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Natascha Engel (North East Derbyshire) (Lab): There has been a huge increase in the number of people coming to my surgeries and saying that, having been on incapacity benefit, they have been reassessed as capable
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of working but on appeal that decision has been overturned. That applies to the vast majority of people, certainly in Derbyshire. Does the Secretary of State have figures available for the whole country? I hope so, because if he is planning on rolling this out nationwide, we need to ensure not only that people who are wrongly assessed as capable of working are not left destitute but that the tribunal system is prepared for the huge number of appeals coming its way.

Mr Duncan Smith: Let me repeat the figures that I gave. Of all those who have been migrated through the system, about 5% have been successful in the sense that they have had their appeals upheld. There may be a slight change to that figure, because there is a backlog at the moment; we could probably make it up to 7% or 8%, but I do not think that it will get any higher than that. We should remember that all the people the hon. Lady is talking about represent the flow-that is, people who have not been in receipt of incapacity benefit until now but have been applying to come on to incapacity benefit and are being migrated through the process on to employment and support allowance or jobseeker's allowance. The figure for those appeals is 5%, and that was part of the process that was started by the previous Government.

Richard Fuller (Bedford) (Con): Many of us welcome the Secretary of State's efforts to tackle the scourge of worklessness and to end the era in this country of indiscriminate and too often counter-productive welfare. On work capability assessment, he will know that these macro benefits are built on a series of individual assessments by a particular doctor on a particular day of a particular condition. May I press my right hon. Friend to take a personal interest to ensure that assessments of neurological disorders and mental health issues in particular are done fairly?

Mr Duncan Smith: My hon. Friend raises a very important point. I can guarantee to him that we have already been doing that, but we will continue to do so. That is why the independent panel, which includes somebody from Mind, will review it. Mr Farmer has been tasked with reviewing that generally, as well. We will constantly keep this under review and ensure that that is the case. We do not want to use this to punish people; it is about helping people, not punishing them.

Sheila Gilmore (Edinburgh East) (Lab): Given the large number of my constituents and many others who had problems with the work capability test under the previous system, can the Secretary of State assure us that he has already reviewed the test prior to rolling out the new pilots, rather than leaving it as it is and piloting yet again? What full report is there on the outcomes of the system thus far? In Scotland, the Scottish Association of Citizens Advice Bureaux published a report that was highly critical of the system that was in place. Although a lot of us agree with it in principle, we know that when it comes to individual people the situation is very different.

Mr Duncan Smith: I guarantee that we have already reviewed the matter. Indeed, we inherited a review process, which the previous Government initiated. We will bind in the results of that-we are doing that at the moment. Having said that, we have subsequently set up the panel and asked somebody to investigate to ensure that we are
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covering all the necessary matters. The two pilots will help us understand better the way that the system works. I am not sure what else we can do at this stage. As I said to the right hon. Member for Paisley and Renfrewshire South (Mr Alexander), we intend to use what we are discussing as a process-it is not an end point, but a process that allows us to get the best out of how we deal with those who have been on incapacity benefit and need our support and help to get back to work. I give that guarantee.

Jake Berry (Rossendale and Darwen) (Con): Is my right hon. Friend aware that many responsible employers, including those in my constituency, ask their staff to attend annual health assessments? Does he agree that it is fair and reasonable for those deemed not fit to work to attend similar assessments rather than wait 10 years on incapacity benefit without seeing a doctor?

Mr Duncan Smith: My hon. Friend makes exactly the right point: for too long, Governments of both colours were content to see people parked on incapacity benefit. The subject should unite the House; the previous Government started the process and we want to complete it. It is no longer feasible for people to languish on incapacity benefit. My hon. Friend is right; in some cases, people have not been seen for six or seven years and in others, people self-referred and have never been seen by anybody to find out what is going on. It is high time we resolved that.

Pete Wishart (Perth and North Perthshire) (SNP): Will the Secretary of State please explain why a large swathe of Scotland is being used for the Con-Dem social experiment, especially when it involves some claimants travelling for up to 90 minutes to be interviewed? He will remember that the last time the Conservatives used Scotland as a testing ground was when they introduced the hated poll tax a year early. What safeguards and guarantees have the people of Scotland this time round?

Mr Duncan Smith: I am not sure what the hon. Gentleman is moaning about. Two cities are in the pilot, one in England and one in Scotland-he forgot that. The cities are different in character-they have quite different populations in terms of income. The hon. Gentleman made the point that some people travel long distances, and it is important for us to understand the exact effect of that. Sometimes I wish that he was not quite so parochial.

Sajid Javid (Bromsgrove) (Con): I paid a visit to my local jobcentre in Bromsgrove earlier this month, and I learned from the advisers that, in many cases, it takes them more than an hour to determine whether a jobseeker would be better or worse off by taking just six hours of employment in a week. Does my right hon. Friend agree that the introduction of the universal credit and the taper relief system will make a dramatic difference to job incentives for jobseekers, and also increase their life chances?

Mr Duncan Smith: I am glad that my hon. Friend sees it like that, because that is exactly how I see it. Of course, the devil will be in the detail, but we want a process that is easy to understand for those who are trying to get back to work, so that they do not need a
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maths degree to figure out exactly how much money they will retain if they do seven, eight, nine, 15 or 20 hours' work a week. We want it to be easy for them to understand that there is an incentive for every hour that they work, and for those in jobcentres to figure it out, so that they can give proper advice. We want incentives, not disincentives, to go back to work.

Tristram Hunt (Stoke-on-Trent Central) (Lab): Will the Secretary of State give us some assurance about the future of the independent living fund? The Government trickled out the information that it was one of the quangos to be abolished. That report has caused my constituent, Mrs Seckerson, and her husband and carer, Barry Seckerson, real concern because if they lose that fund, her chance of living a meaningful life will be severely inhibited. Rather than leaving them fearful of the future, can the Secretary of State give them some sense of security today?

Mr Duncan Smith: The ILF, which we inherited, had been underfunded and was consequently overspent-literally on the day we walked through the door of government. The hon. Gentleman might therefore want to take up the reasons for such bad mismanagement with his Front-Bench colleagues. However, we want to ensure that we deal with people in those circumstances fairly and reasonably. We are reviewing the whole process now and, as and when we complete the review, I shall ensure that the hon. Gentleman hears the details of it.

Richard Harrington (Watford) (Con): I and most of my unemployed constituents to whom I have spoken favour what my right hon. Friend has said. I am sure that many of them are pleased to have the chance to go back to work if they can find a job and, of course, benefit from the extra income. However, after speaking to many people, I am convinced that several people simply expect a whole lot of new schemes, about which they will find out in order to find ways of avoiding them and of continuing what they quite enjoy: a life on benefits, albeit on a low income. I would be interested to know my right hon. Friend's views on that.

Mr Duncan Smith: The vast majority of people who are on benefits are not seeking to stay on benefits for the rest of their lives. Most of them are seeking help to get off benefits and we want to provide that help. Most of all, I want to simplify the number of benefits so that people understand what they will receive and how, but to link that to a process of getting back to work. I repeat that those who genuinely cannot work, because they have disabilities that make it impossible, must receive the best support possible. That is the sign of a civilised society.

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John Mann (Bassetlaw) (Lab): The Office for Budget Responsibility has projected a net increase of 700,000 EU migrant workers during this Parliament, and that point was confirmed by Treasury officials to the Treasury Committee. Does the Secretary of State agree-and as the previous Government found to their cost-that an employer is more likely to prefer a new, young EU migrant worker to someone who has been on benefits for 10 years?

Mr Duncan Smith: The hon. Gentleman makes an interesting point. The only answer I can give is that during the past 10 years we have had between 4 million and 5 million people permanently parked on some form of out-of-work benefit. The reality is that it became easier and cheaper for most employers to employ people who were not on benefits than to go to the pool of people who were on benefits. I hope that our reforms will make work pay for those who are on benefits and thus release that pool of talent, so that demand can be met from here in the UK, and that only those who are really skilled and necessary will have to come from overseas.

Mr Philip Hollobone (Kettering) (Con): My constituents will be horrified to hear from the Secretary of State that Britain has the highest rate of jobless households in Europe. Which country in Europe has the lowest rate, and what is it doing that we are not?

Mr Duncan Smith: Perhaps I should not say this, but I think that it is Holland-I read that in a note. Some 20% of all households in this country have nobody in work, which is a staggeringly high number. We also have the highest number of children born to workless households. By and large, every other country is Europe is doing it better than we do-and that is the shame of the previous Government.

Bridget Phillipson (Houghton and Sunderland South) (Lab): Has the Secretary of State considered the impact of the benefits cap on homelessness provision, including women's refuges? What plans does he have for housing benefit for supported accommodation, where rents are understandably higher than in the private rented sector?

Mr Duncan Smith: We are looking at all that. I have made available some £60 million for transitional funding for local authorities and others, and we will keep that under review. We do not want to penalise households, because it may not be their fault that they are living in homes that they simply would not be able to afford. We need to ensure that the changes are made, and I hope that we will also be able to drive down some of the rents. A lot of change is coming in the next two years, and I hope that much of it will be very progressive.

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Points of Order

4.53 pm

Mr John Denham (Southampton, Itchen) (Lab): On a point of order, Mr Speaker. Future students and their parents will be alarmed that Members from the governing Lib Dem party are preparing to break their election promises and vote for huge increases in university fees. Given the need for a system of funding that is sustainable, fair, progressive and related to earnings-and which means that able students do not have to shop around for the cheapest option-is it in order for Government policy on this issue to be announced by the Secretary of State not in a statement to the House but in an e-mail to Liberal Democrat and Conservative MPs?

Mr Speaker: I thank the right hon. Gentleman for raising what is undoubtedly an important point. Certainly these matters have been widely reported in the media and the House knows of my wish, oft-stated, that statements of Government policy should be made first to the House. At this stage, I do not know whether the briefing that has taken place falls into the category of briefing to the media in advance. However, I confidently expect-and I emphasise that point-that these matters will be before the House in the very near future, and I also underline that last point. That will both inform me and give the right hon. Gentleman and others the opportunity to explore these issues in greater detail. I hope that that is helpful to the right hon. Gentleman and to the House.

Paul Flynn (Newport West) (Lab): On a point of order, Mr Speaker. There is a proposal to close the passport office in my constituency, with the possible loss of 300 jobs, which would leave Wales as the only country in the United Kingdom without its own regional passport office. I wrote to the Minister responsible about the matter in September. No word has come from any Minister-neither the Home Secretary nor the responsible Minister-yet a civil servant has presented the case and argued it to the press; indeed, they were actually present in my constituency this morning trying to justify it. As the convention in this House is that we do not attack civil servants, how can we go about ensuring that those Ministers responsible for this irrational and damaging suggestion come before the House to justify themselves?

Mr Speaker: I am grateful to the hon. Gentleman for giving me notice of this matter, and I am struck by it. I am not clear in my mind that it is a point of order, but it is certainly an important matter. He will know that the House has invited the Procedure Committee to consider how Government statements are made to the House. He could draw that example-and I suspect that he will-to the Committee's attention. In addition, the Table Office will advise him on other opportunities to raise this important matter.

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Finance (No. 2) Bill

Second Reading

4.56 pm

The Exchequer Secretary to the Treasury (Mr David Gauke): I beg to move, That the Bill be now read a Second time.

As observant Members will note, this is the second Finance Bill of this Parliament and the third one this year. The date of the general election earlier this year reduced the time available for scrutiny of technical measures in advance of that election, and the short timetable available between our emergency Budget and the summer recess has made it necessary to have a third Finance Bill to address various technical measures.

Given the content of this Bill, I suspect that there will be a fair amount of cross-party consensus on the matters in it but, in any event, I would like to congratulate the newly appointed shadow Treasury team. In particular, I congratulate the hon. Member for Wallasey (Ms Eagle), the shadow Chief Secretary to the Treasury, both on her election success as a member of the shadow Cabinet and on her appointment to her current position. She will bring considerable experience of Finance Bills to the shadow Treasury team, both as a former Minister and from the Finance Bill earlier this year.

Although he is not present, I should like also to congratulate the newly appointed shadow Chancellor, the right hon. Member for Kingston upon Hull West and Hessle (Alan Johnson). He stated over the weekend that his first task was to read an economics primer, but he also expressed the need to hit the ground running, because of the Finance Bill today. Whatever his education programme, I suggest that he should not necessarily begin with the scrip dividend treatment of real estate investment trusts or the taxation of long cigarettes. However, we wish him well in that process.

At the emergency Budget in June, my right hon. Friend the Chancellor set out this Government's fiscal mandate, acting swiftly to tackle the deficit and restore credibility to the public finances. In the short, summer Finance Bill, we quickly put the core elements of the Budget on to the statute book, reassuring the British people and the financial markets that we would not allow Labour's debt to spiral out of control.

Kelvin Hopkins (Luton North) (Lab): The Minister mentioned cigarettes. Are the Government going to do anything to tackle the £4 billion that is lost through cigarette smuggling? That is four times the amount of money that they are apparently hoping to save by cutting benefits to the better off.

Mr Gauke: The hon. Gentleman makes the fair point that there is too much cigarette smuggling, and this is a matter that we are keen to address. My right hon. Friend the Chief Secretary to the Treasury has already announced proposals to provide additional funding to Her Majesty's Revenue and Customs to tackle cigarette smuggling, among other things. I very much welcome the hon. Gentleman's intervention but, let us be honest, it would be unrealistic to say that we could prevent all cigarette smuggling. We can, however, take steps to
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reduce it. That would be to the benefit of the Exchequer, and I am pleased that the Government are moving ahead and doing that.

It is our determined actions that have restored confidence in the economy, stabilised the nation's credit rating and halved interest rates on Government short-term borrowing. We are saving money today so that we can invest in tomorrow. Ours is the right approach for the country, and that has been widely recognised. Only a fortnight ago, the International Monetary Fund said that our deficit plan was essential to restoring confidence in the UK's public finances and "supports a balanced recovery". That is the approach that we will take forward, including in the spending review.

Ms Angela Eagle (Wallasey) (Lab): I should like to take this opportunity to thank the Minister for his kind remarks about me and the new shadow team. If he is so convinced that the actions that the Government took in June have stabilised the economy, can he explain why a survey reveals today that confidence among Britain's financial chiefs has slumped to a fresh low, with 34% of finance directors polled by Deloitte believing that the economy will go back into reverse? Those findings demonstrate that optimism has dropped to its lowest level for 18 months.

Mr Gauke: The fact is that the measures that the Government have taken have had the support of the IMF, the OECD, the World Bank and the Governor of the Bank of England. We are getting widespread support for taking these tough measures. We also have the support of the director general of the CBI. There is an increasingly large consensus-it even includes Tony Blair-that if we simply deny the existence of the deficit and avoid taking these tough decisions, we shall face a worse problem later on. It is absolutely right that we should take these measures.

John Mann (Bassetlaw) (Lab): On the Deloitte survey, does the Minister agree that business people make investment decisions based on how they see the future? What will happen if those business people see a murky future? Will they not invest less? Would not that result in the Government's optimistic predictions of private sector growth, on which they are relying, not coming to fruition?

Mr Gauke: I shall tell the hon. Gentleman what would drive down investment: the fear that the Government were not prepared to take the tough decisions. Taking decisions for the long term to tackle the deficit will encourage private sector growth, and this Government are confident that we are taking steps in the right direction. We are also confident that a policy of reducing public expenditure rather than increasing taxation-which is the forecast of our plans to reduce the deficit-is the right way forward. Spending that is funded by borrowing is just a recipe for higher taxation and bigger cuts in the future, burdening future generations with the problems created by this one. That approach would drive down investment. Simply ignoring the matter would not help investment; it would not be fair and it would not be progressive.

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Alec Shelbrooke (Elmet and Rothwell) (Con): Does my hon. Friend agree that the protests that we are hearing from those on the Opposition Benches are in stark contrast to the fact that the measures taken by this Government have secured our triple A rating?

Mr Gauke: My hon. Friend is absolutely right. The fact is that the Moody's triple A credit rating was deemed to be at risk, and has now been stabilised. Our market interest rates have fallen, and we are restoring confidence in the long-term capability of this country. If we refused to take these measures, we would be taking the most enormous risk.

It may be helpful if I give some of the background. As I said earlier, there remain some technical changes that we could not include before the summer, and the Bill provides for those changes to be made.

I think it safe to say that Members on both sides of the House will agree on the contents of the Bill. I should be disappointed if they did not, given that within the last year all but one of the measures that we are debating were proposed by the last Government I am glad that we have reached a consensus on that, if not on other matters. None the less, we wanted to ensure that the public and interested parties had an opportunity to provide input.

In the Budget we set out our approach to tax policy making, with consultation at the heart of the strategy. In the spirit of that new process, we published the Bill in draft over the summer. That has not only allowed key interest groups to comment, but reassured those affected by the Bill. More than 60 responses were received, and nine clauses have been modified as a result. Furthermore, many groups have voiced their approval of the provision of a draft Bill to allow for additional scrutiny, which has made the Bill better, clearer and easier to apply.

We also increased opportunities for consultation by creating the Office of Tax Simplification over the summer. We need to increase transparency for businesses and the tax profession: that is a message that we hear frequently. We also hear about the importance of greater predictability, stability and simplicity in the tax system. The Office of Tax Simplification will identify areas in which complexity in the system can be reduced, and we will publish its findings for the Chancellor to consider before he presents his Budget. Simplifying the tax system is not just a means in itself, but a vital sign that Britain is once again open for business.

The Bill is not just a good example of engagement with the public; it also supports our aims of helping businesses and promoting fairness. Clause 10 provides support for real estate investment trusts by relaxing their distribution requirements. Clause 13 removes intellectual property conditions linked to research and development tax credits, enabling more small companies to claim. Clause 11 fixes issues in the worldwide debt cap regime to allow it to operate properly. The changes affect businesses large and small. Clause 9 removes an unintended tax charge from company distributions, and clause 7 makes changes to the venture capital schemes to guarantee state aid approval.

The coalition Government are committed to ensuring that the decisions that we make are fair, and that we protect the most vulnerable in our society. The choices that we have made to date, and the actions that we will
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take as part of the spending review, will help to make Britain fairer. Clauses 1 and 2 play their part by easing the tax rules for carers and extending the scope of the current tax relief. Clause 31 provides tax relief for trusts that compensate sufferers from asbestos exposure. I am sure that many Members will particularly welcome that clause. Clause 16 guarantees that those providing support under an adult care placement do not suffer capital gains tax as a result of sharing their home. Those too are small measures, but they provide significant and welcome support for those affected.

One clause has not been included in the Bill, although it was intended to feature. The aggregates levy credit scheme in Northern Ireland was introduced in recognition of the impact of the levy on legitimate businesses as a result of tax evasion on imports from Ireland and illegal quarrying. Over the summer, we consulted on legislation to be included in the Bill to extend the scheme beyond April 2011 to March 2021. Since then, the European General Court has annulled the Commission's state aid approval for the scheme, for the period covering April 2004 to March 2011. In those circumstances, it would not be appropriate to extend the scheme and we therefore decided to remove the clause from the published Bill. However, the Government strongly support the scheme and, if the Commission were to come to a fresh decision that the aid was approvable, legislation to extend it can be introduced in the Finance Bill in 2011.We will continue to work closely with the Commission, the authorities in Northern Ireland and representatives of the quarrying industry to find a solution that provides a level playing field for legitimate quarry operators in Northern Ireland, while maintaining environmental standards.

The other clauses help to align HM Revenue and Customs' interest and penalty regimes; enable the National Employment Savings Trust to operate as a registered pension scheme; assist with the correct allocation of overpayments of tax to settlers of trusts; and tackle evasion of excise duties. Although those clauses could not make it into the previous Government's final Finance Bill-although 71 clauses did make it into their four-hour Bill-we are ensuring that these necessary but less glamorous changes are made.

This is a simple, straightforward Bill that eases burdens on individuals, businesses and HM Revenue and Customs. It is one that the previous Government all but enacted themselves. In brief, it is an important but, I hope, uncontroversial Bill, and I commend it to the House.

5.11 pm

Ms Angela Eagle (Wallasey) (Lab): As the Exchequer Secretary has said, the Bill before us is the third Finance Bill that we have had this calendar year. We normally expect two if a general election intervenes, when the usual Finance Bill timetables are inevitably interrupted. However, this year we have had three. That is because of the decision of the Chancellor of the Exchequer to stage a piece of political theatre-I might even call it crass melodrama-when he presented his self-styled emergency Budget to the House in June. Rather than one that included all the necessary legislative provisions that had to be enacted this financial year, we got a tiny Bill. Its purpose was to tie the Liberal Democrats into the huge cuts to come and to the VAT bombshell before any summer revolts could gather pace and menace the Government's stitched-together majority.

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Sajid Javid (Bromsgrove) (Con): I congratulate the hon. Lady on her new position. The emergency Budget to which she referred was absolutely necessary considering the train wreck of an economy that we inherited. The country's debts were spiralling out of control. That Budget calmed the debt markets and allowed the country to look at its finances and to bring economic competence back into the Treasury.

Ms Eagle: The hon. Gentleman is even more melodramatic in his rewriting of history-his historical revisionism of what was going on in the UK economy-than the Chancellor. I had thought, having watched that performance, that that was impossible, but perhaps the hon. Gentleman should try out pantomime this year as Christmas approaches.

I was about to say before I was so rudely interrupted that, rather than encumber himself with the tedious technical detail in this Budget, the Chancellor decided to start behaving like the Liberal Democrat student activists we all come across at university and to take it in parts. This is part two. As a result, we have in today's Bill what can best be described as the technical innards of a Budget; I think that the Exchequer Secretary used other words. In fact, most of the clauses, as he pointed out, are the technical innards of the last Labour Budget, which was presented in March 2010. However, it is the duty of the Opposition to scrutinise the detail of all Budgets, and we certainly intend to fulfil that obligation tonight.

Measures included in the Bill are important to the workings of the taxation system-the Minister did the House a service by going through them in great detail-but they have failed to inspire much interest or controversy in the outside world, perhaps because they have been signalled for a long time. The measures were subject to consultation under the previous Government as well as the current one when they were in development. Some might even say that they were prototype proposals, because that is the way that things tend to be done in the Treasury. That is attested to by the lack of much comment on or reaction to the proposals even among the taxation professionals who usually pore over the technical details of Finance Bills with fine-toothed combs. In respect of this Finance Bill, those professionals have been strangely unmoved-I might even say indifferent.

Kelvin Hopkins: I, too, congratulate my hon. Friend on her appointment to the Front-Bench team and I am pleased to see her there. Is not the fact that this is a mouse of a Bill, given that we face a £120 billion tax gap that the Government are doing nothing to reduce, and that 1% of that sum would save more money than their cut in benefits?

Ms Eagle: My hon. Friend is right to point out that there are two sides to the deficit reduction equation. Clearly, one side of that is collecting the taxes that are due in an appropriate fashion, and I shall say more about that later in my speech. He is right that we need constantly to keep that side of things in mind.

I was about to pay tribute to the Institute of Chartered Accountants, which was one of the few organisations to submit comments on the Bill when many had fallen by the wayside. Perhaps it is up to the Opposition to be vigilant when others have taken their eyes off the ball.

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As my hon. Friend said, it is odd that we are debating a seemingly uncontroversial and overwhelmingly technical Finance Bill in the midst of one of the most difficult and dangerous periods for the UK and world economies in many generations. We have lived through the largest banking and financial crisis in the global economy since the Wall street crash of 1929. It has caused a deep and painful global recession, and we are struggling with the aftermath of the rescue of the world financial system from the colossal market failure that was dramatised by the collapse of Lehman Brothers in 2008. That inevitably caused budget deficits to soar everywhere, but especially in the more advanced western economies.

The UK was particularly affected, in part because of the size of our banking and financial services sector. The concerted action co-ordinated at the London G20 conference averted a catastrophe, and we are now witnessing a tentative economic recovery. However, that recovery remains distinctly fragile.

Lorely Burt (Solihull) (LD): We have the biggest budget deficit in the G20. What does the hon. Lady believe contributed to that? Could the previous Labour Government, of whom she was a member, have done a bit more to try to avoid that?

Ms Eagle: The hon. Lady must recognise that the budget deficits being suffered in all the more advanced economies result directly from the need to rescue the world financial system by underpinning it, the effect of automatic stabilisers and the loss of revenue caused by the recession that followed the credit crunch. I thank her for giving me the chance once more to put that on the record.

Claire Perry (Devizes) (Con): Will the hon. Lady give way?

Ms Eagle: I will be happy to give way when I have finished dealing with the point made by the hon. Member for Solihull (Lorely Burt). I am pleased that she gave me the chance to put on the record again the plain fact that Budget deficits throughout the developed world were caused by the costs of the recession and the need to underpin our banking systems, rather than by profligacy in public spending. The problem was caused by a gigantic global market failure, not by the activities of Governments.

Claire Perry: It is a pleasure to welcome the hon. Lady to her new role, as she is one of the more economically literate and articulate of the shadow Front-Bench team. I am therefore surprised that she continues to bring out the hoary chestnut that somehow this deficit was entirely a result of the collapse in the banking system and was nothing to do with the previous Government's spending more than they raised in taxes since 2001.

Ms Eagle: The hon. Lady has also to recall and acknowledge that a lot of the investment spending since 2001 went on infrastructure, which will stand our country in good stead as we look to how we can rebuild our prosperity and continue to earn our way in what will be an increasingly competitive world.

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Charlie Elphicke (Dover) (Con): I would point out to the hon. Lady that the Office for Budget Responsibility says that there is a structural deficit of £109 billion-I believe that is the figure-which has nothing to do with the banking crisis or the recession and will not be eliminated by growth. Does she not accept that the previous Government have some or full responsibility for that structural deficit?

Ms Eagle: I think we need to have a much more grown-up discussion about how we ended up facing these economic challenges. One of the more underhand approaches that the Government have taken to this narrative has been to say that the economic challenges facing us, which are formidable, are somehow all about the previous Labour Government wasting public money and spending profligately. The hon. Gentleman knows that that is simply is not true-

Several hon. Members rose -

Ms Eagle: I will give way in a moment. If we reach the stage where we have an appropriate analysis of how our economy got to be in this situation, we will stand a far better chance of having a reasonable discourse about how we can best move forward, rather than having this gross caricature being made by those on the Government Benches.

Mark Tami (Alyn and Deeside) (Lab): The Government seem to forget that when they were in opposition they promised to match our spending. The Liberal Democrats have great cheek to say now that they did not support the increased level of borrowing-I recall that they certainly did.

Ms Eagle: That is true. Clearly, the Chancellor and Prime Minister are on record, up to and including in 2008, as doing precisely what my hon. Friend says and supporting our spending commitments as they were at the time.

Although the recovery remains distinctly fragile, the June Budget took a huge and risky gamble with it. Since then, confidence in the UK's economic prospects has fallen off a cliff and business surveys, such as that by Deloitte which I asked the Exchequer Secretary about, demonstrate that economic sentiment is darkening. There are increasing signs that the tentative recovery is stalling and that the economic storm clouds are gathering once more.

Kelvin Hopkins: I agree entirely with what my hon. Friend is saying. Is it not true that those who invest and those who are lacking confidence now are simply aware that cutting spending, cutting jobs and cutting benefits will drive the economy into recession, and that nobody will invest when we are diving into a recession? Does she agree that in the early part of this decade Britain had a relatively low level of public spending as a proportion of gross domestic product compared with, for example, Scandinavia?

Ms Eagle: My hon. Friend is right on both points, but he also raises an important issue about what Keynes called "animal spirits". It is fair to say that all the signals are that the animal spirits are somewhat more depressed now than they were a few months ago and that the things that have depressed them are the decisions that were announced in the June Budget.

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Ominous noises are coming out of the recent International Monetary Fund meeting about currency wars and competitive devaluations, and they offer worrying echoes of conditions that led to the great depression in the 1930s. Dominique Strauss-Kahn was not joking or exaggerating when he warned the IMF meeting about the dangers that the huge increases in unemployment will pose for our democratic institutions. Yet none of this is referenced in the measures before us today.

Sajid Javid rose-

Ms Eagle: I have given way to the hon. Gentleman before and I want to get on, because I know that other people wish to speak.

In many ways, we find ourselves in a kind of pre-spending review phoney war. We know that something truly awful is coming but it has not arrived yet, so we are whistling to keep up our spirits as the winter approaches and the long nights draw in. The Prime Minister himself has taken to using wartime phraseology. For some strange reason, in his conference speech he was moved to invoke the spirit of Lord Kitchener and his famous "Your country needs you" first world war Army recruitment slogan, not once but twice. Quite why he did that is beyond me, since Lord Kitchener was the general who created the world's first concentration camps in the aftermath of the Boer war. They inflicted appalling suffering on innocent women and children in order to quell any Boer resistance. As Secretary of State for War, he supported the disastrous Dardanelles operation and was widely blamed for the shortage of shells in 1915, which, incidentally, precipitated the formation of a Tory-Liberal Government.

Of course, Kitchener has become best known for the famous Army recruitment campaign and its memorable slogan, which our Prime Minister saw fit to borrow the other day. In 1914, that plea resulted in the creation of what became known as "Kitchener's Army", and I suppose we should refer to the attempts to create a "big society army" to fill in the gaps that the cuts will create. Unfortunately, however, that Army was destined to go into action in the Somme, where 60,000 of them were slaughtered on the first day of the offensive. By its end, 600,000 had been lost to gain just 6 miles of territory, and overall casualties in the offensive as a whole reached an almost unbelievable 1.2 million men-

Several hon. Members rose -

Ms Eagle: I shall give way in due course, when I have finished.

Mr Brian Binley (Northampton South) (Con): Be kind to me.

Ms Eagle: I shall give way in due course, but not at the moment.

I was just saying that the Somme offensive cost-

Mrs Anne Main (St Albans) (Con): On a point of order, Mr Deputy Speaker. Is this rather long revisiting of first world war history directly related to the Finance Bill's Second Reading?

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Mr Deputy Speaker (Mr Nigel Evans): Had I noticed anything out of order, I would have been sure to have pointed that out. As it is, I believe that the shadow Minister is now moving on.

Ms Eagle: I was just about to do so, Mr Deputy Speaker, but suffice it to say that Kitchener's Army became a tragic symbol of a lost generation, pointlessly sacrificed because of the idiocy of those in charge. Perhaps, whether he realises it or not, the Prime Minister was on to something with his choice of exhortation.

Jacob Rees-Mogg (North East Somerset) (Con): I thank the hon. Lady for giving way and add my congratulations on her elevation. It will be a great privilege to listen to more of her speeches, I hope often on Kitchener. I fear that she has maligned the late noble Lord Kitchener of Khartoum, the rescuer of what remained of Gordon's body from Khartoum. Perhaps most relevantly, the death rates in the camps established in South Africa were exactly the same as-

Mr Deputy Speaker: Order. This would be a fascinating debate at another time and, perhaps, in another place.

Ms Eagle: Thank you, Mr Deputy Speaker. I know whose side I would rather be on in any attempt to rehabilitate Lord Kitchener.

As the spending review approaches, we are beginning to see increasing signs of nervousness about the likely effects of the cuts, and that is just among Ministers. We already know that the Government have taken a decision in principle that a huge increase in unemployment is a price worth paying to get the deficit down. In an admission that the spending review will depress economic activity, the Chancellor recently made it clear that he will sanction the resumption of quantitative easing, or increasing the money supply, should the cuts in demand tip the country back towards recession. However, the extent to which monetary policy can be effective when interest rates are so low and demand is depressed is the subject of well-placed scepticism in very respectable economic circles.

Albert Owen (Ynys Môn) (Lab): I welcome my hon. Friend to her new position. Does she agree that there are lessons to be learned from the Republic of Ireland, where a centre-right coalition has made savage cuts quickly? That has not only affected its triple A rating-it has been downgraded-but created mass unemployment.

Ms Eagle: Yes, I do think we have to keep a careful eye on what is going on elsewhere in the world. It is clear that the mantra that there is no alternative is simply not true.

Mr Andrew Love (Edmonton) (Lab/Co-op): I add my support for my hon. Friend after her elevation to her new position. She mentioned quantitative easing, and she will no doubt have seen the widespread reports in the newspapers over the weekend that the Chancellor has given it a green light. Is that not his plan B, and his way of avoiding the so-called "difficult decisions" and passing them on to the Bank of England?

Ms Eagle: It certainly indicates that there is some nervousness and worry about the downturn in what the economic indicators say about the effect of measures that were announced with great fanfare in June.

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Andrew Bridgen (North West Leicestershire) (Con): Does the hon. Lady agree that the main thing that we can learn from the economy of the Republic of Ireland is that we were right not to join the euro and should never do so?

Ms Eagle: I look forward to the debate that will take place within the Government on that, as I can see that Liberal Democrat Members are not exactly enamoured with the hon. Gentleman's point.

At the weekend, the Cabinet seemed to send incoherent messages about the £83 billion cuts agenda that lies ahead. The Energy Secretary told The Daily Telegraph that spending cuts were not

and could be scaled back if economic conditions deteriorated, but the Transport Secretary insisted that the Government would not deviate despite fears that the drastic cuts would damage the economy. The latter clearly regards himself as the real Chief Secretary-or perhaps it would be more accurate to say the Tory Chief Secretary-but which of the two is presenting the Cabinet's real view? They both serve in it, so which of them is right? Perhaps when the Economic Secretary responds tonight, she would like to enlighten us about which of their positions is the real Government policy, at least for today.

Some things that I would have thought would be in the Bill, given the formidable economic challenge that now faces us, are conspicuously absent. Where is the plan for growth? We all know that growth is one of the most effective ways of dealing with a deficit. Thus, plans to get the deficit down need to be growth-friendly, but precious little in the Bill is intended to address that urgent requirement.

Since May there have been plenty of cuts that may well have a bad impact on our growth prospects, such as the abolition of regional development agencies and the savage cuts in the funding available to assist regional growth strategies. The decision to scrap the loan to Sheffield Forgemasters is another example. That company could have played a leading role in the developing global nuclear industry, but its chances of doing so have been set back significantly by that decision. The increase in VAT, which estimates suggest will cost each household in the country more than £500, will hardly boost demand, so where is the plan for growth? The Prime Minister claimed that his first Budget would be

but after the Chancellor's theatrical efforts in June, the Government's own forecaster, the Office for Budget Responsibility, downgraded its growth forecast for this year from 1.3% to 1.2%, and for next year from 2.6% to 2.3%. The CBI also decided to lower its growth forecast for next year from 2.5% to 2% to take account of the June Budget.

Alec Shelbrooke: I welcome the hon. Lady to her Front-Bench position. If the 2.5% rise in VAT is so wrong, why was it right for the previous Government to return it from 15% to 17.5%? Although there had been a reduction, that was still a 2.5% rise.

Ms Eagle: The hon. Gentleman was not in the House at the time, but the reduction in VAT was part of the fiscal stimulus that kept the economy afloat during the
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most dangerous parts of the credit crunch. The growth figures for the early part of this year show that that fiscal stimulus package was working.

Stewart Hosie (Dundee East) (SNP): The hon. Lady talks about the fiscal stimulus package working. It did work, of course, and I backed fiscal stimulus. Does she not now regret that the previous Government was one of only two in the G20 fully to withdraw the fiscal stimulus package in 2010?

Ms Eagle: The hon. Gentleman is arguing that we should do the opposite of what the Government decided to do in June. I hope that, in due course, we will see him in the Lobby with us.

Alison McGovern (Wirral South) (Lab): I thank my hon. Friend for giving way and welcome her to her new role. I am pleased to see one of my Wirral constituency neighbours at the Dispatch Box. I was not a Member of the House at the time, but I recall the temporary VAT reduction to 15% as being just that-a temporary improvement for consumers to build confidence. Will she assist me? Was that the case and how does that measure compare to the VAT proposals made by the Chancellor in his Budget?

Ms Eagle: Clearly, that measure was temporary and well signalled in advance-a cut to boost the economy in the short term in the most effective way. The interesting thing about what has been announced since June is that the VAT increase appears to be permanent. We are also seeing a range of other announcements, such as the shift from the retail prices index for benefit increases to the consumer prices index-not temporary to deal with a situation in front of us, but seemingly permanent.

John Mann: Will my hon. Friend give way?

Ms Eagle: I am happy to.

John Mann: My hon. Friend may not be too happy to give way, but first I congratulate her on her appointment. She is an appropriate and excellent appointment to the Opposition Treasury team. However, she is making an argument about increasing taxation leading to a reduction in growth. Is that not a rather dangerous argument for a Labour Opposition to make when the choices between spending and taxation are precisely those that any Government would have to make? Is it not time that the Labour Opposition re-examined their opposition to the VAT increase? Should we not reverse that opposition and support the increase as an appropriate way to increase taxation at a time when we need to offset any cuts that would lead to job losses in the public sector?

Ms Eagle: My hon. Friend should take account of the regressive nature of VAT and the fact that the Government have trumpeted from the beginning that their measures will be fair. They even used the word "progressive" during the June Budget discussions when the analysis by the Institute for Fiscal Studies and recent work by Age UK demonstrates that the effect of the Budget measures of which the Bill is a small part will be the exact opposite of progressive. It will be regressive; it will hit the poorest hardest, and VAT has a part to play in that.

John Mann rose-

Mr Gauke rose-

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Ms Eagle: I am anxious to get on. I have given way a lot and many other Members wish to speak.

The Irish example demonstrates the risks of focusing on getting the deficit down-too high a cost to the growth potential of the economy. The Irish have had deep and fast cuts as well as tax rises, but growth has been hit, which is making getting the deficit down harder rather than easier.

Mr Gauke: I am grateful to the hon. Lady for giving way and I am listening carefully to her somewhat gloom-laden speech. I can see why her military role model is not so much General Kitchener as Private Frazer. May I press her on one particular point? The position of her party at the general election was in favour of spending cuts of 20% over the Parliament and halving the structural deficit over four years. Does she still support that position?

Ms Eagle: That is our starting point as we move forward to judge what the Government will announce in a few days' time. The issue here is the scale and speed of the deficit reduction, and how that impacts on our approach to being able to see some kind of economic recovery sustained, given what is happening in the rest of the world. The worry that we have always had about the Budget judgment implicit in the June announcements and soon to be reinforced in the forthcoming spending review is that the medicine being fed to the patient runs a higher risk of killing it off. We do not want the deficit reductions to be too soon and too deep to sustain a recovery. The Irish example demonstrates the risks of focusing on getting the deficit down at too high a cost to the growth potential of the economy. The Government have a particular view on those judgments, but we disagree with them on the necessity for speed and the ferociousness of the deficit reductions. We are not saying that deficit reductions will not be necessary. The Chancellor used to mention the Irish example all the time as the Irish Government made their extremely deep and fast cuts, but lately he appears to have stopped referring to it at all. I wonder why.

The Government are gambling on their outdated and dogmatic view that if only the state would get out of the way, the private sector would spontaneously move to fill the gap and quickly create the 2.5 million extra jobs that the Office for Budget Responsibility has calculated would have to be created to get the deficit down as forecast. Thus our economy is meant to perform better in job creation terms than it has ever done before, even in much more benign economic circumstances than those we face.

We have just lived through the most dramatic example of the limits of that market fundamentalism that any of us are likely to see in our lifetime. It was not the private sector that rescued the world financial system from meltdown in the credit crunch; it was the co-ordinated action of Governments. Governments have a crucial role to play in fostering economic growth and helping to encourage the emergence of a better, more balanced economy, yet the Bill does nothing to restore the support for industry that the Government have already cut. It does nothing to reverse the £3.6 billion tax hike that will hit our manufacturers in order to pay for the corporation tax cuts announced in the June Budget, £1 billion of which will go straight back to the banks.

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Abolishing allowances and reliefs effectively hits businesses with a tax hike when they invest. It benefits investment-light industries such as financial services over investment-heavy industries or new sectors looking to grow. That change penalises companies that need to make sustained investment to establish themselves and grow. It is a strange way for the Government to signal that they wish to see a rebalanced economy and the creation of new industry. Little wonder, then, that the plans have been described as "a disaster" by the senior economist at the Engineering Employers Federation and that the Institute for Fiscal Studies has said:

There is no sign of a serious growth strategy.

Stewart Hosie: Will the hon. Lady give way?

Ms Eagle: I have given way to the hon. Gentleman before, but I shall do so once more.

Stewart Hosie: I agree with much of what the hon. Lady has said. Would it not carry more weight, however, if her Labour Government had not abolished, for example, industrial buildings allowance and agricultural buildings allowance-the very sort of allowances that she described that would help investment now. Would not her argument carry more strength if her Government had not butchered those important allowances only a few years ago?

Ms Eagle: I remember the detailed discussions that we had on that issue in previous Finance Bill debates. The hon. Gentleman has probably been in more of them than I have. The issue is not the abolition of allowances that are 40-odd years old and increasingly do not recognise the changed shape of UK industry. It is about abolishing allowances completely to fund a cut in mainstream corporation tax, with the result that the incentives for investment are taken away at the point of investment.

One of the measures that the Bill ought to have contained but does not is the creation of a tax relief for the video games industry. We all know in the House that in the UK we have a particular expertise in creating video games, which was beginning to create high-value jobs in the UK in what has become a multi-billion-pound industry. We also know that our brightest software engineers are being tempted abroad by generous and possibly illegal tax breaks, and that we risk the decimation of our UK base if we do not respond. That is why, while we were in government, we developed the video games tax credit, which was to operate along the same lines as the film tax relief. In opposition, just before the election, the Conservative party supported that. On 13 April 2010 the hon. Member for Wantage (Mr Vaizey), now the Under-Secretary of State for Culture, Olympics, Media and Sport, said:

Like so many other things said during the general election campaign, that pledge was abandoned immediately after it. We will want to explore the issue further in Committee.

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Before the Minister uses the standard Treasury line about how the video industry can always make use of the research and development tax credits that are available more generally, he might care to put all our minds at rest and deal with the nasty rumours swirling around that the entire R and D tax credit may be at risk in the cuts to come. Perhaps the Economic Secretary will reassure us on that point.

Another notable omission from today's Bill is any reference to increasing the resources which will allow HMRC to build on its already excellent work to tackle the tax gap. Obviously, as was said earlier, the more that tax due is collected, the more effectively the deficit can be tackled and the less pain our society will be forced to endure during the adjustment ahead. During the conference season the Deputy Prime Minister made much of the need to close the gap between the taxes that are due and those that are actually collected. He made grand and welcome pronouncements that it is "ethically wrong" to avoid paying our taxes. He was followed by the present Chief Secretary to the Treasury who announced, interestingly, that he regarded both tax avoidance and tax evasion as "morally indefensible" in times like these.

Kelvin Hopkins: I agree entirely with what my hon. Friend is saying. PCS, Richard Murphy and others have made the simple point that appointing more tax officers would solve the problem. They collect many times their own salary, and it would be highly beneficial to the Exchequer if that were done.

Ms Eagle: My hon. Friend is well known for his views on the subject.

Neither of the Ministers whom I just quoted revealed just how successful HMRC has been in pursuing this work in the past three years. HMRC increased the yield from compliance interventions by 60% in the three years to 2008-09. However, we all know there is more to be done and we would all support sensible measures to make such work even more effective.

Following all the fuss about that and the headlines generated, I would have expected to see some extra action in the Bill. However, despite the dramatic headline- grabbing moral assertions, nothing has been added to the Bill to signal the Government's determination to launch a further crackdown. The worry is that the 25% to 40% cuts in departmental staffing due to be announced in the forthcoming spending review will seriously damage HMRC's ability to maintain its work on improving tax collection, let alone to launch a further successful crackdown on the tax cheats. Again, this is a topic to which we will return in Committee, but I would be grateful for any reassurances the Minister may be able to offer us tonight that the operational capacity of the HMRC in this crucial area will be enhanced rather than decimated in the cuts to come.

Perhaps the hon. Lady can also explain to the House precisely what signal on tax collection the Government intend to send by appointing Sir Philip Green to advise the Prime Minister on Government efficiency. His own tax arrangements include paying a £1.2 billion dividend to his wife, who just happens to be domiciled in Monaco for tax purposes. Although this is not illegal, the Business
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Secretary has gone on record as saying that he is unhappy about it, and the Energy Secretary has said that it sends the wrong message. Can the Minister explain how this example squares with the Chief Secretary's grand pronouncement that both tax evasion and tax avoidance are immoral in times like these? Once more, we must look at this Government's actions rather than their words. Their decisions will be far more eloquent than thousands of well-crafted press releases or any synthetic outrage.

As we await the spending review, it is abundantly clear that the centre of economic and political attention lies not with the Bill but elsewhere. We would have wanted this legislation to contain at least the beginnings of a plan for growth, but it does not. It should have contained some extra and concrete plans to back up with credible action the Deputy Prime Minister's fine words on the immorality of avoiding taxes, but it does not. In choosing to cut the deficit further and faster than we proposed, the Government have taken a huge gamble with our economic prosperity. A synchronised deficit reduction throughout the developed economies risks plunging the world back into either recession or a Japanese-style jobless recovery. The Irish example should be a salutary lesson to the Government of the risks that they run with their economic approach.

In the meantime, we will look closely at the Bill and take a keen interest in it as it goes through Committee. We will see whether some of the issues that I have raised can appear as amendments during its passage through the House.

5.51 pm

Mark Simmonds (Boston and Skegness) (Con): I draw the House's attention to the Register of Members' Financial Interests.

I am aware, as the Government and Opposition Front Benchers have said, that this is primarily a dry and technical Bill, and I shall address one particular area later in my remarks. However, it is important to set out the macro-economic climate and conditions if we are to provide a context for the Bill and for next Wednesday's statement.

The contribution from the hon. Member for Wallasey (Ms Eagle), the shadow Minister, was perplexing. While wanting to congratulate her on her promotion, and on the fact that she clearly has a grasp of economic issues, I note the sense of complete denial about the serious situation in which we as a country find ourselves. It is quite clear that the coalition Government's very difficult inheritance-with the previous Government having doubled the national debt so that we have the biggest deficit in the G20 and with more being paid in interest than the police, defence and transport budgets combined-emphasises the critical need to address the problem of the fiscal and structural deficit.

Treasury Front Benchers, the Chancellor and his colleagues, are absolutely right to dismiss the Opposition's complaints. Why would anyone listen to a strategy from the very people who created the problem in the first place? I shall pick out one aspect of what the hon. Lady said, because it is something that the country needs to understand. The structural deficit, and the amount of money that the previous Government borrowed and this coalition Government have inherited, are not down
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to the banking crisis. The economic indicators update, which the Library provides, states very clearly:

staggering numbers. Secondly, it states:

And, it makes the third point:

That completely destroys the hon. Lady's main focus and the point that she tried to make.

However, the issue is not just about the irresponsible and unsustainable Government expenditure that took place prior to the general election. I do not want to describe myself as a particularly visionary or prescient individual, but I point out to the House a question at Prime Minister's Question Time that I asked the then Prime Minister, Tony Blair, on 25 May 2005. I shall not read it out, because it would be tedious for the House to hear it again, but I asked him what he would do to rein in the dramatically deteriorating fiscal deficit. Inevitably, as ever with Tony Blair, one did not receive a particularly comprehensive or detailed reply, but Treasury Benchers are absolutely right to focus on reining in the growing fiscal deficit.

It is quite clear, from the previous statement by the Secretary of State for Work and Pensions, my right hon. Friend the Member for Chingford and Woodford Green (Mr Duncan Smith), that the welfare budget was completely out of control, and from the initial findings of Sir Philip Green's review of Government expenditure, that many procurement procedures are completely out of control. There was sloppy governance, and that needs to be addressed.

People may ask, "Why is it important if the Government don't get a grip on spending." If there is no such grip, there will be no or slower growth; if there is no growth, there will be no sustained recovery; and if there is no sustained recovery, there will be no wealth or job creation. It is no coincidence that since June's emergency Budget, the credit rating of the UK's risk has dissipated and yields on Government gilts and bonds have fallen significantly. It means that some confidence is returning to the markets-specifically because of the Government's and Chancellor's announcements back in June. They announced, first, some fiscal consolidation and, then, a promise of some control over public expenditure.

The dangers of not doing anything are considerable: sovereign debt credit downgrades; interests rate rises; additional debt interest that should be spent on investment in reformed public services; and the potential explosion of Government bond yields, as we have seen elsewhere in Europe. We need to challenge the myth, which we heard from the Opposition Front Benchers today, that fiscal consolidation and public expenditure contraction automatically lead to economic slowdown; they do not necessarily.

I hope and think that we will have, in the technical jargon, an expansionary fiscal consolidation. There are two facets to that. First, if we control public expenditure, we get greater consumer confidence as people revise down future tax burdens, something that the coalition in time need to deliver. That will encourage further consumer expenditure, and I very much hope that such control will be permanent, not temporary.

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Alison McGovern: How will that increased confidence play out in different regions where-for the right reasons, because work is cheaper in such areas-public sector jobs are now focused? How does public confidence work in an area where a high number of public sector workers face redundancy?

Mark Simmonds: The hon. Lady makes a fair point, and I should say two or three things. First, the national insurance changes that the coalition Government have made will make it better and easier for employers to take on new employees in the private sector. Secondly, the Treasury is working on the regional fund to address the difficulties that are faced in some regions, which, I would argue, are over-dependent on public sector jobs, so that people can move into the private sector quicker than would otherwise be the case.

The second element of the expansionary fiscal contraction is to encourage business to invest, and I do not agree with the fundamental argument of the shadow Treasury spokesperson. There is a direct inverse correlation between Government borrowing and business investment, which means that when Government borrowing declines business investment goes up, and vice versa. That would be especially true if it were supported by expansionary monetary policy, which it is and, I hope, will be for the foreseeable future.

Opposition Members may say, "That all sounds very well theoretically, but has it ever happened in practice?" The simple answer is, yes. It has happened twice in recent times-not only in the early 1980s, when the then Chancellor of the Exchequer, Geoffrey Howe, reduced public expenditure and interest rates and, therefore, stimulated economic growth, but-

Kelvin Hopkins: Will the hon. Gentleman give way?

Mark Simmonds: In a minute, because the hon. Gentleman might be keen to comment on this point. The correlation also occurred under the previous Labour Government, between 1997 and 1999, when they stuck to the preceding Conservative Government's expenditure plans. That is when GDP growth under the previous Administration was at its highest, averaging roughly 3.5% per year-significantly higher than during the rest of their tenure. So, the correlation has occurred before, and I see no reason why it should not occur again.

Kelvin Hopkins: I hesitate to say this, but I was around in 1979, and I remember it very well. The Government at that time massively increased VAT and increased interest rates. The pound rose, and neo-classical economists, like the hon. Gentleman no doubt, said that unemployment would fall to below 1 million. It actually rose to more than 3 million, and one fifth of manufacturing disappeared. It was only when the Government later reversed those policies that the economy started to expand, but sterling depreciated by 30%, during Nigel Lawson's tenure, when the economy started to grow again.

Mark Simmonds: I am grateful for that intervention. The hon. Gentleman will not be surprised to hear that I do not share his analysis. In fact, the parallels are interesting. I would argue that in the early 1980s Geoffrey Howe and Margaret Thatcher were clearing up the mess that they inherited from the previous Labour Administration, just as the Chancellor of the Exchequer
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and Liberal Democrat colleagues in the coalition are tidying up the mess that we inherited from the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) and Tony Blair, his predecessor.

Stewart Hosie: The hon. Gentleman is giving an interesting analysis, which I do not share at all. He spoke about monetary loosening and monetary expansion. We have had a zero bound in interest rates and 99% of the £200 billion of quantitative easing has gone to buy Government debt-it has gone right through the tube, without hitting the sides of the real economy. Where does he think the monetary easing and expansion will come from to give the cash needed by businesses that want to invest? It is not coming from QE.

Mark Simmonds: The hon. Gentleman is right, in a way. I hope that interest rates will remain low for a considerable time to give businesses confidence to borrow money, when they need to, to invest; we could be having a whole argument about the banking sector and structure as well. When interest rates start to tick up again, I hope that the quantitative easing position will start to unwind and the Bank of England will start to sell some of the QE back into the market, which will then create confidence. Personally, I am very nervous about future quantitative easing; we have probably done just about enough. If interest rates stay low as a loose monetary policy, I am reasonably confident that we will have steady growth, for reasons that I have just explained.

From where will the potential dangers come? I do not think that we are assured a return to good times expeditiously. There are risks and problems, particularly in the global economic context-especially given the need to balance the UK economy away from consumer expenditure and the financial sector. I am afraid that recent news from around the world has not necessarily been encouraging. US economic growth is slowing, Chinese manufacturing is cooling and problems in Japan may spread to other Asian economies. Furthermore, there is the dangerous US-China currency stand-off, which could lead to protectionist policies. I very much hope that those will not be put in place.

If we are to have a strong export-led-growth UK model, we will require a strong eurozone. Although the eurozone grew strongly in the second quarter of this year, it remains highly dependent on German growth. We will have to monitor extremely carefully the impact that fiscal tightening has in the eurozone and its particular relevance to UK exports, although I very much hope that that will be assisted by a weakening and a sterling depreciation. Given what they inherited, the Government's macro-economic policy is absolutely right.

I want to focus on a particular aspect of the Finance Bill. It relates to the aside, made by the Exchequer Secretary in his opening remarks, about real estate investment trusts, which are covered by clause 10 and schedule 4 of the Bill. I support the changes that are set out, but I have a couple of specific questions, which the Minister could answer in her winding-up speech or about which she could write to me, with a copy of the letter being put into the House of Commons Library.

At the moment, dividends through real estate investment trusts, which are tax-friendly vehicles for the ownership
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of property, particularly commercial property, have to be paid in cash. The Bill will allow them to be paid in stock as well. What will the tax status of those dividends paid in stock be? Will income tax or capital gains tax apply? Clearly, capital gains is paid only when a gain is realised or made. What would happen if the stock deteriorated rather than increased in value? In the Bill there seems to be some provision for a market value. I am not sure how that will work in practice and over what time scale that market value will be assessed.

Real estate investment trusts, which the previous Government brought in, are an excellent vehicle for the ownership of commercial real estate in particular. The HMRC REIT unit has a very good reputation and is extremely helpful to those involved in the industry. However, there are issues that should be in the Bill but are not. The Treasury needs to consider them to improve real estate investment trusts.

The trusts should be the worldwide answer to property investment, in which all our pension funds invest. They are very significant to the future well-being of most of the UK's population. We need to make the reforms to strengthen further the position of the UK as a place for these important capital markets. The current tax structure of REITs should have put an end to the offshore floating of companies and funds, but that has not happened. It is very complex to bring back onshore a fund that is already listed elsewhere. The Treasury needs to consider ways of simplifying the procedure, therefore reducing the costs and making such a move more efficient and effective.

The Treasury also needs to look at the transition period, which is currently 12 months. It needs to be three years. Some 75% of the money raised inside a real estate investment trust has to be spent within 12 months, and that needs to be looked at and extended. At the moment, to avoid losing their status, investment trusts are having to invest in incorrect assets that are not necessarily going to produce the returns that the people involved believe they should be getting for themselves or their shareholders, whether individuals or pension funds. That issue needs to be looked at carefully.

I am also extremely nervous about the income cover rule. I will not bother boring the House with that at the moment, although officials will know what I am talking about. Currently, it is 10%, but I would argue that it needs to be the same as the takeover percentage, which is about 29.9%.

I want to make one final point about real estate investment trusts. Currently, they can be listed only on recognised exchanges. That does not include the alternative investment market, or the AIM. Many smaller REITs want to float on the AIM so that they can generate income and funds and grow their business. At the moment, they have to be listed both on the AIM and an exchange offshore. That adds costs and bureaucracy and it is utterly unnecessary. I should like the Treasury to make dual listing a thing of the past and make it much easier for entrepreneurial REITs and new REITs.

Paul Uppal (Wolverhampton South West) (Con): I share my hon. Friend's interest in real estate investment trusts. Commercial property is a success story. UK commercial property is one of the most coveted assets globally and brings in a great deal of revenue to the Exchequer. I echo my hon. Friend's eloquently put
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sentiments. If we look at the restrictions on the creation of real estate investment trusts, there could be a win-win situation for the UK. We should particularly look at a policy of incorporating that for private property companies as well.

Mark Simmonds: I am grateful for the intervention of my hon. Friend, who is absolutely right. If he has an interest in these matters, he will also be aware that one of the outstanding main problems of UK commercial and investment banks is their level of debt against commercial property, which has fallen in value since the heights of the market back in 2006-07. The banks are finding it difficult to unravel some of those positions. The real estate investment trust structure may enable them to find a way through some of those problems.

Stewart Hosie: I very much welcome what the hon. Gentleman is saying about REITs. Some of his Front-Bench colleagues will remember that the same pleas were made to the then Labour Government when REITs were first introduced. All power to the hon. Gentleman's elbow in persuading his Front Benchers to do what he suggests. Would there not be an advantage in getting small private companies, or even groups of housing associations, to benefit from REITs in respect of social for-profit housing as well?

Mark Simmonds: I agree with the hon. Gentleman. That is not a new idea. Many years ago I was chairman of the housing committee on Wandsworth borough council. He may be surprised to hear that at that time-back in 1993-94-I proposed to the then Treasury Minister exactly what he has just suggested about housing associations. It was about creating the ability for them to raise capital, reinvest in the stock and so on. He is absolutely on the right lines. I hope that one day he and I can work together on trying to develop our thoughts on this matter.

The Government's macro-economic policy is absolutely right. We must control public expenditure, and that control must be permanent, not temporary in order just to get us through this crisis. Then we must ensure that UK taxpayers' money is being spent to the maximum benefit of those who are using public services. I support the Bill.

6.10 pm

John Mann (Bassetlaw) (Lab): I know that the Leader of the Opposition is otherwise detained with an important speech at the moment, but I am sure that the newly appointed shadow Minister, my hon. Friend the Member for Nottingham East (Chris Leslie)-I congratulate him on his appointment-will want to convey the sentiment and details of the advice that I will outline in the next few minutes, not only to the rest of the shadow Treasury team but to the new leader.

I want to start by congratulating the hon. Member for Boston and Skegness (Mark Simmonds). It must be irritating-it seems so even from the Opposition Benches-for him to be sitting on the Back Benches with a Liberal having nicked his job, but such are the dilemmas of coalition. He is a great expert on real estate. I congratulate him on his speech, although it showed that he was not too well schooled in economics even though he went to school in my constituency. I may need to have a word with his former head teacher about the economics
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curriculum at that school, because the hon. Gentleman's analysis of borrowing, like the document that he has read, shows a fatal flaw in economic logic and understanding.

The primary reason for the deficit-and more so in the current year than our competitors-is our over-reliance on the economic activity of, and consequently our tax take from, the financial institutions of the City of London. Over-reliance on the City, leading to the drying up of that tax take as its economic activity dived, was the classic error made by the previous Government and the two Governments before them-by Prime Ministers ever since the big bang. All failed to see that an economy that is unduly weighted towards its financial institutions and the City will succumb at any time in a financial downturn. That is precisely what has happened in the United Kingdom. However, underlying that, our actual debt, built recurrently, is not only no worse but better than that of most of our competitors, not least because of the former Chancellor's pay-back and buy-back of debt between 1998 and 2000.

Of course, a Government must get on top of the current year's situation, because if that features a recurrent build-up of debt, the situation over a period of years will deteriorate. In the league table of debt, we do not sit at the top, as the Chancellor and others on the Government Front Bench try to suggest. We sit in the middle-below France, alongside Germany and below Italy, and well below Japan and the United States of America. That is critically important, because they are servicing those debts recurrently as well as having a build-up.

The question that those on both Front Benches shy away from is what I call the China syndrome. That is the big issue of the imbalances in the world economy that no one is daring to address, and it has been accentuated by the financial crisis. It is rather ironic that capitalist economies are managing to ignore a state-controlled, Communist party run, non-democratic, non-central bank democratic, non-financial institution democratic state that owns more of the world's dollar debt than anybody else, on the basis of which we are all buying huge amounts of goods with an artificially rigged currency against the rest of the world. That is at the heart of the ongoing problems and the potential for double-dip recession, which, if Government policy in this country is poor, will affect us more adversely than our competitors, but will happen on a worldwide basis. The China syndrome lies behind that; when the Nobel peace prize, or another Nobel prize, is awarded to a Chinese dissident, the Government do not even have the courage to stand alongside others such as President Obama in congratulating those dissidents. How the world of politics has gone in a circle when the Tory party is kowtowing to the Chinese Communist party, hoping that that will somehow assist our economic growth.

Protectionism has been mentioned. Anyone who analyses the economics of the 1930s will understand one particular factor that makes the current situation different: all the growth in the '30s was protectionist growth. The United States has understood that in the longer term. Its growth was built on military expansion, rearmament and road building and, as much as possible, on the non-importation of labour and materials. It therefore allowed regeneration and created jobs.

Mr John Redwood (Wokingham) (Con): Could the hon. Gentleman explain how the British Government could make the Chinese revalue their currency?

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John Mann: Of course the British Government, cowardly as they are in their relations with China, cannot do so alone-it has to be done on an international level among all the capitalist economies of the world.

If that issue is not dealt with, the danger of a second recession will loom-for whoever is in power in whatever country, to be fair. We are shying away from that. It is not tenable to develop economies where everyone proceeds on the basis that we will continue to export to China as many aggregates and other raw materials as we can, to import the cheapest possible-virtually slave-labour-products, and hope that we will regenerate our economy based on the sale of those products. My own local economy benefits more than most from that in distribution networks, but I can see that it is not a sustainable model in the longer term. The China syndrome has to be dealt with in the near future, because if China fails to rebalance its currency there will be a second, much greater world recession.

Instead of that, we have this piffling little Bill with virtually nothing in it, not even the break-up of the big banks promised by the Liberals-the only Liberal economic policy that seemed to get adopted by the Conservatives, and an absurd irrelevance in the context of where we are. How the banks are run and regulated is absolutely vital to all of us, but who cares how they are structured? At the start of the crisis, Lehman Brothers, an investment bank, and Northern Rock, a building society, both collapsed. Such infantile politics is not surprising coming from the Liberal former so-called shadow shadow Chancellor, from Twickenham in south London, who is now in an important position in government, but it is quite extraordinary coming from the Conservative party. It is an incoherent economic policy based purely on political expediency. I note that it is not in the Bill, and it will never be put forward. It is just pure politicking to try to hide away from the fact that this is a Government whose economic policy is based on hope.

I want to make a few points about what the Opposition's policy should be on the Bill and the economy. It is not consistent to argue that there should be no tax increases or spending cuts. That is economic illiteracy, which needs to be broken. In the current economic crisis, I have no problem with taxation going up as part of rebalancing the public finances. Therefore, if the Government propose increasing the higher rate of taxation, I am relaxed about that being necessary. Similarly, I am relaxed about VAT going up. The alternative would be to raise income tax. If the Opposition support that, they should state that view. I would disagree with it; for all its flaws and regressive nature, it is more sensible to increase VAT. I believe that £8 billion is the agreed figure that derives from the VAT increase. I will not argue against such an increase, which would thereby suggest a further £8 billion-worth of public sector cuts and job losses in my constituency, leading to a further recession based on the multiplier effect of those job losses. That would be a wishy-washy cop-out.

The Opposition need to strengthen their economic policies. They need more courage in working through what is happening-it is lazy to do otherwise. It is nonsense to suggest that there are other ways of increasing the tax take, based on projected economic growth-the current position-instead of the VAT increase. Again, that is economic illiteracy. Of course we want economic
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growth-so do the Government and so does every party in the House-but that is not an economic policy; it is a hope. Labour Members know that the incoherent coalition has a weak policy-the Bill lacks proper ideas and procedures for dealing with what the private sector needs. We will not, therefore, experience such growth and we, as an Opposition, cannot predicate economic policy on growth that the Government will not achieve. That is nonsense. Some serious thought and discussion should take place about the taxes that should increase and the cuts that should be made.

I ran a private sector business-that makes me rather unusual in Parliament. I set one up from my garage, so I know about the decisions that people who have no inherited wealth or banks lending to them make about how to invest. I had a capital-intensive business with my family. I know how interest rates work, and what that means for making decisions. I know about capital investment policies and how to squeeze a bit of extra capital out of them, and about decisions on the best timing. We were successful, and, like hundreds of thousands of other small businesses across the country, we made a profit-there is nothing wrong with that. We contributed an appropriate bit of tax-every business thinks that it is too much-to the Exchequer. However, we were not operating in a vacuum. Who will buy the products and services if people have been thrown out of work? Again, that underlines the coalition Government's economic illiteracy. They have a vain hope that the private sector will turn up, but it will not, based on rational decision making. That is why the Deloitte survey, which was published today, should be so concerning to the Government and to us all.

We all like to criticise the Government-I love to criticise a Tory Government-but I do not want my constituents to suffer from recession and job losses because you lot have got it wrong. My people will be hurt first and my economy will be hit hardest. That has happened before and it will happen this time, so I want to help the Government by making some suggestions. I hope that they are making notes. The private sector cannot fill the void because of the pace of the cuts. That is the big error that needs to be put right. The speed at which the cuts are made and how they are made are crucial matters.

There is another fundamental error, on which I want to elaborate because it is a critical point. I know, Mr Deputy Speaker, that it is important to the people of Chorley. The Government's cuts will have a disproportionate impact on the traditional English towns. The Government have the same civil servants, with the same civil service mentality, who failed to crack the problem previously. They are therefore making the cuts in the same way as other Governments made them. The civil servants think, "Ah-centralise." The Secretary of State for Justice decides to cut magistrates courts. Which ones does he cut? He cuts those in the small English towns more than anywhere else. In Worksop, that means 16 jobs, and a couple more than that in Retford. Those are small numbers, but the jobs are relatively well paid. Those people buy sandwiches, go to jewellers and other small traders in the town centres.

I am newly elected to represent the town of Retford, due to boundary changes. It was previously Tory for a few years, but it is Labour now. The magistrates court in Retford is going. The police face a 13% cut. Which
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police stations might go? One of the early candidates for closure is Retford. The fire service in Nottinghamshire faces a 30% cut. Which fire stations will go? Retford is rather old and needs capital investment. Merging it with somewhere else is already being considered. What about social services? Nottinghamshire county council-one of the worst run local authorities in the country-is shifting social services, and Bassetlaw district council is also shifting its workers. Her Majesty's Revenue and Customs is cutting the tax office. All those cuts could be rationalised individually, but add them all up. Who else works in town centres? The butcher, the baker-the candlestick maker has gone-the sandwich maker and the small pub are there, and the public sector workers provide the key income in the small towns.

Mrs Main: I am really enjoying the hon. Gentleman's speech as he canters through all the things that he does not like. He promised that he would give us some encouragement about what should happen. When will he do that instead of listing all the things he thinks are dreadful and should not happen?

John Mann: It is very simple. You do not make the cuts so fast. You do not decimate small English towns such as Retford and Chorley-I am sure that the hon. Lady represents a small English town as well.

Mrs Main: It is a city.

John Mann: Well, the majority of the Tory heartlands-they may be former Tory heartlands in future-will get the cuts. It is fundamentally wrong that small English towns should bear the brunt of the cuts. If 50 jobs are lost in a big city, it is bad for those people, but it does not affect all the businesses. If 50 jobs in Retford, Skegness or Boston, or 100 jobs in Worksop are lost, there is a major crisis in those town centres. What do you think the very people whom you are rightly trying to get off incapacity benefit, perhaps to start small businesses in Worksop or Retford, will start doing-major, advanced science and technology? No, they will think, "I could run a sandwich shop." Good luck to them-it is entrepreneurship, and it would be brilliant, but not if there is no one to buy the sandwiches. Who owns the small businesses and the market stalls? Those people will lose their jobs because they are on the cusp and the banks are not lending them money; they are lending even less than they were previously. Those people and the taxi drivers and the small builders come to my surgery-they suffer the knock-on effects. That is why you have got it wrong and why you should think again and slow down the cuts-

Mr Deputy Speaker (Mr Lindsay Hoyle): Order. I am not responsible for Bassetlaw. Every time the hon. Gentleman says "you", he means me. He should know better-he has been a Member of Parliament for a long time.

John Mann: I am very grateful that you are not responsible for Bassetlaw, Mr Deputy Speaker. The truth is that this evil Government will have an impact on the constituency of Chorley in the same way as they will on Bassetlaw.

My final point is that the successes of the previous Government have led to new jobs in Worksop. Laing O'Rourke provided 350 jobs earlier this year, and I
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opened a new site for MBA Polymers last week, which will provide 120 jobs. Both companies came to my area because of the regional development agency grant. In the case of MBA, the grant was the reason to come to this country, never mind to my area. The considerable RDA grant was critical to their decisions. In the case of Laing O'Rourke, the land reclamation works were also important, and other sites are going to market. That is the role of the state, and the weakness of this Government's economic policy is that the new systems replacing the RDAs-I understand the logic behind that and I agree that the bureaucracy could have been cut back-will not replace that role. Therefore, we will not see the competitive advantage that areas such as mine have had from coherent incentives to private business and bigger employers. We need small employers, yes, but we need large ones too. That is where this Government have got things fundamentally wrong.

My plea to my colleagues on the Front Bench is to tighten up on our economic policy. Let us make the real choices, because we are too woolly at the moment. I hope that the Government are listening to me and taking notes, because small-town England will not forgive a Government who decimate it. Just this week, the council in Nottinghamshire has announced that the lights will be turned out overnight, and that will be the legacy of this Government. It is not too late to change, and as a start I suggest that they withdraw this piffling little Bill and put a proper one in its place.

6.32 pm

Stephen Williams (Bristol West) (LD): That was a fascinating exposition of small town, small business socialism, a political philosophy that I have never come across before. I am not sure how much of it will have been welcome to Labour Front Benchers.

I intend to follow the example of the Exchequer Secretary who opened the debate-rather than that of the shadow Chief Secretary-and speak briefly on this brief technical Bill. It is much briefer than many of the other Finance Bills I have seen in my five years as an MP. When I was new to this place, the Liberal Democrat Whips Office inflicted cruel and unusual punishment on me by putting me on the Finance Bill Standing Committee as training in how to operate as an MP. It seems that it is my luck to serve in that way again five years later. To new MPs who may be similarly blessed by the Government Whips Office this time, I can say that it is exceptionally good training. If they can survive the Finance Bill, they will be well prepared for any other legislation in Committee.

This is a small and technical Bill, much of which is familiar ground to me from my professional career before I became an MP. I dealt with capital allowances, venture capital trusts, enterprise management incentive schemes and group relief. I am not so familiar with the taxation of the earnings of seafarers or the workings of petroleum revenue tax, and perhaps the Economic Secretary will give us all a tutorial on those in the exciting Committee stage of the Bill to which some of us may look forward.

As the chairman of the all-party parliamentary group on smoking and public health, I welcome clause 23, which refers to long cigarettes. The hon. Member for Luton North (Kelvin Hopkins), who is no longer in his
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place, mentioned that it would be wise for the Government to invest in more measures to combat the smuggling of cigarettes and the avoidance of duty by some by cutting long cigarettes into two.

The Bill has to be seen against the background of the deepest deficits among developed countries. Contrary to what the hon. Member for Bassetlaw (John Mann) said-I tried to intervene on him at the time-it is a fact that the deficit that this coalition Government have to tackle is the largest among the larger economies in the world. It is larger than that of the US and Japan, as well as those of the so-called PIGS countries, including Spain and Greece- [ Interruption. ] Yes, it is larger as a proportion of our economy. Our budget deficit is more than 10% of our GDP and is higher than those of all the countries that I have cited. That is the serious issue with which the coalition Government have to get to grips. We have made some tough choices on taxation, which were the subject of detailed debates after the Budget, and we have some tough decisions to make on expenditure next week. The Government are making those tough decisions, and we are not avoiding the adverse consequences and political hostility that may come our way. We are being responsible, and not avoiding the issue as Labour Front Benchers are doing. They are denying their responsibility for the mess we are in and even scrabbling about to bring in what must have seemed very clever quotes from Wikipedia on the Boer war and Lord Kitchener earlier this afternoon. We are taking the deficit seriously and we are putting in place the measures that are needed to tackle it.

Bill Esterson (Sefton Central) (Lab): Is it responsible to follow the policies adopted in the Republic of Ireland, which have seen the deficit grow, not fall? Those policies are similar to those advocated by this Government.

Stephen Williams: All countries, whether in the EU or elsewhere, are having to put forward measures that are appropriate to their domestic circumstances. The circumstances of a small country of about 3 million people such as Ireland are completely different, and we will have to evolve our own response. My point is that we are in a desperate situation, as bequeathed to us by the previous Labour Government. We are taking that challenge seriously and not shirking the difficult decisions that will have to be made to put our economy and public finances back on track so that we can make the sensible investments in public services that we all wish to achieve.

6.38 pm

Nic Dakin (Scunthorpe) (Lab): This is primarily a technical Bill and I support much of the detail in it. For example, the measures to close tax loopholes are welcome. I am sure that we are all united on the need to close such loopholes and recognise that successive Governments will need to be ever vigilant in that respect. But as the spending review approaches we need to be very careful to ensure that Revenue and Customs has the appropriate capacity and resources to tackle tax evasion and avoidance effectively. Assurances from the Economic Secretary on that point would be very welcome, as my hon. Friend the Member for Wallasey (Ms Eagle) said earlier.

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There is much in the Bill to applaud. Unfortunately, there is also much to regret. It represents a missed opportunity to put in place a plan for growth. This is not surprising, as the Government see deficit reduction as the beginning, middle and end of their economic strategy-a symphony of despair, orchestrated by a coalition agreement and targeted at the lowest common denominator.

It is worth reminding ourselves of what the great British public voted for in May. They had two alternative economic strategies presented to them during the election. That promulgated by the Conservatives said that there was a need to cut hard and cut fast. The alternative argument was put forward by Labour and the Liberal Democrats-that the deficit reduction should be more carefully managed, as my hon. Friend the Member for Bassetlaw (John Mann) has suggested. A more gradual reduction would allow growth and tax increases to play their part. In that strategy, the reduction in spending would be managed in a way that allowed growth to pick up the economic slack. Doing so would avoid the spectre of a double-dip recession, with all the personal distress and misery that it would bring to people up and down the land. The British people delivered an inconclusive result at the last election, but one thing was clear: they did not support the Tory argument for fast and furious cuts. They backed Labour and the Lib Dems' more considered approach.

Alec Shelbrooke: I am listening carefully to the hon. Gentleman, but I find it hard to understand how he can say that the Conservative party's policies were rejected at the general election, when the party had its biggest result since 1931.

Nic Dakin: I think that there was a large feeling at the Conservative party conference last week that the Conservatives should have done better in the general election, given that they faced a Labour Government who were clearly struggling in the face of many challenges. I am interested in the hon. Gentleman's spin on the outcome of the last election, but the reality is that nobody won it. What has happened since is that the Government parties have shown skill in developing a narrative that runs along the lines of what the hon. Member for Boston and Skegness (Mark Simmonds) outlined-it was also added to by the hon. Member for Bristol West (Stephen Williams)-which is essentially that everything comes down to Labour spending profligately and a massive deficit that needs to be tackled fast and furiously. That is the narrative, but it is not the truth. The truth is far closer to what we heard from my hon. Friend the Member for Bassetlaw, who demonstrated that what has really happened is that our deficit lies alongside that of Germany. The problem is serious, but it does not require us to go as far as is being suggested.

Alison McGovern: Does my hon. Friend agree that it is not merely we on the Labour Benches who disagree with the fake narrative that the Conservatives and Liberal Democrats are putting forward, but the recent report by the International Monetary Fund and the International Labour Organisation? Those bodies have tried to persuade countries such as ours not to disinvest from the economy, because they are worried about jobs and employment.

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Nic Dakin: I thank my hon. Friend for that intervention. She is completely right to suggest that world public opinion is moving in the direction of expressing concern about global cuts in spending and their impact on the world economy. She is completely right to draw attention to that.

Alec Shelbrooke rose-

Nic Dakin: I have already given way.

In the summer, the Chancellor was keen to hold up Ireland as an example of a country with an approach to the economic challenges that we face that should be applauded. There is less talk of Ireland now, as that economy spins into double-dip recession and loses its triple A rating, as we heard earlier. The Irish Government's debt has increased rather than decreased, as a result of over-aggressive cuts in public expenditure, and the economy is now in serious peril. The last time we had a peacetime coalition, the then Governor of the Bank of England's advice-to take an aggressive approach to reducing spending-was followed, precipitating the great depression of the 1930s. I am afraid that Governors of the Bank of England, like politicians, are only mortal and do not always get it right.

There is something very pessimistic about the Government's approach. Where once they were optimistic, now they see only negatives, hence the biggest rise in VAT-the most unfair and regressive of all taxes-in a generation, despite cast-iron promises from the leaders of both parties in the coalition during the election that this would not happen. Representing Scunthorpe, I know a bit about cast iron: it should last a bit longer than a few months. There has been further pessimism, with the attacks on universal benefits signalled by last week's breaking of another promise-the promise not to cut child benefit.

Stephen Williams: If the hon. Gentleman is seriously suggesting that taking away child benefit from families in the higher-rate income tax bracket is a cut that should not be proceeded with, will he say what cuts he thinks should be proceeded with?

Nic Dakin: The ending of universal child benefit is a cut against children and families, and I do not think it is the right thing to do. It would seem that children and families are to pay the price of the global economic crisis caused by the failure of financial businesses and markets around the world. That hardly seems fair to me. To answer the hon. Gentleman's question, I would rather leave child benefit in place and not give £6.4 billion back to businesses, through changes in their taxes, much of which will go back to the banks that got us into this mess in the first place.

This Bill represents a real opportunity to put in place the infrastructure spending that is a crucial prerequisite for economic growth. Sadly, it appears to be a missed opportunity. We have seen excellent planned investment, such as Building Schools for the Future, the playbuilder programme and so on, scrapped. Ministers then appear surprised when construction companies have to lay people off.

Stewart Hosie: I am listening intently to the hon. Gentleman's speech, but just in case my memory is skewed, can he confirm that Labour's plans were to halve capital expenditure as well, and that many of the
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cuts in capital investment that he is bemoaning are precisely the same as those that would have happened under his Government?

Nic Dakin: My hon. Friend the Member for Nottingham East (Chris Leslie) will no doubt pick up that point later from the Front Bench, as he is more knowledgeable about the overall position than I am.

There is a relationship between the private sector and the public sector. Properly managed, they support each other. As my hon. Friend the Member for Bassetlaw pointed out so skilfully, if we take all the spending out of the economy, there will be nothing to buy, and therefore the businesses that sell things will go into a spiral of decline. That is the difficulty that we are on the cusp of at the moment.

Neil Carmichael (Stroud) (Con) rose-

Nic Dakin: I have given away enough.

If the Attlee Government had taken the view that the only solution for dealing with the debt was to cut public spending further, there would have been no NHS, no major house building and no platform for a modern Britain. That Government faced far greater debt problems than we do, and they did the right thing: they built an optimistic future. It is our responsibility now, faced with the challenges before us, not to make things worse, but to make things better. That is why I oppose the measures to cut investment allowances and cancel support for the industries of the future, such as advanced manufacturing, including wind turbine manufacturing, why I oppose the reneging on the loan to Sheffield Forgemasters-a loan that would help to position the UK to play a key role in the civil nuclear energy of the future-and why I oppose the planned increase in VAT, which will serve to dampen demand when the private sector needs a demand stimulus.

6.48 pm

Mr Brian Binley (Northampton South) (Con): I cannot let this opportunity pass without saying how good it is to follow the hon. Member for Bassetlaw (John Mann). He always speaks honestly, from his own, rather unique perspective, and he enlivened the first match of the season-to my mind anyway. However, he is the only man I know who can play for both sides in the same match, and I enjoyed his contribution.

The Minister talked about the need to support businesses large and small. You will know that I share that view, Mr Deputy Speaker, because therein lies the nub of whether the Budget strategy will succeed or fail. A flourishing business sector is vital to a sustained economic recovery, and small and medium-sized enterprises are a major element in the growth agenda. They are responsible for slightly more than 50% of the private sector work force, and they are the sector that will provide the jobs and wealth to make the Budget strategy work, given the opportunity. Sadly, however, the economic downturn hit the sector especially hard. SMEs were in the process of growing 2 million jobs over a 10-year period, when at the same time UK plc was shedding 1.5 million. If ever there was a trend to prove that SMEs are capable of creating growth, those figures ought to bring us comfort. The downturn exposed their vulnerability, however.

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Everyone knows that we need to mend the roof while the sun is shining, and to stock up the larder during the good times-everyone, that is, except the members of the previous Labour Government. They told the regulators to apply a soft touch, and they failed to keep an eye on the big picture. As a result, banks were over-leveraged, bad debts mounted, asset lending ratios got out of kilter and banking institutions became unstable, resulting in a global recession. Many small business men saw it coming, and many of them took action. My company was one of those that acted at the appropriate time. Sadly, however, our recently deposed Prime Minister failed to do so. How could he, when he so arrogantly believed that he had done away with bust? No statement made in recent years will come back to haunt a man as much as that one will continue to do.

Sadly, the regulators are now overcompensating for their negligence by making heavy demands, especially on the very sector in which growth is most likely to occur-the SME sector-and things will get worse unless we do something about it. The Basel Committee on Banking Supervision has recommended that banks increase their capital reserves even further. Banks are being asked to increase their common equity as a percentage of core capital. However, just as the pendulum swung too far in the good times, so it is swinging too far in the opposite direction now, and that is having an adverse effect on lending to small businesses. Banks have already taken major steps to increase capital reserves, and there is every chance that the Basel proposals will be approved in December. That would take more money out of the economy and lock it up in bank vaults just at the time when business needs more working capital to finance growth.

Alison McGovern: What would the hon. Gentleman say to the representatives of small businesses in Wirral, to whom I speak regularly, who are concerned that they will no longer be able to benefit from investment allowances or benefit to the same extent as big businesses from the Government's recent cuts in corporation tax?

Mr Binley: As the founder of two small businesses, I can tell the hon. Lady that investment benefits are not the major concern. The major concern is the ability to get money from the banks to act as working capital. I can see that the incentives those benefits provide are helpful, but they are not the core problem that small businesses are facing at the moment. The truth is that the Government will have to review a number of areas of policy in order to deal with the core problem.

I was saying that the banks were building up their capital assets to a dangerous degree. J. P. Morgan has recently announced new rules that will increase its risk-weighted asset base by 25%. Research also suggests that Barclays will achieve an even greater increase, of some 44%. Of course banks must be soundly based and properly regulated, but we have to get the balance right. All the evidence suggests that the capital reserve build-up has a sizeable detrimental effect on the ability of SMEs to capitalise on growth opportunities. As I said earlier, that will threaten the Budget strategy, unless the Government deal with the problem, and I hope that the Economic Secretary will come back to me on this matter.

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Research by the Federation of Small Businesses suggests that 24% of SMEs are already having difficulty coming to terms with current increases in the cost of money, and the new capital requirements will compound that situation. This could not come at a worse time. More businesses are in danger of going to the wall through overtrading during the upturn than folded during the downturn.

Bill Esterson: I welcome the hon. Gentleman's comments about the difficulty that small businesses are having in getting access to money from the banks. Does he agree that there will be a danger to small businesses if too many people in the public sector lose their jobs, because they are important customers of those businesses? The effect of that could represent just as great a danger as the problem he has outlined.

Mr Binley: I do not agree with the hon. Gentleman. The truth is that the previous Government were so profligate as to create problems for our children and grandchildren, and I find that immoral. I do not want that to happen to my children and grandchildren, and the only way to deal with financial difficulties in a business, a family or any other organisation is to cut spending and earn more money. There is no other answer, and the sooner the Opposition recognise that, the sooner the people of this country will listen to them a little more.

John Hemming (Birmingham, Yardley) (LD): The Opposition wonder why this Government are in hock to the markets. Does my hon. Friend agree that it is because we have borrowed too much, as Tony Blair admits in his memoirs?

Mr Binley: I am grateful for that intervention. The truth of the matter is that we have a budget deficit of £70 million, but there is more lying behind it that we are not dealing with until we get the deficit down. There is the £1,450 billion of national debt, and if we add to that the money owed on private finance initiative schemes, the money owed to public sector pensions and the money that we have used to underwrite the banks, we get a figure of £3,000 billion. I asked the Treasury what a billion looked like, and I was told what a billion seconds was. This story has been heard in the House before, but I was shocked to learn that 1 billion seconds equates to just over 32 years. That puts into perspective the size of the problem that this nation faces. Again I plead with Opposition Members to come to terms with the problem, because I genuinely do not believe that we can solve it unless they recognise where it started.

John Mann: I cannot resist asking the hon. Gentleman whether he is aware of any country in the world, other than Uzbekistan, that has no national debt.

Mr Binley: This is not about whether or not we have a national debt; it is about the size of the national debt and its relation to our credit rating-

John Mann rose-

Mr Binley: If the hon. Gentleman will allow me to finish, I will allow him to intervene again. Steady down.

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This is about the size of the national debt and the deficit and their relationship to our triple A rating. If we had not taken the action that we did, it is likely that we would have lost that rating, which would have made all our interest costs considerably higher and the deficit massively bigger, causing the country even greater problems.

John Mann: Can the hon. Gentleman tell us where Britain stands on the league table of national debt, compared with other countries? Is it not true that we are towards the lower middle of the league table?

Mr Binley: I do not accept that point of view. This is not just about the size of the national debt; we need to consider its size in relation to the economy. Therein lies one of our problems. The fact is that ours is one of the worst situations in the G20. I should like to advise the hon. Gentleman that, as long as he and his party remain in denial, they will be unable to move forward, and that, for the good of politics, they need to move forward just a little.

Alec Shelbrooke: I should like to expand on my hon. Friend's point about the national debt. Is it not true that the size of personal debt in this country, which was encouraged with a quiet wink by the previous Government, has also held back our ability to recover from the recession?

Mr Binley: My hon. Friend's intervention takes us back to a Chancellor of the Exchequer-later Prime Minister-who suggested to the Financial Services Authority that it should apply a light touch. A light touch meant 125% mortgages, self-assessment of mortgage requests, and people with five, six and seven credit cards with their credit up to the hilt. My hon. Friend is absolutely right.

Let me return to the subject of the banks. I made the point that banks had to be soundly based, but that it was a question of the balance. As I said, research by the Federation of Small Businesses suggests that 24% of small and medium-sized enterprises are already experiencing difficulties in coming to terms with current increases in the cost of money, and the new capital requirements will compound the problem.

This could not have come at a worse time. More businesses are in danger of going to the wall through overtrading. I want to explain that a little more, because it is not readily understood in the House. Business growth costs businesses money: it is as simple as that. The more orders a business gets, the more employees it needs and the more raw materials it requires. Those are all up-front costs that simply cannot be recovered in the short term. Cash flow drag must be financed if growth is to be sustained, and growth will not be sustained if working capital is not forthcoming. That may be a simplistic view, but it is a very honest view of the reasons for which people are more likely to go to the wall during an upturn than during a downturn. They overtrade, and find that they do not have the capital to sustain that overtrading.

Owners of SMEs have spoken in their thousands of the collapse of their relationships with the banks. The number of complaints to the banking ombudsman about draconian demands placed on loans and overdrafts has increased by 119% in this year alone. So what should the Government do? First, they should recognise that
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the new capital requirements called for by global regulators should be balanced, and that their implementation should be sensibly programmed to ensure that real money is freed to support real growth in the SME sector. If that means getting tough with the banks and the regulators, so be it. Governments still have to get tough on occasions, and this is the area in which they need to start.

However, the Government need to go further. They need to provide greater choice and competition in the high street, particularly in the banking sector. They might even consider the creation of post banks, as suggested by the Federation of Small Businesses. That is not a quick answer, but it will help to sustain growth through the third, fourth and fifth years if the Government get down to it now. Both moves should increase available credit, and reverse the decline in local lending resources.

The Government could also encourage the mutual sector to play a greater role. I find it regrettable that Nationwide, the country's largest building society, has chosen to restrict its banking services to just 30,000 small businesses, a minute fraction of the total. It has also decided to close its business investor account to new customers and to limit the number of account transactions to just two a month, levying 30 days' notice of account closure for any customer who breaks that limit. Members may agree that that is a particularly unfortunate trend at a time when greater competition, wider options and a more flexible approach are needed. I hope that the Chancellor will talk to the mutuals collectively, because they have a role to play and can be more effective than they are being at present.

Recent reports suggest that Barclays, HSBC, Lloyds, HBOS and NatWest collectively handle 85% of the SME banking market. The Bank of England financial stability report suggests that banks are capable of consolidating their capital while at the same time improving their lending to the real economy, which suggests that there is an attitude among banks that needs to change. We have said that in the House week in week out, month in month out: when are the banks going to listen?

I appeal to the Chancellor to talk straight, talk tough and talk honest to the banks, many of which we now own. They have a responsibility, not only because we helped to bail them out, but because they were a major factor in getting us into trouble. The message should be sent loud and clear from the Chamber that they should face up to their responsibilities, and recognise that it really is time that they came to the aid of their nation.

Dr William McCrea (South Antrim) (DUP): Many present and past Ministers acknowledged that there was a great need for banks to listen to the small and medium-sized businesses in our country, many of which are struggling. Previous Ministers said that they would be strong with the banks, and would make them listen. How will the Government make banks really pay attention to what is happening in industry today?

Mr Binley: How I wish I knew the answer-but I am sure that one of the answers is to get the banks' heads together, and perhaps do a light amount of knocking.

I recognise that the banks run businesses, but let me draw attention to what the FSB has said, which I think is very relevant. It estimated that if banks limited bonuses and dividends to pre-crisis levels, they could produce
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approximately £10 billion of additional capital, which would finance £50 billion of new loans. Is that not a lesson for the banks? We are not saying, "Do not pay your people", but we are saying, "In a time of difficulty, use restraint. Transfer that money to your lending coffers, and get it out to small businesses."

Perhaps the Economic Secretary will be kind enough to pursue that challenge, remembering also that capital reserves in banks, if lent to Government, continue to be classified as such. I think that that is a pretty important point. If lent to Government, those reserves are not considered to be risk capital, and are consequently considered to be part of their capital assets.

I shall try to wind up my speech quickly, because I always try to do what the Whips tell me. However, I want to make a few more important points. I welcome the Government's efforts to increase the availability of the guaranteed loan scheme, but I ask the Economic Secretary to consider ways of unlocking capital reserves to increase the flow of capital available for distribution in that way.

The situation for many small and medium-sized businesses is dire. The Government know that, because we are told about it every day. Figures produced by the Bank of England give the impression that bank lending rose by 0.9% in August, but if we dig a little deeper, we find that a large proportion of those loans were issued in foreign currency, and that actual lending in pounds sterling decreased by £400 million. The truth of the matter is that bank lending this August was less than it was 12 months ago.

I wanted to talk about a couple of clauses in the Bill, but because my Whip has kindly asked me to curtail my remarks, I will do as he asks. I am an ambitious chap, and I hope that he will consider that I am being kind to him.

I welcome Clause 13, which removes the requirement for SMEs to own intellectual property in order to qualify for research and development grants. Sadly, too few small businesses are made aware of how research and development relief can benefit them-I think that the hon. Member for Wirral South (Alison McGovern) made that point earlier-and I urge the Minister to make more effort to increase awareness in the sector. I also welcome the announcement by a consortium of city financiers of their plan to create a British enterprise bank, which I understand will lend exclusively to the SME sector. That is one example of bankers facing up to their responsibilities, and we should congratulate them.

David Simpson (Upper Bann) (DUP): As the hon. Gentleman said, we understand that banks are running a business, but small businesses today are finding it very difficult to provide the security that banks currently seek. The hon. Gentleman used the word "draconian". Surely something must be done in that regard.

Mr Binley: Of course it must. Clauses and conditions for small businesses are now one of the major off-putting factors. Such businesses must be allowed to borrow to create the growth that we need. There is massive pressure to change overdraft to loan. Most small businesses do not want a loan. That is too much of a burden around
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their necks. They want an overdraft facility, but the trouble is that banks are pricing overdraft facilities out of their reach and that should be taken up, too.

May I conclude therefore-although my Whip has left? Good things are happening, but much more needs to be done if the level of growth required to assure the success of the Budget strategy is to be achieved. We are debating a Bill that facilitates that strategy, but does not do much to ensure that SMEs get the working capital that they need to provide the growth on which the strategy depends. Action is urgently needed and the House will expect to hear from the Economic Secretary what the good lady and the Chancellor will do to ensure that small and medium-sized businesses are properly resourced to play their part in restoring the country's wealth and in growing the jobs to reduce the budget deficit. Once we have balanced the budget, we can get on to dealing with the national debt, bequeathed by a Labour party that seems to think that it is morally acceptable to expect our children and grandchildren to pay for its profligacy. I find that reprehensible. I therefore look forward to being reassured in that respect, and so, I suspect, does the nation.

7.11 pm

Stewart Hosie (Dundee East) (SNP): It is a pleasure to follow the hon. Member for Northampton South (Mr Binley), and particularly to comment on his pleas on behalf of small business. In Scotland, we have 302,000 businesses, and 285,000 employ fewer than 50 people. They do not issue commercial paper or corporate bonds. They do not do rights issues. They are not listed on markets or exchanges in the main. Ninety-nine per cent. of them are owned in Scotland. They are almost exclusively solely dependent on the retail high street banks for their credit lines and working capital, so the more the Minister and her team can do to ensure that affordable lending goes up, and that we do not get the conversion of mortgages to loans, which puts the houses of small business directors on the line should a business fold, the better. Those businesses are hurting. Given that they provide the vast majority of employment in Scotland, we need to ensure that that powerhouse, the SME sector, drives forward with all the capital that it needs. However, that is not what I wanted to speak about today. It was, however, a fantastic opportunity to get it in again.

It would be normal on Second Reading of a Finance Bill to refer to the Budget which it follows, although this is the second Finance Bill following the emergency Budget debate on 22 June. It was the debate that followed that and the debate on the Finance Bill on 6 July that gave us the opportunity properly to debate the Government's whole approach to dealing with the economy, although listening to many of the earlier speeches, I am not sure whether I have gone back three months and we are having the first Second Reading debate. Those were the opportunities, along with the debate on VAT on 13 July, to point out that this Government plan an additional £40 billion of fiscal tightening-over and above the £57 billion of cuts and tax rises planned by Labour-to remind the House that the ratio of cuts to tax increases has gone from 2:1 to 4:1 and to remind it also of the damage that would cause. The debate on the VAT rise, which, as Shelter explained to us helpfully in advance, will lead to the poorest families in the country
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paying £31 every week in VAT, was the opportunity to make the case against that rise.

This Finance (No. 2) Bill-the third in the calendar year-is different. It contains what the Minister described on 15 September as minor and technical measures, but that does not mean that we should not give it our full consideration, in particular those clauses and schedules which tax practitioners have raised real concerns about. I am grateful, as was the shadow Chief Secretary, to the Institute of Chartered Accountants for its response to the Government consultation. I will draw on that heavily and do something quite unusual in a Second Reading debate: refer in detail to clauses in the Bill. I hope we will get some technical answers when the Minister sums up.

The Institute of Chartered Accountants asks, in respect of part 3, clause 25 and schedule 9, paragraph 7, which inserts new paragraphs 2A and 2B into schedule 53 of the Finance Act 2009, whether, where a company has a profit in an earlier period and a loss or non-trading deficit on loan relationships in a later period that is carried back, interest on the earlier period profits will continue to accrue if in the absence of a claim late paid corporation tax would have been due, up to nine months after the end of the later period. I would welcome formal confirmation that that mirrors the existing rules. The institute adds that those rules perpetuate the existing differences between the interest rules where losses are carried back and offset against profits of an earlier period. Under existing rules, where losses are carried back against profits and where additional corporation tax would be due, interest will run from nine months after the end of the first accounting period. However, in cases where losses are carried back resulting in a repayment of corporation tax, repayment interest will only run from nine months after the end of the later period. I would have expected that, in a genuinely harmonised regime, late paid interest and interest on overpaid tax would ideally run from the same date. Therefore, will the Minister explain the Government's thinking on those proposals?

The institute also believes that paragraph 10, inserting new part Al into schedule 54 of the Finance Act 2009 on repayment interest, would deliver the opposite provisions to what is proposed in new paragraphs 2A and 2B in schedule 9. Again, please confirm that the new rules mirror the existing rules. The same question applies to franked investments in paragraph 11 of schedule 9. Do the new rules mirror the existing provisions?

Paragraph 12 inserts new schedule 54A into the 2009 Act and makes two further changes to the general rules that were introduced in 2009. This relates to new paragraphs 1 and 2. As I understand this, subject to certain conditions, HMRC can recover as late payment interest amounts of repayment interest that have been paid, but which ought not to have been paid. However, this provision does not apply in cases where the whole or part was a result of HMRC error. Therefore, can the Minister please confirm that it is intended that these new paragraphs will have the same effect as those currently set out in section 826(8A) to (8C) of the Income and Corporation Taxes Act 1988? I know that these are technical questions but they are important. If we get this wrong, there will be all sorts of chaos within business. Some of the other clauses that I will come to pose even more dangers. Can the Minister also confirm that the latter provisions will be repealed when these new rules come into force?

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