Budget debate 2007
Brooks Newmark looks at the failure of the Chancellor's budget to use environmental taxation to change peoples behaviour according to the 'polluter pays' principle in favour of more general stealth taxes.
8.28 pm
Mr. Brooks Newmark (Braintree) (Con): I draw hon. Members' attention to my entry in the Register of Members' Interests.
In 1998, the Chancellor proposed a code of fiscal stability so that the Government would adhere to the principles of transparency, stability, responsibility, efficiency and fairness. The reality in 2007 is that he has given us another Budget so opaque that a cut in the basic rate of income tax will actually leave some of our poorest families worse off.
After the Budget, the Chancellor told Radio 4:
"It wasn't a short-term giveaway",
and he certainly got that right. Before he entered office, he said:
"I want the next Labour Government to achieve what in 50 years of the Welfare State has never been achieved. The end of the means test for our elderly people."
Last week, however, he gave us a Budget that will drag even more of the most vulnerable people in our society into his means-tested credits fiasco.
With his 11th Budget, the Chancellor has shown once again that he is the true heir to Blair-all spin and no delivery. He has failed to deliver a balanced Budget-by "balanced", I mean letting the House and the public know that while he was giving with one hand, he was taking with the other. It should therefore come as no surprise that no one believes a word he has said. The Chancellor should reflect on the following day's headlines: one paper went with, "Tax cut: It's just a big con"; another went with, "Brown tax cut trick"; and a third used, "What Gord giveth, Gord taketh away". In less than 24 hours, the Chancellor went from tax cutter to tax con.
The heart of the debate concerns the environment and environmental taxation. Office for National Statistics data show that the proportion of total taxation composed of environmental taxes has fallen from 9.8 per cent. in 1999 to 7.7 per cent. in 2005. The Chancellor told the Treasury Committee in December that there were five strands to the Government's policy on tackling climate change, and I want to go through each of them. The first strand is science and innovation, but the reality is that innovation schemes, such as the Peterhead DF1 carbon capture project, have stalled while the private sector waits for the Government to catch up.
The second strand is market mechanisms such as carbon trading. Page 173 of the Red Book claims that
"a strong lead from the UK"
has helped the EU's carbon trading scheme, but the Environmental Audit Committee recently found that
"the emissions projections appear to have been inaccurate and inflated, and the national caps derived from them too unambitious".
That is hardly an unqualified success.
The third strand is encouraging personal and social responsibility. Airline passenger duty is typical of the Chancellor's delight in raising stealth taxation from the environment. The money raised is not actually reinvested in the environment, and, as I said in my interventions, it does nothing to change the public's behaviour. However, I noted with interest that my hon. Friend the shadow Chancellor mentioned in his response to the Budget a letter from the Secretary of State for Environment, Food and Rural Affairs en titled, "DEFRA's priorities for the Budget of 2007", in which the Secretary of State noted that
"there is a case to look again at making domestic flights subject to VAT."
When questioned earlier in the debate, the Secretary of State seemed to throw in the towel, but I am delighted that he shares the view of my right hon. Friend the Member for Witney (Mr. Cameron) that the polluter must pay. More is the pity that the Chancellor went out of his way to attack my right hon. Friend's submission during the Budget debate.
The fourth strand concerns public investment in environmental efficiency. I welcome grants for pensioners to install insulation and central heating, as well as reductions in VAT on energy saving and environmentally friendly products. Conservative-led Braintree council has shown the Chancellor the way ahead for some years by offering council tax rebates in return for investment in cavity wall insulation, so the Chancellor's measures are hardly ahead of the curve.
The fifth strand concerns tax incentives and tax reliefs. The stamp duty exemption for carbon-free homes might be a step in the right direction, but the website smarthomes.com states that there are currently 27 zero-carbon homes in the UK, so there is clearly a long way to go before the relief is actually useful. Furthermore, as I said in my interventions, the increase in vehicle excise duty does nothing to control usage. Vehicle excise duty is a tax on ownership, not on mileage or usage. Instead of having a policy driven by the polluter pays principle, the Chancellor views the environment as another vehicle for stealth taxes.
I should like to move on to public sector debt, which is a particular interest of mine. In 1997, the Chancellor's pre-Budget report statement promised:
"We shall legislate so that there is a duty on Government to report to Parliament on how they are meeting their fiscal rules; in that way, everyone can plan for the future on a much clearer and better informed basis."-[ Official Report, 25 November 1997; Vol. 301, c. 774.]
Table C4, on page 278 of the Red Book shows public sector net debt reaching half a trillion pounds, but that figure is dwarfed by potential off-balance-sheet liabilities, such as the private finance initiative and public sector pension liabilities, which push public sector net debt to well over £1.3 trillion. That represents nearly £2 off balance sheet for every £1 on balance sheet. The only way to find out the extent of public sector pension liability is for us to keep asking parliamentary questions. So much for our being clear and better informed about things. The Chancellor's creative accounting means that he is more like the Enron Chancellor than the Iron Chancellor.
Despite a steady rise in the tax burden since 2000, successive Budgets have seen the Chancellor borrow £100 billion more than he originally intended. On Wednesday, he admitted that we need to borrow £8 billion more than he said was the case in December-a mere three months ago. Mystic Meg could do a better job of predicting public debt figures than the Chancellor. After his 11 Budgets, Organisation for Economic Co-operation and Development data show that public sector spending accounts for 45.3 per cent. of gross domestic product, while the International Monetary Fund says that the UK has the largest structural deficit in the G8.
Much has been said about public services, but I want to touch on the theme because it is important. The 1999 Red Book boldly declared that
"the Government does not pass on the costs of services consumed today to the taxpayers of the future-each generation is expected to meet the current costs of the public services from which they benefit."
In 2001, in another red book, The Sun, he was quoted as saying that
"any additional resources must be matched by reforms so that we get the best value for money. There is not to be one penny more until we get the changes."
Yet again, there is nothing in this Budget about public sector reform. Richard Lambert, the director general of the CBI, has said:
"The skill levels of many young people leaving secondary school remain poor despite almost a decade of rising investment in schools. Basic skills remain a real weak point of the UK economy."
Page 139 of this year's Red Book shows that education spending growth is set to halve to 2.5 per cent.-that is below the growth rate of the economy-despite a Labour party pledge in its 2005 manifesto:
"We will continue to raise the share of national income devoted to education."
Furthermore, the Chancellor's silence on the national health service speaks volumes, given that nurses' jobs are being axed, junior doctors are on the march and community hospitals are being closed-in some cases, they are not even being built. My Braintree constituents were promised such a hospital. I welcome the fact that almost twice as much money has been spent on the NHS since 1997, but there has been no equivalent improvement in productivity, so it is not surprising that the public are asking where all the money has gone.
During the past couple of days, we have heard much about business taxation and competitiveness. The issue is important for our business community. The corporate tax rate change is forecast to lose the Treasury some £1.38 billion in the fiscal year 2008-09. However, I am led to believe that changes to tax relief on capital expenditure should net £1.49 billion more in the same year. Of the £985 million that the Chancellor is clawing back through the corporate tax system,£820 million will come from small businesses. The bottom line for business is that total business taxes will raise almost £3 billion extra over the next two years.
Professor Peter Spencer, economic adviser to Ernst and Young's ITEM club, summed up the Budget's effect on business:
"It is a con trick, there's no doubt about it. I'll be amazed if people are duped by it for more than five minutes."
David Frost, director general of the British Chambers of Commerce, was concerned about the "long-term damage" to small business:
"As the Chancellor champions enterprise and acknowledges the importance of small business to the UK economy, many of our members will feel let down".
At the time of his 1998 Budget, the Chancellor proclaimed:
"This is a Government which does not simply talk about cutting the cost of bureaucracy and red tape but takes the decisive action necessary to achieve it."
Then perhaps the Economic Secretary can explain why Tolley's Tax Guide has grown from 5,952 pages in 2001 to almost 10,200 pages in 2007. The bottom line is that the Chancellor has shown that he knows nothing at all about wealth creation and those who create the wealth for our country.
Moving on to rising personal taxation, the total tax take is up by more than 100 per cent., from £287 billion in 1997 to £586 billion in 2008, rising to a whopping £682 billion in 2011. Table C9 on page 285 of the Red Book indicates that we now have the highest tax burden on record. The Institute for Fiscal Studies has found that up to 3.5 million families will be worse off. How does that square with the Chancellor's statement that the purpose of this year's Budget is to ensure that working families are better off? Furthermore, the families and individuals most affected are some of the poorest-those earning under £18,000. I thought that I would see the Economic Secretary perk up at this stage and point out that the Chancellor would say in reply, as he told the BBC:
"For people who are low earners the tax credit wipes out the income liability and that's why lower income workers are better off now as a result of what we have done as a Government."
But tax credits are not tax cuts.
I therefore turn to tax credits. The most recent figures from the Treasury for the tax year 2004-05 show that nearly £4 billion in working tax credits and child tax credits went unclaimed. Robin Williamson, technical director of the Low Incomes Tax Reform Group, said:
"There are plenty of reasons why people don't claim tax credits. Some people do not know they are en titled to claim, while others are put off by hearing about other people's bad experiences.
Those who do take the plunge face a 12-page form and a 60-page explanatory note that might even challenge the hon. Member for Wolverhampton, South-West (Rob Marris), were he here. That may have something to do with the problem. It should not be at all surprising that four out of 10 people end up not claiming their en titlements. Surely the Economic Secretary must recognise that this is a problem. With 3 million out of 5 million people either receiving overpayments or underpayments, I wonder whether he would agree with the hon. Member for Newcastle upon Tyne, Central (Jim Cousins), who said in the Treasury Sub-Committee that such widespread
"under or overpayments of tax credits is a shocking, devastating damage to the whole welfare reform policy."
Although I welcome the increase in capital allowance for pensioners, it is disappointing that the Chancellor has, once again, preferred means-testing to index-linking pensions. Gordon Lishman, director general of Age Concern, said:
"Without quick intervention, the real value of the basic state pension will fall to a pitiful £75 by 2012 and today's pensioners will fail to benefit from any of the good measures proposed in the Pensions Bill."
Mervyn Kohler, head of public affairs at Help the Aged, said:
"This Budget was a missed opportunity to address the wider needs of our pensioner population."
I am sorry that the Secretary of State for Environment, Food and Rural Affairs is not present, because I should like to ask him whether, following last week's Budget, he would change the prediction that he recently offered on BBC's "Question Time" that
"when I come back on this programme in six months' or a year's time, people will be saying, ‘Wouldn't it be great to have that Blair back because we can't stand that Gordon Brown?'"
Or does he agree with the shadow Chancellor's remarks on Thursday that:
"With his last Budget, the Chancellor has shown us that he cannot be the change the country wants-that he is part of the problem, not part of the solution... if people... want... to restore trust in the political process, we do not just need a change of Prime Minister-we need a change of Government"?-[ Official Report, 22 March 2007; Vol. 458, c. 971.]
8.46 pm
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OTHER CONTRIBUTIONS TO THE DEBATE
Mr. Brooks Newmark (Braintree) (Con): Will the Secretary of State therefore confirm that he will follow the example of the Leader of the House and join the Chancellor's campaign team?
David Miliband: I have not yet been asked to join the campaign team, but I assure the hon. Gentleman, who will be concerned about the issue, that, as I have said for three years, the Chancellor of the Exchequer is an outstanding Prime Minister in waiting, and I believe that he will do outstanding service for the country-[Hon. Members: "As Chancellor or Prime Minister?] As Prime Minister-for some reason, there are some suspicious minds in the House. I am happy to assure Opposition Members that the Chancellor of the Exchequer will be sitting on this side of the House as Prime Minister for a long time to come.
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Mr. Newmark: Does the Secretary of State accept that VED is still a tax on ownership and not usage? Surely we should have a strategy under which the polluter pays. That should drive our strategy.
David Miliband: The hon. Gentleman makes a good case for the measures across the board that the Chancellor announced last week. I look forward to him persuading his own Front Benchers to set out their position on fuel duty, which has not been clarified.
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Mr. Newmark: I promise it is not about private equity. I strongly support what the right hon. Gentleman said about social justice, but does he share the concern of the Opposition and myself that the tax credit system itself is a fiasco, with only three in five people receiving the right amount of money?
Mr. Meacher: We all know that there have been considerable problems with tax credits. We are perfectly well aware of that-and I know that the Government are striving to overcome those problems-but the principle of tax credits for working families is a very good one. One of the problems is that not every one who is en titled to a tax credit necessarily claims or receives it. The principle is a good one, but I am worried that through the tax system, the Government are effectively supporting employers who pay their lowest-paid employees too little. That is the fundamental cause of the problem.
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Mr. Newmark: The hon. Lady has talked about how much tax will be raised and how much more is raised by one vehicle versus another, but she has not addressed the real issue-taxing in order to change behaviour. What does the Chancellor's Budget contain in that regard?
Emily Thornberry: I agree that the purpose of green taxes should always be to change behaviour and I believe that we should do it progressively so that, if behaviour changes and, for example, people buy a smaller car, they do not need to pay so much tax. In that way, we can change behaviour and say to people, "Go this way and we will help you." However, that is not the Liberal Democrats' approach, which is to set green taxes simply to raise revenue. It is interesting that their documents do not mention the amount of carbon emissions that will be saved by their green taxes.
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Mr. Newmark: Does my hon. Friend agree that the bigger issue is the complexity of the tax system itself? Tolley's Tax Guide has increased from just under 4,000 pages when the Chancellor came into office to more than 10,000 pages today?
Peter Luff: As it happens, my next remarks are on Tolley's Tax Guide, and I can give my hon. Friend the precise figures. He slightly overstates his case, but he does not ruin it in the process. In 1997, Tolley's Tax Guide had 4,555 pages. It currently has more than 9,000 pages and it is projected that it will increase to 10,200 pages as a result of this Budget. It has more than doubled. No wonder that the Engineering Employers Federation joins the Federation of Small Businesses, the CBI and the British Chambers of Commerce in arguing for simplification of the cumbersome tax system.
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Mr. Newmark: I know that my hon. Friend has examined the case of the Republic of Ireland, which shows us that it is possible to create a more competitive tax economy-that is, a lower-tax economy-while collecting more tax revenues.
Peter Luff: I am grateful to my hon. Friend for making that point, although it is rather depressing to have to keep on making it. It is blindingly obvious, but it seems that some people simply will not listen to that crucial message.
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Mr. Newmark: Some people might well throw their hats in the air, but I suspect that the people in the Treasury would be throwing up, because the reality is that most of such people can move, and they would leave the country and thereby leave the country with a tax shortfall.
Kelvin Hopkins: The odd pop singer or footballer might leave the country, but that would not seriously damage our economy. Let me draw attention to the Organisation for Economic Co-operation and Development statistics on top marginal personal income tax rates for employees in 2006. All of the following countries have considerably higher top marginal rates than us: France, Japan, Italy, Sweden, Finland, Germany and Denmark. Denmark's top rate is 62.9 per cent. and Germany's is 60.5 per cent. and ours is down at 41 per cent. I suspect that floods of wealthy people have not left those countries, thereby damaging their economies.
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Mr. Newmark: I do not wish to cause a ruckus in my own party, but I hope my hon. Friend would agree that a core part of our policy is to put stability before tax cuts, and that we cannot achieve the goals that he seeks unless we put stability before tax cuts.
Mr. Walker: Of course we want to achieve economic stability, but it is not impossible that a future Government, whether Labour or Conservative, could commit to taking the very poorest people out of tax altogether. We are, after all, elected to run the country and to make hard decisions. I can almost anticipatethe Minister's response. He will say that raising tax thresholds, as the hon. Member for Bishop Auckland said, cannot be done because it will benefit the rich. That is not good enough. It is an abrogation of our responsibility to the least well off in society. Raising tax thresholds may benefit the rich, but the marginal benefit to the very poorest in society will be far greater.
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Mr. Newmark: Is not another ancillary benefit of CCS that we have more than 200 years' supply of coal in the UK? Would not it be good to try to revive our coal industry so that we are secure in our energy supplies?
Mr. Crabb: I welcome my hon. Friend's intervention, but I am more sceptical about whether CCS will enable a revitalisation of the UK domestic coal industry. I shall deal with that later.
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Mr. Newmark: Is not it key that those who seek employment in this country have a good education? One of the tragedies of the Budget is that the growthof spending on education is being slashed in half to2.5 per cent. We have heard much from the Chancellor about how he wants to spur on science and technology, but if he does not invest in education, we will not be able to produce employable people.
Mr. Crabb: My hon. Friend is exactly right. The key to success in a globalised world is to have innovation, a skills base and investment in an education system that will help the country to stay competitive in the years ahead, especially at a time when countries such as India and China are pouring out tens of thousands of extremely well-motivated, highly educated engineers and scientists.
Mr. Newmark: My hon. Friend makes an excellent point. I am a member of the Select Committee on Science and Technology. We have some brilliant scientists in this country, but, unfortunately, the interest of students in our primary and secondary schools in being scientists or going into jobs in which science is applicable is declining. That problem is compounded by the closure of chemistry departments in universities such as Exeter. We should be asking what the Government are doing to stimulate interestin the sciences and to support science in our great universities.
Mr. Crabb: That is an excellent intervention. In Wales, sadly, the chemistry department of Swansea university has also closed. A big concern of the Royal Society of Chemistry is the number of hours of science teaching in schools that is being done by teachers who have no science degree. As a result, the subjects are not interesting and are not being taught from a well-informed position. That is leading to a lack of interest at A-level and feeding through to the decline in demand at university level, thus making it difficult to maintain and make viable expensive university science departments.
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Mr. Newmark: Does my hon. Friend agree that the problem that he rightly addresses is compounded by the fact that the tax credit system is not only a shambles but that the people who have to fill in the forms do not understand them, so that up to 40 per cent. of people do not even claim their en titlements?
Mr. Burns: My hon. Friend identifies a significant problem. Not only do such people not understand because the system and the forms that they have to fill in are so complicated, but when the Government overpay them they add insult to injury by seeking to claw back all the overpayment and saying that despite the complexities in the system people should have been able to identify at the time that something was wrong with the payments they were receiving. [Interruption.] As my hon. Friend the Member for Northampton, South (Mr. Binley) says, that is shameful. It also imposes a severe burden on people who thought they were getting the right sums in tax credits and who now find that they face significant penalties in respect of the repayments that the Government are hell-bent on taking back from them. That is causing considerable hardship. Those of them who are working and paying the 10 per cent. rate in tax will have the double-whammy of having that withdrawn from them when the 2p tax cut comes into force, so they will face an additional financial hardship that will leave them less well off than they are at present.