Hoban), who led for the Opposition, should realise that. We already have a relatively low depreciation charge, which arises directly from the fact that our manufacturing sector is weak compared to our main competitors in exports and world markets—India and China, for example, are taking the lead on many consumer goods. Where we have to compete, we already have a low depreciation charge arising from our relative under-investment over the years, so driving it down still further would hit the very sector that most of our policies should be directed at improving.
- Time
- 16:30
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- Is the hon. Gentleman aware that the parlous plight of British manufacturing today means that a very large number of otherwise very good companies are loss-making, so his case in the short term falls?
- Time
- 16:30
- Source
- View in Hansard ↗
- Speaker
- Mr. RobinsonLabour
- Quote
- If they are loss-making, they are not going to benefit from a reduction in corporation tax. That is the whole point. They are losing money in part because of under-investment but mainly because of the world situation. The right hon. Gentleman has, surprisingly, made precisely my point for me. In the short term, those companies will not benefit from any reduction in corporation tax, so we should be trying to get them what they need by securing money for them from the various schemes that have been announced. Of course, I am the first to acknowledge, in front of the Secretary of State for Business, Enterprise and Regulatory Reform, that we have been slow to get those schemes off the ground. The Conservative party offers no help, however, by suggesting that we have £50 billion in our pockets and that it be should doled out to anybody who wants it. That is not serious. I put it to the hon. Member for Fareham that what he proposes is wrong. I accept that getting the headline rate down is important, and the first thing we did in government, if the hon. Gentleman remembers, was to introduce a whole range of tax changes, including moving to a new system of corporation tax and other measures. Of course, we reduced the headline rate of corporation tax—it was the first thing we did in our first Budget. I do not underestimate the importance of that, but it is important that we send the right signal and timing is so important. It is no good sending a signal at the wrong time. No one is coming here to invest at the moment. However well we are doing in other respects, the important thing is to get money to the worst-hit sector at the moment, which is manufacturing. I highlight the manufacturing sector, because, despite the dire forecasts of the City of London—the right hon. Member for Wokingham (Mr. Redwood) knows far more about that than I will ever know; indeed, he has probably forgotten far more than I will ever know, and probably to his own benefit—comparatively speaking, the City has not been so badly hit. Not yet, at any rate, so the losses are occurring where they always occur—in my own area, that of my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) and that of my right hon. Friend the Secretary of State for Business, Enterprise and Regulatory Reform—[Interruption.] Yes, in the area of my hon. Friend the Member for Walsall, North (Mr. Winnick), too. In sum, now is the wrong time and this is the wrong target. The Conservatives should reconsider and put off their proposal. In fact, I know that their proposal to reduce capital gains is not remotely serious—it is a talking-point, and quite a good one in a way. However, I believe, Sir Alan, that now is not the time and what is offered is directed at the wrong target. The amendment should not be pressed and we should not accept it.
- Time
- 16:30
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- I am a director of two companies, as declared in the Register of Members’ Interests, but I wish to make some general remarks about the tax system. My hon. Friend the Member for Fareham (Mr. Hoban) has been quite right to say that a lower headline rate of tax could be very important in attracting more business to this country. I think he could have added that it will also affect the judgments of quite a lot of multinational businesses that already have some representation in Britain but have options over where they could carry out their various activities. Quite rightly, it is not legal for a company to fiddle its transfer prices by suppressing profit in a high-tax regime in order to allow the transfer of that profit to a low-tax regime by artificial means. Under this and previous Governments, the Treasury has rightly adopted methods of preventing or stopping that practice. It is, however, an entirely legitimate business strategy for a multinational with factories, service areas and operational centres around the world to decide where, at any given time, it is best to allocate particular types of business. Obviously, if a multinational has footloose business of a high-technology, high-value-added, high-growth kind which will produce a high margin and plenty of profit, it will look very carefully at the effective and, especially, the headline tax rates around the world. All other things being equal, it may then decide to put more of its high-value, high-profit business into the parts of the world that offer the most competitive headline rates.
- Time
- 16:30
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- If one looks at table C6 on page 231 of the Red Book, one sees that the projected receipts from corporation tax for the financial year 2009-10 are £34.7 billion. The amendment would cut corporation tax by three 28ths—from 28 to 25 per cent. In round terms, three 28ths of the projected revenues of £34.7 billion is £3.7 billion. If one were to cut our corporation tax rate to the OECD average, which the hon. Member for Fareham helpfully informed us is 22.5 per cent., that would be a five and a half 28ths cut in £34.7 billion, which would be a £6.8 billion cut. That is not before us tonight. I suspect, from what the hon. Member for Fareham (Mr. Hoban) said—although he did not say so directly—that he would not pursue the logic of his position and seek to put the UK at the average rate of the OECD, but cut only from 28 to 25 per cent. That was because he wanted a revenue-neutral package, and that the counter-balancing measures that he outlined to make up for that loss—which I calculated at £3.7 billion, although I appreciate that he does not accept that figure—would come to £3.7 billion. His countervailing measures did not come to £6.8 billion and therefore he could not go the whole hog to cut corporation tax to 22. 5 per cent. When I hear the phrase “revenue neutral”, it has the same effect as the words “efficiency savings” and my scepticism meter starts twitching markedly—
- Time
- 16:45
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- Does the hon. Gentleman recall that under a Conservative Government corporation tax rates were cut and income tax higher rates were cut, and in both cases there was a revenue surge?
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- I am not saying that it cannot happen: I simply said that my scepticism meter starts twitching. Following the probing and then the speech by my hon. Friend the Member for Coventry, North-West (Mr. Robinson), and the measures that the hon. Member for Fareham said that he was not allowed to table tonight, it appears that the countervailing measures to achieve the other half of this package—to make up for the lost revenues in corporation tax, were that cut to be enacted—are precisely the sort of measures that would hit manufacturing. Parenthetically, I would say to the hon. Member for Fareham that my understanding of the procedure of the House is that he could have tabled his amendments, so that we could have seen them, but the Chairman of Ways and Means would not have selected them—[Interruption.] Well, there is chuckling from Conservative Members, but it would have been useful to see the countervailing measures proposed. Instead, they were outlined by the hon. Gentleman, and from what I understand, they would hit manufacturing. The right hon. Member for Wokingham (Mr. Redwood) talks about footloose manufacturing companies, but his Front-Bench colleagues favour a tax regime for business that would hit manufacturing. It would be the loser under the countervailing measures and other parts of British business would gain. As a Member of Parliament in the west midlands—my hon. Friend the Economic Secretary is in his place, and my hon. Friends the Members for Walsall, North (Mr. Winnick) and for Coventry, North-West were here earlier—the current plight of manufacturing is a considerable concern, without changing the tax regime in a way that would make things worse. I understand the aspiration towards lower corporation tax, but the hon. Gentleman has to be careful about pushing the Canadian model too far. There are many jurisdictions in Canada, and those subject to federal taxation are federally incorporated and make up a tiny minority of companies, engaged in activities such as telecommunications and transport that, under the Canadian constitution from 1982 and the British North America Act 1867, are the federal preserve. Almost all business in Canada is the provincial preserve, and the huge trade barriers between provinces are an issue that bedevils that country. I understand that the hon. Gentleman aspires to that model, and it does raise some money at the federal level, but he should not push it too far. I do not accept the concept of distortion—although I am not sure that that is the argument that has been made—because people change their behaviour. There is no natural way for people to behave that is somehow then distorted, because to say that is to buy in to the whole nonsense about perfect competition, which never exists, even on eBay. We have taxation measures to encourage certain forms of behaviour, and some of those behaviours are related to commercial matters, including for example, the lack of VAT on newspapers and books, and the company car taxation regime. So, corporation tax as part of a package of taxation measures will have an effect on behaviour and one must be very careful about that so as not to drive business out. I reject any suggestion that we have perfect competition and that we should not intervene at all. We should have a capital allowance regime that encourages manufacturing and capital investment, as my hon. Friend the Member for Coventry, North-West said. I remember that a few years ago, when we had a 100 per cent. first year writing down allowance for investment in computers, that measure found favour on both sides of the House, although some might have said that it was a distortion. I favour capital allowances that help manufacturing and I urge Labour Members to reject the amendment tonight.
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- The hon. Gentleman referred to the 100 per cent. first year writing down allowance for computers. Did he object to its withdrawal?
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- Yes. It was cut by this Government and I do not think that it should have been. It should have been kept for longer—that is the simple answer—because computers are used across British industry, including in manufacturing.
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- The hon. Gentleman is characteristically honest, but does he not recognise that decisions are taken to reduce allowances because they have perhaps distorted behaviour or outlived themselves and changes need to be made? We need to get people to act in a way that is consistent with their economic and commercial drivers rather than simply distorting behaviour for a short-term objective.
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- I will not be tempted too far down that line, Sir Alan. However, I think that there is a role for writing down allowances and tax and capital allowances to encourage certain behaviour in the economy, even though it might be seen by some—and perhaps by the hon. Gentleman—as a distortion. That is why I think that the computer writing down allowance should have continued for a bit longer, until we had even more computers in the economy. That allowance was very helpful. I urge my hon. Friends to reject the amendment, because it is part of an overall package that would hit manufacturing and would be bad for British industry and bad for jobs in the west midlands.
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. Jeremy BrowneLiberal Democrat
- Quote
- The measure proposed by those on the Conservative Front Bench is actually rather simple and modest. One would think from the attempt to draw dividing lines, as is fashionable in politics at the moment, and from the length of the speech made by the hon. Member for Fareham (Mr. Hoban) that a huge point of principle was being proposed that distinguished the Conservative party from the Government. If the sentiments expressed by the right hon. Member for Wokingham (Mr. Redwood) had been the substance of the amendment, that would have been true. He made a serious ideological point that distinguished between what he thought was the best way forward for the British economy and the Government’s proposed way forward for the British economy. The distinction made by the amendment is not nearly as substantial and as impressive. The right hon. Member for Wokingham said that there was great value in cutting headline rates. I think there is some truth in that, although it is not always as straightforward as he might think, as shown by the Prime Minister’s experience in his last Budget as Chancellor of the Exchequer. He cut the headline basic rate of income tax to 20p, thinking that that would be extremely popular and would incentivise a lot of people on low to middle incomes to do more work. It appeared not to have that effect when people realised that it was revenue-neutral and that some would be disadvantaged as they would have to pay additional taxes to make up the shortfall arising from the money that was lost by cutting the headline rate. Cutting headline rates is not always as popular as politicians and legislators might think. I was also interested in the point made by the right hon. Member for Wokingham about the Laffer curve, although he appeared to suggest that the Laffer curve’s principal benefit is attracting investment from other countries into the jurisdiction where that applies. I would have been more interested if he had gone on to advance the view that it would generate more money from companies within the existing area of jurisdiction. He appeared to dwell less on that point, although I suspect that that is also his view. By way of contrast, the amendment attempts to create an impression that, at this time of recession, the Conservative party would like to give British companies preferable tax treatment. However, having heard the explanation from the hon. Member for Fareham, one understands that that is not the case and that the proposal is revenue-neutral with regard to the total tax take. For that reason, his speech could have lasted two minutes rather 50—he could simply have said, “This amendment seeks to redistribute but not reduce the tax burden on British businesses.” Given that our budget deficit will be £175 billion this year and £173 billion next year, and that we do not have huge amounts of surplus revenue sloshing around to use to reduce taxes, I and my party are minded to support the amendment precisely because of its modesty. Three principles are worth observing—[Interruption.] I hear mutterings from off stage, but my point is that, although the ideas of the right hon. Member for Wokingham are more interesting and ideologically adventurous, they would create a real distinction—something that the Conservative party wants only to give an impression of doing. In a way, there is nothing very interesting about the amendment.
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- Will the hon. Gentleman give way?
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I will in a moment. We are considering not how much business is taxed, but whether the burden on different aspects of business should be redistributed in a way that renders the total tax take more reasonable. By and large, I think there is scope for collecting the same amount of tax revenue in a more simple way, and I shall set out my three principles for doing so. Before I do, however, I shall give way to the right hon. Gentleman.
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- Do I understand the hon. Gentleman correctly? Does he think—unfairly—that, because the proposal from my hon. Friend the Member for Fareham (Mr. Hoban) is potty, it is now good Liberal Democrat policy?
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- That would have been funnier if the timing had been better. As it was, it was a typical Back-Bench attempt to be conservatively amusing. The Conservative party believes it is here to argue the case for British business. That is reasonable, but it is trying to create the impression that it wants to cut the tax burden on British business. In reality, though, it does not want to do anything of the sort, and that is why I said that the amendment could have been dealt with rather more quickly. Had the Opposition proposed from the Front Bench the measures articulated by the right hon. Member for Wokingham, that would have been worth debating all of today and tomorrow because it would have represented a massive change in economic and tax policy. However, that is not what the Conservatives are trying to do: they are trying to give that impression, but they are not really trying to achieve that. Even so, for the reasons that I am about to outline, I think the amendment is probably a step in the right direction. The first principle that I think ought to govern these matters is stability. Stability is beneficial: the Government have kept the rate unchanged, and that is a reasonable step in the right direction. It would help if they gave an indication of how long the rate will be kept at that level. I realise that future Finance Bills and general elections make it harder for them to give a firm commitment, but it would be helpful if business could have a feel for where corporation tax rates are going. The second principle is simplicity, and it is in that regard that I think the amendment is most worthy of support. Removing lots of rates and reliefs and concentrating on a lower headline rate makes the system easier to understand for companies. It is harder for people to dodge tax, and complying with tax obligations is less of an administrative burden. The third principle is transparency. I caution Conservative Members against creating the impression that they wish to cut business taxes when the reality is that they want nothing of the sort. They are in harmony with the Labour Government in thinking that the overall tax burden on business is exactly right, but this modest amendment at least advances the cause of simplicity and, on that basis, I see no reason to oppose it.
- Time
- 17:00
- Source
- View in Hansard ↗
- Speaker
Mr. Brian Binley (Northampton, South) (Con)Conservative- Quote
- I declare an interest as the chairman of an SME that employs about 140 people and that pays well below the corporate tax rate affected by the present discussion, although we hope that, one day, we will get there. We do, however, service a number of companies that are in the relevant tax bracket, and therein lies my interest, because supply chains are a vital component of the whole structure. I shall talk about how people think about tax as much as about how accountants evaluate tax. Business men tend in the main to be more creative than accountants and they tend to dwell less on detail. It is that degree of creativity that makes the amendment interesting and it is why I commend it so strongly. What the amendment proposes would create a feeling of the worth of being involved and of using money to gain more money and to grow on behalf of the nation, as well as on behalf of the people we employ. It reflects an attitude of mind —one that is often not understood by Government Members. Many in business get the impression that Labour Members think that business men are there to make profit and that that undertaking is in some way dubious—or even, some of the worst sort of that thinking suggests, crooked. In fact, many business men are there to create, to build and to grow, and that very objective is the driving force that creates jobs in this country. Therein lies the importance of the amendment: it would encourage creativity, which in turn encourages jobs. That is a vital part of the process in which we need to be engaged right now if we are take advantage of the green shoots that will appear, as my right hon. Friend the Member for Wokingham (Mr. Redwood) and my hon. Friend the Member for Fareham (Mr. Hoban) have said. When those green shoots appear, we need to be in a position to exploit them to the advantage of our nation. High taxation in any form does not help us to do that. Another point touched on by my right hon. Friend is the need to attract to this country businesses and big companies from other nations. I am amazed by the arguments advanced by some Government Members, who seem to think that our real opponents are Germany and France—that those countries should be our comparators and that, as long as we are lined up relatively sensibly with them, the world is okay. Let me tell Ministers that the world is changing dramatically and the G7 may not always be in pole position. In fact, I believe that the present elements of the G7 will not be in pole position for very much longer, because I perceive a massive, dynamic change in the world, which the present recession will only enhance. The Government need to understand that, but I see no understanding among them of that trend. Let me explain part of the reason I think that. I have just returned from a Department for Business, Enterprise and Regulatory Reform trip to the United Arab Emirates and Saudi Arabia, and I went to Dubai. Some might say that Dubai is having a pretty bad time, and indeed it is, because it is not a major oil-producing part of the world, but it is a hub for a massive region. People there said to me time and again, “We used to look to the west; we now look to the east.” Business man after business man in Saudi Arabia and the Emirates told me that. Of course, many of them were not nationals of those countries. They were European business men who decided to settle their businesses in that part of the world because of the potential that it provided. That is what we are competing against. It is against that background that this debate is so important. It is about ensuring the recharging of Britain’s natural entrepreneurial spirit. That creativity is vital, and lower tax rates inspire that creativity. I beg the Government to recognise the connection in the amendment, even at this late stage. I was rather surprised at the hon. Member for Coventry, North-West (Mr. Robinson), whom I admire enormously. He is one of the few members of the Labour party with real business experience. I was particularly surprised that, although he recognised that we created the lowest corporate rates of taxation in the G7, he did not seem to think that that was too important. That was a very confusing argument. I recognise the points made about the overall tax basis, but he did not see the creative, imaginative elements of the proposal, as I would expect a business man to do. That surprised me in a business man of his stature.
- Time
- 17:15
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- Drawing on his business experience, does my hon. Friend find, as I do, that business people in big companies will go to enormous lengths—within the law, we trust—to try to avoid paying higher taxes? That is important when they do business across the world.
- Time
- 17:15
- Source
- View in Hansard ↗
- Speaker
- Mr. BinleyConservative
- Quote
- Of course my right hon. Friend is correct. Many of the greatest business supporters of the current Government were the proponents of such exercises. The hon. Member for Coventry, North-West—I repeat that I hold him in great esteem—said that the argument was about timing. That was the essence of why he did not want to support a cut to 25 per cent. at this moment. I would argue that it is precisely because of the timing that we need to make the change. I was one of those people who saw, from ’79 onwards, a great rebirth of entrepreneurial spirit in this nation. I saw what that did for people like me, who wanted to go out and be their own boss, to build and create, and to drive forward the jobs that were so successfully created in the next years. At the time, one of the major motivations for me, and for many other people like me, was the fact that the Government wanted to get off the back of business, free business up, and encourage business to build. Therein lies the import of the cut to 25 per cent. Like my right hon. Friend the Member for Wokingham, I want further cuts as time progresses, but timing is vital if we are to grab the green shoots that will surely appear. That is why it is important that we make the change now, and that we tell people we want to support business and entrepreneurism. We want to grow jobs and businesses and we want to attract businesses so that my children and grandchildren do not see that movement to the east as the end of their hopes and aspirations.
- Time
- 17:15
- Source
- View in Hansard ↗
- Speaker
- Stewart HosieScottish National Party
- Quote
- I do not have a problem with lower business taxes, and I am very supportive of lower corporation tax. I have said so many times that, as part of an overall competitive framework for business, that is a prerequisite for solid economic growth. When we look back over the medium term, we can see that many countries that, when they reduced their business tax burden, in fact experienced a business tax increase year on year as the rates came down. None of those comments will come as a surprise to those on the Conservative Front Bench, as I have made them on many occasions. It is the case, however, as we have discussed before, that concerns arose when business taxes were kept high. Even when allowances and reliefs for investment were extended, there were concerns that that regime failed to support the good businesses that were simply getting on and running their companies, and supported only the companies or firms that invested in particular areas. I shall return to that in a moment. The hon. Member for Fareham (Mr. Hoban) suggested that the proposed tax cuts would fundamentally be paid for by reducing or removing allowances or reliefs, by simplifying the allowance or relief system. Although I agree with the need for a simpler tax allowance and relief system in general, I have a couple of questions about his amendment. What assessment has he made of the value of lost investments—investments that might be cancelled or delayed as a result of the proposals—if those allowances or reliefs have already been budgeted into the costs? Why has he proceeded at this point with the cut, rather than proposing a longer time scale for changes to the tax and allowance regime, which would allow the economy to benefit from the announcement effect, as we have seen elsewhere, whereby businesses come and set up in preparation for lower taxes, while mitigating the risk of investment projects being cancelled or postponed? I am very supportive of a lower corporation tax rate—our aspiration is to reduce it to 20 per cent.—and I am in favour of a simpler tax system, which is a good thing, as it reduces costs and burdens, and is easier for business people, their offices and their staff, to understand. However, I question the timing of the proposal. Why not say that it would take place in future, to benefit from the announcement effect, and why not tie that into a longer lead time for the abolition or simplification of allowances? Importantly, what assessment has the hon. Gentleman made of the risk of investment projects being cancelled? I want to support the proposal, but it would be useful to hear his thinking.
- Time
- 17:15
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- From the point of view of the hon. Gentleman’s party, what would be a competitive corporation tax rate for the United Kingdom?
- Time
- 17:15
- Source
- View in Hansard ↗
- Speaker
- Stewart HosieScottish National Party
- Quote
- We suggested a reduction to 20 per cent. That was our favoured route, and we thought it would be the optimal position. We must not have a race to the bottom, but we cannot compete with the lowest-cost economies: there must be a competitive package—that is the key. At the same time, we made it clear that that would not be done on day one. There must be a lead time, and where that has happened—and there is empirical evidence of this—the announcement effect on businesses coming here in preparation increased the tax yield even before the rates went down. If the hon. Member for Fareham responded to those points, I would be extremely grateful.
- Time
- 17:15
- Source
- View in Hansard ↗
- Speaker
- Mr. SymsConservative
- Quote
- First, I should like to draw hon. Members’ attention to my interest in the Register of Members’ Interests as a director of a family building business. We have had an interesting debate, and when we talk about first principles—tax, tax rates and competition—we often have such a debate. At the beginning of debate on the Finance Bill, we had almost a Cook’s tour of Canada, Bahrain, Dubai, China and Dundee, East. That shows that we live in a competitive world environment that is not getting any easier year by year, but is becoming far more competitive. One of the examples that I used was Ireland, and a key message that has come across is that low taxes generate more revenue and jobs, attracting people to locate there. Ireland is one of our competitors and, notwithstanding its short-term difficulties, which are similar to ours as a result of asset price deflation and everything else, we must accept that this is a competitive world. We should not look at the question on a year-by-year basis; we need to look at the medium term. Our economic problems relate not to one year alone, but to half a dozen years. We have to keep business in the UK and attract it to the UK. Setting a rate, a direction of travel, of 25 per cent. will make things a little easier than if we set a rate of 28 per cent.
- Time
- 17:15
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- Is my hon. Friend worried for firms in his constituency that are part of multinationals given that, at a time when a lot of capacity worldwide will be removed and plants will be closed, too high a headline rate might be what tips the balance against a British plant?
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- Mr. SymsConservative
- Quote
- There is over-capacity within the car industry, and there will be cutbacks there; and we have already seen bad news from Teesside as regards steel. Many international businesses will be looking to see where they want to expand in future. We face great competition, and the tax rate is one of the things that might encourage people at least to consider staying here at a difficult time. Many of our major manufacturing plants are hanging in there by their fingernails. We hope that we will get through the current problems. However, it is important to send a message in terms of public policy, setting rates and stating a direction of travel if we are to retain people and stop them moving abroad. I was surprised when my hon. Friend the Member for Fareham listed some of the companies that have moved. I was aware of some, but perhaps I am not as glued to the financial pages as somebody who does the Treasury job full time and is a chartered accountant. The amendment deals with lost revenue to UK plc that could be spent on important alternatives. It is therefore an excellent proposal, and I commend it to the House.
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
John Howell (Henley) (Con)Conservative- Quote
- I apologise for not having realised that in order to participate in this debate one had to be an expert on Canada, but having returned from Canada only on Saturday morning let me give the Committee the benefit of an update on the situation there. The economic situation was encouraging, as were the conversations that I had with Ministers, including those in the finance team. They had a realistic view of Canada’s position and direction and were keen to go out around the world and “sell” the country. Canada started with a good situation in terms of its approach to the current crisis. The stock market was doing rather well last week—not that I had time to undertake any speculation—and unemployment was under control. There is one great difference between Canada and the UK: Canada has a Conservative Government. One of the Committees that I have served on over the past few months considered the Corporation Tax Bill. Nothing new was introduced into that Bill—it was part of a tidying-up exercise; “simplification” was the euphemism used—but the fact that it had some 1,300 clauses shows that we have some problems in our corporation tax system. It was evident that what was required was not just telling the press about closing loopholes but genuine simplification of a regime of allowances and reliefs that interact with each other, are extremely complex and set a very confusing picture for foreign investors who come to this country. It is a shame that the opportunity was not taken to make more of simplifying the corporation tax system as part of the way out of the current crisis. There is huge scope for simplifying the system even further. For several years, I was an inspector of taxes—[Interruption.] I hear cries of “Shame!” from my hon. Friends. I remember that when I first started, all the income and corporation tax Acts could be put into a reasonably small box that could be put into one’s briefcase and taken home. That is no longer so, which is a great shame. Even then, one had to deal with huge areas of enormous complexity, such as transfer pricing.
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
The Temporary Chairman (Mr. Jim Hood)Labour- Quote
- Order. May I ask the hon. Gentleman to speak a bit more about the amendment as opposed to the generality of corporation tax?
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- John HowellConservative
- Quote
- Thank you, Mr. Hood. I shall try to do that. That complexity, though, is very much part of the balance that needs to be struck in deciding what reduction in corporation tax is required and how it can be adjusted. A lot of hon. Members have spoken about competitiveness in reducing the rate, and I endorse the many comments that have been made about the role of a lower rate of corporation tax in encouraging foreign investment into this country. For a number of years, it was very much the UK that set the agenda in encouraging newly developing countries in how they should approach their financial systems and set their own rates. I remember being involved in discussions how the countries of central and eastern Europe, as they emerged, could get the right balance between the rate of corporation tax and the need to bring in foreign investment through other means. That was always a difficult discussion, because countries always want to encourage companies to come in initially through means other than reducing corporation tax. It takes quite a lot of maturity for a country to get to the point of reducing it, as the amendment proposes.
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- When my hon. Friend was in Canada, did he find people taking great delight in the fact that the UK rate was so much higher than the Canadian rate? Did they believe that that gave them a great competitive advantage?
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- John HowellConservative
- Quote
- My right hon. Friend is right—there was a certain pleasure in that, although perhaps I should not use the word “pleasure”, as they are, after all, our cousins and still part of the Commonwealth.
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- I may have misheard, but I believe that the intervention was factually incorrect. The corporation tax rate in Canada is higher than that in the UK.
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- John HowellConservative
- Quote
- I think that my right hon. Friend the Member for Wokingham (Mr. Redwood) was talking about the overall direction in which it was going—at least, that was what I understood. To return to the example of countries needing to reach maturity to consider reductions in corporation tax, the country that sticks in my mind is Poland, which has reduced its corporation tax rate to 19 per cent. Of course, the UK was very much behind the reforms there in the whole tax and financial system. It is a great irony, particularly given the advice that Poland gave the Prime Minister recently, that Poland was ready to take advice from the Conservatives but the Prime Minister was not. There we have something that will continue in future. In the businesses that I have advised and examined, there is great attraction to the headline rate of corporation tax.
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- May I caution the hon. Gentleman about praying in aid Canada and Poland? He will find that both countries have a rather higher unemployment rate than we do. I appreciate that ours is getting worse and is worrying, but I think that both those countries have higher rates. Canada certainly does.
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- John HowellConservative
- Quote
- I thank the hon. Gentleman for his intervention. There is always a limit to the use that we can make of examples, but those of Canada and Poland still have merit to the extent that I have indicated.
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- David TaylorLabour
- Quote
- The hon. Gentleman has rapidly developed a reputation in the House for being a rather more subdued and rational person than his predecessor, which does not take a lot. He says that the direction in which things are going is all that matters. Does he believe that if investors and industrialists were looking at a country with a highish corporation tax rate that was heading down slightly, and at another country with a lowish corporation tax rate that was heading up slightly, a rational organisation or individual would choose the former because the direction was downward? I do not think so.
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- John HowellConservative
- Quote
- I am not sure whether to thank the hon. Gentleman or whether his remarks comparing me with my predecessor were even a half-hearted attempt at a compliment, but I will take them at face value and hope that I continue to make the gap bigger in his appreciation.
- Time
- 17:30
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- The debate has been interesting. I want to underline the Government’s determination to maintain the best possible environment for business in the UK, help the economy recover from the current downturn and provide the right conditions for long-term growth. Since 1997, the UK has led the way among its peers in reducing corporate tax rates. We reduced the main rate from 33 per cent. in 1997 to 31 per cent. in 1998, to 30 per cent. in 1999 and to 28 per cent. last year. The UK corporation tax rate has been the lowest in the G7 since the Government were elected in 1997. The rate has consistently come down. From listening to some comments, one could be forgiven for concluding that the rate had gone up, was going up or was set to go up. It has not—the main rate has consistently decreased. Indeed, we have set a target to maintain the most competitive main rate of corporation tax of the major economies. The hon. Member for Fareham (Mr. Hoban) said that he did not have a target. We do. Our target is to maintain that most competitive rate, and we will continue to assess the case for further reductions in the corporation tax rate, consistent with our wider objectives. This debate, like many in the past, has been enlivened and enlightened—
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- rose—
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- By the contributions of my hon. Friend, to whom I gladly give way.
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- May I take my right hon. Friend back a few sentences? I think that he said that the Government’s aim was to keep the UK’s corporation tax the lowest in the G7. Does that mean that, if Jim Flaherty in Canada achieved his aspiration of dropping corporation tax to 15 per cent., the UK Labour Government would follow that figure on a beggar-my-neighbour downwards approach?
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- I was coming to precisely the point about Canada, which, thanks to my hon. Friend’s contribution and those of others, has been an interesting aspect of this debate. As I understand the current position in Canada, the rate is 33.5 per cent.—at least for most companies—compared with 28 per cent. in the UK. However, as we have heard, the Canadian Government have announced an aspiration to reduce that rate and, in due course, for Canada to have the lowest rate in the G7. Clearly, there cannot be two countries—[Interruption.] It is possible, I suppose, to have two, if both countries set the same rate. It is worth pointing out, however, that that aspiration was set before the problems in the world economy that we have seen over the past 18 months. There have been big changes in the world economy and Canada may wish to reconsider how best to address the fiscal consequences of the past 18 months. However, our intention—which was set some time ago and which Canada said a little while ago it wanted to emulate or even better—remains, but of course we will need to see what happens. It is worth bearing it in mind that tax competitiveness is about more than just the headline rate of corporation tax, as has been pointed out. The UK tax system certainly has significant advantages, including a generous and well-developed system of research and development tax credits, relatively low administrative burdens for business, a large tax treaty network and no withholding tax on dividends paid. We are introducing a package of measures in the Finance Bill to reform the taxation of foreign profits, which the hon. Member for Fareham mentioned, enhancing the UK’s competitive position as a location for multinational business. We will debate that in due course. We in the UK also perform well on other measures, according to the hon. Gentleman’s former employer. In “Paying Taxes”, a publication by PricewaterhouseCoopers and the World Bank, we rank first in the G7 for ease of paying taxes. We were ranked by KPMG last year as the most friendly country in the world for VAT arrangements.
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- Dream on.
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- I refer the right hon. Gentleman to the authoritative KPMG survey of more than 500 multinational companies that reached that conclusion. The World Bank’s “Doing Business 2009” study ranks the UK sixth in the world. The evidence is clear: we are in a strongly competitive position, and it is important that we should retain that.
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- If everything is so wonderful, why have so many companies left for tax reasons and why have there been such strong representations in recent months about how hostile the climate now is on tax?
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- The climate is certainly not hostile on tax. Of course it is true that, from time to time, some companies choose to locate elsewhere. It is also true, however, that over a long period we have consistently attracted more foreign direct investment into the UK than any other country in the world, with the exception of the US, and in one year—I forget exactly when; it was three or four years ago—we got more in than the US as well. We have an absolutely stunning record on attracting foreign direct investment, which is a reflection of the strongly competitive character of the UK business environment.
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
- David TaylorLabour
- Quote
- I am pleased to hear the views of international businesses about the user-friendliness of HMRC. The prompt payment code, which the Government have signed up to, requires the payment of invoices by the public sector and the Government within 10 days where there is the equivalent of an invoice, such as an acknowledged refund of corporation tax that is due. Is it the case that those payments, which are vital to the continuity of the businesses concerned, sometimes take weeks and weeks, because of peaks of work in the relevant tax offices, which is partly because of cuts in the headcount of staff? That is not good, is it?
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- No, it certainly is not, although I do not agree that our announcements about changing the way in which Revenue and Customs is organised, for instance, would lead to that kind of difficulty. If my hon. Friend is aware of a particular problem, I would be happy to hear about it from him and will gladly investigate. However, he is certainly right that such repayments should be made promptly. In opening the debate, the hon. Member for Fareham seemed to say at one point that the change could be funded by simplifying taxation. Indeed, it would be a wonderful idea if one could simplify everything and thereby fund the reduction of corporation tax from 28 to 25 per cent. However, as we explored what he is proposing further, the position became clearer. Cutting the rate of capital allowances further could produce an effective rate of tax depreciation significantly below the average depreciation rate used by businesses. Businesses with good commercial reason to invest would then find the tax system discouraging them from doing so, which would be a very undesirable state of affairs, discouraging investment by sectors such as manufacturing, transport, communications, retail and utilities, and certainly damaging our international competitiveness by reducing investment in those sectors. My hon. Friend the Member for Coventry, North-West (Mr. Robinson) was absolutely right to underline that point with his experience of working in manufacturing. Indeed, my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) made that point as well. The hon. Member for Poole (Mr. Syms) did not think that that mattered, because of other benefits that the manufacturing sector was experiencing. It is certainly true that, for example, the change in the exchange rate over recent months has been helpful for manufacturing. However, he would be very ill advised indeed to rob manufacturing in particular of the significant benefits of the current arrangements for allowances. We simplified capital allowances in the Finance Act 2008 to pay for the reduction in the headline rate. Going further could create serious problems. Indeed, the hon. Member for Dundee, East (Stewart Hosie) was right to query the timing of the hon. Gentleman’s proposition. I hope that the House will reject the amendment. Nevertheless, I underline the Government’s commitment to maintaining the attractive tax environment for business that we have in the UK, not least through having the lowest headline main rate of corporation tax in the G7.
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- We have had a wide-ranging and thorough debate on the amendment about reducing the headline rate of corporation tax. It was interesting that the Minister acknowledged the fact that, in the Finance Act 2008, the Government were able to fund a reduction in the headline rate of corporation tax by simplifying the allowances. We discussed the reforms to the industrial buildings allowance and the agricultural buildings allowances in Committee. There is therefore a track record of using the proceeds of simplifying capital allowances—that is, reducing the rates—to fund reductions in the headline rate of corporation tax. Our view is that we could go further and reduce the rate to 25 per cent. My right hon. Friend the Member for Wokingham (Mr. Redwood) was acting in his customary role as a critical friend, supportive of where we had moved so far, but perhaps keen for us to move further in the direction of reducing the headline rate of corporation tax. My other hon. Friends cited their business experience in talking about competitiveness and about what businesses bear in mind when locating activity. Mention has been made of the way in which Governments focus on tax as a means of competing, and I think that more reference was made to Canada in today’s debate than perhaps at any time since it was a dominion and part of the empire. It was good that my hon. Friend the Member for Henley (John Howell), a former tax inspector, joined the hon. Member for Wolverhampton, South-West (Rob Marris) as an aficionado of Canada and a spokesman on its behalf.
- Time
- 17:45
- Source
- View in Hansard ↗
- Speaker
- The Temporary ChairmanLabour
- Quote
- I ask the Serjeant at Arms to investigate the delay in the Aye Lobby.
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- I beg to move amendment 2, page 3, line 22, leave out ‘21%’ and insert ‘20%’.
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
The Temporary ChairmanCrossbench- Quote
- With this it will be convenient to discuss the following: Amendment 6, page 3, line 23, at end insert— ‘(1A) The Treasury may by regulations provide for the introduction of a very small companies relief from the small companies’ rate under subsection (1) for businesses with a rateable value of less than £25,000. (1B) Regulations under subsection (1A) shall be made by statutory instrument and shall be subject to amendment in pursuance of a resolution of the House of Commons.’. Amendment 3, page 3, line 25, leave out ‘7/400ths’ and insert ‘1/50th’.
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- Having engaged in a helpful and thorough debate on amendment 1, relating to the main rate of corporation tax, we must now deal with the small companies rate. Amendment 2, tabled by me and by two of my hon. Friends, seeks to reduce the headline rate from 21 per cent. to 20 per cent., while amendment 3 seeks to change the fraction from 7/400 to 1/50. I shall say more about amendment 3 a little later. Many of the points made during our debate on amendment 1 about the unpredictability, complexity and uncertainty of the corporation tax system apply to small companies as well, but in the case of small companies there is a more pressing issue. There is a little bit of history attached to amendment 2. There has been a long-running debate in Government about the taxation of small companies, and about what tax rate has been appropriate. When I first served on a Finance Bill Committee as a Back Bencher in 2002, the then Chancellor—now Prime Minister—had proposed a zero per cent. corporation tax rate on profits of less than £10,000. What the Government said at the time suggested that they saw the proposed rate as a spur to enterprise which would reinvigorate British business, but that rested on a key assumption which was misplaced then and which, in a sense, has led to some of our present problems: the assumption that only companies were entrepreneurial. That assumption ignored the contribution that can be made by partnerships and other unincorporated businesses to the dynamism of the British economy. The flaw in the Government’s proposal was that it did not merely overlook the fact that other types of business organisation could be equally dynamic, but triggered a behavioural change. A raft of unincorporated businesses became limited companies, because a gap had opened up between the rates of tax that would be paid by, say, a plumber, depending on whether he was employed, self-employed or a limited company. I believe that it was adequately flagged up at the time that that would happen.
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
- David TaylorLabour
- Quote
- I recall the decision and its implementation, and I recall the massive wave of incorporation that took place. It was not one of the best decisions that we have made in government. Does the hon. Gentleman agree with me—and, indeed with most management consultants—that, in the context of the framework for business, the decision whether to incorporate should never, or at best very rarely, be made for fiscal reasons?
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- That is an important question. It returns us to what was said earlier about distortions in the tax system, and about attempts to persuade people to make decisions that reflect commercial realities rather than being driven by tax considerations. A difficult position arose. Very small businesses—one-man bands—became incorporated in order to take advantage of the fiscal position, which I believed was a flawed decision. I argued at the time that it would lead to a wave of incorporations. The problem is that small companies are not measured in terms of numbers: in terms of whether they have one employee or two, three, four or five. They are measured in terms of the amount of profit that they make. On the one hand, there is the wish to create a level playing field for the plumber, the carpenter, the engineer and the IT software support worker, while on the other hand there is a range of businesses that are also incorporated and that are much bigger. In the latter case, the decision to incorporate was probably made on grounds of logic or to admit liabilities. What is happening now, however, is that larger companies that nevertheless fall within the profit threshold for small companies are paying the price of the Government’s early mistakes. Following the introduction of the zero per cent. rate in 2002, the Government saw what was happening and responded by introducing such measures as a higher tax charge on distributions. Gradually, a point was reached at which, rather than piling complexity on complexity, the Government decided to increase the small companies rate of corporation tax in an attempt to narrow the gap between the rate paid by people working by themselves as small companies and the rate that they would pay if they were employees or self-employed. In 2007, the Government finally decided that enough was enough. They scrapped the system, and introduced a 19 per cent. rate. They then set out to increase corporation tax for small companies by 1 per cent. per annum until it reached a top rate of 22 per cent. This was meant to be the year in which it would reach that rate, but, in the light of the current economic circumstances, the Government decided to put the increase on hold. Let me ask the Minister a question that I asked on Second Reading last week. Can the Government give any indication of whether they intend next year to raise the rate to 22 per cent., and to continue on that upward path? It was not just the change in rate that the Government considered as a means of tackling the issue of incorporation. They introduced a raft of rules on managed service companies in the 2007 Finance Act, and conducted a long consultation on the shifting of income between husband and wife, which, as far as I can see, has been kicked into the long grass. However, I think that we need to learn the lessons of the original rate change policy. I think that it was misconceived. It triggered certain types of behaviour that the Government have sought to crack down on, and introduced a new complexity into the tax system. It is a sign of the uncertainty and unpredictability in the tax regime for small businesses.
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
Lembit Öpik (Montgomeryshire) (LD)Liberal Democrat- Quote
- I accept that the hon. Gentleman’s amendments seek to achieve specific ends, but does he more generally feel that, notwithstanding the current debate, we need to have a root-and-branch review of the complexity? That complexity does not help either tax gathering or small businesses. Businesses are burdened by an unbearable cost in time and effort because of the opacity of the system, but a more streamlined version would help both them and the taxman.
- Time
- 18:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- The hon. Gentleman makes an important point: we must have a less complex system. The Chancellor of the Exchequer made a commitment to simplify it when he was appointed to the post. I do not know whether the hon. Gentleman is auditioning to take part in the Public Bill Committee, but if he were he would notice that in the Bill’s index there is the sub-heading of “Simplification”, listed under which there are only three clauses out of a total of 126. Therefore, although everyone aspires to achieve simplification, it is clearly hard to deliver. I know that complexity is an issue for the people who run small businesses; that was raised with me on Friday, when I was talking to small businesses locally.
- Time
- 18:30
- Source
- View in Hansard ↗
- Speaker
- Lembit ÖpikLiberal Democrat
- Quote
- I am grateful to the hon. Gentleman for his concurrence with my view, but for the avoidance of doubt let me make it clear to my party Whips that I am absolutely not auditioning for the honour of serving on the Public Bill Committee.
- Time
- 18:30
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- I am grateful to the hon. Gentleman for his comments too, but I hope that that is the end of them, as his party colleague, the hon. Member for Taunton (Mr. Browne), was very critical about the length of an earlier speech of mine, which was the result of my being overly generous in taking interventions. I have talked about the need to look at the direction of travel of the small companies rate, and about whether holding the figure this year at 21 per cent. is a permanent feature or whether it is the Government’s intention to move to 22 per cent. next year. Many small businesses are finding the current economic crisis very difficult. In October of last year, John Wright, chairman of the Federation of Small Businesses, wrote an open letter to the Prime Minister under the heading, “Help or the UK will crumble”. In the body of the text, he implores the Government to implement Conservative proposals to reduce the rate of corporation tax for small businesses; amendment 2 would reduce the rate from 21 per cent. to 20 per cent. Not only is that a Conservative policy, but Mr. Wright clearly hoped that the Government would introduce it in the Budget. This is what Mr. Wright said after the Budget: “In what has been the most crucial budget in decades, the FSB is disappointed that small businesses have been largely ignored”. In an FSB survey, when its members were asked if this was a Budget for small businesses, 68 per cent. said no. When asked if it would have a positive effect on their business, only 7 per cent. of respondents said yes. A survey conducted by the Forum of Private Business came to a similar conclusion: 97 per cent. of respondents said nothing had been done to ease the burden of costs that they face, and 94 per cent. felt that the Budget did not address the issues threatening the survival of their businesses. It was not only business organisations that were critical of the Budget and its impact on small businesses. Theo Paphitis, one of the stars of the “Dragons’ Den” television programme, said: “The Chancellor forgot that small businesses exist. He also forgot that one in five households in the UK derives its income from small businesses. He also forgot that nearly half of all employees in the private sector are employed by small businesses. In fact, the Chancellor forgot a lot of things.” One way in which we can help small businesses is by reducing the headline rate of corporation tax for small companies from 21 per cent. to 20 per cent. As with the measure proposed in amendment 1, this is a funded tax cut. I know that the modesty of it will upset the hon. Member for Taunton, but it is the prudent thing to do at present. Again, we will fund the reduction in the small companies rate through simplifying the capital allowances system. Earlier on, we engaged in debate about the competitiveness situation for small businesses and how the UK tax regime compares with those of other countries. According to the OECD, our small companies tax rate is significantly higher than that of the US and France, whose rates are 15 per cent. Earlier in the debate, the Government were very keen to highlight that the UK mainstream corporation tax rate was one of the lowest in the G7. Clearly, however, as the US and France—and, indeed, Canada—have lower rates of corporation tax for small companies, we are out of kilter with other countries. My hon. Friend the Member for Henley (John Howell) will be interested in the Canada comparison, and I am sorry that the hon. Member for Wolverhampton, South-West (Rob Marris) is not present to hear about it, although I am sure he will pick it up later. We need to ensure that both the main rate of corporation tax and that for small companies are competitive. The measure proposed in amendment 3 is very straightforward—or at least I thought it was when I tabled an amendment last year reducing the fraction concerned to one fortieth, only for the Financial Secretary’s predecessor to point out that that fraction was based on the corporation tax mainstream rate being 30 per cent. I have therefore gone back to my calculator, and it is my belief that the fraction should be one fiftieth, under which there would be a very smooth transition for businesses whose profits exceed £300,000, which is the upper threshold for small companies until they reach the full rate for large companies of £1.5 million. I hope the maths of that work. If the House were to agree to amendment 2, then amendment 3 flows logically from that. In our amendments, we both reduce the rate concerned from 21 per cent. to 20 per cent. for small companies and we have got the right fraction. May I pre-empt the hon. Member for Taunton in his comments on his amendment 6? I was intrigued by it, and I wish to flag up my understanding of it. The intention appears to be to give further tax relief to small companies based on the rateable value of their premises. Does that not create a risk of giving highly profitable businesses relief simply because they might work from small offices? I am not sure whether that is the hon. Gentleman’s intention, but I am sure he will explain the situation at greater length. The thrust of taxation for small companies has been disjointed over the past few years. The Government saw it as a spur to enterprise when they introduced the zero per cent. rate back in the 2002 Budget. They then decided that that led to all sorts of inappropriate behaviour and, sadly, by increasing the rate of tax from 19 to 22 per cent., have started to penalise businesses that fall under the definition of small companies but that are not an alternative to being self-employed or employed. I see the emerging danger that we are penalising those small companies that have not sought to incorporate to take advantage of the tax rules, but that incorporated for the right commercial and legal reasons. They are being penalised because of a flaw in the Government’s thinking back in 2002. I do not believe it is appropriate for that to continue. That is why I propose this cut in the small companies rate from 21 per cent. to 20 per cent. That, again, will be funded through a reduction and simplification in capital allowances. I hope that the House will support amendment 2.
- Time
- 18:30
- Source
- View in Hansard ↗
- Speaker
- Mr. Jeremy BrowneLiberal Democrat
- Quote
- I am grateful for the opportunity to contribute to this part of our deliberations. I say at the outset that I was not criticising the hon. Member for Fareham (Mr. Hoban) when I said his proposals were modest: I was praising him, and it is precisely because of their modesty that I feel able to support them. If they had been unfunded—the right hon. Member for Wokingham (Mr. Redwood) suggested that we consider such a situation—that may have given us greater difficulty, given the overall state of the public finances. That leads me neatly to this proposal, which, after all, is largely an extension of our discussion on the previous clause. However, as it is slightly different, I shall speak at slighter greater length to it. According to the Federation of Small Businesses, there are 4.7 million small businesses in the UK, a remarkable 97 per cent. of firms employ fewer than 20 people, and 95 per cent.—19 out of 20 companies in the United Kingdom; I am not talking about 19 out of 20 employees—employ fewer than five people, so the overwhelming majority of businesses and enterprises in this country are extremely small employers. More than 500,000 people start up their own businesses every year, small firms employ 58 per cent. of the private sector work force, 13.5 million people work in small firms, small firms contribute more than 50 per cent. of UK turnover, and 64 per cent. of commercial innovations come from small firms. I rehearse those statistics because it is clear—this point is made so often that it is a truism—that small enterprises are extremely important to wealth creation and employment opportunities. Thus, it is important that we regard them as being a distinct entity for corporation tax purposes. That point is widely accepted, which is why the Government have a different rate for them. For the same reasons that I cited in our previous discussion, we think that stability is important. If the Government are not going to cut rates, it is good that they at least indicate that there will be stability and that the rates will be frozen, and seek to convey to businesses the understanding that the situation will endure, even though it is not necessarily in the gift of the Government to guarantee that, as clearly it is not for a longer time scale. That statement of intent is helpful because it allows businesses to plan. However, it remains our view, as it was when we discussed the previous clause, that simplicity has a virtue and that our trying to reduce headline rates helps companies—as my hon. Friend the Member for Montgomeryshire (Lembit Öpik) said, it helps in terms of their administrative burden—and creates the right message for those looking to start businesses or invest in this country. For those reasons, and because I have the assurance of the hon. Member for Fareham that the Conservative proposal is costed and responsible, as I like proposals to be, it is reasonable to support it. Amendment 6, which stands in my name and that of my colleagues, was an attempt to provide additional assistance. In an effort to be open-minded and generous-spirited, may I say that I take the hon. Gentleman’s point that there are potential difficulties with the system I am proposing? It is difficult to frame amendments that cover every eventuality, because the nature of the process is that amendments have to be reasonably brief. We seek to give further assistance to particularly small businesses, which may benefit from that help, given that, as I was saying, 95 per cent. of businesses in the United Kingdom have five or fewer employees.
- Time
- 18:30
- Source
- View in Hansard ↗
- Speaker
- David TaylorLabour
- Quote
- I am a big admirer of the FSB and I use its website and services from time to time. Has it said whether there is any correlation between rateable value and profit? Why would it be sensible to use as a proxy for a definition of small businesses something related to rateable value? Far better measures could be used, particularly for organisations and small businesses that are devolved in an electronic sense through good numbers of people working from home. How would that be handled?
- Time
- 18:30
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- One might seek to give the greatest encouragement to precisely those businesses. I take the hon. Gentleman’s point, and my doing so relates to the concession I was making only a moment ago; I only regret that he did not take the opportunity to table an amendment that he felt would be more effective in assisting the businesses I am trying to help. I think there is broad agreement on the overall point that small businesses contribute substantially to the UK economy, and it is very much in our interests that that be recognised in the tax structure.
- Time
- 18:30
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- The hon. Gentleman makes an important point about recognising the importance of small companies in the tax structure, but could he elaborate a little more as to the nature of his amendment and the relief that would be granted to businesses that fell into this category? Is he talking about a 10 or a 15 per cent. rate of corporation tax for those businesses? It is not clear where his thinking is heading on the additional relief that would be offered to them.
- Time
- 18:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- There would be an additional saving to such businesses, and it would depend on the rateable value of the premises. An assessment would have to be made of that rate, and the saving would accrue at that point. Even if you propose to let me press my amendment to a Division, Mr. Hood, I do not intend to do so; I was seeking to make the point that there is merit in the Conservatives’ proposal. I did not think it necessary to table an identical amendment, because I am more than happy to give my party’s support to their suggestion. I was seeking to explore ways in which we could help particularly small companies that may benefit from additional assistance. If people feel there are multiple ways in which that can be achieved, I am open-minded on the matter and I hope that those will emerge during this debate and our deliberations in Committee.
- Time
- 18:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- rose—
- Time
- 18:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BinleyConservative
- Quote
- rose—
- Time
- 18:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- Should I give way to the Front-Bench spokesman?
- Time
- 18:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BinleyConservative
- Quote
- Better give way to seniority.
- Time
- 18:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- I am not sure how my hon. Friend defines seniority, but could the hon. Gentleman make his point a little clearer? He talked about the relief in relation to rateable value, which gave me the impression that he was talking about a reduction in the business rates a small business would pay, as opposed to a reduction in its corporation tax bill. He left hanging in the air the question of what sort of relief he means in practice.
- Time
- 18:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- If his intervention is directly related, I shall give way to the hon. Member for Northampton, South (Mr. Binley).
- Time
- 18:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BinleyConservative
- Quote
- It is. We should recognise that the seniority to which I referred was with regard to pecking order, rather than anything else. I welcome the general thrust of the hon. Gentleman’s proposal; there is a need for a more graded relationship to corporate taxation, particularly for micro-companies. He has the good will of the Committee in this respect, and I hope that the Government will take that on board. The proposal does need defining further; introducing rateable value creates a more clumsy arrangement when matters need to be simplified.
- Time
- 18:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I am grateful for the hon. Gentleman’s intervention, because it perhaps gave the response that I may have sought to give to his Front-Bench colleague. I hope that the Equality Bill, which we debated yesterday, will address any issues he may have about seniority and discrimination in terms of pecking order. The intention behind amendment 6 was not only to say that the proposal to cut the headline rate had merit and that additional simplicity had virtue; it was also to consider whether, through this method, we could grade matters further and target specific assistance on particularly small companies such as start-up and IT companies, which have been mentioned. There is probably a feeling that this may not necessarily be the best method, but that there is some merit in trying to think along those lines. This has afforded me the opportunity to make that point. On the lead amendment, while I welcome the Government’s intention not to increase the rate, we think there is scope for decreasing the headline rate, based on tax-neutral assumptions and simplification of the system as a whole.
- Time
- 18:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BinleyConservative
- Quote
- Of all the things the Government have done in recent months, one of the worst was to increase corporate taxes for the small business sector. The timing of this proposal has been disastrous, and the Government—and many of their supporters—recognise the problems. The increase has had a depressing effect on small businesses. It has prevented entrepreneurs from starting businesses, and it has certainly stopped small businesses growing. We need to change that situation, and amendment 2 would help to do that. That is why I am so keen that it should be accepted. My main point concerns the importance of retained profit to small businesses. Retained profit is the very essence of their growth and survival. Small businesses tend not to have loans or be involved in over-complicated financial support—they simply have an overdraft. Therefore, the amount of money left at the end of the year is a vital consideration for their future growth, and to their protection against bad debt. That is particularly relevant at this time. For small businesses, cash is king and the more that the Government take in corporation tax, the less small businesses have to survive. The objective of most small businesses is simply to be here next year, and the Government could help enormously by accepting the amendment. The amendment would also help businesses looking to grasp the opportunities that will be provided by the green shoots when they come. I hope that the Chancellor’s projections are right. I want to see the green shoots sooner, rather than later, and a cut in corporation tax would better prepare small businesses to exploit those opportunities. I do not need to tell the Government about the growth opportunities in small business, as they have been well proved. The creativity of small businesses is very valuable for this country, and we need to have them in situ to support the supply chains for our bigger plc companies. However, they will not be in situ if they do not survive, and we will lose that infrastructure. The amendment would be a small measure to encourage small businesses, because it would give them more cash at the end of the year, which would help their survival and their growth when the recession ends.
- Time
- 18:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- My hon. Friend will know from his experience running small businesses about the impact that the Government’s change in their approach to small business taxation has had. From his viewpoint, have the frequent changes over the last few years damaged the willingness of those businesses to invest and plan for the long term?
- Time
- 18:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BinleyConservative
- Quote
- My hon. Friend makes a vital point. Many small businesses that were thinking in the longer term have ceased to do so. Many of them are simply looking to the next six to nine months in the hope that they will still be around. As I said, cash is king, and the amendment would provide a little more cash for such businesses at the end of the financial year to enable survival, after which they can think about growth. They have to survive first, and that is the point that I wish to make to the Government. The amendment would give small businesses sizeable encouragement, which would be most welcome.
- Time
- 18:45
- Source
- View in Hansard ↗
- Speaker
- John HowellConservative
- Quote
- I wonder whether my hon. Friend’s experience is similar to mine in that, because of the vulnerability of small and medium-sized companies, even the smallest amount of tax reduction has a huge effect on them.
- Time
- 18:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BinleyConservative
- Quote
- I am grateful to my hon. Friend for making that point, because it allows me to point out that just a £2,000 bad debt can be the end of a very small company. That sort of saving might ensure its survival, which is why I seek the Government’s support for the amendment. If that is not forthcoming, I hope they will think about this matter more constructively than they have to date. I am told that the road to Damascus is a most attractive route.
- Time
- 18:45
- Source
- View in Hansard ↗
- Speaker
- Mr. SymsConservative
- Quote
- Clause 8 is important and amendment 2 would be very helpful. We have already heard how important small businesses are—probably more for the employment they provide and the taxes thus generated, rather than for their profits and corporation tax purposes. Many companies in the small business sector are under-capitalised. It is therefore important that when they make money, it be retained within the business. Many of the capitalist entrepreneurs who run such companies pay the tax and leave the money in the company instead of taking a dividend, so that the company can grow. If we are to get through these economic problems, we will need people who are determined, who are good managers and who have a vision for running a business. Many small businesses do not make a profit, but giving a signal to the small business sector by reducing, rather than increasing, the rate is potentially very important. Many people are in business out of sheer awkwardness—they have run the business for years and are determined to keep faith with their employees. Those people are looking for better times ahead. Many of them have risked their homes, put off holidays and even ruined marriages over their businesses, so it is important that we give them a signal that they will be able to retain more of what they do make in profit. Today’s small business is the potential medium or large company of tomorrow. We have seen several examples over the past 10 to 15 years of small businesses growing and providing many jobs and innovation. It is important to tend, encourage and provide direction for small businesses so that they provide jobs, make profits and produce a return for those who take the risks. The Government are already set on a course of raising national insurance on employees. That is not the right approach, but the amendment would enable us to reinvigorate and encourage small businesses, which will, we hope, be the great successes of tomorrow.
- Time
- 18:45
- Source
- View in Hansard ↗
- Speaker
- John HowellConservative
- Quote
- I wish to draw Members’ attention to my entry in the register, as I am the director of a family company—my own family company, for the sake of clarification. I thank the hon. Member for Taunton (Mr. Browne) for giving the statistics on the small business sector. It was a helpful tour d’horizon and has set the scene for this debate. However, it does not emphasise enough that the problem faced by small and medium-sized businesses comes down, essentially, to the credit squeeze and their inability to access credit to develop their businesses.
- Time
- 18:45
- Source
- View in Hansard ↗
- Speaker
- Mr. Jeremy BrowneLiberal Democrat
- Quote
- I am grateful to the hon. Gentleman for giving way, because he has only just started to speak. I am also grateful for his kind words. The one other point that I omitted to make during my speech is that most of the big multinational companies started as small businesses. The benefit of this sector is measurable in terms of not only current small businesses but many companies, employing thousands of people, that had to get off the ground initially.
- Time
- 19:00
- Source
- View in Hansard ↗
- Speaker
- John HowellConservative
- Quote
- The hon. Gentleman makes a good point. We all need to bear in mind and to stress the support provided by the interrelationship between small and medium-sized companies and larger companies. Many of the points that I made during our debate on amendment 1 are just as relevant to amendment 2. Other hon. Members have mentioned the effect on small businesses of uncertainty within the tax system and the need to get rid of that, as well as of the system’s inherent complexity. Indeed, I would argue that those two elements are especially important considerations for the small business sector. Getting rid of uncertainty is vital and there is no benefit to anyone in maintaining a complex tax system for small businesses driven by entrepreneurs. It is totally unnecessary to make things complicated or more expensive. Entrepreneurs can be a funny bunch. They are very focused on their idea. I am sure that there are some very good examples of such people on the Conservative Benches and that they will take these comments in good spirit. That focus is why their business ideas work and why they are successful. However, as well as doing all the things that a business needs, they have to undertake a range of other activities, from being the head cook and bottle washer to being the bookkeeper. I know that—I have been there and have experienced the pressures of going out and getting business while ensuring that the cash flow is working and that there is back-up. The Budget presented a handful of measures for the small business sector, but it did not address the important issue of cash flow. The amendment seeks to address that problem. Earlier, reference was made to comments from the Federation of Small Businesses and its chairman, John Wright. The quotation was: “In what has been the most crucial budget in decades, the FSB is disappointed that small businesses have been largely ignored”. The most important word in that quotation is “crucial”. His point is borne out in the quotation from the chief executive of the Forum of Private Business, who said: “The Chancellor has missed a vital opportunity to produce a Budget for business survival”. That point has already been made eloquently by my hon. Friend the Member for Northampton, South (Mr. Binley). It is crucial, because this is about survival. Many of our small businesses are just surviving, and the rate reduction could be of extreme benefit to them. We like to think in terms of protecting vulnerable institutions but we rarely think of small businesses as vulnerable. Last night, I was privileged to have in the House members of the Henley-on-Thames partnership, many of whom represent small and medium-sized businesses in and around the town. They individually employ relatively small numbers of people, but collectively they make a major contribution to the life of the town and to its business life in particular. In small towns such as Henley, lay-offs are personal. People know each other and there is a family atmosphere, even when the companies are not necessarily owned by the same families, among the companies that work and do business in the town. It is crucial to reduce the threat that any possible downturn could pose to those companies. Anything that can improve the cash flow, as amendment 2 does, is to be welcomed. As I said at the beginning, the vulnerability of such companies results principally from a lack of credit. However, many are vulnerable because they have already had to make cuts in order to save costs. In some cases they have laid people off, and in others they have found different means to make savings. Also, as a result of the recession, many of the service sectors are already witnessing a decline in the number of people seeking their business. When businesses have made all those efforts and cuts in order to stay afloat, it does not go down well at all when they see the money that they have saved going on higher taxes. That is nonsense for them. They do not understand it and it does not encourage entrepreneurs into the system, particularly to begin start-ups.
- Time
- 19:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BinleyConservative
- Quote
- I am listening intently to my hon. Friend’s speech, and I congratulate him. I meet many small business people who are beginning to despair and feel that the burdens are getting too heavy for them to continue the journey. This is about spirit as well as money; it is about giving a sign of encouragement as well as taxation. Does my hon. Friend agree?
- Time
- 19:00
- Source
- View in Hansard ↗
- Speaker
- John HowellConservative
- Quote
- I completely agree. An important point that emerged in our debate on the headline corporation tax rate concerned its importance as a signal of the country’s competitiveness. In this case, we are giving out a signal about the importance of a very vulnerable sector, which lives on the margins, as my hon. Friend has described so well. I, too, meet representatives from many businesses in a similar situation in my constituency and as I go around the country. I have never been in despair about the business, but I know that one has to deal with many things as part of running a business while yet more tasks are piled on top. The lack of recognition and appreciation of the role played by small businesses in the economy bites into one’s enthusiasm and energy. The amendment sends a powerful signal to a business sector on which we all rely.
- Time
- 19:00
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- Opposition Members are right to underline the crucial importance of small businesses to the UK economy and I agree with those points, as well as with their points about the large proportion of UK employment provided by small businesses. However, I disagree with their overstatement of the significance of the small companies rate. They have also underestimated the important measures that the Government have put in place to support small businesses specifically—in fact, they have rather ignored them. The UK has about 4.7 million small businesses, three quarters of which are made up of self-employed people who would therefore not benefit from a reduction in the small companies rate of corporation tax. About 400,000 companies pay no corporation tax, so they would not benefit either. The small companies rate is, in reality, a small profits rate. Any company with profits up to £300,000 benefits from that lower rate, regardless of its size. We are introducing a wide range of measures to support businesses in the downturn, including additional targeted support for new investment through the temporary increase in the main capital allowance rate to 40 per cent., which is a significant boon for many businesses.
- Time
- 19:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BinleyConservative
- Quote
- May I give the example of a small company in my constituency that sells wood-burning fires for companies? They cost £200,000 whereas the very big ones cost £500,000. A sizeable grant is available, but what I hear is, “People cannot afford the stuff even though they get a very good grant.” That is what I mean about survival. People are not spending, even though the grant incentive is sizeable. Would he accept that?
- Time
- 19:00
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- I do not accept the hon. Gentleman’s conclusion, and I was about to make an extremely important point about the effectiveness of HMRC’s business payment support service, which we introduced in November. It has addressed exactly his concerns about the survival of businesses, as it means that those businesses that for cash-flow reasons need to or would like to defer a tax payment can do so by ringing up HMRC. Very often, they can make an agreement on the spot in that call. More than 100,000 companies have benefited from the scheme, and between them they have deferred about £2.3 billion in tax. It is undoubtedly the case that a significant number of companies that would have “given up”, to quote the hon. Member for Northampton, South (Mr. Binley), in the downturn have been able to survive, go on to do well and keep up with their repayments as well.
- Time
- 19:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BinleyConservative
- Quote
- The Minister is most generous in giving way again, and I am most grateful. I accept the value of the benefits that the Minister has outlined—it would be churlish not to—but my point is that the customers of the business to which I referred say that, even though they get a lot of grant, they simply do not have the money that they need to put in themselves. They get a 40 per cent. grant, but they cannot afford the remainder, however they might want to pay it.
- Time
- 19:00
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- We are undoubtedly in a very serious world economic downturn, and the measures that the Government have taken are helping to support the economy through it. I was speaking to an accountant yesterday, and he told me that his colleagues who work in liquidation are less busy this year than they were last year. He thought that that was because of the success of the business payment support service and the large number of companies that have gained a significant cash-flow benefit from it. The service has been very valuable for business survival, and its scope was widened further in the Budget. The hon. Member for Fareham (Mr. Hoban) spoke about the fairness of the UK’s corporation tax arrangements for small companies. At £300,000, the UK threshold for the small company rate is the highest in the G7. It is perfectly true that rates in some other countries are lower, though not many are. For example, the small companies rate in the US is 15 per cent., but that applies to only about £30,000 of profit, compared with £300,000 in the UK. The fact that the threshold in Britain is the highest in any of the G7 countries means that companies making a profit of, say, £250,000, or up to the threshold pay the lowest marginal rate on that profit in the G7. Finally, as we discussed earlier, we performed very well in an international analysis of competitiveness. The amendments proposed by the hon. Member for Fareham would raise a serious problem of fairness. He acknowledged, I think, the problems that arose when the small companies rate was reduced significantly, as the result was a large incidence of businesses being incorporated, which was motivated purely by tax. The problem with his amendment 2 is that it would return us to precisely that problem. It would not be fair to encourage people to incorporate purely to gain an advantage in terms of tax and national insurance payments. We have set out a range of measures to make the tax system fairer across all small businesses, and to reduce the competitive disadvantage faced by unincorporated businesses. The amendment would make that disadvantage greater. The number of incorporations per year increased from 230,000 to 320,000 with the introduction of the zero per cent. starting rate. They reached a record high of 450,000 in 2006-07, but they have declined since, following the increase in the small company rate. The amendments tabled by the hon. Member for Fareham would reignite the problem, which would be unfair and a mistake.
- Time
- 19:00
- Source
- View in Hansard ↗
- Speaker
Mr. Mark Field (Cities of London and Westminster) (Con)Conservative- Quote
- The Minister professed the crucial importance of small and growing businesses, but is he not concerned that one of the biggest impacts of the income tax changes proposed by the Treasury for the years to come will be that the owners of such businesses will have even less incentive and available collateral to grow them? Businesses like that are very often run by a single individual using his own pocket and energies, so being taxed at a much higher level post £150,000 of earnings will cause them to suffer most. Does he agree that, as a result, the growth of small businesses that is so crucial to the economy will be undermined?
- Time
- 19:15
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- No, I do not agree with that. The entrepreneurs whom I know and admire earn a long way short of £150,000 a year. Moreover, the owners of businesses occupying premises with quite low rateable values will not, on the whole, have earnings of over £150,000 a year. For those reasons, I do not agree with the hon. Gentleman. I hope that I have demonstrated to the House’s satisfaction that the amendments would not help the majority of small businesses. They do not recognise the importance of fairness, which is a very important consideration in tax matters. In addition, the debate did not properly reflect the impact of the substantial measures that the Government have put in place to support small businesses. I hope that the House will decline to agree the amendments.
- Time
- 19:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HobanConservative
- Quote
- This has been a useful debate, as it drew on the experience of my hon. Friends the Members for Poole (Mr. Syms), for Henley (John Howell) and for Northampton, South (Mr. Binley), in small businesses. My experience before entering Parliament was largely confined to large businesses; in my professional practice, I had little contact with small businesses, but I have got to know the sector well in my role as a constituency Member of Parliament. I have a great deal of respect for small business men, because they really do put themselves on the line in growing their businesses and taking day-to-day responsibility, not only for their own future, but for that of their staff. My conversations with them over the past few months have brought home to me how tough they are finding it to survive in the present economic climate. They are worried about their cash flow, for example. The Financial Secretary talked the tax payment deferral scheme, which I welcome, but before the Government announced their scheme, the Conservatives proposed a six-month deferral of payment of VAT, recognising the importance of cash flows. The hon. Member for Taunton (Mr. Browne) talked about smaller businesses. We also proposed measures on national insurance that particularly affected micro-businesses employing four or fewer members of staff. There is a judgment call to be made on the small companies tax rate. The Minister is right to point out that not all small companies are small businesses. He says that there are 4.7 million small businesses in this country, three quarters of which are unincorporated, leaving about 1.2 million small companies, of which 400,000 pay no corporation tax. We are therefore talking about 800,000 businesses across the country that fall into the small companies’ rate of taxation. This debate is important to them. We have to decide the extent to which we should be focusing on how people used incorporation for tax planning and crack down on that, or incentivising those small companies that incorporated for legitimate economic and legal reasons. That is where the division is between the Conservative party and the Government. The Government see incorporation of small companies as a way of managing down tax bills and not paying what is fair. In my view, and that of my hon. Friends who have had experience of running small companies, the increase in the small companies’ rate is not a matter of fairness. We believe that the increase is having an impact on their ability to retain profits which, as my hon. Friend the Member for Northampton, South said, is important to their ability to build up reserves for the future and to fund investment. In our judgment, the small companies rate of taxation should fall, to incentivise genuine small companies and encourage their growth and future development. The rate should not be increased, as the Government would use it, as a means of cracking down on tax avoidance. That is the dividing line between the Conservative party, which wants to support entrepreneurs, and the Government, who have seen fit to crack down on them by increasing the small companies rate of corporation tax. The Government’s argument on tax-motivated incorporation is, I think, an excuse for a revenue-raising measure, increasing the tax take from small businesses. They have sought to compensate for the increase through the annual investment allowance, but that is available to all businesses, not just small companies, so on average small companies will be worse off as a consequence of the changes that the Government have announced. Because we want to support entrepreneurs and because we recognise that people have set up limited companies for genuine purposes, and not only for the purpose that the Minister says, we want the small companies rate of corporation tax to be reduced. We have set out clearly how we would fund the reduction through reforming the system of capital allowances—our proposals are costed. I shall press the amendment to a Division, because it is important to send a clear signal to this country’s small companies that we have their interests at heart—we do not regard them as tax dodgers or tax avoiders and we want them to flourish and continue to grow. That is my party’s policy; it is not the Government’s policy. I therefore ask my hon. Friends to vote for amendment 2. Question put, That the amendment be made. The Committee proceeded to a Division.
- Time
- 19:15
- Source
- View in Hansard ↗
- Quote
- I ask the Sergeant at Arms to investigate the delay in the No Lobby.
- Time
- 19:15
- Source
- View in Hansard ↗
- Speaker
- Mr. Jeremy BrowneLiberal Democrat
- Quote
- I beg to move amendment 8, page 4, line 2, at end insert— ‘(1A) The Chancellor of the Exchequer must, not later than 1 April 2010, compile and lay before the House of Commons a report containing an assessment of the impact of the temporary VAT rate reduction on— (a) UK economic growth, (b) the competitiveness of small and medium-sized businesses, and (c) the disposable income of low-income households, for the period during which the rate reduction had effect. (1B) A Minister of the Crown must, not later than 1 May 2010, make a motion in the House of Commons in relation to the report.’. I am grateful for the opportunity to speak on a subject that most people would regard as a central feature of our debate on the Finance Bill—the Government’s decision to use a reduction in VAT as a way of injecting extra money into the economy and trying to deal with the recession. Members will be familiar with many of the arguments, but before I make some slightly more general comments, I shall just explain the amendments that I tabled. Amendment 7, which has not been selected, but which appears on the amendment paper—I hope I am not out of order, Mrs. Heal, if I briefly mention it, because it illustrates the direction in which I am seeking to move Government policy—seeks to bring forward the day on which the VAT reduction from 17.5 to 15 per cent. ceased to apply to the date on which the Bill receives Royal Assent, which we believe is the earliest conceivable date on which that temporary reduction could be ended. The amendment was not accepted, for entirely understandable reasons to do with revenue implications, but it nevertheless remains our intention to try to encourage or force the Government to bring forward that measure to the earliest possible date. Amendment 8 is much more wide-ranging and benign, and provides an opportunity to review the success or otherwise of the Government’s policy. Inevitably, such a review could take place only after the effects of the policy had been experienced, so it is not as immediate as the change proposed in amendment 7 or, indeed, a proposal to reject the clause as a whole. However, it provides a useful opportunity to discuss the Government’s strategy as a whole. Many right hon. and hon. Members will be familiar with that strategy. The Government are running a massive deficit—£175 billion this financial year, and £173 billion in the next financial year, if their assumptions are correct—so there is a legitimate debate to be had about the extent to which the Government can afford to borrow more to stimulate the economy. My party’s view is that there is merit in fiscal stimulus—trying to inject an extra boost into the economy will help us to get through the recession quicker, and the best way we can address our public finance deficit is to get the economy growing again. After that, we will have to ask questions about additional tax revenue, and about savings in the public sector. The immediate task, however, is to get through the recession and out the other end, growing strongly again. Some sort of fiscal stimulus, in my party’s view, is the right way forward, if it is affordable.
- Time
- 19:15
- Source
- View in Hansard ↗
- Speaker
Mr. Nicholas Soames (Mid-Sussex) (Con)Conservative- Quote
- Without wanting to make a point about it, I agree about the need for fiscal stimulus. Before every Budget, I survey almost every business in my constituency and this year, for the first time, that survey received an extremely high response rate. Everyone who responded on the VAT cut was extremely critical of it. Does the hon. Gentleman acknowledge that that change is not one that commands universal support across the country and that it was not the right thing to do?
- Time
- 19:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I not only acknowledge but completely agree with that. The starting point for us, for the Government and for others was whether it was possible to afford some sort of fiscal stimulus. The answer, in our view, was yes, although it would be limited in scope because of the state of the public finances. The question that then arose was what form that fiscal stimulus should take. The Government’s view, as I understand it, was that a VAT cut would be a good way to go, partly because it could be introduced speedily—no doubt the Minister will put the Government’s case; I do not with to misrepresent it, but I will explain my view. They thought a VAT cut would incentivise people to spend money, which would provide the sort of stimulus they believed would be advantageous in the short term. They also believed it would be beneficial for individual consumers. I remember their making the case when it was introduced that it would save money for typical households, and we were given examples of those savings. However, when some retailers did not pass on the VAT reduction, the Government then made the case that it helped the margins of those retailers. I accept that there was a degree of truth in the Government’s position, even though to some extent they were having their cake and eating it: when the VAT cut was passed on, it would help consumers, and when it was not, it would help retailers and businesses. That, as I understand it, was the Government’s case for the VAT cut. It is not a case that my party finds compelling, and that view is shared by many hon. Members, including Government Members. There are numerous reasons for that but, first, the Government unfortunately cut VAT in the run-up to Christmas, when retailers were heavily discounting their products. Many companies were introducing cuts of 20, 25, 30 or 35 per cent. and, in that context, the 2.5 per cent. reduction was rather modest. It may have led to a small extra saving for consumers, but it was unlikely to provoke them to make a purchase that they would not otherwise have made. The cuts introduced by the retailers themselves were substantially greater than the VAT cut. There was the serious issue, too, of the administrative burdens placed on businesses as a result of the VAT cut. A number of businesses sought to reprice their goods, and if they were priced in a catalogue that had already been printed or if a similar approach had been taken, that presented even greater problems. I went into a shop in my constituency where the company introduced the discount, but did not mark it on the price that appeared on the product, as that would have resulted in extra burdens. I remember buying a birthday card for someone for £2, and I paid with two £1 coins. I was given 4p change because the shop had kept the marked price as £2, but I was given a discount, to reflect the temporary VAT reduction, which I had not anticipated. Up to a point, I appreciated it, but I did not necessarily feel incentivised to buy another card once I knew that another 4p was there for the taking. I suppose I had 4p more to spend on other goods and services, but I am not sure that the effect on the economy as a whole, even if everyone received that benefit, was as great as the Government hoped.
- Time
- 19:45
- Source
- View in Hansard ↗
- Speaker
- Lembit ÖpikLiberal Democrat
- Quote
- I very much agree with my hon. Friend’s point, but is there not another marketing consideration? Something that had cost £11.99 should cost about £11.73 after the VAT cut but, as we all know, the price points are heavily determined by marketing considerations—the prices tend to end with “99” and so on. Does my hon. Friend agree that the benefit of the VAT cut will almost inevitably gravitate back to the companies and businesses as they revert to the standard pricing points? No one can pretend that £11.73 is a natural pricing point or that it has any marketing advantage.
- Time
- 19:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I take my hon. Friend’s point. Many retailers round their prices to a sensible point and then discount a penny to make them look more attractive. A lot of the margins might be greater than the VAT reduction, so the reduction might not have been felt in the way envisaged by the Government. With small items—I just gave the example of a birthday card—the saving to the consumer is small. With big items such as a new car, the saving would be greater. However, it is worth mentioning that car retailers were so desperate to turn over more of their products that the discounts by and large were bigger than the VAT reduction that was meant to incentivise consumers.
- Time
- 19:45
- Source
- View in Hansard ↗
- Speaker
- Mr. SymsConservative
- Quote
- The hon. Gentleman has talked about costs to small businesses, but there are also the costs to local authorities, which charge for a range of services such as car parking spaces. Some such charges have VAT implications. That created costs for local government, which had to reduce lots of charges to be able to comply quickly with what the Government wanted.
- Time
- 19:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- That is an entirely fair point. Parking charges are a good example, which leads on from the point made by my hon. Friend the Member for Montgomeryshire (Lembit Öpik). By and large, parking charges are rounded to a sensible hourly rate. A reduction of 2 per cent. would mean that instead of paying £1.50 an hour, a person would pay—somebody else should do the maths—£1.47 or whatever. People might prefer to pay £1.50 rather than £1.47 or have difficulty in paying the precise amount. Many local authorities would think it easier to stick at £1.50, so in such cases the benefit was not passed on to the consumer. No doubt opposition parties of all colours in the authority would then criticise the administrating party for not passing on the VAT cut to consumers, even though it would have been administratively burdensome for the authority to do so. The money would be absorbed by the local authority, so I suppose that the Government would argue that the local authority would have more money to spend on other services. However, I am not sure that the money flowed through the system as neatly as the Government would have wished.
- Time
- 19:45
- Source
- View in Hansard ↗
- Speaker
Mr. Tobias Ellwood (Bournemouth, East) (Con)Conservative- Quote
- The hon. Gentleman and I both have constituencies in the south-west, where the biggest industry is tourism. He mentioned small and medium-sized businesses. There are 200,000 such businesses involved in tourism and I have not found one that has embraced the change that we are discussing. It has actually cost them more—they have had to change their online basket systems and the pricings and so forth. They would relish the opportunity to have the measure thrown out as soon as possible.
- Time
- 19:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- The hon. Gentleman makes a good point. To follow on from that made by the hon. Member for Mid-Sussex (Mr. Soames), I should say that my experience—other Members’ experiences may be different—is that there are two reactions to the reduction. One is hostility, which the hon. Member for Bournemouth, East (Mr. Ellwood) described; the other is indifference. I have not met anyone who feels zealous enthusiasm for the Government’s policy. Some regard it as making no difference whatever to their business or the assumptions that they make; others regard it as burdensome and troublesome and, if they went to great lengths to accommodate the reduction, are not looking forward to having to put the rate back up again.
- Time
- 19:45
- Source
- View in Hansard ↗
- Speaker
Bob Spink (Castle Point) (Ind)Independent- Quote
- Local authorities, of course, could reduce the council tax as a result of having collected more money from parking charges and so on. Does the hon. Gentleman have any idea which tax his party would reduce to balance out the 2.5 per cent. VAT increase that it wants? Alternatively, would it use the additional money to cut borrowing?
- Time
- 19:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I do not want to incur Mrs. Heal’s wrath, so I will not extend the debate to local government finance. However, in due course I shall discuss possible alternatives to the VAT cut, because that is very much within the scope of amendment 8.
- Time
- 19:45
- Source
- View in Hansard ↗
- Speaker
- Mr. EllwoodConservative
- Quote
- Another aspect of the issue, to which the hon. Gentleman may come, is the date itself. The VAT change is unpopular, but most people are enjoying a drink on new year’s eve, and no small or medium-sized business, particularly in the tourism industry—pubs and so forth—wants to start changing tills when Big Ben is striking midnight.
- Time
- 19:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- The hon. Gentleman makes an entirely legitimate point, which I have heard him make in other debates. The Minister needs to engage with it. New year’s eve may well be the worst possible date of the year to pick—365 options, and the Government pick the worst one of the lot. Clearly, there are cost implications in pushing the date backwards—[Interruption.] I accept that the hon. Gentleman was not making a point about cost, but a practical one about businesses that trade beyond midnight into the new year and how they would manage to adjust. The broader point is that businesses as a whole—and, in some cases, even individuals—have either found the change burdensome or have not noticed it at all. I doubt whether many people have changed their behaviour as a result of the measure. I take the point made repeatedly by the Government—people might have a little more money to spend and not consciously realise that they are changing their behaviour. They may buy one thing at the end of the week that they might not otherwise have bought because the accrual of all the 4ps saved when buying cards and other bits and pieces might make them think, “I might buy one more birthday card because I am suddenly feeling a bit more affluent.” My suspicion, however, is that even at a subconscious level, very few people have acted as the Government would have wished.
- Time
- 19:45
- Source
- View in Hansard ↗
- Speaker
- Lembit ÖpikLiberal Democrat
- Quote
- Given my hon. Friend’s sage and insightful observations, he may be amazed that at today’s sitting of the Business and Enterprise Committee, it was claimed that the VAT reduction had increased economic activity by £8,000 million to £9,000 million. What is my hon. Friend’s view of that heady claim?
- Time
- 19:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- It would probably be better to hear the Minister’s view of that claim; it does not accord with my experiences—or, apparently, those of other Members taking part in our deliberations. Others may wish to dwell at greater length on the impact on business, but I have sought to make that point. My central point about the public finances—the Government’s finances—is the cost of the measure and whether the opportunity cost represents a good decision by the Government. In all our deliberations on the Finance Bill, we have to return to the big elephant in the room: this year, we are running a public sector deficit of £175 billion. That is £480 million every single day, and £20 million every hour; since we started our deliberations this afternoon, close to £100 million has been added to the public debt. The figures are enormous. There may be some scope for a fiscal stimulus, although, as I have said, it is fairly small. We have to make sure that we get the maximum value from the money being spent. I argue that that money should achieve two objectives. First, it should try to ensure as quickly as possible that the economy starts to grow again; that, after all, is the whole purpose of a fiscal stimulus. Secondly, it would be beneficial if we had something to show for the money afterwards. It is worth reminding everybody that the cost of the temporary VAT cut—I do not know whether the Government realised that it would be this neat—is almost exactly £1 billion a month. Amendment 7 is not within the prescribed boundaries of our deliberations, but I was keen for it to take effect because that would have saved the taxpayer about £4 billion or £5 billion, depending on the precise date of Royal Assent. The clock is ticking. If we are to try to come up with a more effective way to spend the fiscal stimulus, then every day that passes we have roughly £30 million less to play with than we would have done had we made that decision a day earlier.
- Time
- 19:45
- Source
- View in Hansard ↗
- Speaker
- Stewart HosieScottish National Party
- Quote
- Would the hon. Gentleman like his proposed assessment to include the Treasury’s own forecasts, run through the input-output model, of various options set against the VAT cut, showing how many more jobs might have been saved through direct capital expenditure, and what difference an income tax cut might have made in terms of GDP growth or jobs saved?
- Time
- 20:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- Yes; the hon. Gentleman is very helpful. Although it is tempting—and, I hope legitimate, Mrs. Heal—to have a wide-ranging debate on VAT, it is also useful to dwell on the amendment. That is precisely the sort of consideration that the review should examine. What strikes me as extraordinary is that a civil servant asked to come up with a £12 billion or £13 billion tax cut could not have come up with one that had less impact on the public consciousness. If the Government were seeking, albeit with borrowed money, to give away that amount of extra money to the taxpayer, they could have taken roughly 3p off the basic rate of tax for a year. They might not have thought that that was the right way to go, or they might have felt that it did not stimulate the economy in the way that they had intended, but every time people got their payslip at the end of the week or month, they would have noticed the sizeable reduction in tax. The most problematic aspect of the VAT cut, which it would be interesting to examine in a review, is that it did not have the effect of giving people additional confidence: the mental sense that they had additional money in their pockets. Part of the reason for the Government’s changes was to try to give people a sense that things were not so bad, that there was a bit more money to spend, that they could go out there and spend it, and that that would be a self-fulfilling prophecy in its impact on the economy. I do not think that that has proved to be the case, although others may disagree. If there were a cut in the basic rate of income tax, people might choose to save the money. The Government would say that cutting VAT means that people get the benefits only if they spend money—they were keen to encourage people to spend, and continue to be so. However, psychologically, it did not have the impact that it could have had as regards people feeling that they had more money to spend, even if they did in practice because the 4p’s were accruing here, there and everywhere as they made different purchases.
- Time
- 20:00
- Source
- View in Hansard ↗
- Speaker
- Mr. SoamesConservative
- Quote
- The basis of the hon. Gentleman’s argument, which he is making very powerfully, is whether the VAT cut was or was not a good thing to do. Does he know whether the Government consulted retailers and those who represent them on what the burdens would be, and whether retailers, who know much more than the Government about selling things, believed that the VAT cut would make a substantial difference to the Government’s prospects and to theirs?
- Time
- 20:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I am not aware of what consultation took place among retailers. I hope that the Minister is more aware of that than me, but from what I have seen there was little or no consultation. The Government felt a need to act swiftly, and perhaps they were right in that analysis. They grasped at the temporary VAT cut from 17.5 to 15 per cent. as being the best way to go—there seemed to be very little evidence for it, and amendment 8 would be a good way of starting to examine whether they made the right decision—and introduced it swiftly as part of an attempt by the Prime Minister, principally, to show that he had a grip on the economic situation. He wanted to show that the situation was bad, but that he was taking the decisive action necessary to get us through the recession as speedily as possible. I do not get the sense that alternatives were considered in as much detail as they could have been, nor that the adverse impacts of the Government’s policy were considered in sufficient detail. No doubt the Minister will enlighten us about that. I am not sure that the behavioural impact was fully assessed. Some people may behave in a way that the Government had not intended. I suspect that if the date on which the VAT reduction ceased had been brought nearer to today, some people who were motivated to spend differently because of the VAT reduction—for example, to buy a big-ticket item such as a car—would have tried to make such purchases just before the rate went back up to 17.5 per cent. again. Interestingly, the effect of the stimulus might have been brought forward if the reduction had been for a shorter period. Had it not stretched for the full 13-month period, the monthly cost of the reduction might have been a bit higher, but the overall cost might have been lower. That is a theory, but it is the sort of area that such a report could usefully examine.
- Time
- 20:00
- Source
- View in Hansard ↗
- Speaker
- Stewart HosieScottish National Party
- Quote
- The hon. Gentleman says that the assessment should be done before 1 April 2010. Does he agree that it could be done very quickly, and that if it included an assessment that showed that direct capital expenditure would protect or preserve tens of thousands more jobs in the remaining period than the VAT cut, that might be something that those of us who believe in fiscal stimulus could yet coalesce around in the teeth of recession and in light of tomorrow’s unemployment figures?
- Time
- 20:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- The hon. Gentleman makes a good point. I accept that the date in the amendment is arbitrary; I was trying to take account of the typical time scale of such reviews. There is a degree of urgency—very much so—in terms of the economy, and he mentioned unemployment. Of course, the review would be retrospective were it to take place on the date that the amendment envisages, but there would still be some benefit, because we do not know whether the Government may in time seek to use such a device again. It would inform future decisions instead of dealing with the here and now. I take his point that the here and now is an important priority, and we will no doubt focus on that in discussing the clause as a whole. The hon. Gentleman takes me neatly on to what the money could alternatively be spent on, which is an entirely relevant consideration. There are, essentially, two schools of thought: that which says that there is no scope for a fiscal stimulus and that which says that there is. My party is of the second school, and while I do not wish to caricature anybody’s arguments, I understand that we are in the same school as the Labour party and the Scottish National party. By and large, Conservative Front Benchers—although we heard a dissenting view a few moments ago—do not believe that there is scope for a fiscal stimulus beyond the automatic stabilisers that one would get at a time when the economy was shrinking. Having said, “The Government’s policy is to have a fiscal stimulus, and after all they are the Government: they are in power and enacting this policy”, we can move beyond that and ask how the money would better be spent. The sum involved is generally estimated to be £12 billion to £13 billion, although the more popular the Government’s policy is, the more effective it is, and the greater the cost. We should ask whether this is the best way to spend £12 billion or £13 billion, and whether it is doing two things. First, is it increasing demand and getting us through the recession more quickly than if the stimulus had not been put in place and the extra borrowing had not accrued? Secondly, will we have something to show for that large amount of public spending once it is finished? My party drew up a list, a package, when we were envisaging better ways to spend the entire £12 billion or £13 billion. As I said, with every day that passes that money ebbs away, but nevertheless I shall run briefly through some of the matters that we were talking about.
- Time
- 20:00
- Source
- View in Hansard ↗
- Speaker
The First Deputy ChairmanLabour- Quote
- Order. I hope that the hon. Gentleman will contain his comments to the amendment that is tabled in his name, rather than the wider package of reforms that he was about to discuss.
- Time
- 20:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- Thank you, Mrs. Heal, for that very helpful guidance. The point that I was trying to make—I certainly do not wish to make it at excessive length—was that amendment 8 asks the Government to consider the impact of the VAT reduction on “UK economic growth…the competitiveness of small and medium-sized businesses, and…the disposable income of low-income households”. My contention is that the benefits in those three areas and more widely would have been greater had the Government gone down the path of spending the money on a range of programmes. I shall not list those programmes, but they would have been designed to encourage our country towards greater environmental sustainability. We argued, and continue to argue even though the amount of money that we are arguing about gets smaller every day, that the money could have been spent on, for example, home insulation programmes, buying new rolling stock for trains or electrifying some train lines. That would have provided an opportunity for greater employment. It would have been a stimulus, but once we reached the end of the package, as the Government now envisage doing with the VAT reduction at the end of this calendar year, we would have had a lot of insulated houses, electrified train lines and new rolling stock. Instead, I am afraid that we are going to spend £12 billion or £13 billion and have precisely nothing to show for it except, arguably, some small, incremental, hard-to-measure benefits to some organisations. I fear that the review envisaged in amendment 8 would still not get us to the bottom of precisely what those benefits are. That is not £13 billion of public money spent wisely, especially as that money was not available. Borrowing was increased, by this year’s figures, from £162 billion to £175 billion, but we do not have longer-term assets such as I have described to show for it. The Government talk about investment when they really mean spending, but under our plans there genuinely would have been investment as well as spending. They would have stimulated the economy in the short term while providing a longer-term legacy. For all those reasons, amendment 8 requests a comprehensive review, and the debate gives us an opportunity to consider when the temporary VAT reduction should cease. The Government need to answer the question of the hon. Member for Bournemouth, East (Mr. Ellwood)—it was on a practicality, but an important one—about whether it is wise to finish it at the end of December. The Government also need to address the wider points about whether the end could be brought forward and the revenue savings realised earlier. I hope that many hon. Members will contribute to the debate and that the Financial Secretary will accept the concerns that have been expressed in all quarters. I hope that he will take on board also the complete lack of enthusiasm of anybody in his party for debating this issue and defending Government policy. Perhaps, in the intelligent way for which he is well known, he will seek to arrive at a solution that is beneficial to the taxpayer and the economy as a whole.
- Time
- 20:00
- Source
- View in Hansard ↗
- Speaker
Mr. David Gauke (South-West Hertfordshire) (Con)Independent- Quote
- This is an important debate, and I share the view of the hon. Member for Taunton (Mr. Browne) that it is a pity that there are not more Labour Members here to debate what was, after all, the flagship policy of the pre-Budget report of 2008. Perhaps this subject cannot drag them away from the various plotting enclaves in which they are currently gathered.
- Time
- 20:00
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- Can the hon. Gentleman tell us why there is no Conservative amendment on this subject? Given the strength of feeling on the Conservative Benches, I would have thought that there would be some proposals, but there is nothing.
- Time
- 20:00
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- If the right hon. Gentleman will be a little patient, he will receive the full reason why there is no Conservative amendment, but he will find that there is still a dividing line between us.
- Time
- 20:15
- Source
- View in Hansard ↗
- Speaker
- Mr. EllwoodConservative
- Quote
- Does my hon. Friend agree that we tried very hard in the debate on the Bill last week to get the Financial Secretary to recognise that this was an unpopular move, and that the best thing that could happen would be for the date of the VAT change to be moved? Does he agree that the response, body language and message that we got back suggested that in absolutely no way were the Government willing to listen? What would be the point of tabling an amendment if that is how we are treated in the Chamber?
- Time
- 20:15
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- I am grateful to my hon. Friend. I was going to address that point later, and I will come back to it, but given the enthusiasm in all parts of the Committee for me to address it now, I shall do so. Clause 9 will move the date at which we revert to 17.5 per cent. VAT back from 1 December to 1 January. If the clause does not stand part of the Bill, that date will remain 1 December. I shall elaborate on what that means, and I hope that the concerns that my hon. Friend raises, and the Minister’s concern that there is no Conservative amendment on this point, will be addressed. The Liberal Democrats tabled an amendment to bring the date forward, but it was not selectable, as is customary in these circumstances. However, we have an opportunity to do what we can to deal with the matter as quickly as possible. I return to my points in a more methodical way. The hon. Member for Taunton was absolutely right to ask his two questions—first, whether in November 2008 we could afford the fiscal stimulus that consisted of the VAT cut; and, secondly, if we could afford a discretionary fiscal stimulus, whether that was the right way to go about it. It is worth my being precise about where there is a difference between the Government and the Opposition, because there is a tendency to point to dividing lines and caricature our positions, and the differences between us can be exaggerated. First, we recognise that there is a place for automatic stabilisers. We recognise that tax revenues will reduce in the course of a recession and that expenditure will increase on certain things, particularly benefits. We have not argued that our fiscal policy should be such that we do not allow the automatic stabilisers to apply. The difference between the Opposition and the Government is about the discretionary fiscal stimulus, not the automatic stabilisers. Secondly, let us not exaggerate the significance of fiscal policy in addressing a recession. It is not the sole, nor even the principal, means of addressing a downturn. If I may, I shall quote what the hon. Member for Twickenham (Dr. Cable), who is highly regarded in these matters, said in the debate on 31 March. I did not say that he is rightly highly regarded, but he is highly regarded. He stated that, “what is actually happening is that the Government are very carefully following the doctrines of Milton Friedman and we have, in essence, a monetary response to the crisis, which is absolutely right, provided it is effective and gets money into the economy.”—[Official Report, 31 March 2009; Vol. 490, c. 815.] We supported the reductions in interest rates and recognised that addressing a downturn is essentially about monetary policy.
- Time
- 20:15
- Source
- View in Hansard ↗
- Speaker
- Mr. SymsConservative
- Quote
- My hon. Friend is developing his argument well. Clearly, the VAT cut pales into insignificance compared with quantitative easing, devaluation, interest rate cuts and all the other things that are happening. There must be better ways of spending the money.
- Time
- 20:15
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- My hon. Friend is right. The Government can and should do many things to address a recession. We differ from the Government in that we believe that, in the current circumstances, the benefits from a discretionary fiscal stimulus such as a VAT cut are outweighed by the dangers that it poses to the public finances and the burden that it places on future taxpayers.
- Time
- 20:15
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- I am following the hon. Gentleman’s argument closely and with interest. I appreciate that there are separate discussions about whether we can afford a fiscal stimulus and which stimulus we should choose. Does he agree with the shadow Secretary of State for Business, Enterprise and Regulatory Reform that, if we are to have a fiscal stimulus, a VAT cut is the best and most effective measure?
- Time
- 20:15
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- My principal argument is that we cannot afford it. On what constitutes the best fiscal stimulus when one can afford it, there are various arguments for and against, which I shall tackle in my speech. However, the fundamental argument is that we cannot afford it. I want to reach out in a bipartisan spirit to find another matter about which we and the Government agree. It is that one must recognise the state of the public finances when deciding what stimulus one can have, and that there are limits to Government borrowing, which must guide the policy that one pursues when drawing up pre-Budget report and Budget measures. We clearly agree about that because, despite all the rhetoric in the run-up to the Budget in April from the Prime Minister on his world tour, when he made the case for a bold fiscal stimulus for every country, the UK did not pursue such a policy in the 2009 Budget because the assessment was that we did not have the money. As the Governor of the Bank of England put it to the Treasury Committee—
- Time
- 20:15
- Source
- View in Hansard ↗
- Speaker
- The First Deputy ChairmanLabour
- Quote
- Order. I have allowed some latitude, but the hon. Member is now straying rather wide of the amendment and its intention.
- Time
- 20:15
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- Thank you, Mrs. Heal. I want to argue that we could not afford the VAT cut, which was announced in the pre-Budget report. The public finances are precarious and the Government recognised that they could not afford an additional fiscal stimulus in April. As the Governor of the Bank of England said: “The fiscal position in the UK is not one that would say, ‘Well, why don’t we engage in another significant round of fiscal expansion?’”
- Time
- 20:15
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- May I press the hon. Gentleman a little more? He is now setting out a view that is consistent with the comments of the shadow Business Secretary, but does he agree with his right hon. and learned Friend that, if one has a fiscal stimulus, the VAT cut is the most effective sort of stimulus to introduce?
- Time
- 20:15
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- Again, a little patience from the Financial Secretary would be appreciated. I know that he is keen to move me on from whether a fiscal stimulus was affordable, but I think that the subject should be tackled thoroughly. Given what we know now, who was right about the pre-Budget report 2008? Could we afford that discretionary fiscal stimulus? Hon. Members should remember that, at the time of the pre-Budget report, the Government projected that they would borrow £77.6 billion in 2008-09, and the projected figure for 2009-10 was £118 billion. By the time we reached the Budget—which contains the most up-to-date figures that we have from the Government; some consider them optimistic—the figures for 2008-09 were £90 billion and those for 2009-10 were £175 billion. That is an increase in borrowing over the two years of almost £70 billion. Even in November, we were concerned about the risks of the VAT cut to the public finances. We were not alone—in a debate in the House on 17 December, the right hon. Member for Birkenhead (Mr. Field) expressed his concerns about the Government’s ability to raise debt. Were we right to be worried about public finances? Absolutely. Given the decline in them and the difficulties in selling Government gilts since then, our case has become stronger. Our opposition to the VAT cut sent a much clearer signal to the markets than the Government could convey of determination to take the state of the public finances seriously. Let us consider whether a VAT cut is the best way in which to use the £12.5 billion that the Government said in November that it would cost. I have said that I do not believe that we could afford it, but there is a range of views about whether a VAT cut was the best method of using that money. I am not persuaded by Liberal Democrat proposals that the money should have been spent on a public works programme. The hon. Member for Taunton rightly did not have an opportunity to discuss the Liberal Democrat proposal in detail. However, I remember examining it, and it seemed to consist principally of improvements to rail services relevant to Liberal Democrat seats—strikingly so. Let me cite that great Liberal—I do not know whether the hon. Member for Taunton is from the same tradition—John Maynard Keynes. In 1942, he wrote: “Organised public works, at home and abroad, may be the right cure for a chronic tendency to a deficiency of effective demand. But they are not capable of sufficiently rapid organisation (and above all cannot be reversed or undone at a later date) to be the most serviceable instrument for the prevention of the trade cycle.”
- Time
- 20:15
- Source
- View in Hansard ↗
- Speaker
- Mr. Jeremy BrowneLiberal Democrat
- Quote
- I appreciate the hon. Gentleman’s joke, but I fear that it may not be accurate. I beg your brief indulgence, Mrs. Heal, to say that our proposal was to electrify the great western and midland main lines and begin the Liverpool light rail network. Although my party is winning more and more seats in all parts of the country, it is probably unfair to say that those measures would specifically benefit Liberal Democrat constituencies.
- Time
- 20:15
- Source
- View in Hansard ↗
- Speaker
- The First Deputy ChairmanLabour
- Quote
- Order. I have been generous to hon. Members. Perhaps we can now adhere a little more closely to the amendment.
- Time
- 20:15
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- I anticipate that you would not want me to dwell on a response to that, Mrs. Heal, but I have seen a document that had a number of proposals for the west country, including one for a line from Eastleigh to Romsey, which was particularly egregious. The reaction to the VAT cut internationally has not exactly been enthusiastic. Nicolas Sarkozy has said: “Cutting VAT by two points doesn’t incite people to buy if they are scared about their future.” Christine Lagarde, the French Finance Minister, said: “as far as we’re concerned…we’re not certain that when prices go down a VAT reduction is that effective.” Peer Steinbrueck, the German Finance Minister, said: “We have no idea how much of that stores will pass on to customers. Are you really going to buy a DVD player because it now costs £39.10 instead of £39.90? All this will do is raise Britain’s debt to a level that will take a whole generation to work off.” Carsten Schneider, the German Social Democratic budget spokesman, said: “I think the sales tax cut is counter-productive.” Oliver Blanchard, the chief economist of the International Monetary Fund, said: “Temporarily cutting VAT, a measure that was adopted in Great Britain, does not seem to me to be a good idea…2 per cent. less is not perceived by consumers as a real incentive to spend.”
- Time
- 20:15
- Source
- View in Hansard ↗
- Speaker
Mr. Brooks Newmark (Braintree) (Con)Conservative- Quote
- Not to be too cynical, does my hon. Friend feel that perhaps the Germans, the French and the Dutch were all terrified that the 2.5 per cent. cut in VAT would suddenly draw business away from France, Germany and Holland? Does he think that that was their motive in making those comments?
- Time
- 20:30
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- No, I do not. My hon. Friend puts forward an interesting theory—it is one that I am sure the Government would like to endorse—but I do not think that that was the reason that those whom I have quoted thought that the cut was a daft idea.
- Time
- 20:30
- Source
- View in Hansard ↗
- Speaker
- Mr. Jeremy BrowneLiberal Democrat
- Quote
- Does the hon. Gentleman think that the Government could take the approach of announcing—or letting it be known—that they intend to increase VAT to 20 per cent. in order to address the Budget shortfall and that that may have enough of an impact to create a stimulus in demand, when people realise that the differential will be 5 per cent., not just 2.5 per cent.?
- Time
- 20:30
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- That is an interesting idea. Although it would be unfair, I am tempted to say that the Minister—or at least what went out in his name—rather contributed to that perception when there was a suggestion that VAT may rise yet further. However, the Government have not stated that that is their intention. There may well be a stimulation in demand when people get in before the reversion to 17.5 per cent.
- Time
- 20:30
- Source
- View in Hansard ↗
- Speaker
John Robertson (Glasgow, North-West) (Lab)Labour- Quote
- It’s called Christmas.
- Time
- 20:30
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- Indeed, although I take it that the hon. Gentleman will not be claiming credit for any stimulation in demand in December from the subsequent increase in VAT.
- Time
- 20:30
- Source
- View in Hansard ↗
- Speaker
- Mr. NewmarkConservative
- Quote
- To follow up with a more serious point, I would be interested to know from the Minister, given that the Government track our borders assiduously, whether he noticed a flow of individuals coming from France, Germany or Holland into this country as a result of the 2.5 per cent. cut in VAT, which would thereby have increased retail sales to German, French and Dutch customers, or does he not have that information?
- Time
- 20:30
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- Again, I am grateful to my hon. Friend. I am sure that the Minister will have taken that question on board and will be able to provide us with some answers. The same question goes for the Republic of Ireland, although the devaluation of the pound over that period may have also played a part. A number of countries engaged in a fiscal stimulus, because they were in a stronger position and could afford to do so, but they did not go down the route of the VAT cut. There are also some practical points to be made about VAT, some of which were raised in the quotations that I have cited. First, at a time of sharp discounting of goods—that was certainly the circumstance last November and last December—the 2.5 per cent. reduction in VAT could have been lost. That point was made by a number of commentators. In particular, when Justin King, the chief executive officer of Sainsbury’s, appeared on “Question Time” on 27 November, he said: “If we walk down the high street today you’ll see 20 per cent. off, 30 per cent. off, 50 per cent. off, so really in that context it’s a drop in the ocean.” That is one of the problems with the VAT cut. The second problem is one of practical difficulties. There were practical difficulties with the sudden decrease in VAT at a time when shops were certainly hoping to be busy. There had to be re-pricing with very little notice and we know that that caused difficulties. In some cases the VAT cut was not necessarily passed on. In other cases, people were sitting in shops with calculators deducting the necessary amount, which also created difficulties. There were real costs involved in changing the system so quickly. Retailers were not exactly overjoyed at being faced with what was, after all, a tax cut. There are other technical difficulties involved. For example, those businesses operating under the flat-rate arrangements will not have felt the benefits of the change. There were significant practical difficulties. At the big picture level, what was the test that the Government set themselves by reducing VAT? At the end of November, their argument was, “Thanks to the measures that we are introducing in the pre-Budget report, the recession is going to end earlier than it would otherwise do. It is now going to end in the second half of 2009.” Sadly, that is not going to be the case, although there are clearly some encouraging signs, and we hope that they will continue. The Government now accept that recovery will not happen until the end of the year. The test that they set themselves was to use the VAT measure to bring the recovery forward. They have had to downgrade their growth forecast for 2009 from the contraction of 1 per cent. of GDP predicted in the pre-Budget report to a contraction of 3.5 per cent. as set out in the Budget. Even that figure is optimistic compared with the projections of the likes of the International Monetary Fund. I am sure that the Minister will refer to the Centre for Economics and Business Research and to Doug McWilliams’ comments; he does so every time I debate this matter with him. Doug McWilliams has supported the VAT cut; indeed, he recommended that policy proposal in November. Having recommended it, he has subsequently looked at it again and concluded that he was right all along. His assessment states that retail sales over the December to February period were £2.1 billion higher than they would otherwise have been. We do not necessarily accept that, however. We need to disentangle the impact of the VAT cut from the effect of the very substantial cuts in interest rates over the same period, alongside the policy of discounting that shops were adopting, as we heard from Justin King. Even then, the Government’s figures show that, in the period from December to February, the policy was costing the taxpayer something in the region of £3 billion.
- Time
- 20:30
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- I am delighted that the hon. Gentleman has now looked at the CEBR report. I wonder whether he has read the sentence in it that states: “The data also shows that the acceleration in retail sales volume was not achieved through fire sales and fierce discounting on the high street.” That exactly addresses one of the concerns that he and others have raised.
- Time
- 20:30
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- I have seen that comment, but I come back to the point that it is very difficult to disentangle all the various factors involved. The fall in interest rates at that time will have had a substantial effect on sales, as we have seen. Having read the CEBR report, does the Minister agree with its view, which differs from that of the Government, on the actual cost of the VAT policy? The report cites a figure of £11 billion, rather than £12.5 billion. I would be grateful if the Minister updated the Committee on the Treasury’s assessment of that cost, and told us by how much he thinks sales will increase. To what extent is the Government’s view consistent with that of the CEBR? That brings me to the heart of amendment 8, which deals with the need to look again at this matter and for the Treasury to prepare a report and to evaluate the various consequences of the policy. There is a need to assess the policy in greater detail. There is clearly a debate to be had, and the Government will always argue that the policy has been successful. Most of us would argue that the fall in interest rates had a greater impact on retail sales, and the growth in the economy is certainly disappointing compared with what the Government were hoping for when they announced their policy. I am not, however, convinced that the Treasury is the right body to review this, which I say in the context of last month’s Budget, whose numbers have been heavily criticised. I will not go through all the detail, but the growth forecasts for 2009 and, more particularly for 2011 and 2012, seem to be out of line with those of most independent forecasters. The Government’s reputation for making projections of the public finances has been very poor, and we have seen those projections substantially revised. The point I am making is that there is a need for a body independent of the Treasury to make an assessment of projections for growth and for the public finances. We propose an “Office of Budget Responsibility”, and there may well be a case for referring this sort of review to a body that is at arm’s length from the Treasury in order to assess whether the right approach is being put forward. I raise this particular caveat over the Liberal Democrat amendment, but there is much to be said for looking again at a policy that has not, I fear, by any means provided the best use of £12.5 billion of taxpayers’ money.
- Time
- 20:30
- Source
- View in Hansard ↗
- Speaker
Alison Seabeck (Plymouth, Devonport) (Lab)Labour- Quote
- rose—
- Time
- 20:30
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- I welcome the hon. Lady to the debate and I give way to her.
- Time
- 20:30
- Source
- View in Hansard ↗
- Speaker
- Alison SeabeckLabour
- Quote
- I do not want to be impatient or churlish because you have been approaching this issue in a spirit of generosity, actually, but on two occasions you have—
- Time
- 20:30
- Source
- View in Hansard ↗
- Speaker
- The First Deputy ChairmanLabour
- Quote
- Order.
- Time
- 20:30
- Source
- View in Hansard ↗
- Speaker
- Alison SeabeckLabour
- Quote
- I am sorry, Mrs. Heal; I mean the hon. Gentleman. He said that he would at some stage tell us what the Opposition would have done to fill the gap if we had not reduced VAT in the way we did. We have not yet quite got there, however, and I am wondering whether we are going to.
- Time
- 20:30
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- I am grateful to the hon. Lady, but I am not sure whether it is a question of filling the gap, as it more a matter of reducing it. There we go, but she brings me on to the next point I wanted to make, so I am grateful for her intervention. What clause 9 principally does—I realise that I am venturing into a stand part debate, Mrs. Heal, but I am assuming that we are addressing the amendment at the same time—is to delay the implementation of the return to VAT at 17.5 per cent. from 1 December to 1 January. The reason for doing so is that the Government introduced their VAT change through a statutory instrument, which provided the authority to make that change only for 12 months. The Government now wish to add on an extra month, but to be fair to them, it was always their intention to do so. For the various reasons I have set out, however, we think it would be beneficial not to move the date on from 1 December to 1 January, but to stick with 1 December. There are a number of reasons for doing that, so let me first address the point raised by my hon. Friend the Member for Bournemouth, East (Mr. Ellwood) about the difficulty of changing the VAT rate in the new year. It will be difficult for institutions in operation at the time when the VAT rate is changed, but perhaps even more significant is the fact that this will be in the middle of the post-Christmas sales. I should say the January sales, but it seems odd to have 1 January being in the middle and I am sure that you, Mrs. Heal, follow my point that there is a lot of activity going on in stores at the time of these sales. The representations we have received certainly suggest that retailers do not want the change to come in at this date. Whether it is the worst time of year, as the hon. Member for Taunton (Mr. Browne) suggests, I am not sure, but it is certainly one of the worst dates and we believe there is an argument for changing it.
- Time
- 20:30
- Source
- View in Hansard ↗
- Speaker
- Bob SpinkIndependent
- Quote
- Is there not a case for pushing the date back rather than bringing it forward—perhaps to 1 June, which might have electoral as well as commercial benefits?
- Time
- 20:30
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- The hon. Gentleman is right that a case can be made for moving it back, but that would have an effect on the Exchequer and, to be fair, I have been making the case that we do not have the spare money. As I have said, we oppose that because we do not think there is room in the budget, and we are therefore not persuaded of the case for moving it back to June or February or any other time.
- Time
- 20:30
- Source
- View in Hansard ↗
- Speaker
- The First Deputy ChairmanLabour
- Quote
- Order. For the avoidance of doubt, I should inform hon. Members that I am indeed treating this as a clause stand part debate.
- Time
- 20:45
- Source
- View in Hansard ↗
- Speaker
- Mr. SymsConservative
- Quote
- I congratulate the hon. Member for Taunton (Mr. Browne) on tabling an amendment that gives us an opportunity to discuss a very important issue. It is clear that economic conditions have been very turbulent over the past 12 months. In terms of public policy, the Government were in a difficult position in the pre-Budget report. They had to decide what to do, and what to do quickly. A VAT cut is one of the main things that could be done quickly. However, a bigger cut over a short period might have been better than a cut of only 2.5 per cent. over a long period. That would have really pulled money out of people’s pockets, and made them feel that they were getting a bargain. A cut of several billion over three months might have had more impact. My hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) quoted John Maynard Keynes. It is clear that anyone who wants to move the economy on cannot become involved in electrification schemes and railways and so forth. As we know, given our planning process, those things take a long time. My preference is for a middle view. The report suggested in the amendment would be useful, because it would enable us to judge what the Government did in the light of the alternatives. If we really want people to spend money, we give lower-paid people a voucher with an end date so that they can buy goods in a store. Alternatively, we give local authorities money that they can use to provide grants for environmental improvements to homes—which we know will be a major challenge—so that small business can become involved. Clearly, things have changed very rapidly. The Government made a decision in the pre-Budget report, and to some extent they are stuck with it. Therefore, it would be useful to have a report, particularly as 1 April 2010 is likely to be at the start of a general election campaign. We would have a document that we could discuss with great interest. I suspect that the cut will, of course, make a difference to UK economic growth, but I am not sure whether that impact is really worth the £12 billion or £13 billion. I am also unsure whether it will have much effect on the competitiveness of small and medium-sized businesses. We have heard in the debate that there are costs. There are certainly costs to local authorities and to many businesses in this manoeuvre. On the disposable income of low-income households, as such households have a higher propensity to spend what income they have, there may be some modest positive impact on them, but I suspect there are other means and policy instruments that could have been used to put money into people’s pockets. The amendment has allowed us to debate this matter and if the Government produced a report, I rather suspect it would be useful in April 2010. However, as we have moved on and the overall financial situation has deteriorated, one would also have to assess other things, such as the £12 billion or £13 billion cut in VAT revenue. That will leave a long-term debt legacy in terms of interest and compound interest, and there is also the opportunity cost of what else could have been achieved in the medium term while leaving a legacy of some sort, such as insulated homes or improvements in the overall economy. The Government were in a difficult fix in the autumn. They faced an unfolding situation. There was clearly an imperative to take a particular decision: to try to put money into the economy. They made a choice, but I do not think it was a very good one; there are better steps that could have been taken. The amendment of the hon. Member for Taunton is a useful one for the Committee to consider, and I hope he is brave enough to press it to a Division.
- Time
- 20:45
- Source
- View in Hansard ↗
- Speaker
- John HowellConservative
- Quote
- The amendment asks us to consider having “a report containing an assessment of the impact of the temporary VAT rate reduction on” a number of areas. I want to concentrate on the impacts on “UK economic growth” and “the competitiveness of small and medium-sized businesses”. It is crucial to strike the right balance between what is of value to the economy as a whole and what is of value to the competitiveness of individual businesses. On the latter, a fundamental issue is the cost of administering what will, by the end of this period, be two changes in VAT. Business has consistently seen the VAT cut as having no positive impact on their sales. The Federation of Small Businesses conducted a survey of 5,000 of its members, and 97 per cent. said it had had no impact at all in terms of boosting trade. There has been a big cost impact, however. I see that in my own constituency, where a number of small retailers are very unhappy. They are part of the fragile and vulnerable small business situation that we described earlier today. As a result, there are large numbers of empty properties in many towns—although there are perhaps some signs of shops being attracted back. There is a cost involved in decreasing VAT and then increasing it again in terms not only of cash, but time. For those who run small businesses—especially those who have to adjust to these changes in VAT—that is perhaps the most precious commodity of all. The question of where to put in the effort and to use the expertise is crucial, but it is very difficult to cost. That is particularly difficult for a small business that sells tens of thousands of products, and perhaps has only one or two people running it. The impact assessment for the Finance Bill listed a number of actions that business would have to take to implement the temporary VAT cut, including familiarisation; re-pricing; carrying out the extra bookkeeping checks involved; dealing with potential extra accountancy costs; and, of course, making systems changes and upgrades. It estimated that the total compliance costs for business would be about £300 million. I was particularly worried by the paragraphs that followed, in which it was acknowledged that in deciding how to respond to those changes, businesses were likely to have to take lot of other costs into account. Such costs would arise from consulting advisers or, potentially, from renegotiating the terms of any contracts that are inclusive of VAT. Although the assessment recognised that those costs were likely, they were somehow dismissed as being commercial decisions—as if the other changes it had costed were not commercial decisions. Even the impact assessment recognises that costs that have not been properly analysed are involved, and that they are not part of the costings in the assessment. Thus, it is very difficult to make a judgment on this matter, and that has not been a particularly helpful part of the Government’s assessment of that part of the activity. On the costs on the ground, as I have mentioned, the FSB survey has shown that there is no sign of the VAT cut working, but it is worth examining whether it is working at the bigger picture level and whether the model behind it was applicable. Without an understanding of that, the assessment required by the amendment would be difficult to achieve. One of the worrying features about the underlying model was that it was a simple supply and demand model of consumption, which would perhaps have been suitable to use in an economy that was doing well, but in one that contained a large marginal element, it ignored the complexities involved. The policy and the modelling that must have taken place in order to introduce this adjustment—the VAT cut and then the raise forward—assuming that any modelling was undertaken, was flawed from the beginning. The Financial Secretary and I have already crossed swords in the debate over whether or not the VAT cut has worked. At that time, he repeated the view of a report by the Centre for Business and Economic Research: “‘The figures are clear; the VAT cut is working. There was an immediate boost to the volume of retail sales after the cut was introduced on 1 December.’” He went on to endorse the report’s view that the cut was “‘good value for the taxpayer’”.—[Official Report, 27 April 2009; Vol. 491, c. 668.] That is clutching at straws. The view has been based on the volume of retail sales, and there are problems with that approach. The Government cannot have it both ways. If they are going to put a lot of emphasis and reliance on that report, logically they must accept the criticism it makes of raising VAT again in January 2010. It states that that “threatens to cause a consumer downturn and choke the fragile economic recovery”. If they are going to rely on the report for one thing, they must rely on it for the other—although that is not a favourable situation. I have great difficulty in trying to assess whether the VAT cut has worked. It is one of those questions that are illogical in terms of their resolution, because we can make no direct comparison with the counter-argument as to what would have happened without the cut. The need for that was recognised in the evidence given by the Governor of the Bank of England to the Treasury Committee, in which he acknowledged that the real problem was that “It is very hard to know what the counter-factual is.” We do not know how quickly spending would have changed if the VAT cut had not been made. That is the fundamental flaw in claims that the VAT cut has worked, as the Governor pointed out.
- Time
- 20:45
- Source
- View in Hansard ↗
- Speaker
- Alison SeabeckLabour
- Quote
- I am not as expert as the hon. Gentleman, but his argument about the proxies—spending on VAT-able and non-VAT-able goods—is flawed. If there is additional money in families’ pockets because they have saved money on VAT-able goods, sales of non-VAT-able goods could rise because they have more money to spend on food and other products. I am not sure that the hon. Gentleman’s argument makes sense.
- Time
- 21:00
- Source
- View in Hansard ↗
- Speaker
- John HowellConservative
- Quote
- I have some sympathy with that view, and it reinforces the difficulty of using proxies in such matters. The assumption is that because VAT has been reduced, people will go out and buy more VAT-able items. That assumption contains fallacies, and I am not sure that the distinction is very clear. But that is part of the difficulty of using proxies in situations where we do not have a proper counter-factual—what would have happened if what is being examined had not occurred. One can make a best guess and even do some modelling, but there is nothing to actually compare, which is why proxies are used. I agree that it is a difficult issue, but that is why claims that the VAT cut has worked are unsubstantiated and probably far from the mark. I have already mentioned the comments from the report that the Financial Secretary is always keen to quote on such occasions about the impact of the date of the change. I wonder whether Ministers actually go shopping any more. Do they realise that Christmas and new year sales occur? That is not a hint of a present from the Financial Secretary, as I am sure that that would need to be declared somewhere. The arguments on the timing have already been made, and I have made my points about the difficulties of assessing the impact of the VAT cut.
- Time
- 21:00
- Source
- View in Hansard ↗
- Speaker
- Mr. NewmarkConservative
- Quote
- I am delighted to be able to make a few points on clause 9. I shall focus on three main areas—many of these points have been much discussed in today’s debate—the first of which is the amount of the reduction, which is 2.5 per cent., and the importance of that figure; the second is the issue of the date when the rate reduction ceases; and the third is the cost of the 2.5 per cent. reduction in VAT. The Financial Secretary to the Treasury makes an interesting point when he says that such a change can be an effective instrument in stimulating demand, but I am curious about how he came up with the 2.5 per cent. figure. What sensitivity analysis did he carry out about the effects of a 2.5 per cent. decrease as opposed to a 5 per cent. or 10 per cent. decrease in trying to drive demand and the volume of trade? The cut is an attempt to kick-start an economy, but in the two or three debates that I have attended on the issue I have heard that the instincts of retailers and consumers were that it would not suddenly drive people to go out and purchase more. When the 2.5 per cent. cut came into effect, did the Financial Secretary rush out and start buying more retail goods? Now that the VAT rate is down to 15 per cent., what has he gone out and bought that he would not have bought at the 17.5 per cent. VAT rate? Perhaps he can tell me how his shopping patterns changed. It was also interesting to hear the discussions and observations about some of our continental competitors. It was interesting that the French attacked the reduction as a not particularly effective way of stimulating demand. We heard similar criticisms from the Germans and the Dutch, and even from the IMF—I think that it was the IMF chief economist who had no confidence whatsoever in the 2.5 per cent. VAT cut. As I said earlier to my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke), was it some sort of jealousy on the part of our European competitors? Were they suddenly nervous that huge volumes of trade would shift across continental Europe and across the channel, and that the Germans, French and Dutch would suddenly begin moving their trade from Germany, France and Holland into the UK to buy our goods merely because of this 2.5 per cent. cut in VAT? Somehow, I think not. I think that they were making an objective assessment that the 2.5 per cent. was not enough to move the dial with respect to individual buying patterns. The proof of the pudding can be found in the evidence of experts—that is, the evidence of the people who run some of the big retailers. We have heard Justin King’s comments. Retailers are cutting their prices by 15, 20, 30, 40 and sometimes even 50 per cent. to try to drive trade into their shops. As people wander down the street, wondering which shop they should go into, a sign in the window of a shop that says, “2.5 per cent. cut in VAT”, across the street from a retailer advertising a 30 per cent. cut in the price of its goods will not drive people in to the shop with the 2.5 per cent. cut. We should focus on talking to some of the smaller businesses, as I did in Braintree and Witham, two of the towns in my constituency. I did not get a sense from any retailers there that the 2.5 per cent. cut would drive up volumes of business, but those volumes need to be driven up, because I have seen some major retailers in my town centres—particularly in Braintree—simply shutting down and leaving because the business was not there. The 2.5 per cent. that the Government chucked at them to try to drive up trade did not really work, I am afraid. My next question for the Minister concerns what analysis he, his civil servants and the various people from consultancies who work for him have done. What uplift in the volume of retail trade can be attributed directly to the 2.5 per cent. VAT cut? How has it affected growth in the retail sector? Has it led to a sudden growth in our GDP, a point raised by my hon. Friend the Member for Henley (John Howell)? Those are pertinent questions, but my main interest is to know whether the Minister and his family rushed out and started to buy more as a result of the VAT cut. What goods did he end up buying? My next question concerns the date on which VAT will return to its original rate. In our previous debate on these matters, my hon. Friend the Member for Bournemouth, East (Mr. Ellwood) said that the 31 December date was very inconvenient—[Interruption.] From a sedentary position, my hon. Friend the Member for Ludlow (Mr. Dunne) reminds me that he made the same point, and retailers around the country agree. My hon. Friend the Member for Bournemouth, East has observed that 3 January would be more convenient, and better than attempting to get retailers to change their VAT system at a peak time when they are trying to drive up sales. I am curious to know why the Minister is so keen on the 31 December date. Has he chosen it because it is the end of the calendar year? The end of the year for retailers is usually later, as I suspect that my hon. Friend the Member for Ludlow will explain in more detail when he gets the opportunity. The 2.5 per cent. cut has not really worked. I have been persuaded by the argument from my hon. Friend the Member for South-West Hertfordshire that it has not been a big success and that we should cut our losses and go back to the 1 December date. That would be better than extending the misery for another 31 days—[Interruption.] The hon. Member for Glasgow, North-West (John Robertson) is saying something from a sedentary position. Does he want to make an intervention, or is he just talking to himself? He is clearly talking to himself. I am not persuaded by the Minister. I hope that he will explain why adding the extra 31 days will be so important. Why has he chosen 31 December as opposed to, say, 3 January? As I and other hon. Members have pointed out, it is probably the worst day of the year to choose to change the rate back up to 17.5 per cent. from 15 per cent. The third area that I want to spend some time on is the issue of cost. A number of figures have been thrown around, and it is clear that the process could be quite expensive for retailers. It has been estimated that it will have cost them about £90 million to implement the 2.5 per cent. cut, and that it will cost them another £90 million to change the rate back up to 17.5 per cent. Does the Minister have any figures that will help in estimating the cost to retailers of implementing both changes in a fairly short period?
- Time
- 21:00
- Source
- View in Hansard ↗
- Speaker
- Bob SpinkIndependent
- Quote
- This debate is about whether one is a tax cutter or not. I am a tax cutter, unlike the official Opposition, who support the Liberals’ amendment. I oppose the amendment because I am an unashamed tax cutter. I honestly believe that cutting tax is the best way to stimulate economic growth. I believe that people should keep more of their own money to spend themselves, because they can spend it better than the Government can spend it on their behalf.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Stewart HosieScottish National Party
- Quote
- That argument is peculiar, because when the VAT cut is put through the input-output model, one finds that direct capital investment saves or creates twice as many jobs as the VAT cut. The hon. Gentleman is technically wrong about the cut stimulating economic growth. It was not the most effective measure. The same amount in direct capital expenditure would have been more effective.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Bob SpinkIndependent
- Quote
- The hon. Gentleman disagrees with some well respected Conservative Front Benchers, who felt that cutting VAT was the best fiscal stimulus possible and said so quite openly. When the Minister winds up, will he say what he thinks the consequences for public finances and jobs would be if the fiscal stimulus were not given? I think that that would be extremely risky. It would be playing politics with people’s jobs.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
Mr. Peter Bone (Wellingborough) (Con)Independent- Quote
- Will the hon. Gentleman give way?
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Bob SpinkIndependent
- Quote
- No. The hon. Gentleman walked into the Chamber just two minutes ago, although the debate has been going on for 90 minutes, so I will not give way to him. I think the public finances will be in better shape because of the Government’s fiscal stimulus, and I think the Economic Secretary to the Treasury agrees with me. I am simply shocked to see so many Conservative Members arguing against tax cuts; it is counter-intuitive.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. BinleyConservative
- Quote
- Will the hon. Gentleman give way?
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Bob SpinkIndependent
- Quote
- No. The hon. Gentleman has just walked into the Chamber.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. BinleyConservative
- Quote
- Will the hon. Gentleman give way?
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Bob SpinkIndependent
- Quote
- No, I will not. [Interruption.]
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Bob SpinkIndependent
- Quote
- I am grateful to you, Sir Michael. Does the Economic Secretary agree that cutting taxes was perhaps the most effective fiscal stimulus, that tax cuts stimulate demand, and that the tax cut is working rather well? Will he therefore put back to 1 June the date of the changeover from 15 to 17.5 per cent.? That would have great benefits, both commercially for businesses, and economically for the Government. He would certainly have this independent MP’s support if he went for that strategy.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
Mr. Philip Dunne (Ludlow) (Con)Conservative- Quote
- I am grateful to be called to contribute to this debate, Sir Michael. I touched on the VAT cut in my contribution on Second Reading, so it is a pleasure to be able to join in the Committee deliberations from the Back Benches. Much of the debate, and indeed the Liberal Democrat amendment to the clause, is an attempt to estimate the impact of the VAT cut in relation to other stimulus measures that have been introduced. Much has been said this evening about the difficulty of measuring the extent to which the apparent increase in retail transactions is attributable to the VAT cut, as opposed to other things. I should like to give a bit of colour: now that we are in May, data have been published that tell us what has happened to different categories of retail sales since the VAT cut came into effect. In the first quarter of this year—from January to March—like-for-like sales in the food sector rose by 5.3 per cent., but like-for-like sales in the non-food sector fell by 2.9 per cent. That is according to the Monitor retail sales survey, which is one of the most widely respected retail sales measurements. That pattern was followed again in April, the figures for which came out very recently. In that month, like-for-like sales overall increased by 4.6 per cent. as against last April. At first sight, that would seem to suggest that the Government’s VAT cut had had a positive impact on sales, but I have to inform the Minister that that may well be something of an illusion. The total spent on food during that period has risen by less than food inflation over the same period. That indicates that the volume of food sold over those four months is lower than it was a year ago; it is negative. It is therefore erroneous to suggest that there has been an increase in food sales by volume during the period. As I have already indicated, non-food sales have actually declined during that period, so it would be hard for any statistician to be able to determine that there had been an increase in retail sales as a result of the VAT cut.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. NewmarkConservative
- Quote
- Does my hon. Friend think that that could have to do with the Government’s anti-obesity campaign? Does he think that that is the reason for the decline in volume of food sales?
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. DunneConservative
- Quote
- As the deputy chairman of the all-party group on diabetes, I take a particular interest in the level of obesity in this country. I suggest to my hon. Friend that although the Government have, in order to keep medical bills down, made some strides to reduce the intake of individuals who consume too much, not enough has yet been done in that regard. A lot more could be done. I do not think that obesity measures are the reason that the volume of food sold has declined. The figures for April showed an overall increase of nearly 5 per cent., as I have said. That could well be attributed to changing patterns—to changes in the date of Easter, a time when retailers put on special promotions and people like to spend money because they are off work, and, of course, to changes in that favourite in the retail trade, the weather. In 2009, Easter was in April, but in 2008 it was in March so sales were typically lower the month after Easter than they were in Easter month. The weather this April, as hon. Members will remember, was balmily sunny, and many of them will have joined my family—well, they were not actually with my family, but they did the same thing as us—in having Easter lunch outside in the sunshine, which we did not do in 2008. We managed to do it in April 2007, which presaged one of the wettest summers on record, and I hope that that is not a portent for this summer’s weather. The weather this April was good, but the weather last April was bad, and those two factors may well account for a large part of the increase in overall sales. Indeed, Stephen Robertson, the director general of the British Retail Consortium, said as much. He said of the sales figures: “A sunny Easter that fell in April this year is the key reason why overall sales are up compared with last year when Easter was in March and miserable.”
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. NewmarkConservative
- Quote
- Given the Government’s huge interest recently in the environment, does my hon. Friend believe that in pursuing their policy they were making a huge bet on global warming driving up sales?
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. DunneConservative
- Quote
- My hon. Friend is most inventive in his excuses for the Government trying to account for the cut in VAT by linking it to increases in economic activity. The Government make great claims regarding their green credentials, few of which come to pass and even fewer of which are put into practice in their Budget measures. I shall try to move beyond mere retail sales to other things that may account for the improvement in economic activity apart from the VAT cut. I shall quote Mr. Robertson again: “Following a tough winter, there’s some pent up demand, but there’s no reason to think that customers suddenly feel flush or eager to spend. With unemployment set to grow through the rest of the year, mounting job worries will hold back spending for some time. The historically weak performance of the last 12 months is behind us, but we shouldn’t celebrate yet.” I think he is quite right—it is too early to see the green shoots of economic recovery, and certainly too early to put that down to the VAT cut.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. BinleyConservative
- Quote
- Does my hon. Friend agree that for every job loss, two people are equally worried about the possibility of losing their job, which widens the trend that he is discussing? Does he accept that analysis?
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. DunneConservative
- Quote
- My hon. Friend will have seen the unemployment statistics that came out earlier this week, indicating that about 224,000 people joined the unemployment queues over the past three months. That takes the unemployment rate up to 7.9 per cent., which is utterly dire and takes us beyond the unemployment figures that the Government inherited in 1997. There are undoubtedly widespread concerns about unemployment which affect people’s spending habits—not just those who have had the misfortune to become unemployed but their relatives, friends and neighbours, who fear for their own position.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. NewmarkConservative
- Quote
- My hon. Friend makes an interesting point. I believe that up to 600,000 young people will leave school and college in June, thereby possibly increasing the unemployment figures by another 500,000 to 600,000. As a result of the VAT cut and the potential pick-up in volume, will the retail trade hire more people to deal with the problem, or have the Government seen no evidence of that coming down the path?
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. DunneConservative
- Quote
- My hon. Friend has posed a question for the Financial Secretary, who is now back in his seat; I am sure that his colleagues will brief him so that he can provide a proper answer. My point is that the Government seem set on failing to provide sufficient university places to school leavers this summer. The ranks of the unemployed may well be swollen by young people unable to get into university because the Government have not provided adequate funding. I move on to consider briefly one or two other factors that may have more significant impact than the VAT cut: I am thinking of the consequences of the reduction in interest rates. In the past 12 months or so, the base rate has declined tenfold from 5 to 0.5 per cent. That will undoubtedly provide a significant increase in disposable income to households that have tracker or variable rate mortgages. The point applies to the disposable income of not only low-income households, as suggested by the Liberal Democrat amendment, but that of all households that benefit from such mortgages. Those who were on fixed-rate mortgages and had the opportunity to reset them in the past 12 months will see some increase—although it will not be as significant, because the banks are clearly making up their margins on mortgages and are not fully passing on the base rate cut. However, I would argue that that cut has had a far more significant impact on disposable incomes and economic activity than the footling VAT cut.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. NewmarkConservative
- Quote
- My hon. Friend makes an excellent point about the shift downwards in interest rates. Many of us have store cards; it would be interesting to know whether stores have passed on the decline in interest rates to consumers. Alternatively, have they kept their rates high? Do the margins that they make on that side more than make up for what they may be losing in trade due to VAT cuts and so on?
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. DunneConservative
- Quote
- The retail sector is one of the most innovative in our economy. It would not surprise me at all if customers had the opportunity of significant discounting on the ticket price, particularly of large ticket items, while the back-office finance departments recovered their margins by maintaining significant spreads on store cards and other forms of credit made available to facilitate purchases.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. BoneIndependent
- Quote
- I am grateful to my hon. Friend for giving way; he is being exceptionally generous. Before he moves on, I want to put something on the record. A lot of banks are gouging people on interest rates. The interest on the Royal Bank of Scotland Black Card, which has just been introduced, is more than 50 per cent. a year. That bank has certainly not been passing on the cut.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. DunneConservative
- Quote
- The Committee will be astonished at that information, and I am grateful to my hon. Friend for bringing it to our attention. I should like to make two other brief points to Ministers about the clause. The first is an issue that I raised when the VAT cut was first announced last autumn: the extraordinary impact on the sectors of our economy that have the benefit of flat-rate VAT arrangements. By introducing the measure with such haste, the Government failed to take properly into account the consequences for the many sectors that benefit from such arrangements. Like, I am sure, almost every other hon. Member, I have had constituents writing to me complaining that, far from seeing a reduction in VAT as a result of the 2.5 per cent. general cut, their customers have seen an increase because the Government have failed accurately to calculate changes to the flat-rate arrangements. Many businesses are having to impose on their customers a higher flat-rate charge during this period of the so-called VAT cut than they did previously. That is quite extraordinary, and the Government have failed to provide a proper justification for it at any point. I hope that they will revisit the subject, even at this late stage. Finally, I should like to touch on the point made forcefully by my hon. Friend the Member for Braintree (Mr. Newmark) about the date. I also mentioned it in the Second Reading debate. It is quite extraordinary to choose a Thursday to introduce a significant change that will require the re-ticketing of every item, on and off the high street, that is subject to VAT. As my hon. Friend said, the only thing that the proposal has in its favour is that it is the calendar year end. It is not a month end or a week end; in most cases, it is not a financial year end. If the Minister had any familiarity with retailing, he would recognise that most retail financial year ends vary. They will typically fall at the end of January, not the end of December, but they vary according to the calendar. If it is, say, 31 December, it will be the final Saturday of the month closest to that date, not a Thursday. I ask the Minister to consider something that might be familiar to his Parliamentary Private Secretary and to many of his other colleagues. Has he had any discussions with the retail trade in Scotland about what the impact might be of introducing a significant change requiring a large number of manual amendments to stock price items after close of business on Hogmanay evening? I suspect that that will be extremely inconvenient to retailers in Scotland, who will have to pay substantially more in overtime to their long-suffering staff for coming into work after lights out on Thursday 31 December, when they may well have other things that they would prefer to be doing. I hope that the Financial Secretary will deal with that point directly.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- Before Christmas, the Government acted promptly with temporary, targeted, timely measures to support the economy and, in the Budget, we set a path for fiscal sustainability over the medium term. The Liberal Democrat amendment proposes that an evaluation of the impact of the VAT cut be carried out. I can tell the House that on 6 March, with my agreement, HMRC commissioned a study from an independent research organisation, ORC International, whose report will be published, as always with externally commissioned research. The research will look carefully at the compliance costs burden imposed by the change and compare them with the estimates in the public impact assessment. It will also gather data about the commercial effects and the decisions that businesses took in the light of the VAT reduction, including looking next spring at the effects of the rate going back up again to 17.5 per cent. That is important, because it has always been clear, as has rightly been acknowledged during the debate, that part of the stimulus benefit of what we have done will be to encourage purchases ahead of the rate rise.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. NewmarkConservative
- Quote
- Will the Minister give way?
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- I will, but time is pressing.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. NewmarkConservative
- Quote
- I appreciate that. I have asked the Minister a lot of questions, as have other Members. How much will the report that he has commissioned to do the homework that perhaps his own assistants and advisers should be doing cost the taxpayer?
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- I do not have the budget in front of me, but given our debate, I think that the House will welcome the fact that a piece of independent research will be published. The hon. Member for Taunton (Mr. Browne) will accept that definitive answers to the questions raised in the amendment will be elusive, because nobody can absolutely prove what would have happened otherwise. However, the report will certainly provide some useful data to help to draw some conclusions. The assessment that he seeks will be doable when the necessary economic data become available. To assess the impact of the VAT cut, we will need data from the consumer trends survey, breaking down consumption between zero-rated and VAT-able goods. Data for the first quarter of 2010 will be available in July 2010, so the timing will be a little later than his amendment proposes. In the meantime, of course, ahead of the completion of that research, others have already drawn conclusions about the impact of the VAT cut and will continue to do so, not least in the light of the striking figures on retail sales from the British Retail Consortium to which the hon. Member for Ludlow (Mr. Dunne) referred. Until that point, I was surprised—or perhaps I was not—that nobody had mentioned them. Today, Stephen Robertson, director general of the BRC, described them as the “best sales growth for three years”. Helen Dickinson, head of retail at KPMG, said: “consumers are remaining resilient to the prospects presented by a gloomy economic outlook”.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- Does the Financial Secretary acknowledge that the BRC also stated that the April numbers should be treated with caution because of the weather and Easter?
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- Of course, but they are a data point in a growing and increasingly clear picture about what is happening to retail sales. That is in sharp contrast to what happened to retail sales in the 1990s recession, caused by the policies of the Conservative party, when there was a very different trajectory. In the first quarter of 2009, quarter-on-quarter GDP growth was minus 1.9 per cent., but retail sales growth was plus 0.9 per cent, which is a remarkable phenomenon. How is that remarkable performance to be explained? In part, of course, it is because of the cut in VAT. Those who argued when the announcement was made that it would have no effect on retail sales were clearly mistaken. The hon. Member for Henley (John Howell), whose contribution I enjoyed, took the view at the start of his speech that the VAT cut would have no effect. I say to him that if that is his view, he should simply examine the clear evidence from retail sales. To be fair to him, at the end of his speech he said that it was not possible to know whether the VAT cut had succeeded, so I suppose that that is at least progress in the right direction. We can examine retail sales, and we can examine what Goldman Sachs said a couple of months ago about some earlier figures. It stated: “With clothing and footwear…making the biggest contribution, it appears that the VAT cut was instrumental in driving this strength.” There is also the more recent report, which I am pleased that Conservative Members have now had the chance to have a look at, by the Centre for Economics and Business Research in the name of an adviser to the Conservative party—or a former adviser, I am not quite sure which—with the title, “Credit where credit’s due—the VAT cut is working”. When the VAT cut was introduced, it was roundly condemned by the Opposition parties. But speaking of credit where credit is due, I pay tribute to the Liberal Democrats, who in their amendment at least acknowledge that it is right to look at the evidence before drawing a conclusion. I welcome that progress, and I hope that even the Conservative party might in the end not prove impervious to the evidence that is mounting, and will continue to mount, in the coming months. Today’s data are another significant piece of evidence. To be fair to the Conservative party, the shadow Secretary of State for Business, Enterprise and Regulatory Reform always recognised the likely effectiveness of a VAT cut in boosting the economy. The hon. Member for South-West Hertfordshire (Mr. Gauke) declined to dissent from that view, so I take it that he agrees, although he was not able to say so. Certainly the hon. Members for Braintree (Mr. Newmark) and for Poole (Mr. Syms) both endorsed it in their remarks. I hope that in the end, other Opposition Members will come round.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- The point is that all of us on these Benches, and certainly the shadow business Secretary, made it very clear that we could not afford the VAT cut.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- I hope that that shows the hon. Gentleman’s implicit acceptance that the VAT reduction has boosted retail sales, as the shadow business Secretary said that it would. If the hon. Gentleman can confirm that, I will be most grateful.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. GaukeIndependent
- Quote
- I am explicitly saying that we could not afford it.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. TimmsLabour
- Quote
- I am sorry that the hon. Gentleman has declined so pointedly to endorse his right hon. and learned Friend’s viewpoint, but other Conservative Members agreed with it. I suspect that, over time, it will gain currency on the Conservative Benches, given the evidence that is becoming clearer and clearer.
- Time
- 21:15
- Source
- View in Hansard ↗
- Speaker
- Mr. Jeremy BrowneLiberal Democrat
- Quote
- Thank you, Sir Michael, for giving me an opportunity to speak at the conclusion of this helpful debate. Many hon. Members will appreciate the modest but none the less welcome concession that the Financial Secretary made at the end of his remarks about the specific arrangements at the end of December and into 1 January. Never let it be said that we do not achieve anything through our endeavours on the Liberal Democrat Benches to put pressure on the Government. My party has said all along that the VAT reduction has undoubtedly had an impact. It would be odd to maintain that the Government could spend £12 billion to £13 billion to no effect. The question is whether the impact is as profound as the Government wished for that amount of expenditure. We have had a useful discussion about that, but I hoped that the review that I envisaged, or any other review, could draw the matter out. The timing, which is effectively the stand part dimension of the debate, is relevant. We should consider whether there needs to be an additional stimulus for consumers to go out and buy items in December, of all months. The VAT cut costs roughly £1 billion a month, but, in December, one would expect the cost to be much greater because expenditure is so much higher. The amendment provided a useful opportunity to debate the subject in the round and, despite being urged by some hon. Members to press it to a Division, I will not. However, I will seek to vote on clause stand part. Therefore, I beg to ask leave to withdraw the amendment. Amendment, by leave, withdrawn. Question put, That the clause stand part of the Bill. The Committee proceeded to a Division.
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
- Mr. Jeremy BrowneLiberal Democrat
- Quote
- I beg to move amendment 10, page 5, line 35, at end insert— ‘(6A) No further amendment may be made to section 5 of ALDA 1979 within three years of the commencement of this section, unless the condition set out in subsection (6B) has been satisfied. (6B) The condition referred to in subsection (6A) is that the Chancellor of the Exchequer shall have compiled and laid before the House of Commons a report containing an assessment of the impact of the increases in alcohol liquor duty on— (a) the competitiveness of licenses premises, and (b) the level of employment in alcohol-related industry, and the House of Commons shall, by resolution, have approved that report.’.
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- Amendment 10, which has been tabled by me and by some of my hon. Friends, seeks to prevent increases in alcohol duty for three years unless or until a report on its impact on the pubs and industry sector is undertaken and approved by the House in the meantime.
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
Mr. Greg Hands (Hammersmith and Fulham) (Con)Conservative- Quote
- Will the hon. Gentleman give way?
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I will, although I have hardly started.
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- I am slightly confused by the amendment. It states “No further amendment may be made to section 5 of ALDA 1979”, but that section appears to apply only to spirits. The amendment does not mention section 36, which deals with beer, section 62, which deals with cider, or schedule 1, which deals with wine. Is it the hon. Gentleman’s intention that only spirit duties be frozen for three years, or it is his intention that all duties be frozen for three years?
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- It is my intention that the Government examine their policy on alcohol taxation, which is of great concern to my constituents and, I believe, to those of many other Members. Some Members will be particularly concerned with the issue of whisky, which I know is a preoccupation of many who represent Scottish constituents, but others are concerned about other aspects of alcohol duty.
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- Will the hon. Gentleman make the position entirely clear? Is he suggesting that there should be no freezing of cider duty, for instance? That is what his amendment implies.
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- Conservative Members always labour under the misapprehension that no one in Taunton drinks anything other than cider. They have me bang to rights, because my constituents will be unable to enjoy any sort of social life if measures affecting cider are passed. Sadly, that used to be truer than it is now. Cider is not as widely drunk in my constituency as it once was—
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
Mr. David Heath (Somerton and Frome) (LD)Liberal Democrat- Quote
- rose—
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- It is widely drunk in Somerton and Frome, though. I give way to my hon. Friend.
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HeathLiberal Democrat
- Quote
- I merely wish to make it clear that the social life in my constituency would be considerably impaired if cider were not available.
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I am not saying that it would not be impaired in my constituency. I am merely saying that it would not be completely compromised. The effect of the amendment is on the amendment paper for all to see, but I think it would be useful to expand my arguments so that all Members can understand the context not just of the amendment, but of Government policy as I understand it, and the impact that it will have in Taunton, in Somerton and Frome, and indeed in every constituency in the country. I am pleased to see that the current debate is relatively well attended compared with our earlier deliberations, because what we are discussing has a profound impact. The Government’s current policy is to increase the duty on alcohol over and above the rate of inflation. Conservative Members may remember when the right hon. and learned Member for Rushcliffe (Mr. Clarke) introduced the fuel duty escalator. This is the equivalent of that, except that it affects alcohol rather than fuel.
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I shall give way to the hon. Member for Banbury (Tony Baldry).
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
Tony Baldry (Banbury) (Con)Conservative- Quote
- The hon. Gentleman says that the purpose of the amendment is there for all to see. In fairness, however, he has not yet answered the point put by my hon. Friend the Member for Hammersmith and Fulham (Mr. Hands). With respect, I am not really interested in cider. What I, in north Oxfordshire, am interested in is Hook Norton beer, and I want to know whether the amendment will apply to beer. Why has the hon. Gentleman selected only whisky? Has he done so in order to placate the Scottish nationalists and others on the Benches behind him, and why is the Liberal party not concerned about the future of the English pub and English beer?
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- Whisky is, indeed, important, and I would not wish to diminish its importance—I know that the Conservative party has almost no representation in Scotland, which may have some bearing on its thinking on this matter. My concern is across the board: I am extremely concerned about the impact on people who drink beer, cider and every other alcoholic drink on which Members may wish to offer representations or make some special pleading.
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I will give way in a moment. This is a wider debate; the overall concern is the impact on pubs, brewers and people who work in this industry. I regret that no amendments were tabled either by Labour Back Benchers or by any Conservative Member.
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- As what I have just said is the case, I think it is best that I make a little headway for the moment, and try to explain why I think the Government’s alcohol escalator acts to the detriment of a good number of our constituents. Ministers frequently make the point that there have been changes in lifestyle patterns in the United Kingdom, and that the rates of taxation charged on alcohol of all types is not the sole determining factor of demand for those products. I accept that: people behave differently and society is different from how it was 20 or 30 years ago, and people have modified their behaviour quite outside how that is influenced by duty levels on alcohol. Also, although the popular perception is that alcohol consumption is soaring, the reverse is the case: the total UK sales of most types of alcohol are declining. Within that overall big picture, there are changes in the way that people consume alcohol, such as the extent to which they consume it at home as opposed to in licensed premises. That is one consideration, and I do not say that the Government are responsible for those changing lifestyle patterns. Indeed, in some regards they may even have advantages, although in other regards they may have disadvantages. There are additional factors. The smoking ban, for example, has undoubtedly had an impact on some establishments. Establishments that specialise in serving food alongside the sale of alcohol may even have benefited from the smoking ban, but it has undoubtedly had an adverse effect on the business of institutions that do not have food so high up their pitch to their customers. I think all Members would accept that. There will be Members present who voted in different ways. I voted against the smoking ban, but I was in a small minority. Most Members voted for its introduction in England, but the ban has undoubtedly had an adverse impact on a number of bars, pubs and restaurants in England.
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
- Mr. DunneConservative
- Quote
- Not only do the Liberal Democrats no longer represent Shropshire in this House, but I can reasonably confidently predict that they will barely represent Shropshire at the local authority level on 5 June. I, too, voted against the smoking ban, and one of my reasons for doing so was to allow pubs in my constituency to continue to attract customers, many of whom have smoked. Many pubs also have breweries attached to them. I am told by the Society of Independent Brewers, whose best bitter I judged in Ludlow castle on Sunday, that my constituency has more independent brewers than any other, and they are extremely concerned about the increases through the beer duty escalator proposed in this Budget.
- Time
- 21:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- Sir Michael, that intervention may have been of a better length if the hon. Gentleman had cut out all the predictions about the local elections, which do not seem to have a direct bearing on clause 11. Let us not go through every county and make predictions about the local elections, not least because whenever the Conservatives in my area make such predictions they always look stupid afterwards. Who knows what the future holds? Everybody has their turn in the spotlight. I regret that some Members of other parties seem to place less importance on the matter before us than I do. We are dealing with the impact that Government policy on alcohol taxation is having on pubs, brewers—the hon. Gentleman rightly pointed that out—and people who work in the entertainment industry. It is well known that pubs are closing at an alarming rate in this country. It is not our duty in this House to try to ensure that pubs that are unable to attract customers remain in business regardless of their ability to sell their product at an attractive price to the people who choose—or do not choose—to go to them. Nevertheless, there is a discernable pattern and it is undoubtedly influenced by a number of factors. I mentioned lifestyle changes, and the smoking ban is also a factor, but price—specifically the price differential between sales in licensed premises and in off licences—is certainly a factor. Most people would accept that that is having an impact, on pubs in particular. I am told by the British Beer and Pub Association that 70 per cent. of people oppose this increase in duty. That does not necessarily surprise me, but it is strange that it has become almost the received wisdom in political circles that putting higher duty on alcohol is popular. When I leave Westminster I find far fewer people who are enthusiastic about increasing alcohol duty than I do when I talk to think-tanks and others here, who tell me what a very good idea it is.
- Time
- 22:15
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- Does the hon. Gentleman agree with the publicans, who have lobbied most of us in this House, that this latest duty increase could be the straw that breaks the camel’s back, given the recessionary influences also bearing on the pub trade?
- Time
- 22:15
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- Not only do I agree, but the evidence is there for all to see. Six or so pubs are closing on a daily basis, so the camel’s back has been broken for them. The margins are fine on so-called liquid sales; the profit made by the publican, be it on spirits, beer, cider or any example that one chooses to highlight, is very modest. That is why so many pubs have, understandably, diversified into food and accommodation, but the situation is difficult for publicans if they are not able to make some sort of meaningful profit from their core business of selling alcohol.
- Time
- 22:15
- Source
- View in Hansard ↗
- Speaker
Bill Wiggin (Leominster) (Con)Conservative- Quote
- Will the hon. Gentleman say something about the tremendous amount of work that all sorts of bodies, in particular the National Association of Cider Makers, have done on responsible drinking? The Government’s idea that increasing duty will be beneficial is counter-intuitive and does a great deal of damage to those bodies, which are working so hard. While I am on the matter of health, has he seen the Government deputy Chief Whip, who normally appears at these later hours—he certainly appeared at all times during consideration of the Apprenticeships, Skills, Children and Learning Bill—and does the hon. Gentleman know whether he is all right?
- Time
- 22:15
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- If I think about it, perhaps I will be able to work out what the second half of that intervention meant. Perhaps I should just address myself to the first half. Sheppy’s Cider is based in my constituency—sadly the only cider manufacturer left in Taunton Deane—and produces an excellent product. It is noticeable that, when people drink cider or other alcoholic drinks on the premises in traditional pubs, they are drinking in a controlled environment so it is much less likely to be detrimental to their health than if they were drinking in other circumstances. That is partly why community pubs have a civilising influence in many cases that would not be so obviously witnessed with other forms of retailer. Many people think that alcohol consumed in those circumstances is better than alcohol consumed in others. I said that the majority of British people—I accept that this is unsurprising—oppose an increase in duty and an increase over and above inflation year on year, but I am told by the British Beer and Pub Association that 49 per cent. of Labour MPs oppose the increase. That is a very precise figure, and not quite half of Labour MPs. I am pleased to see much better representation on the Labour Benches than has been the case for other aspects of the Bill. It is still a modest turnout, but I hope that those Labour Members who have attended have come to champion the interests of their constituents, licensed premises, brewers and people who work in the entertainment sector in their constituencies. VisitEngland, the organisation that is given money to promote tourism, has awarded the English pub industry its Enjoy England award for outstanding contribution to tourism. Previous winners include Sir Paul McCartney, the Queen and the Harry Potter films, so that is a measure of how much we value the traditional pubs in our society. They are enjoyed not only by all our constituents but by people who visit this country and regard visiting a pub and drinking the sort of drinks that are only available in this country as essential to the intrinsic appeal of being a tourist here.
- Time
- 22:15
- Source
- View in Hansard ↗
- Speaker
Dan Rogerson (North Cornwall) (LD)Liberal Democrat- Quote
- I know that my hon. Friend is a great supporter of the fight to keep open pubs in his constituency. Has he had the benefit of work by the Pub is the Hub campaign, which underlines the contribution that pubs make to the local community—it is much wider than their direct business contribution? For example, in my constituency the Tree inn in Stratton now has a post office. It has reopened in the pub and is providing a fantastic service for the people of Stratton. Is that not a fine example of the contribution that pubs make?
- Time
- 22:15
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- It is a perfect example. In many villages, the pub just selling alcohol to the residents of that village is no longer a viable economic business model, for the all the reasons I have touched on. Pubs are having to diversify and if they have done so well, they have often been very successful. Some provide more food for Sunday lunches or evening meals, and some provide accommodation—
- Time
- 22:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HeathLiberal Democrat
- Quote
- Skittles!
- Time
- 22:15
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I shall come to skittles later in my contribution. Pubs also offer other services that are not necessarily part of the core offering of the pub. Postal services have been mentioned, but if a village no longer has a shop or any other outlet where the public can gather, the pub can be where people learn about social activities, or where the Rotary club meets. It would be a mistake to see pubs solely as an outlet for alcohol, but I fear that Ministers, when they proposed these above-inflation increases, failed fully to understand the wider social impact of their policies.
- Time
- 22:15
- Source
- View in Hansard ↗
- Speaker
Mr. John Hayes (South Holland and The Deepings) (Con)Conservative- Quote
- It is indeed important that we defend these great British institutions. Skittles has been mentioned, but may I make a plea for darts? The game of darts is characteristically British and intimately associated with public houses, which is usually where people first learn and practise the game. What could be closer to the aesthetic of Britishness than the game of darts played in a pub with a warm pint of bitter?
- Time
- 22:15
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- rose—
- Time
- 22:15
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- Sir Michael, your guidance is invaluable. The only thing that I would say is that I visited Andy Fordham’s pub when he won the world darts championship a few years ago. It was fantastic to see the world darts trophy behind the bar, next to the crisps and peanuts on sale there. Darts, right up to the highest level, is intrinsic to people’s enjoyment of pubs. That takes me neatly—and conveniently in terms of not incurring your wrath, Sir Michael—back to the representations that I have had from my constituents on this matter. I have received an enormous volume of correspondence from people in my constituency and from institutions. They are extremely upset that the Government’s policies are likely to make it far harder for pubs and other entertainment retailers to stay in business. Indeed, in the past few weeks alone I have received representations from “The Westgate Inn” in Taunton; the “Allerford Inn” in Norton Fitzwarren; “The Blagdon Inn” in Blagdon Hill, just outside Taunton; “The Bear Inn” in Wiveliscombe, which was Somerset Campaign for Real Ale pub of the year last year and has, I think, a very good skittles alley; “The Crown Hotel” in Exford; “The Holywell Inn” in Taunton Deane; and many others, including “The Swan”, “The Bell Inn”, “The Cottage Inn”, “The Bridge Inn” and “The Waggon Inn”. I list those institutions only because those who are less familiar with Taunton Deane than I am—a large number of Conservative MPs visit my constituency, however, so perhaps I will take the opportunity to show them some of these institutions—will not know that that list contains a wide range of different pubs. Some are in Taunton, which is a reasonably sizeable town, and others are in quite isolated villages, but they all share the concern held by me and many other hon. Members that the Government’s proposals will impact adversely on their businesses.
- Time
- 22:15
- Source
- View in Hansard ↗
- Speaker
Mr. Roger Williams (Brecon and Radnorshire) (LD)Liberal Democrat- Quote
- My hon. Friend is making a very powerful case. Does he agree that when pubs shut it is very difficult for the planning authority to resist an application for change of use? When such applications are resisted, the pub in question can often be resurrected and can be profitable and secure in the future. “The Old Barn Inn” in Three Cocks and “The Shoemakers” in Pentrebach are now doing very well indeed.
- Time
- 22:15
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I am delighted to hear that. Perhaps you might seek to encourage Members to talk about pubs they enjoy visiting in their constituencies, Sir Michael. The general point is an extremely good one. When pubs close, they rarely reopen and are lost to the community. The planning laws make it hard for pubs to reopen in many cases, but when they do it can be an extremely successful venture. It is also worth noting, in passing, that when new housing estates are built—the Government still aspire to have 3 million new houses, although progress has been slower than they might have hoped in that regard—they are rarely built with community amenities such as village halls, churches or pubs. People who live in many new developments keenly feel that their community would be greatly enhanced by a gathering point, such as a pub, where people can go for a sociable drink and also get to know other people, attend Rotary club meetings and so on. That only serves to highlight the importance of the sector, and why it is so clearly unwise of the Government to try to penalise people in it.
- Time
- 22:15
- Source
- View in Hansard ↗
- Speaker
- Mr. BoneIndependent
- Quote
- I am following the hon. Gentleman’s powerful speech with great interest, but will he tell the Committee how many pubs in his constituency have closed already? At least three in my constituency have and the one in Little Irchester, where the Hell’s Angels always used to gather, has been flattened. That is a great loss to the town, and things will only get worse. What has been the impact in Taunton?
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I carry out extensive research into the well-being of the pub sector in my constituency, as you might be able to tell, Sir Michael. I cannot give the hon. Gentleman a precise figure, but a number of pubs have closed. What is alarming and notable is that they have closed everywhere—in Taunton itself, which is a reasonably sized town with a population of 63,000, and in villages too. It is extremely unusual for villages to have two pubs, as was common even 10 years ago. The sector is contracting the whole time. As I said earlier, it is not in our gift to ensure that all businesses are successful. Some pubs that are failing to meet their customers’ expectations may not be viable businesses, but the amendment asks whether the Government, as an act of policy, should be making it even harder for businesses to be profitable and successful. I maintain that they should not.
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
Kelvin Hopkins (Luton, North) (Lab)Independent- Quote
- I am absolutely in favour of the pub culture in our way of life, but does the hon. Gentleman agree that there are two reasons why pubs are suffering? First, the drink-drive laws mean that people drink at home and, secondly, people can buy cheap alcohol in supermarkets. Would it not be more sensible to raise the price of alcohol in supermarkets to help the pubs?
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- There are a number of reasons why pubs are suffering. I touched on changing lifestyles, and I suppose that one could incorporate the drink-drive laws in that. Certainly, there have been big changes in what is regarded as socially acceptable, although the relevant laws have not changed for a while. The hon. Gentleman did not mention the smoking ban, the effect of which I acknowledge has been chequered: although it may have had a positive effect in some establishments, in most it was probably a negative one. However, the hon. Member for Luton, North (Kelvin Hopkins) makes a very fair point about alcohol off-sales. Anyone who goes shopping will know just how cheap alcohol is in supermarkets compared with pubs. I observe that customers seem keen to buy alcohol sold cheaply in supermarkets. The public do not greet it with great hostility, but the differential involved makes it that much harder for pubs and other licensed establishments to be successful. The differential also makes it harder for traditional brewers to be successful, because they are rarely able to offer to the supermarkets the heavily discounted alcohol that the large international brewers can offer. Therefore, they are at a price disadvantage even within the supermarket, because the economies of scale are not sufficiently big for them to be able to manufacture to the level that means that supermarkets will offer their products at a great discount.
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
Philip Davies (Shipley) (Con)Conservative- Quote
- Surely the hon. Gentleman does not want the many thousands of people who visit Asda in Taunton to pay more for their shopping than they need to. Does he want to penalise all those people who drink perfectly responsibly but who want to do so at home, or the many hundreds of people who work at Asda in Taunton? Surely not.
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- Asda in Taunton is the company’s south-west regional training centre. It is an extremely important and significant local employer, as are Sainsbury, Tesco and Morrison. All of them do very well in Taunton. I said that lifestyles are changing and that people want to buy alcohol from supermarkets to drink at home while they are watching a DVD or the football. I am not saying that the Government have it within their gift to change that—lifestyles are changing. My point is that for someone who is trying to run a pub in Taunton or anywhere else, the above-inflation duty increases are making business harder, which is creating problems at precisely the point when those other factors are militating against publicans.
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- Perhaps no one else will need to make a speech—I shall just use the opportunity of mine to give everyone a chance to speak. I give way to the hon. Member for Angus (Mr. Weir).
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
Mr. Mike Weir (Angus) (SNP)Scottish National Party- Quote
- I agree with much of what the hon. Gentleman says. Obviously, rising duty is one factor, but is not another the way in which the pub trade is now run, in many cases by large pubcos? They are putting huge costs on those who are trying to run pubs, and adding the duty on top of that is often the last straw.
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I agree with the hon. Gentleman. I think we all agree that there are a large numbers of relevant factors, but whatever they are, the increase in duty is the last straw. On that point, he is united with the right hon. Member for Wokingham (Mr. Redwood), who also thinks it is the last straw.
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
Mr. Mark Todd (South Derbyshire) (Lab)Labour- Quote
- I was fortunate enough to miss the start of the hon. Gentleman’s speech. He may have covered this point in his oration, which has lasted half an hour or so, but I am puzzled about how his proposal relates to the competitive position of a pub against another provider of alcohol. If one simply reduced the duty or altered how the Government increase the duty, it would affect all sellers of alcohol equally. The competitive position of pubs would not be altered one iota.
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I regret giving way to a Member who, first, was not interested enough in the subject to turn up at the beginning of the debate—it is not as though we are early in the working day—and, secondly, was so discourteous. However, I shall answer the hon. Gentleman’s point. I think that drinking in pubs is quite price sensitive—more so than other environments in which people consume alcohol. Pubs are more price sensitive than bars that sell in large volume. I am not convinced that the Government’s policy will have a profound impact on binge drinking: people who go and drink 12 pints of very strong lager are unlikely to modify their behaviour, and if they do, it will take the form of drinking 11 and a half pints of very strong lager, the effect of which will be little different. On the other hand, people of more modest means who drink in a pub, in a village or an urban area, can be more price sensitive: they may choose not to visit the pub, or to have only one pint, rather than one and a half. There is a price factor. As I said, a pub has a range of social dimensions, and the impact on them of sales taking a different form may not be so keenly felt. However, my hon. Friend the Member for Somerton and Frome (Mr. Heath), who defers to no one in his knowledge of Somerset as a whole, mentioned skittles. Readers of Somerset County Gazette will see among all the reports of how well Somerset’s cricketers are doing the publication of the skittles leagues. Those leagues, like the darts leagues, are based around pubs: most pubs have skittles alleys which are about the length of this Chamber and as wide as the area between the red lines, and many people visit pubs to play skittles as part of teams against another pub team. When they are there—
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I shall do so briefly and directly, Sir Michael.
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
- Mr. HayesConservative
- Quote
- The amendment refers to a report on competitiveness. I appreciate that this may take some time, but could the hon. Gentleman outline the substance and nature of that report? Could he add an element of quantification in his analysis, and could he tell us how the report will be drawn up with reference to whom will it be drawn up, who will be consulted, and what form will it take?
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I am grateful for that intervention. I hope that a wide range of people will be consulted, including skittles teams, publicans, brewers and others. Subsection (6B) of my amendment refers to “(a) the competitiveness of licenses premises, and (b) the level of employment in alcohol-related industry”.
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
- Sir Robert SmithLiberal Democrat
- Quote
- An important message that the Government have to take on board when it comes to the competitiveness of the alcohol industry is that we should have regard to the export industry that we have built up, in particular on the back of the expertise in the whisky industry. My point relates not just to whisky, but all the spirits industries that have grown up in Scotland on the back of the whisky industry. The export industry depends on access to other markets, and if our own Government are penalising the product at home, it is much more difficult to argue about opening up markets abroad.
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- My hon. Friend is a champion of the industry and makes the point perfectly.
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
- Mr. BoneIndependent
- Quote
- Before the hon. Gentleman concludes his opening remarks, could he explain subsections (6A) and (6B) in his amendment? I am trying to make up my mind whether to vote for it. Would subsection (6A) restrict Parliament’s ability to reduce duty? It seems to say that we could not reduce it in the next three years. I would like his views on that.
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- That is an interesting point. I hope that the review would consider it and make recommendations. I am sure that the Exchequer Secretary to the Treasury could, if she was so minded, say that the reason why the Government wish to oppose the amendment was that they had had a complete change of mind and were upset that the amendment would restrict their ability to cut duty in future years. That would give me a good reason to withdraw it.
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
- Mr. NewmarkConservative
- Quote
- rose—
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I was keen to get on to the impact on brewers, but I give way to the hon. Gentleman.
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
- Mr. NewmarkConservative
- Quote
- I have just one supplementary question to those asked by my hon. Friend the Member for South Holland and The Deepings (Mr. Hayes). He asked a number of important questions about proposed new subsection (6B), but another important question is how much the report that the hon. Member for Taunton (Mr. Browne) proposes to compile will cost the taxpayer.
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I think that the cost will be considerably less than the cost to the taxpayer of the industry continuing to suffer as it does, due to the number of pub closures and the number of other licensed establishments affected. Of course, the precise cost would depend on how many people were consulted. I think that the consultation should be broad, because there are so many groups affected by the issue, including those responsible for postal services and Rotary clubs that meet in pubs in my constituency. In the grand scheme of things, the cost is tiny compared to the huge social impact that is felt when the sector is under threat.
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
- Philip DaviesConservative
- Quote
- The hon. Gentleman glossed over the question asked by the hon. Member for South Derbyshire (Mr. Todd), who made the point that if duty went up equally on the alcohol in supermarkets and the alcohol in pubs, pubs would be at no competitive disadvantage. Does the hon. Member for Taunton (Mr. Browne) agree that whereas pubs sell only alcohol, and therefore have to increase the burden on the customer when duty goes up, supermarkets sell many products, and so can occasionally absorb the cost of increased duty to keep prices low and attract people in? It therefore affects pubs disproportionately when duty goes up on beer.
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- The hon. Gentleman makes a fair point. I do not want to stray too far, but there is also a difference between pricing a product competitively and deliberately selling it at less than the cost price to drive competitors out of business. That is a legitimate point. I tried to give a comprehensive answer to the question asked by the hon. Member for South Derbyshire (Mr. Todd), who was insufficiently interested to turn up at the beginning of the debate. What I said was that the impact was experienced differently in different sectors. I thought that that was the case 10 minutes ago, and I still think that it is the case. Before I conclude, I want to deal with the effect on brewers, because Members who are not as familiar with Taunton Deane as I am may not know that there are four distinguished beer brewers in my constituency.
- Time
- 22:30
- Source
- View in Hansard ↗
- Speaker
- Mr. BoneIndependent
- Quote
- Name them.
- Time
- 22:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- Cotleigh Brewery, which is based in Wiveliscombe—its leading beer is tawny beer, which I strongly recommend to anyone who visits the area; Exmoor Ales, which is also based in Wiveliscombe, and is the producer of the award-winning Exmoor gold; Taunton Brewing Company which, confusingly, is not in Taunton, but has a brewery in the village of West Wagborough in my constituency; and Quantock Ales which, confusingly, is not in the Quantocks but is on the edge of Wellington in an area called Chelston. All four brewers are much appreciated and valued by people in my constituency. The first two—Cotleigh Brewery and Exmoor Ales—have about 10 employees each, so they are not insubstantial operations. The second two are much smaller businesses—they employ only one or two people. As I said, Cotleigh Brewery and Exmoor Ales employ about 10 people each and produce well over 1 million pints of beer a year, which are widely sold in pubs throughout Somerset and the south-west, Dorset and Devon. Not only are those breweries significant local employers but they are part of the heritage and fabric of the community that I represent. The first two breweries are based in Wiveliscombe, which has a population of just over 2,000, and has a brewing tradition that goes back hundreds of years and is intrinsic to the town’s character. Not only do those breweries produce excellent beers that people in my area enjoy drinking either in bottled form from shops and supermarkets and pubs but they contribute just as much as the pubs to the character of the area that I represent. Moreover, as the comments from Visit England show, they contribute to the overall character of the country. I am sure that many Members enjoy, as I do, different drinks depending on where they are in the country. If I visited Yorkshire, there are excellent beers and other drinks in Yorkshire that I would—
- Time
- 22:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- Thank you, Sir Michael. I was seeking to be serious, and I shall conclude.
- Time
- 22:45
- Source
- View in Hansard ↗
- Speaker
- Philip DaviesConservative
- Quote
- Will the hon. Gentleman give way?
- Time
- 22:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- Yes, but I shall first explain just how many different areas of public life in this country are taken up with alcohol-related sales and production, and quite how profound the impact of Government increases in duty over and above the rate of inflation will be on all those individuals and sectors of society. It is important that a report of the type envisaged in amendment 10 is conducted before further increases are introduced. It is quite wrong for the Government to proceed blindly in increasing duty on alcohol, which has had a profoundly adverse impact on many people in the past, without their being fully aware of the consequences for all those different people.
- Time
- 22:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I wonder whether it would be better for Members to make speeches.
- Time
- 22:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I promised to give way before I concluded, Sir Michael.
- Time
- 22:45
- Source
- View in Hansard ↗
- Speaker
- Philip DaviesConservative
- Quote
- I very much support the hon. Gentleman’s comments about the importance of breweries. The recently established Saltaire Brewery in my constituency is thriving. It supplies local pubs, virtually exclusively. If the duty on beer and alcohol puts some of those pubs out of business, the hon. Gentleman will have been absolutely right to stress that that will be devastating not only for those pubs, their customers and the local communities, but for the small breweries that rely on those pubs to supply their wares.
- Time
- 22:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- The hon. Gentleman has summed up my case perfectly and eloquently. I fear that the Government are on the wrong side of this debate and I hope very much that hon. Members, including Labour Members who have their constituents’ interests at heart, will unite in support of amendment 10.
- Time
- 22:45
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- The amendment invites us to change clause 11. The substance of the argument, as we heard in that interesting opening, is that the increases in duty proposed by the Government are too high and could damage jobs and the industry. An alternative mechanism is proposed for further review so that there would be no further increases in the duty rates unless and until we had taken proper advice about their impact on jobs. That has a lot to recommend it, and I look forward to hearing what my party’s Front Benchers think about it. When the Minister responds, it would be helpful if she explained a little more about the workings of the increases and the escalator in clause 11 so that we can judge what account, if any, the Government have taken of the impact of these high and rising duty rates on the business and why she might think that another proposal is not necessary. In the explanatory notes to the Bill, we are told that clause 11 increases the duty by a nominal 2 per cent. However, if we look at what the clause actually says, we see that, for example, the standard rate of duty on beer is to rise from £14.96 to £16.47—a rise of a little over 10 per cent.
- Time
- 22:45
- Source
- View in Hansard ↗
- Speaker
- David TaylorLabour
- Quote
- The right hon. Gentleman is well known for his erudition and knowledge about a whole range of issues. To back up the comments that he is making, will he tell the House how much a pint of beer is at his local pub? When did he last buy one?
- Time
- 22:45
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- Sir Michael, I would be wandering far wide of the amendment if I were to go into all my drinking habits. I do not see this as an opportunity to take the hon. Gentleman on a conducted tour of all the pubs in Wokingham, although he can rest assured that I fully support my local pubs—just as he supports his, I am sure. My argument relates to the impact on the national picture of these duty rates. I take the hon. Gentleman back to where we were. I was pointing out that the standard rate of duty on beer shows an increase of more than 10 per cent.; I appreciate that there are VAT changes as well. There is also an increase in duty per hectolitre on sparkling cider from £188.10 to £207.20, also an increase of more than 10 per cent. The duty per hectolitre on non-sparkling cider whose strength exceeds 7.5 per cent. also increases, from £43.37 to £47.77—again, a rise of more than 10 per cent. The rate of duty per hectolitre in any other case increases from £28.90 to £31.83, which is yet another increase of more than 10 per cent. It would be useful if the Minister took us through her figure work to give us some idea of what, over the period covered by the amendment, the Government have in mind under the alcohol duty escalator that they are designing. The structure of clause 11 also reminds us that there are large steps up in duty on categories of wine, depending on whether it is sparkling and on its alcoholic strength. There is a duty increase of about 40 per cent. between wines of 3.9 per cent. strength and wines of 4.1 per cent. strength. There is more than a doubling of the duty if the strength goes up from 5.4 to 5.6 per cent. For some reason, sparkling wine in the 5.5 to 8.5 per cent. bracket is slightly cheaper than the equivalent non-sparkling wine, but for sparkling wine with a strength of more than 8.5 per cent. there is an increase of some 30 per cent. in duty over the standard amount. That does not seem to be particularly tidy or fair, and it will mean different impacts on different elements in the industry. Some people feel that duty is becoming penal at the higher levels, and there is no necessary correlation between drinking too much and the strength of the drink. On some occasions, people are much more careful with stronger drinks, for obvious reasons, and one has to be a little careful about the gradations. We need some background on how these duties are tabled. Without a better explanation of why they are fair and just and related to wider social aims, it seems attractive on the surface that there should be a pause in the escalator and a proper review of its impact.
- Time
- 22:45
- Source
- View in Hansard ↗
- Speaker
- Bob SpinkIndependent
- Quote
- Does the right hon. Gentleman think that one problem with the Liberal amendment is that it would prevent any decrease in, or indeed the removal of, the escalator over the next three years?
- Time
- 22:45
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- I think that latecomers should refrain from making comments that have already been made by hon. Members who have decided to take this rather more seriously. As you rightly reminded us, Sir Michael, it is an extremely serious issue for a very large number of businesses and constituents throughout the country. We have all been impressed by the energy of those who are desperately trying to save their industry and their local pubs. They have been to see us here in the Palace of Westminster, they have been to see Ministers, they have sent a great number of e-mails and personal correspondence, and they have often been to Members’ constituency advice surgeries. It well behoves anybody in the House not to try to turn this into some kind of knockabout but to see that it involves big issues about jobs, prices, communities and ways of life that matter a great deal to our constituents. As we have heard—I do not wish to bore the House by repeating it—a point can be reached where an increase in taxation can suddenly tip over into doing far more serious damage. My worry is that we are reaching that point against the background of recession. It may well be that in more normal years there was agreement across the House that there needed to be a certain level of duty, or even an increase in duty, for health or revenue-raising reasons. However, against the background of great pressure on the economy, a squeeze on many people’s incomes, a squeeze on company cash flow, and businesses experiencing difficulty in raising from the banks working capital or money for their wider purposes, the Government should pause to reflect on whether this is the appropriate moment to introduce such a tax increase and whether they have done a proper study of what impact it may have on jobs and individual businesses. We have already heard examples of small brewers who could be knocked sideways if demand fell too sharply, and we all know of pubs at risk in our own constituencies and in the wider country. I am also concerned about the impact on prices. It is dangerous to be as cavalier as the Government appear to be about the inflation risk. One of the attractions of the Liberal Democrat amendment is that it is trying to create a pause in the rate of increase of this particular set of prices in our economy. I find it extremely worrying that at a time when output is falling precipitately, and when redundancies and unemployment are soaring, as we are tragically seeing again today, with about a quarter of a million extra unemployed so far this year—an alarming development—we still have price inflation, on the Government’s preferred measure, of about 3 per cent. Although there is clearly a lot of deflation in the system, there is still quite a lot of inflation as well, part of which is on imports. That is certainly true in the drinks industry, because wines and so forth are imported from much stronger currency areas and the devaluation, along with the increased duty, is increasing price tensions. However, the price tension is not due to that alone; it is also due to the impact of Government action. The Government have to be very careful about the impact on price inflation of duty hikes and other tax rises, at a time when incomes are not going up at all in many cases, and when some people’s incomes are falling because bonus payments have been removed, or because people are doing only three or four days’ work a week, or missing one week in four or whatever.
- Time
- 22:45
- Source
- View in Hansard ↗
- Speaker
- Kelvin HopkinsIndependent
- Quote
- Does the right hon. Gentleman not accept that the depreciation of the pound or the appreciation of the euro, however one likes to look at it, is actually of benefit to the economy? We are starting to see a turnaround in our chronic balance of trade deficit, and demand is being directed towards domestic producers of other things. That is helping employment and the economy. Is the depreciation of the pound not a very good thing indeed?
- Time
- 23:00
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- We must be careful not to make this a wider economic debate, and we have dealt with that matter in such debates. I have always said that devaluation should help domestic manufacture relative to overseas manufacture and should start to make some correction to the balance of payments. However, what we are concerned about this evening is the sectoral impact of a particular tax increase on the jobs and prosperity generated by the alcohol and entertainment industry. I am adding that point that inflation is also harmful, and there is a double whammy of inflation in the alcohol sector. That is coming partly through the sterling effect, to the extent that drinks are imported, but more importantly there is a direct inflationary impact from the measure that we are discussing this evening. We are also discussing the attempt to prevent future increases, at least for a period pending further review, as suggested in the amendment.
- Time
- 23:00
- Source
- View in Hansard ↗
- Speaker
- Mr. NewmarkConservative
- Quote
- The hon. Member for Luton, North (Kelvin Hopkins) made an important point about the currency shift when we have a declining currency. The Prime Minister made an interesting observation in 1992 when he was shadow Chancellor, saying: “A weak currency arises from a weak economy which in turn is the result of a weak Government”. The hon. Gentleman says that a declining currency is good, but the Prime Minister also made an interesting observation about a weak currency.
- Time
- 23:00
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- That is quite right, although it takes us into a wider, general economic matter that is not strictly the point at issue in the amendment. The issue that we must consider is the adverse impact of duty escalators on both jobs and prices. The two are related, of course. This is a time when people may be losing a week or two of work a month because a factory is partially closed. They may have lost overtime or one or two days’ work a week, or they may even be off work for three or six months because of the temporary closure of big factories, for example in parts of the motor industry. This extra price increase on something that they like to do for relaxation is not good news, and the Government might be underestimating the impact it could have on hard-pressed budgets. If alcohol costs too much, fewer people will go to the pub. If fewer people go to the pub, it is more likely that the pub will close. The Government will then be fuelling a vicious cycle of driving more people out of work and causing a further reduction in effective demand, which I am sure they do not intend to do. They tell us that they will do whatever it takes to turn this recession around, but this is another case of their taking actions that cannot be helpful, and that in parts of the entertainment and alcohol industry will be extremely damaging. It is wrong for us to ignore or underestimate the power and passion of the lobbying that we have seen in recent weeks.
- Time
- 23:00
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- I share some of the right hon. Gentleman’s concerns, especially about the price of beer. Marston’s, the third biggest pub chain, has its headquarters in my constituency. However, will he also take into account the fact that a major input cost, particularly for breweries, is energy, and their energy prices have decreased considerably compared with 12 months ago?
- Time
- 23:00
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- Some breweries may experience some benefit on energy, but there may not be benefits on other input prices. For example, I doubt whether their water bills have decreased. Perhaps the news is therefore not as good as the hon. Gentleman thinks, but anything that offers some relief is clearly welcome. The amendment states: “No further amendment may be made to” the relevant section of the legislation to which it applies “within three years of the commencement, unless” a further condition is fulfilled. My hon. Friend the Member for Hammersmith and Fulham (Mr. Hands) teased out the important point that the amendment unfortunately does not appear to apply to all the types of alcohol we would like it to cover. That may be a slip in the drafting, but it puts hon. Members in a slightly difficult position because we would like to support the whole alcohol industry, not only the spirits sector. I would like the amendment to cover beer, cider and domestically produced wine—that would mean covering all wine—as well as spirits. Under the amendment, the condition that must be fulfilled before a further increase is allowed is “that the Chancellor of the Exchequer shall have compiled and laid before the House of Commons a report containing an assessment of the impact of the increases in alcohol liquor duty on… the competitiveness of licensed premises, and… the level of employment in alcohol-related industry, and the House of Commons” would have a chance to consider and vote on the report. One colleague asked a perfectly good question about the cost of the report. It is right to show concern about runaway public spending, even when it comes down to such relatively small details. However, given the wide range of civil servants, and the substantial recruitment of civil servants that the Government have undertaken in recent years, I hope that existing teams could absorb the task. I am sure that the industry would make any evidence and information available to those compiling the report. I therefore hope that that worry will be allayed if the Government promise to act in a value-for-money spirit and ascertain whether the report could be covered in the normal course of their operations.
- Time
- 23:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BoneIndependent
- Quote
- Assuming that there is a new Conservative Government in the next year and that they want to cut duty immediately so that the people of the United Kingdom can celebrate with gusto, we could not do that if we accepted the provision.
- Time
- 23:00
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- My hon. Friend is right to say that we could not do it under the provision that we are considering, but if we are in the fortunate position of having a majority, we could use it to change the law in any way we liked. I am sure that a Government who got better value for money generally and could set lower tax rates would be welcome to the House. That would do more to speed us out of recession than some of the measures that we have considered in other debates.
- Time
- 23:00
- Source
- View in Hansard ↗
- Speaker
Mr. Robert Goodwill (Scarborough and Whitby) (Con)Conservative- Quote
- Notwithstanding the point that the hon. Member for Wolverhampton, South-West (Rob Marris) made about energy prices, which have an impact on beer prices, is my right hon. Friend aware that the price of malting barley has been rising in the past three weeks? It is now 25 per cent. higher than it was in the futures market in October, so that will wipe out any advantage from energy prices.
- Time
- 23:00
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- I am grateful to my hon. Friend for his expertise in that agricultural sector. I knew that agriculture prices were generally soaring again—because, I suspect, of quantitative easing in Britain and America, which fuels speculative, early moves into commodities, as one might expect from such inflationary actions. My hon. Friend is right to say that it will more than wipe out the possible benefits from energy prices. I was cautious about the extent of those benefits, because they depend on individual brewers’ contractual positions—several have long-term contracts, which mean that they do not get the automatic pain or pleasure when market prices move. As I was saying, the cost of the report is a reasonable cost and one that can be contained by a sensible Government. It would be a good idea to conduct a wider study and get some information about what the impact might be on jobs and prices. Indeed, that would be necessary in order to make an assessment of the impact on employment. When I tried to tease out the view of the mover of the amendment, the hon. Member for Taunton (Mr. Browne), on the balance of forces that are causing so many pub closures, he said he felt that at the moment price increases could be an important factor. I certainly agree with him that social change is also an important factor. There are people who like to drink drinks other than beer who perhaps associate beer rather more with the pub. There are also people who want to drink their drinks at home or in some other social setting, rather than in the local pub. There are all sorts of social changes under way, which has meant a trend against the pub. However, the hon. Gentleman is right—and many hon. Members agree with him—to say that at this juncture prices could be particularly damaging and that, for a pub or a small brewer, they could be the straw that breaks the camel’s back. We know that the rate of pub closures is unacceptably high. The requirement laid out in amendment 10 is that the report should look into “the competitiveness of licenses premises,” although that should perhaps be “licensed premises”. I take that to mean that the report would have to consider carefully the relationship between pricing and demand and the impact of the duty on that pricing. If the Government’s idea is a permanent escalator, we will need to think through the compound arithmetic and see what impact it might have. The Government also need to do those calculations to see what impact the change could have on the level of duty collected, because there will come a point at which it is self-defeating. The amendment also invites the Government to comment on the kernel of the argument being put forward this evening, which is the level of employment in the alcohol-related industry. The industry has different components: it has the producers of alcoholic products and all the people involved in marketing, sales and distribution, but it also has those involved in hospitality and leisure who use alcoholic products as part of a wider offering to the public. That is the feature that has led so many hon. Members to be so passionate about the defence of their local pub trade and their local pubs, as important establishments in suburbs, communities and villages. When she responds to this debate, I hope that the Exchequer Secretary will understand that the House is responding not just to the amendment before us, but to what lies behind it, which is a very big lobby indeed. That lobby is warning the Government that the industry is particularly exposed and that the Government’s revenue-raising actions are increasing the agony that businesses are experiencing generally from the impact of the wonky monetary policy, the credit crunch, and the over-extension and then the sharp withdrawal of credit, all of which have characterised the unfortunate performance of the economy in the past three years. I hope that the Minister will remember to explain to the House a little more how her clause 11 operates, because that will stand part of the Bill if the amendment is not passed. I hope that she agrees that the increases in the Bill are very large for an economy that, we are told, should be operating at zero inflation. There are also some big steps up in the duty on wine, which do not make a lot of sense to quite a lot of people trying to wrestle with what the Government are seeking to do.
- Time
- 23:00
- Source
- View in Hansard ↗
- Speaker
- Stewart HosieScottish National Party
- Quote
- Amendment 12, which stands in my name, is about alcohol duty generally, not the whisky industry in particular, although that is an important sector and I may make a number of references to it. Let me start with the comments of the Scotch Whisky Association about last year’s Bill. It said that the 2008 Budget had been greeted with “extreme dismay…following the Chancellor’s decision to raise the duty on Scotch Whisky by a punitive nine per cent. Distillers said that the Chancellor had effectively abandoned government moves towards a fairer alcohol tax policy, worsening the duty discrimination against Scotch Whisky.” Those sentiments are broadly shared again this year. The association has described the proposed rise, following last year’s cumulative 13.5 per cent. hike—the largest rise since the 1970s—as “a blow to the industry that comes at the worst possible time”. This year’s rise has been described by the SWA as a real-terms 5 per cent. rise, and the association suggests that the Treasury is actually likely to see “lower receipts as the duty rise aggravates already tough market conditions in the UK, the industry’s third largest market”. It goes on to say: “The duty rise sets an unwelcome precedent for other governments around the world who are also seeking to raise revenues.” That matter has been alluded to before. In general terms, the industry considers this year’s rises bad news. They are particularly bad news for an industry that employs 10,000 people directly and 40,000 directly and indirectly in Scotland, and a total of 65,000 directly and indirectly in the UK. It is not only the whisky industry that will be affected but the drinks sector generally, which has already asked the Government to abandon the 2 per cent. above inflation tax escalator on alcohol. That request has been based in part on the work done by Oxford Economics, which has looked at the effect of last year’s 17 per cent. average leap in excise duty and at the implications of the four-year tax escalator. Its five-year study estimates that there will be about 75,000 job losses in the drinks industry. In the teeth of a recession, having a policy that is likely to lead to job losses is foolish. The study predicts that alcohol sales will drop by over 11 per cent. and that tax revenue from alcohol will be £1.6 billion lower than the Treasury originally estimated. For all those reasons, we need to find a better, fairer, evidence-based way of taxing alcohol. We simply cannot go on with the unfairness in the system that results in a half-pint of beer costing 23.06p in duty and a 125 ml glass 26.75p, while a 35 ml glass of whisky costs 31.7p in duty, especially when all those measures contain precisely the same amount of alcohol. That clearly demonstrates the unfairness in the way in which duty is levied on different forms of alcoholic drinks. I have not called for the duty rises to be cancelled, although that would be very welcome. However, my amendment 12 calls for the evidence that would allow evidence-based policy making and for the Treasury to tell us by the time of this year’s pre-Budget report how much duty is raised from each of the different kinds of alcoholic drink. The amendment also calls for the publication of an assessment of “the level of alcohol liquor duty required to be levied on each type of drink on an equitable basis based on the alcohol content to generate the same revenue yield.” We need that information in order properly to determine, on the basis of real evidence, how to tax alcohol fairly, across the board, and how to protect the vitally important Scotch whisky industry. Other hon. Members will have their own industries, such as cider houses and breweries. We also need the evidence to ensure that, whatever we do, there are no unintended consequences. I am conscious of the pressures on the brewing industry and the pub trade, but also conscious of the unfairness when it comes to the duty levied on whisky. For all those reasons—and ignoring the arguments that the Minister made last year about how difficult this might be and how Europe would not let us do it—I think that it is reasonable to ask for an assessment of the duty taken on the different kinds of drinks, and of the level of duty that would be necessary to create equitable taxation in future. With that, I will sit down. I have heard a number of very long speeches today that went all round the houses and missed the point. I hope, Sir Michael, that people will be grateful for a short, concise speech.
- Time
- 23:15
- Source
- View in Hansard ↗
- Speaker
- The Chairman of Ways and Means (Sir Alan Haselhurst)Conservative
- Quote
- Order. I am sure that Sir Michael would have been delighted, but he is not in the Chair at the moment.
- Time
- 23:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- Thank you, Sir Alan. It is a pleasure to follow the hon. Member for Dundee, East (Stewart Hosie). I shall return to his amendment in due course, but I was greatly entertained and interested by his passionate defence of the Scotch whisky industry—so much so that I thought that amendment 10 had actually been tabled by the Scottish National party. We are, of course, speaking to the Liberal Democrat amendment, which is designed to freeze spirit duty only, while allowing beer and cider duty to continue to rise. It is also a pleasure to follow my right hon. Friend the Member for Wokingham (Mr. Redwood), who spoke, as always, with a great deal of sense. I look forward to the Minister’s explanation of the duty figures and to her response to his question about the tipping point, the revenue-maximisation point and other issues facing the industry. In speaking to his amendment, the hon. Member for Taunton (Mr. Browne) recovered well after a difficult start, but it is worth repeating that the amendment says that he will freeze only spirit duties for three years, while he seems quite happy for the above-inflation increases to continue for wine, beer and cider.
- Time
- 23:15
- Source
- View in Hansard ↗
- Speaker
- Mr. Jeremy BrowneLiberal Democrat
- Quote
- I caution the hon. Gentleman about failing to see the wood for the trees. I made it extremely clear in my speech—I do not think many would accuse me of not speaking for long enough—that I am very keen to help those producing beer, cider, wine and other alcoholic drinks. If he feels that the amendment is not drafted satisfactorily, I regret that he has not tabled a better-drafted one, as I would not wish to let the Government off the hook by his splitting hairs on this issue, when it is very clear that I wish to represent alcohol producers as a whole.
- Time
- 23:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- The hon. Gentleman raises an interesting point. Although I am relatively new to the Finance Bill, I did not believe that it was possible to table an amendment to an amendment, so I am not sure how I could have tabled an amendment to his amendment. It is important to be clear about what we are discussing and amendment 10 deals only with the spirits industry, but I appreciate the spirit in which the hon. Gentleman says that he actually means the whole industry. I will try to move on from that. The only other thing I would say about the amendment is that it is also clear that no reduction in duty would be possible until such time as the report is presented—a point made very ably by my hon. Friend the Member for Wellingborough (Mr. Bone) and, albeit some hours afterwards, by the hon. Member for Castle Point (Bob Spink), who in his customary fashion has been in and out rather quickly. Having said all that and having listened to the speech of the hon. Member for Taunton, I agree with the great majority of what he had to say about the issues facing the industry.
- Time
- 23:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HayesConservative
- Quote
- I know that my hon. Friend is anxious to move on, but it would be remiss of him not to say something about the relationship between this amendment and the Intoxicating Liquor (Licensing) Bill of 1872, for much of the same argument was used then as was heard in the Chamber this evening. The issues that the hon. Member for Taunton (Mr. Browne) articulated with such style and eloquence about the relationship between licensing and the ability of grocers to sell alcohol more cheaply than licensed premises are directly pertinent to the amendment.
- Time
- 23:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- As ever, my hon. Friend makes a telling point, dwelling on the history of many of these issues. I look forward to hearing the Minister’s response about that Bill and its impact. The amendment is wide ranging and talks about reaching “an assessment of the impact of the increases in alcohol liquor duty on… the competitiveness of licenses premises, and… the level of employment in alcohol-related industry”. I intend to speak around most of those issues this evening. One of the main reasons for my speaking tonight is that I am going to outline why we voted against this year’s rises in alcohol duties. We see them as blanket rises that hit all consumers, without making any attempt to curb problem drinkers. There are also significant holes in other aspects of Government policy. For example, while Labour’s alcohol duty escalator appears still to exist, it does not seem to apply when the retail prices index is negative. We were told that the escalator was there to provide stability, but that stability went within a few months with the new duty rises in the pre-Budget report, and stability and certainty have been eroded further in the Budget. We must ask whether the RPI measure looks forward or backward. We must also ask what will happen to alcohol duty when VAT goes up next new year’s eve as “Auld Lang Syne” rings out. Earlier, I think that we heard a concession from the Financial Secretary, who suggested that the change might be made in the early hours of new year’s day rather than on new year’s eve. A further question is whether the Government’s huge duty rises are a result of health concerns or of a desperate effort to plug the gaping hole in the public finances, or perhaps a little bit of both. However, I thought that first we should conduct an examination of exactly what has happened over the last 14 months in relation to alcohol duties. When the Government introduced their duty escalator at the last Budget, they raised duty by some 6 per cent. across the board. It rose again by 8 per cent. when VAT was reduced in the PBR, and we have a further increase of 2 per cent. across the board in this year’s Budget. Over two Budgets and the intervening PBR, duty on a typical pint of beer has risen by 8p in a year. A bottle of wine now carries duty of £1.61, compared with £1.34 previously. That is an increase of 27p. Spirits are up. A bottle of gin carries 82p more duty, and a bottle of whisky carries an additional 86p—although without the Government’s embarrassing U-turn in the PBR, the amount would have been even greater. Cider and perry are also up, as is champagne—which does have some impact on the Treasury, judging by last year’s photographs of large-volume deliveries to it and to other Government premises on and just off Whitehall. Let me first outline some of the current health concerns about alcohol and their relevance to duty and then to the problems facing the sector, before examining the Government’s recent record and setting out some of the Conservative solutions. Health issues have been and will be a key part of the debate. There are 37 million responsible drinkers in the United Kingdom, but there are also about 3 million adults who have some form of alcohol dependency and another 8 million who have some kind of alcohol-use disorder. That is the picture among adults, but under-age drinking is a problem that is often highlighted as well. A tenth of final-year primary school children at least say that they drink regularly, and the number rises to 45 per cent. of 14 to 15-year-olds. I understand that, in this context, “regularly” is taken to mean at least weekly. A fifth of 10 to 15-year-olds say that they get drunk regularly. In 2005-06, more than 1,400 children under 14 were admitted to hospital in the United Kingdom as a result of conditions caused by alcohol abuse. We all know that alcohol is a major contributor to crime and antisocial behaviour. Half of all violent crime is drink-related. It probably happens in every one of our constituencies, and it is probably happening now, at this late hour. One of the interesting aspects of being an inner-London Member of Parliament without a second home to return to in the evening is leaving this place after a 10 pm vote and arriving at Fulham Broadway tube station between 10.30 and 11 pm. The scene is not yet in full swing, but the thumping music makes the whole street vibrate. Drunken youths are already marauding, and on some occasions fighting has started. That is one of the many reasons why Hammersmith and Fulham council is clamping down on late licences, as far as it can under Labour’s disastrous Licensing Act 2003. It was the first council in Britain to pay for 24-hour beat policing teams in both Fulham Broadway and Shepherd’s Bush town centres.
- Time
- 23:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HayesConservative
- Quote
- I am delighted that my hon. Friend is making such a strong case for the link between alcohol and lawlessness. If the Minister had studied the 1872 Act and the debate on it in more detail, she would know that the same argument was used in the debate on then. “The testimony on all hands was as strong as testimony could be that every advancing hour of the night brought with it an increasing ratio of drunkenness…something like from 43 to 45 per cent. of the drunkenness occurred after 11 o’clock”.—[Official Report, 11 July 1872; Vol. 212, c. 965.] That was what was said then, linking it directly to crime and disorder—a link that my hon. Friend is making now.
- Time
- 23:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- My hon. Friend makes an important point. It is worth mentioning that the problems I have just outlined, and of which we are all aware, are not new problems, but problems that have been with us for some time. That does not abrogate the Government’s responsibility to do something about them, however, and I shall outline how we might be able to use the duty regime to do something. There are, of course, other effects of alcohol abuse. Since the 2003 Act came into force, there has been a 25 per cent. increase in violent crime reported between 3 am and 6 am. I do not have up-to-date figures on the impact of alcohol on domestic violence, but we are all aware from our constituencies that there is a strong correlation. These are serious problems. It in no way downplays their severity to note that they involve a small minority of drinkers. It would also be wrong to put them entirely at the door of the industry, which is taking action of its own, although it could, and should, be doing even more. First, let us take a look at the condition of Britain’s fragile drinks sector.
- Time
- 23:15
- Source
- View in Hansard ↗
- Speaker
- Mr. ToddLabour
- Quote
- Does the hon. Gentleman agree that disorder is rather less likely to emanate from the supervised environment of a public house than from off-licence sales of alcohol, freely distributed to those who may drink it in the street, and distribute the packaging all over the road?
- Time
- 23:30
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- I thank the hon. Gentleman for that intervention. He makes the telling point that a well-supervised, well-staffed, professionally run licensed establishment will be able to look after such problems quite well. The real problems, of course, start to arise outside the establishment or later on, which is, again, something the industry has to consider. Contrary to popular perception, alcohol consumption is falling, and actually peaked a few years ago. The total amount of alcohol sold in the UK fell by 6 per cent. between 2004 and 2008. Consumption per head of pure alcohol per annum is down from a peak of about 9.5 litres in 2004 to about 8.7 litres today, although that is still above the figure of 7.5 litres for 1993. This is not to deny that there are problems in the UK with alcohol consumption, but it goes to show that the sands are shifting. This is not the occasion to digress into a full debate on the healthiness or otherwise of alcohol consumption, as we are, after all, looking at the effect on licensed premises, but we need to strike a careful balance between the interests of the great majority who drink in sensible moderation as against addressing the people who abuse alcohol and are responsible for mayhem and disorder in our town centres, not to mention issues such as domestic violence and the expense caused, to low-income households in particular, by dependency and addiction. Beer consumption peaked in 1979, and since I left university in 1989 beer consumption in pubs has halved. I am not for a moment suggesting a link between those two facts, but that does put into perspective how quickly this sector has changed. This is not a plea to reject the zeitgeist and return to a golden age of cricket and warm beer in our local pub, but we need to recognise that the competitive environment facing pubs is, in many places, difficult.
- Time
- 23:30
- Source
- View in Hansard ↗
- Speaker
Mr. David Drew (Stroud) (Lab/Co-op)Labour- Quote
- As someone who admits to being a teetotaller, may I say that pubs could be much fairer by recognising that there are people who do not drink alcohol and by not charging the outrageous mark-up that they put on non-alcoholic drinks for those of us who like to go into pubs but do not want to drink alcohol? Does the hon. Gentleman agree that if we were to address such issues, we could change the whole debate?
- Time
- 23:30
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- I am not sure that I quite agree with that. There is a limit to how much soft drink prices can be regulated, and I would be slightly nervous about suggesting there should be such regulation. I share the hon. Gentleman’s frustration, however; when I am out with my wife, who rarely drinks alcohol, she constantly talks about how expensive an orange juice is relative to the price of beer, in this country at least. That is a fair point. Beer duty was increased by a staggering 17.8 per cent. last year, with two big increases in the space of just nine months. UK pub beer volumes have fallen by 9.3 per cent. in the past 12 months. The proportion of beer sold through the off-trade has risen from about 10 per cent. in 1979 to just under 50 per cent. today, and the trend is accelerating. The rate of decline in beer consumption overall, across both on and off-trades, which is clear over 30 years, is accelerating. According to the British Beer and Pub Association, between March 2006 and March 2007, consumption fell by some 600,000 barrels, between 2007 and 2008 it fell by 1.1 million barrels—that is about twice the rate—and between 2008 and 2009 it fell by some 2.2 million barrels. It seems that almost every year the rate of the deceleration of beer consumption doubles. We are down to a level where just 28.6 million barrels are consumed, across both the on and off-trades and covering all types of beer. Meanwhile, wine consumption fell for the first time this year since records began. According to the World Health Organisation, in 2003 the UK’s overall alcohol consumption level was only just above the EU average and was about the same as that of Switzerland and Portugal. The UK will have fallen further down that league table in the five or six years since. Again, that is not to say that this country does not have a problem with alcohol consumption, because it does, but it is worth remembering that consumption has decreased and the type of consumption is changing. These figures show that our problem is less related to overall volumes of consumption and more related to the types, patterns and, especially, the effects of alcohol consumption. In 2003, the UK’s consumption per head was already lower than that of either France or Spain—countries that many of us would view as having a more responsible attitude and approach to drinking in general. All that implies that the overall volume of consumption in this country is not necessarily the problem. A recent study that Oxford Economics published in 2008 forecast that, with Labour’s alcohol duty escalator in place at retail prices index plus 2 per cent., the sales volume will fall by between 11.5 and 12.4 per cent. over the five financial years following the 2008 Budget. Oxford Economics expects that these rises will “cost between 75,000 and 80,000 people their jobs.” The decline in alcohol consumption may be welcomed by many in this House, but none of the evidence points to a decline in consumption among problem drinkers. The duty rises are just a blanket increase in expense for the great majority who drink responsibly, and I shall return to that point in due course.
- Time
- 23:30
- Source
- View in Hansard ↗
- Speaker
- Stewart HosieScottish National Party
- Quote
- Is the hon. Gentleman saying that although price may be a factor in, and its use a tool to control, problem drinking, he does not see duty being part of that? Does he think that instead another mechanism unrelated to duty such as minimum pricing in supermarkets could be used?
- Time
- 23:30
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- The hon. Gentleman makes a telling intervention. Obviously, price is an important determinant of consumption patterns, but the one way in which the Government can increase price directly is through duty, and I shall suggest how we might be able to do that in due course. I wish to discuss the number of pubs and bars in England and the commercial pressures that are being put on them, which have been mentioned by a couple of hon. Members. There are some 57,000 pubs and bars in England and Wales, which, according to the Association of Licensed Multiple Retailers, have a combined annual turnover of approximately £25 billion, which is equivalent to about 2 per cent. of our GDP. More than 500,000 people are directly employed in the industry—about a third as bar staff—which is more than are employed in construction, agriculture and mining put together. According to ALMR, a third of pub revenue goes to the Exchequer in alcohol and gaming duties. Additional revenues are generated through VAT, PAYE and other local and national taxes, so the typical pub contributes about £155,000 per annum to the Treasury. However, the number of pubs is falling. More than 4,000 have closed since 2004, pre-dating the start of Labour’s recession. The trend is now accelerating, with more than 3,000 of those closures taking place in the past two calendar years. What was a closure rate of five a week between 2004 and 2007 has become 40 a week in 2008. What was the weekly closure rate just a couple of years ago has become the daily closure rate. It would be unfair to blame alcohol duties exclusively for that trend. Labour’s Licensing Act 2003 must also bear part of the blame, as must the increased competition from supermarkets and the smoking ban.
- Time
- 23:30
- Source
- View in Hansard ↗
- Speaker
- John HowellConservative
- Quote
- Does my hon. Friend agree that today’s debates will also affect those businesses? We have debated corporation tax for large and small businesses, and the VAT decrease and increase. The alcohol duty increase is just the last in the chain. By design or accident, there is a direct causal link with everything that we have debated today, and it is all coming together to affect this industry.
- Time
- 23:30
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- My hon. Friend makes a powerful point. He has spoken well in all four of the debates, and he ties together the overall impact of Labour’s mismanagement of the economy with reference to the beer and pub industry. The pub and bar trade is under pressure elsewhere too. A couple of weeks ago I was delighted to be hosted by my right hon. and learned Friend the Member for Devizes (Mr. Ancram) and my hon. Friend the Member for Westbury (Dr. Murrison) to see at first hand how town and village pubs were coping. I say that as someone who represents an inner-London constituency. Perhaps I should get out a little more. One of the most striking aspects was being shown the entirety of the documentation that a pub operator or landlord needs to complete when opening, and again each year, even before a single pint is sold. According to the industry, publicans spend an average of eight hours a week dealing with paperwork, and one in five gives red tape as a reason for becoming uncompetitive. According to ALMR, which represents large parts of the pub and bar industry, the average running costs of a pub are some 51 per cent. of turnover, even before rent and the cost of sale are taken into account. Employment costs have increased—
- Time
- 23:30
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- The hon. Gentleman makes a powerful case for voting down amendment 10, which calls for research into the competitiveness of licensed premises and the level of employment in alcohol-related industries. Judging by the hon. Gentleman’s speech, he appears to have done all that research already. Will he confirm that he will vote against the amendment?
- Time
- 23:30
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- I thank the hon. Gentleman for that intervention. It is fair to say that we will not vote for amendment 10, for many of the reasons that I have already outlined. It does not really make any sense and has many flaws. As for pre-judging any report, I have certain views about the overall trade, which are shared by many hon. Members on both sides of the House. On my visit to Wiltshire, I looked at the problems facing licensed premises and the levels of employment in alcohol-related industries—
- Time
- 23:30
- Source
- View in Hansard ↗
- Speaker
- Mr. NewmarkConservative
- Quote
- I invite my hon. Friend to come to Braintree, which is a bit closer to London. My constituency is semi-rural and contains more than 40 villages. The pub is the heart and soul of many of those villages, but Labour’s policies are destroying them, one by one. That not only costs jobs, but affects the whole nature of the village. Many of the villages in my constituency no longer have pubs, when they did have them five years ago.
- Time
- 23:30
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- My hon. Friend makes a powerful point. I would be delighted to accept an invitation to go to Braintree. I feel from looking at the statistics that I mentioned earlier that it is likely that the picture that he paints is being repeated all over the country. According to the industry, publicans spend an average of eight hours a week dealing with paperwork. One in five blamed it for their becoming uncompetitive—it represents 51 per cent. of turnover. Employment costs have increased by almost 59 per cent. over the past decade and ALMR is calling for the 0.5 per cent. rise in national insurance contributions next year to be scrapped—
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- The ChairmanConservative
- Quote
- Order. I must remind the hon. Gentleman of the terms of the amendment. It excludes that particular point. It is about the impact of the increases in alcohol liquor duty, rather than the other matters that he is now describing.
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- Thank you, Sir Alan, for that guidance.
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- Mr. EllwoodConservative
- Quote
- On a point of order, Sir Alan. In the previous clause that we debated, it was considered that clause stand part would be discussed as well as the detail of the amendments. Will you advise us on whether the same rule applies to this clause?
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- The ChairmanConservative
- Quote
- The ruling that I have made is in connection with the terms of the amendment that we are discussing, which is about the impact of the increases in alcohol liquor duty on various matters. Those are the terms of the amendment and those are the guidelines that we must follow for debate on this amendment. If other matters arise later on, I can deal with them then. As far as this amendment is concerned, I hope that the hon. Member for Hammersmith and Fulham (Mr. Hands) will observe what I am saying.
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- I shall certainly try my best, Sir Alan—[Interruption.] I shall do more than my best.
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- Although I can understand my hon. Friend’s reluctance to vote for the amendment, because it will not address the issues that we want to address—the beer problem and the pub problem—will he issue a strong warning to the Government, as many of us would like him to do, that their policies are doing untold damage to the pub and licensed trades and that they really ought to think again?
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- We are; that is what my speech is all about—the fragile state of the industry and the damage that is being wrought on it by the Government.
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HayesConservative
- Quote
- You have guided us to the exact issue of the amendment, Sir Alan, and it makes specific reference to the relationship between duty and competitiveness and the survival of the industry, as my hon. Friend has made clear. If we are not going to vote for the amendment—I will be guided by my Front Benchers, of course—should not the Government at least conduct some sort of thorough research such as that which my hon. Friend is articulating and that which is argued for in the amendment?
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- My hon. Friend is absolutely right. More research needs to be done and the Government should be aware of all these issues and their impact on the industry.
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- Mr. BoneIndependent
- Quote
- I gather that my hon. Friend is referring to subsection (6B) of the amendment, which concerns the competitiveness of the industry. I have obviously not decided how I will vote on the amendment, but is not the crux of his argument that we do not need this report about the competitiveness of the industry because we already know the situation?
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- Yes. I think that we are aware of most of the problems facing the industry. I would not be opposed to a further study but we need action now rather than awaiting such a study. The drinks trade and pub businesses are vital employers. According to the Oxford Economics study, some 31,000 people are employed in the UK in drinks manufacture. I shall try to relate this point to duty. Just over half are employed in producing beer, some 35 per cent. in producing spirits, 6 per cent. in producing cider and wine and the 6 per cent. remainder in producing other drinks. Much of that employment is in rural communities, where other jobs on offer are limited. It helps to sustain them, as my hon. Friend the Member for Braintree (Mr. Newmark) and others have noted. People involved in beer production in England and Wales are 50 per cent. more likely to live in a rural community than the national average for those in employment overall. The breweries are doing no better. I am in constant correspondence about duty levels with Fuller, Smith and Turner, which is located just outside my constituency and makes the excellent London Pride beer. I mentioned that I was in Wiltshire with some colleagues a few weeks ago, and we went to the Wadworth brewery in Devizes to see at first hand how one of Britain’s medium-sized firms was faring under the big increases in duty. It is surviving, partly thanks to the quality of products such as 6X and some of the lighter brews.
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- Mr. EllwoodConservative
- Quote
- My hon. Friend is making a powerful argument about the level of duty. The duty hits the breweries. They were told that it would be only temporary and that it would act as an offset to the VAT cut—which was also supposed to be temporary. However, the Government have not said that because VAT is about to head back up, alcohol duty will head down again.
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- My hon. Friend makes a powerful point, which highlights how much duty has risen in the past 14 months and the appalling effect that that is having on our breweries and pubs across the country. Since 1997, under Labour, the following big breweries have closed down part of their operations in certain towns—Brakspear, Ruddles, Morrells, Whitbread and Young’s. Other names have disappeared entirely from the scene. How will the industry survive the recession? I do not have statistics for previous recessions, but I recall reading or hearing that the pub trade suffered a great deal but was still more recession-proof than some sectors. That might well no longer be the case: an interesting survey by YouGov showed the entertainment that households expected to cut down on as the recession bit into their budgets. The least affected things were TV subscriptions, gym memberships and the hiring of DVDs, but two of the three biggest losers were going to pubs and eating out. The Oxford Economics study published in December 2008 examined the direct impact of the Budget and pre-Budget report measures on the pub sector in 2008-09. It also estimated the measures’ impact over the next five years, with the escalator in place. The study said that the cumulative loss thanks to the duty escalator in sales and economic activity would amount to 16.7 million barrels of beer, or 4.8 billion pints. It also said that more than 59,000 jobs would be lost in the beer supply chain, and that overall tax revenue, including duty, VAT and employment taxes, would fall by some £79 million. Beer is part of Britain, and it is most popular among lower and middle income groups. Interestingly, people with manual or routine jobs drink less overall, but they drink 50 per cent. more beer than the managerial classes, and the figure is even higher for cider. The impact of the big duty rises has been felt in urban constituencies, but not as much as in the rural or suburban communities where pubs are more integral. That struck me most clearly a fortnight ago in the village of All Cannings outside Devizes. The King’s Arms is the village’s main amenity and it is in good health, but many other pubs are not. We need to be aware of that.
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- John HowellConservative
- Quote
- My hon. Friend mentioned the Brakspear brewery, but he may not be aware that the company has decided to freeze prices to keep tenants in business through the year—something that not many companies can do. The pub in the village of Sydenham in my constituency was going to close, but three public spirited inhabitants of the village have used their own money to buy it. Does he agree that pubs like that are the ones most at risk, because they are very vulnerable to any changes that come along?
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- I thank my hon. Friend for that intervention, and I add my congratulations to his constituents in Sydenham on being so public spirited and on realising the important role that village pubs can play in our society. I also commend some of the breweries for keeping a close eye on their pubs and making sure that livelihoods are protected.
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HayesConservative
- Quote
- Like my hon. Friend, I make a strong case for rural public houses—indeed, just a week ago, I was in “The Bell Inn” in Weston Hills in my constituency attending a “save our pubs” campaign meeting, which illustrated to me the communal effect of pubs. Have the Government conducted a study—there are certainly no background notes—of the wider effect of the trade and its impact on employment and social value in our rural areas? If not, why not?
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- The ChairmanConservative
- Quote
- Order. I hope that the hon. Member for Hammersmith and Fulham (Mr. Hands) will content himself with the satisfaction of knowing his hon. Friend’s experience of visiting the pub. The debate on this amendment is not the appropriate place to have a wider debate on the licensed trade, yet that seems to be what we are moving towards. I think that we should move back from it.
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- I thank you for that guidance, Sir Alan. It is worth remembering that the VAT cut—the Government’s much vaunted scheme to inject a bit of life into the economy—which was linked to the big rises in duty in the pre-Budget report, provided almost no benefit to pubs and breweries, because the VAT cut was netted against all the duty increases. It also caused big problems elsewhere, costing businesses a huge amount when making the necessary changes to prices. Industry sources estimate that the changes in autumn—both the VAT cut and the duty changes in the PBR—cost every pub or bar an average of £570, which does not take into account any management or staff time involved. The industry believes that the cost will be the same, or similar, when VAT goes back up again, but this time, it appears that it will not be offset by a reduction in beer, wine and spirits duties. The wine trade has also been suffering, with sales falling for the first time in many decades. There was a very small fall during the last recession, but the figures are nothing like the present ones. Although it is not alone, it is Britain’s beer and pub sector that is under pressure, and many outlets will not survive the downturn.
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- Mr. GoodwillConservative
- Quote
- My hon. Friend describes the impact of the duty changes on pubs, but does he agree that they will also have a big impact on the traditional working men’s clubs in Yorkshire and the north of England? If the Government are not prepared to fight for the rights of those who use those clubs, the Conservative party certainly will.
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- I certainly agree with my hon. Friend, but I fear that if I comment on that, I shall stray away from the purpose of the amendment. Alcohol duties are only one part of the picture, but they are an important part. On the Government’s approach and specific points arising from the Budget and the duty changes, so poorly thought through has been the Government’s response to the industry’s difficulties that, for the first time, the five UK alcoholic drinks trade associations made a joint submission on this year’s Budget on duty levels. Their letter talked about “spiralling redundancies and short-time working across the alcohol sector and the unprecedented number of pub closures.” Their letter combined two main requests: first, to freeze alcohol duties and, secondly, to withdraw the proposal for the alcohol duty escalator. I would like the Exchequer Secretary, when she responds, to reflect on whether alcohol duties are close to reaching, or even outstripping, the revenue maximisation point. Given the decline in alcohol consumption in this country since 2004, there is some evidence, albeit perhaps not conclusive, that that point has been reached. The hon. Lady may well say that she is not in a position to give answers to theoretical questions, but I remind her that in the debate on last year’s Finance Bill she stated a quite definitive view that tobacco duties had reached the tax maximisation point, saying: “duty rates are close to revenue maximisation, which is why there has been no greater increase than revalorisation in the Budget.”––[Official Report, Finance Public Bill Committee, 15 May 2008; c. 221.] Will she tonight offer a view on whether alcohol duties have reached that point? I am told that the Treasury model appears to show that the tax maximisation point has been reached or is close to being reached, but I am also informed that many in the industry, at least, doubt the robustness of the Treasury modelling. As their joint submission showed, producers have felt for some time that the Government are refusing to listen to their concerns and failing to recognise the issues they face. That was most apparent in the pre-Budget report. Now, of course, Ministers claim that the increases in duty were offset by the cut in VAT. I will examine that claim in a moment, although hon. Members who remember the backtracking on whisky will already be sceptical.
- Time
- 23:45
- Source
- View in Hansard ↗
- Speaker
- Mr. ToddLabour
- Quote
- Would not a differential between cask beer and beer served in bottles and cans have a similar effect?
- Time
- 00:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- The hon. Gentleman makes an important point. My understanding—I think we will discuss EU regulation in due course—is that that would not be possible under the EU directives. However, I am not entirely sure, and I would be grateful for a word from the Exchequer Secretary, who may be able to give us a more definitive account.
- Time
- 00:00
- Source
- View in Hansard ↗
- Quote
- I may as well deal with that point now. Our advice is that the cask differential is unlawful as the EU directives are currently written, but there is an attempt to see whether we can change that. The hon. Gentleman will know, however, that that can sometimes take longer than we would all hope.
- Time
- 00:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- That clarification is helpful, but in my experience—as a long-standing member of the European Scrutiny Committee, I do not know how many EU directives we receive every week—it is easy to look at those directives, and pick and choose a little bit from them, but we have to study them and go through them in totality to try to find ways around them to do what we want to do. That is what other European countries have been doing. I would appreciate the Exchequer Secretary’s explanation as to whether the UK has been looking at schemes to reduce, for example, the cost of served drinks, which is what the French have done and is a possible way forward.
- Time
- 00:00
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- Does the hon. Gentleman favour some kind of minimum pricing scheme for alcohol? A great deal of alcohol abuse comes from drinks such as extremely cheap cider—cider that has never seen an apple—that is sold at off-licences and drunk by people who go on to behave antisocially. Does he favour a minimum price for alcohol as a way of addressing those issues?
- Time
- 00:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- I thank the hon. Gentleman for that intervention. In due course, I shall discuss in detail the Scottish National party amendment on minimum pricing and consider problem drinks such as the type of cider that he mentioned. I have set out at some length the situation that we face. There are difficult problems, but there are also ways forward.
- Time
- 00:00
- Source
- View in Hansard ↗
- Speaker
- Mr. GoodwillConservative
- Quote
- Although having differential rates of duty for cask beer and for beer in bottles and cans may be against European Union legislation under articles relating to the single market, surely articles relating to the environment could be used to encourage the use of returnable containers such as casks, rather than bottles and cans, which are generally disposed of in another way.
- Time
- 00:00
- Source
- View in Hansard ↗
- Speaker
- The ChairmanConservative
- Quote
- Order. I suggest that the hon. Member for Hammersmith and Fulham (Mr. Hands) does not develop that point.
- Time
- 00:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- I thank you for your guidance, Sir Alan. However, it is always good to see colleagues using previous experience. My hon. Friend the Member for Scarborough and Whitby (Mr. Goodwill) was a Member of the European Parliament for some time; the Government could learn a little more from those who know more about EU directives, to try to find a way through the maze. We believe that the structure of taxation needs to be changed. That will not solve every problem, but taxing problem drinks and giving a price advantage to low-strength alternatives will stop the penalising of responsible drinkers. It will also provide a nudge in the right direction. [Interruption.] I am not sure whether the deputy Chief Whip wants to intervene; he is certainly talking from a sedentary position. Would he like to intervene?
- Time
- 00:00
- Source
- View in Hansard ↗
- Speaker
- Mr. Jeremy BrowneLiberal Democrat
- Quote
- rose—
- Time
- 00:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- I shall take an intervention from the hon. Member for Taunton (Mr. Browne).
- Time
- 00:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- If I remember correctly, during debates on last year’s Finance Bill, the Conservative party tabled an amendment relating to the taxation structure. Why was the decision taken not to table such an amendment this year?
- Time
- 00:00
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- The hon. Gentleman is right to raise that interesting question. We still have the policy that we had last year. However, the calculation this year would be different. A revenue-neutral position looking at different percentages of beer would not be the same this year because of the background changes in the overall beer pricing regime. Our policy is very much the same, but we simply have not done the exact calculations this year that were done last year. The Government’s duty increases last year had the opposite effect from what we are considering. Under those increases, problem and non-problem drinks alike went up in price. Since the last Budget, tax on beer has gone up by 8p a pint and tax on wine by 28p a bottle. It is worth pointing out that almost all wine consumed in this country is imported, so Labour’s devaluation has added a 30 to 35 per cent. premium on top of that. Meanwhile, duty on a bottle of spirits has risen by about 47p on average. We want the Government to consider and evaluate a smart alcohol taxation regime, focusing on the drinks most closely linked to problem drinking, such as alcopops and high-strength beers and ciders, and using the proceeds to reduce duties on lower-strength alternatives elsewhere. We should look at what has happened in Australia and Germany, where such approaches have been used to good effect. The Government should seriously consider introducing such reforms here, instead of using health concerns as a cover for a blanket tax rise for responsible drinkers. There has been some controversy in this country about the German experiment on higher duty rates on alcopops, introduced on 1 July 2004. Like this country, Germany had a real problem with alcopops among teens. Those relatively high-strength drinks were particularly prone to getting youths drunk quickly; the sweet flavours camouflaged the high and bitter alcohol content. Many have said that the tax increases that the Germans introduced did not work, as youths simply switched to other forms of alcohol. The issue cropped up at some length in debates on last year’s Finance Bill. In an attempt to separate fact from fiction, I decided to see for myself by talking to a number of those involved in the changes in Germany; the Government’s Treasury team will recall that I maintain a regular dialogue with a number of German politicians. I also studied the reports of the Bundeszentrale für gesundheitliche Aufklärung, the federal institute of health information, and the federal Government’s own report about the effects of the alcopop tax law on the consumption of alcohol by youths aged 18 and about the market development of alcopops and similar drinks. I recommend that the Minister look at that report, because she would learn a great deal from it.
- Time
- 00:00
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- The hon. Gentleman has clearly done a huge amount of research that underlines the point I made earlier—we do not need the amendments. I am not much of a scientist, so can he explain why earlier in his speech he was citing comparative figures about alcohol in pure litres, whereas he is now talking about alcohol in grams? I thought that grams were to do with weight, not volume.
- Time
- 00:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- The hon. Gentleman makes a probing point. I am merely going on the figures used in the German Government’s report. If he likes, I can print him off a copy and we can discuss it, but I have not yet converted the figures into units that he might find acceptable. The German experiment has been a great success, as has the Australian experiment on beer strength, and we should be looking at these options. Various observers have endorsed our approach to tackling problem drinks by increasing the tax rate and giving relief on drinks of a lower alcoholic strength. I want to mention a couple of problems with the SNP amendment. The SNP is in favour of minimum pricing. A noteworthy feature of its scheme is that spirits would be practically the only drinks not to face steep hikes in duty. In fact, its Justice Minister, Kenny MacAskill, confirmed that last week while touring a whisky distillery—exclusively for fact-finding purposes, I am sure. He said: “We are very clear that our plans for minimum pricing will not affect this important industry.” If whisky prices do not fall, that can only mean that beer, wine and cider prices will have to rise to compensate.
- Time
- 00:15
- Source
- View in Hansard ↗
- Speaker
Mr. Alan Reid (Argyll and Bute) (LD)Liberal Democrat- Quote
- In the present circumstances, whisky and other spirits are treated unfairly compared with beers and wines because the duty per unit of alcohol is much higher. If duty is being imposed for health reasons, it should be based on units of alcohol, so duty on spirits should come down and duty on beers and wines should go up. Is the hon. Gentleman suggesting that spirits should be taxed more highly than beers and wines?
- Time
- 00:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- The hon. Gentleman raises an interesting point. In general, as I have said, we are in favour of lower duty on lower-alcohol drinks. I do not want to get into more specifics about spirits.
- Time
- 00:15
- Source
- View in Hansard ↗
- Speaker
- Stewart HosieScottish National Party
- Quote
- The hon. Gentleman is conflating two different issues. The first is duty, and amendment 12 calls for the Government to assess what duty level would be required to have fair pricing based on alcohol content only. The second is minimum pricing, which is a retail issue designed to tackle binge drinking and antisocial behaviour. The two things are completely separate. We are talking about alcohol duty, which is what the amendment is about. Minimum pricing is completely unrelated.
- Time
- 00:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- I understand what the hon. Gentleman says, but it is still my understanding that if price and duty on whisky are kept frozen, they have to be raised on other drinks. I appreciate that he has a different view. The official Opposition are not opposed to the kind of study outlined in the Liberal Democrat or SNP amendments, but we are wary of a three-year duty freeze while we await the study. We will therefore abstain if amendment 10 is put to the vote. Secondly, we believe that the pub and drinks industry is in some degree of trouble, thanks in part to various measures introduced by this Labour Government, duty being one of them. Thirdly, we believe that alcohol price, and therefore duty, can have an influence on drinking behaviour. It is clearly not the only influence, but duty and price can play a role in combating some of the negative effects of our drinks culture without penalising the vast majority of responsible drinkers. We need a new approach to these matters, and we on the Conservative Benches look forward to providing it as soon as the Prime Minister is ready to face the voters.
- Time
- 00:15
- Source
- View in Hansard ↗
- Speaker
Angela EagleLabour- Quote
- We have had a debate that has been a bit like shadow-boxing, on amendments 10 and 12, which were tabled by the Liberal Democrats and the Scottish National party respectively. At least they had the courage to get their amendments on the Order Paper. We then had an extremely long peroration from the hon. Member for Hammersmith and Fulham (Mr. Hands), who dealt with all the amendments at great length. He thereby proved that amendment 10, which is about doing research, is erroneous, because as my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) pointed out, as a lot of the research already exists. The hon. Gentleman then said, after all that, that he would be abstaining.
- Time
- 00:15
- Source
- View in Hansard ↗
- Speaker
- Rob MarrisLabour
- Quote
- May I gently suggest to my hon. Friend that it is often better to abstain when it comes to alcohol?
- Time
- 00:15
- Source
- View in Hansard ↗
- Speaker
- Angela EagleLabour
- Quote
- My own father took the pledge when he was 15—[Interruption.] No, 15, not 50. I have not quite managed to live up to the high standards of his Methodist upbringing. Perhaps we all aspire, at least, to moderation. Amendment 10 would require the Government to produce a report on the impact of increases in alcohol duty on licensed premises and on employment in the alcohol sector. The Government do not support the amendment. One reason, which has been demonstrated at great length tonight, is that there is plenty of such information already available. As with all tax decisions, the Government will monitor the impact of alcohol duty changes, including on the industry. Many hon. Members have acknowledged that competitiveness and employment levels in any industry depend on a range of factors. It would therefore be very difficult to identify the specific impact of alcohol duty rises alone, against other factors such as a change in the culture of pubs and their customers and increased competition for leisure time. The Government value the contribution that pubs make to employment and local communities, although EU tax legislation means that it is not possible to provide tax reliefs targeted specifically at pubs, such as taxing beer sold in supermarkets differently from that sold in pubs.
- Time
- 00:15
- Source
- View in Hansard ↗
- Speaker
- Mr. HayesConservative
- Quote
- Does the Exchequer Secretary believe that it is impossible to produce the sort of report that the amendment recommends because of the scope of the research? Leaving aside the argument about whether it is possible to distil the research and make it intelligible to Members, there must be Treasury modelling about the impact of changes in duty, specifically on employment and the other matters that the amendment covers. Will she make that modelling available to hon. Members by placing it in the Library?
- Time
- 00:15
- Source
- View in Hansard ↗
- Speaker
- Angela EagleLabour
- Quote
- There is always Treasury modelling, some of it based on tax returns, which are confidential and cannot be shared—I am sure that the hon. Gentleman knows that. The Oxford Economics model assumes that alcohol consumers are significantly more price sensitive than the Treasury model suggests. It fails to account for the fact that increases in the price of one type of alcohol often lead to switching to another. It therefore suggests that if beer sales decrease no other type of alcohol is drunk, which is clearly not true.
- Time
- 00:15
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- Will the Exchequer Secretary give way?
- Time
- 00:15
- Source
- View in Hansard ↗
- Speaker
- Angela EagleLabour
- Quote
- I was about to answer the right hon. Gentleman’s questions, but if he must intervene, I shall give way.
- Time
- 00:15
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- Why does the Exchequer Secretary think that pub closures have increased so much in recent months?
- Time
- 00:15
- Source
- View in Hansard ↗
- Speaker
- Angela EagleLabour
- Quote
- There are many reasons why particular pubs might close. Some businesses were possibly never viable and we are also in the middle of difficult trading conditions, as the right hon. Gentleman pointed out. We cannot assume that alcohol excise duties have a direct relationship to the pub closures, as some have argued.
- Time
- 00:15
- Source
- View in Hansard ↗
- Speaker
Mr. Lindsay Hoyle (Chorley) (Lab)Speaker- Quote
- Is it not fair to say that many pubs are in trouble because of pub companies charging high rents and because they are tied to buying the beer through those companies? The 2p can make a difference, but the real reason is the prices that the pub companies charge.
- Time
- 00:15
- Source
- View in Hansard ↗
- Speaker
- Angela EagleLabour
- Quote
- My hon. Friend is a distinguished member of the Select Committee on Business and Enterprise, and a report on the subject is due soon. I look forward to reading it. Clearly, the tie is important and it has been brought to our attention in much of the evidence that we have taken. The measures that we have introduced to support all businesses also support the British pub. They include enabling pubs to spread payment of this year’s inflation uprating to business rates over three years. The business payment support service has already allowed 116,000 businesses to defer more than £2 billion of tax, and that has benefited many pubs. There is improved access to finance for small businesses through the enterprise finance guarantee, which is now available for the first time to tied pubs. There is also support through low cost loans and advice on energy efficiency for small businesses, including many pubs, in order to make savings on their energy bills. There was much talk of the balance between the on and the off trade in the debate. Many hon. Members know that we cannot charge a different rate of excise duty for the same product if it is sold in a different context. We cannot discriminate by setting a lower duty for pubs than for supermarkets. When alcohol excise rates increase, pubs often put up their prices by 5p. The duty increases are 1p extra on beer this time round, yet the prices in many places are going up by 5p. That exacerbates the difference between the on and the off price of beer and causes difficulty. I want to spend a short time dealing with the questions that the right hon. Member for Wokingham (Mr. Redwood) asked. He did not seem to know that the national average cost of a pint is £2.51. One can get a pint for £3.20 at the “Westminster Arms” over the road, but the right hon. Gentleman could have bought a pint for 99p at “Gig House” in his constituency from January because Wetherspoon had a special price for beer. The right hon. Gentleman asked why some of the changes in excise duty were higher than the 2 per cent. announced in the Budget. That is because the Finance Bill, as I suspect he knows only too well, includes the legislation that will put into effect the increases that were introduced in the pre-Budget report, as well those in the Budget.
- Time
- 00:15
- Source
- View in Hansard ↗
- Speaker
- Mr. Alan Reid Liberal Democrat
- Quote
- rose—
- Time
- 00:30
- Source
- View in Hansard ↗
- Speaker
- Angela EagleLabour
- Quote
- I have been here for two and a half hours, and the hon. Gentleman has not been here for the debate. [Hon. Members: “Give way!”] If the hon. Gentleman is desperate, I shall be only too happy to give way.
- Time
- 00:30
- Source
- View in Hansard ↗
- Speaker
- Mr. ReidLiberal Democrat
- Quote
- I am grateful to the Exchequer Secretary. She mentioned exports, but the unfairness of the British duty system, whereby spirits are taxed at a higher rate per unit of alcohol than wines, means that when we complain about other countries unfairly discriminating against whisky in favour of their local brew, they can point to our unfair system. Why, therefore, can we not continue with the system that was in place when the Prime Minister was Chancellor, under which spirits duty was frozen?
- Time
- 00:30
- Source
- View in Hansard ↗
- Speaker
- Angela EagleLabour
- Quote
- We thought that, for fairness, it was right to have 2 per cent. across the board this time round, although I note that 90 per cent. of Scotch whisky is exported and that the level of Scotch whisky exports grew by 8 per cent. last year. European rules apply duty in direct proportion to alcohol content for beer and spirits, but the rules do not allow the same application to wine and cider, which accounts for some of the disparities that the right hon. Member for Wokingham talked about. Given those explanations, I ask hon. Members not to press either amendment.
- Time
- 00:30
- Source
- View in Hansard ↗
- Speaker
- Mr. ReidLiberal Democrat
- Quote
- I want to support amendments 10 and 12.
- Time
- 00:30
- Source
- View in Hansard ↗
- Speaker
The Parliamentary Secretary to the Treasury (Mr. Nicholas Brown)Independent- Quote
- claimed to move the closure (Standing Order No. 36).
- Time
- 00:30
- Source
- View in Hansard ↗
- Speaker
- Mr. ReidLiberal Democrat
- Quote
- On a point of order, Sir Michael.
- Time
- 00:30
- Source
- View in Hansard ↗
- Speaker
- Angela EagleLabour
- Quote
- I had actually finished my remarks on the amendment, Sir Michael. Question put forthwith, That the Question be now put.
- Time
- 00:30
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- As we had started the debate on the interesting but fundamentally flawed Liberal Democrat amendment—the Conservatives also felt unable to support the interesting amendment tabled by the Scottish National party—it was unfortunate that the closure motion prevented five or six other Back Benchers from participating in it.
- Time
- 00:30
- Source
- View in Hansard ↗
- Speaker
- Mr. HandsConservative
- Quote
- You are, of course, quite right, Sir Michael. I shall thus discuss the clause itself, on which I do not propose to speak for as long as I did on the amendments. After all, it is well past closing time—or at least the old-style 11 pm closing time. However, we must at least briefly examine the devastating impact of the Government’s approach to pubs, breweries and other industries across the UK. I know that that is felt keenly by Members from across this House in terms of the pubs, clubs and jobs in their constituencies. As I said, duty levels are not the only answer. We propose changes to the duty regime as part of a package of wider measures aimed at tackling binge and under-age drinking, which we need to look at. The Committee needs to register its opposition to the Government’s approach of penalising all drinkers, and we therefore call on the Committee to oppose clause 11.
- Time
- 00:30
- Source
- View in Hansard ↗
- Speaker
- Mr. Alan ReidLiberal Democrat
- Quote
- I, too, wish to oppose clause 11. In my constituency, whisky distilling makes an important contribution to the local economy. It brings jobs to remote communities where alternative employment can often be difficult to find. The increase in alcohol duties in the Budget puts those jobs at risk, and the Government should not increase alcohol duty yet again, after two increases over the rate of inflation in the last 12 months. It is high time that these inflation-plus duty increases were stopped.
- Time
- 01:00
- Source
- View in Hansard ↗
- Speaker
Colin Challen (Morley and Rothwell) (Lab)Labour- Quote
- I agree with the hon. Gentleman’s general intent, but the increase in duty on beer imposed in the Budget is 1p. In my local, which I attend regularly—I do not know whether the hon. Gentleman attends his—the price of a pint has gone up by 10p. Who does the hon. Gentleman blame for the severe problems that drinkers face in their locals? They always increase prices at the time of the Budget, but they do not explain to customers why the price has gone up far more than the Chancellor’s imposition.
- Time
- 01:00
- Source
- View in Hansard ↗
- Speaker
- Mr. ReidLiberal Democrat
- Quote
- The hon. Gentleman asks about beer, but I was concentrating on whisky. He has made his point so I will continue my speech. Putting the duty up without a proper assessment of the impact on demand is risky. It could cost the Treasury money. Constant increases are unacceptable without any assessment of the impact on demand or on—[Interruption.]
- Time
- 01:00
- Source
- View in Hansard ↗
- Speaker
- Mr. ReidLiberal Democrat
- Quote
- Thank you, Sir Michael.
- Time
- 01:00
- Source
- View in Hansard ↗
- Speaker
Malcolm Bruce (Gordon) (LD)Liberal Democrat- Quote
- My hon. Friend is making an important point. In my area and other parts of north-east Scotland, new distilleries are proposed, but they may be prevented from going ahead by this increase. The issue is not only losses to the Exchequer, but a threat to jobs at a time when unemployment is reaching record levels. This is a serious issue and if the Government really cared about jobs and employment, they would not be destroying jobs in one of our most important industries.
- Time
- 01:00
- Source
- View in Hansard ↗
- Speaker
- Mr. ReidLiberal Democrat
- Quote
- I wholeheartedly agree with my right hon. Friend, who makes an important point. The constant increases in duty—the Government have promised another above-inflation increase in next year’s Budget—will discourage people from investing in the industry and in new distilleries. In my constituency, old distilleries have been reopened in recent years—when the present Prime Minister was Chancellor of the Exchequer and froze spirits duty. Under the policy of the present Chancellor, I do not expect to see any more new distilleries opening.
- Time
- 01:00
- Source
- View in Hansard ↗
- Speaker
Mr. Jim Devine (Livingston) (Lab)Labour- Quote
- Can the hon. Gentleman name one individual who has lost his job in the whisky industry?
- Time
- 01:00
- Source
- View in Hansard ↗
- Speaker
- Mr. ReidLiberal Democrat
- Quote
- It is quite obvious that these constant increases in duty will deter investment in the industry, and that will clearly have an effect on employment. One illogical aspect of the present system is that spirits are taxed far more heavily per unit of alcohol that beers or wines. If alcohol were taxed on health grounds, surely the only logical way to tax it would be based on the units. The present Prime Minister, when he was Chancellor, had the policy of freezing the duty on spirits and allowing that on beers and wines to catch up. I am disappointed that that policy has not continued. Various studies over the years have shown that the sale of spirits is very sensitive to price—far more so than is the case with wine. A policy of reducing the tax on spirits and increasing that on wine to a comparable level would probably bring in more money for the Treasury. Scotch whisky is the world’s leading spirit drink. It can be produced only in Scotland, but it relies heavily on products produced throughout the whole of the UK. It is therefore bizarre that a product that is so important to the UK economy is taxed much more heavily than wines, most of which are imported. I doubt that any other country in the world discriminates against one of its own products in favour of imports in such a way. An unfortunate side effect of that is that it encourages other countries to impose unfair duties on Scotch whisky.
- Time
- 01:00
- Source
- View in Hansard ↗
- Speaker
Mr. Geoffrey Clifton-Brown (Cotswold) (Con)Conservative- Quote
- On a day when manufacturing trade has reduced by 0.1 per cent., the largest reduction since records began in 1948, is it not folly to be increasing the duty on whisky to such an extent when it is one of our key export industries? We rely on it and other key exports to get us out of recession and to create jobs.
- Time
- 01:00
- Source
- View in Hansard ↗
- Speaker
- Mr. ReidLiberal Democrat
- Quote
- I agree entirely with the hon. Gentleman. He makes an important point. Whisky is an important export and, as I was saying, increasing the duty in this country encourages other countries also to discriminate against Scotch whisky. That means that when British trade negotiators protest about others countries’ harsh treatment of the Scotch whisky industry, those countries have an easy riposte—they just say, “But your own country also discriminates against whisky.” The Scotch whisky industry is very important to the entire economy. It employs more than 10,000 people directly and supports an estimated 50,000 further jobs through its spending on input products. It also provides a significant boost to our balance of trade. It is also an important local employer in remote areas where alternative employment is hard to find. For example, the many excellent malts produced in my constituency on the islands of Islay, Jura and Mull provide local employment. It would be very hard to find alternative jobs on those islands. As a result of the Government’s punitive actions, the product produced on those islands brings in large sums for the Treasury but only a small fraction of that money is returned to the islands to be spent on public services. If any hon. Members want to spend their holiday on Mull, they will certainly see the disgraceful state of the roads, although they will also see beautiful scenery. Those islands produced great revenue for the Treasury, but they do not see the return in public services.
- Time
- 01:00
- Source
- View in Hansard ↗
- Speaker
- Colin ChallenLabour
- Quote
- How does the price of whisky, with which I must admit I have a certain affinity, compare with the RPI? Sometimes, the question of duty is not accurately portrayed in terms of the general increase in prices. Sometimes, the prices of certain things do not keep pace with the RPI, even after the duty increases. Is whisky—
- Time
- 01:00
- Source
- View in Hansard ↗
- Speaker
- Mr. ReidLiberal Democrat
- Quote
- The price of whisky is going up, mainly because the Government keep on putting the duty up higher than the rate of inflation. We saw it in last year’s Budget and back in December, and we are now seeing it again. A successful industry such as the Scotch whisky industry should be encouraged, not penalised by constant rises in duty. The Government put forward two arguments for the duty increases—health and the tax yield. However, if health were the reason, the tax per unit of alcohol would be the same for all beverages, with the result that the tax on whisky would come down and that on beers and wines would go up. As for the tax yield argument, there is a severe danger that increasing the duty will lead to a lower yield because of consumer resistance to buying at the higher price. The constant rises are likely to have a devastating effect on employment in the industry, so I urge the Committee to reject them tonight.
- Time
- 01:00
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- In the preceding debate, it was very disappointing that the Minister was unable to explain how clause 11 would work in terms of the duty rates, or what consequences she thought the changes would have for jobs and enterprise in the important businesses and sectors involved. She was also unable to give a forecast of how much more damage would be done. She was not even able to say what she thought was the cause of the big escalation in the number of pub closures in recent months, and she does not seem to have much idea of the impact that the measure will have on business in general. I am delighted that my Front-Bench team are inviting Conservative Members to vote against the duty measures tonight. If the Government had not spent so much on the banks, or if they were able to control their public spending better, they might not need to raise so much revenue in this rather clumsy way. This change is not the way to get businesses through or out of a recession, but it is deeply damaging to enterprise and prospects. Some Labour Members have failed to speak up for their constituents at all, while others have treated it as a subject of some frivolity because it involves drinking. All of them should understand that many people in the business are hurting very badly, and that they are looking to the Government for help and a lead. However, we are seeing again tonight that absolutely no help is forthcoming.
- Time
- 01:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- I shall be brief, and my contribution will be along the lines of that made by the right hon. Member for Wokingham. Like all hon. Members, I have received a great many representations on this matter from individuals, pub landlords and brewers in my constituency. They have all made it very clear that they consider that increase in duty over and above the rate of inflation proposed in this clause will be detrimental to their businesses. That is not a hypothetical assertion, as one need only look at the number of pubs closing every day to see that the change is having a very immediate effect. What is more, it is having a considerable social impact on communities in towns, cities and villages right across the country.
- Time
- 01:00
- Source
- View in Hansard ↗
- Speaker
- Mr. BrowneLiberal Democrat
- Quote
- Thank you, Sir Michael. The new clause is widely drawn and there is scope for overlap, but I was seeking to bring my remarks to a close. The essential point is that the clause will raise revenue on producers, manufacturers and brewers of alcohol. That will damage both them and communities in all our constituencies. I hope that hon. Members of all parties will represent the interests of their constituents by voting against the Government on this matter.
- Time
- 01:00
- Source
- View in Hansard ↗
- Speaker
- Mr. Clifton-BrownConservative
- Quote
- I declare an interest as chairman of the all-party wine group. Our group carried out a study of the effect of the Government’s proposed duty increases and the escalator. Our conclusion was that jobs and investment would be lost and that revenues would reduce over time, not meet the Government’s revenue targets. Whether we are talking about the increase in duty on wine, whisky or beer, we have to recognise that we live in an increasingly international world. Hong Kong, by reducing its duty to zero, is taking from London the market in wine—selling and cellaring—that has been here for centuries. The Government are doing themselves huge damage with the duty increases. They are reducing investment in the industries affected, reducing the number of jobs and reducing the tax take they receive because they are reducing consumption of wine and whisky. On every count, the measures are counter-productive.
- Time
- 01:00
- Source
- View in Hansard ↗
- Speaker
- Mr. RedwoodConservative
- Quote
- Does my hon. Friend think that Labour Members are ashamed of what they are doing? None of them has risen to speak in defence of the clause, and the Government curtailed debate on the amendments.
- Time
- 01:15
- Source
- View in Hansard ↗
- Speaker
- Mr. Clifton-BrownConservative
- Quote
- My right hon. Friend makes a good point. What the Government are doing makes no sense. If it increases unemployment, reduces investment, reduces consumption and therefore the tax take, what on earth is the point of increasing duties well above the rate of inflation? I shall oppose the clause. Question put, That the clause stand part of the Bill.
- Time
- 01:15
- Source
- View in Hansard ↗