Category: Debates

Mr John Redwood (Wokingham) (Con): Given that the Irish Government have said that they neither want nor need a bail-out, will the Chancellor support them at ECOFIN and put off those people in the EU who seem to want to make a crisis out of a problem?

Mr Osborne: There is an enormous amount of speculation about Ireland at the moment to which I do not propose to add. The Irish Government have said clearly that they have not sought assistance and that they are taking difficult steps to deal with their fiscal situation. They will make further announcements about their Budget situation in the next few weeks. I make the general observation that what is going on at the moment highlights the fact that concerns about sovereign debt issues have not disappeared and we should be grateful that, thanks to the actions of this Government, we have moved Britain out of the financial danger zone.

Mr John Redwood (Wokingham) (Con): I beg to move, that this House has considered the matter of policy for growth.

It gives me great pleasure to move the motion and I know that I speak for many others in this House when I say that we welcome the Backbench Business Committee’s decision to hold a debate on this crucial subject. I also remind the House that in the Register of Members’ Financial Interests I have pointed out that I am a business adviser to a couple of companies.

This is a crucial subject because the Government’s whole economic strategy rests on the assumption of above-trend growth starting next year and continuing for the rest of the Parliament. I am sure that every Member would like to see faster and sustained economic growth from this point after the trials, tribulations and difficulties that the economy has been through in recent years.

Knowing how popular this debate is and that about 50 Members would like to catch your eye, Mr Deputy Speaker, I shall not exercise the right of the mover of a motion to speak at great length. The House will be delighted to know that I shall not be giving my analyses of where the world and British economies are or of monetary and growth trends, as that would take a little longer. All those who are desperate to know my analysis can read it on johnredwood.com-a not-for-profit site that is full of wise advice and good analysis with a great deal of modesty. I am sure that colleagues will be delighted to know that. I shall stick to the headlines, based on my analyses, and the conclusions that I should like to put to the Minister and others.

The strategy over the five years in the Red Book, as amended in “The Green Book”, says that by the fifth year of the Parliament the Government hope to be spending £92 billion a year more on current public services than in the last Labour year, and that they wish at the same time to reduce the deficit. To do that, they assume that there will be an increase in tax revenue of £176 billion a year by that fifth year. We believe that it is assumed that most of that increase in tax revenue will come from increases in current tax rates through growth in the economy. So the Government have a great deal invested in the idea that growth is going to speed up and be sustained-we all do.

My first point is that the one thing we cannot afford over the next five years is rapid inflation. Currently, inflation is too high. The Bank of England, I am afraid, was disastrous in the era of the exchange rate mechanism when it lurched from boom to bust and advised the Government to take that course. It was again extremely bad over the past five years when the conduct of monetary policy also lurched from boom to bust. The Bank and the banking regulators allowed far too much credit up to 2007 and then starved the markets of money and kept rates too high in 2007-08 and into 2009, and we lurched from boom to bust. That was not a global crisis: those events were not happening in India, Australia, Canada or China, but they were Atlantic events-America did something similar. Britain did that and we must not do it again.

My policy recommendation to the Treasury is that I hope that the Chancellor will make it very clear in the next couple of weeks that we do not need any more money printing or quantitative easing in the current circumstances. The economy is growing, jobs are being created and inflation is still running at somewhere between 3% and 4.5%, depending on which index one relies. When we talk to business, we hear that there is a lot of inflation out there in the pipeline thanks to commodity price increases and increases in the world supply line prices now. Those increases are largely fuelled by the enormous quantitative easing under way in the United States of America and we do not need Britain to fuel them further with more quantitative easing.

Kelvin Hopkins (Luton North) (Lab): Is not what is happening now simply the lagged effects of the Labour Government’s reflations out of the recession?

Mr Redwood: No, I do not think that is true at all. The reason we are now beginning to come off the bottom is that monetary policy lurched from being too tight to being too loose. Labour always said that that matter was decided by the Bank of England rather than by it, but we now need to think ahead. Monetary policy has been loosened somewhat and there is a bit more money around-indeed, there is a lot of money in the world as a whole-and it would be a disaster to fuel great inflation from here. If we can hold public sector pay and prices down-

Kelvin Hopkins rose –

Mr Redwood: I shall not give way, because many colleagues want to join in. The hon. Gentleman knows that I normally give way generously, but too many people want to join in. If we allow public sector inflation to take off, that £92 billion extra will be needed to pay for the extra costs and wages and will not be available for real increases in programmes that most colleagues would like.

Mel Stride (Central Devon) (Con): Will my right hon. Friend give way?

Mr Redwood: I shall not because we have to make progress. The £92 billion will go further if we can avoid high inflation. The Government should tell the Bank of England that the single objective is to get prices down, as it was asked to do, and to keep them down. More quantitative easing is not compatible with that aim.

My second point, which many colleagues will probably wish to address from their own, personal constituency experiences, concerns the lack of credit for business. Those two points are not contradictory, because while there has been a lot of money creation from which the public sector has benefited greatly by borrowing huge sums at very low prices, there has been a strict rationing of credit, particularly to smaller businesses, and a huge restriction on the balance sheets of the leading banks. One figure with which the House can never grapple is that the Royal Bank of Scotland-the state nationalised bank in all but name; we own most of the shares-has been on a drastic slimming course. It had a balance sheet of £2.2 trillion when it came into the public sector and by the end of this year, according to its plan, that figure will be down by £1 trillion-£1 trillion will have disappeared from the balance sheet. It is a global bank but quite a bit of that has an impact on the British economy.

It is not surprising in that climate that it is difficult for small businesses to get the money they want. So, my second piece of policy advice to the Government is that they should tell the banking regulator that enough is enough. The bank balance sheets, which were trashed in 2007 by very lax regulation, are now in danger of being strangled by very tight regulation. The tier 1 capital ratios for example, which in some cases reached a scandalously low 4% in 2007 on Labour’s watch when it did not seem to care about these things, are now at about 10%. That is job done for the time being. We could, by all means, come back to it if we have rapid growth and if there are incipient signs that there is too much credit, but that is not the current situation. We should take the brakes off a bit, particularly for the small business sector.

My third point is that we need to get some of that credit into the big projects that the country needs. I hope that Ministers will make urgent moves to clear the ground on planning, regulation and general background so that the country can again get on with building power stations, transport links and the broadband links it needs to fuel growth. While I hope that all or most of those projects will be privately financed-another reason why we need to fix the banks more quickly-I hope that Ministers in this Government, unlike in the previous Government, will make rapid decisions so that the private sector can get on with that job.

Let me address two final issues. First, in order to collect £176 billion extra in tax in year five, from year zero in the plan, the Government need to optimise their tax rates. They accepted in their Budget statement that to go above 28% on capital gains tax would lead to a reduction in revenue. I welcome the development of wisdom in the Treasury on this important point, but I have bad news-28% is not the optimising rate for capital gains tax and 50% is not the optimising rate for income tax. I would like to tax the rich more-that will surprise colleagues and delight the Opposition-but the way to do that is to cut the rates. We need to do that to attract them here, keep them here and make them honest here, and we need to have rates that maximise the revenue from the rich-the sooner the better-to hit those targets.

Colleagues will be delighted to hear that I have come to my final point. We were promised deregulation and were told that there was going to be a mighty freedom Bill. The Deputy Prime Minister was supposedly toiling away in his enormous room in the Cabinet Office that was inherited from the Lord Mandelson regime and no expense was to be spared in making sure that we had a really big deregulation Bill. I now hear rumours that it is going to be a civil liberties Bill from the Home Office. Will the Minister, who has responsibility for small businesses, champion a proper deregulation Bill? Deregulation is the tax cut for business that does not cost the Treasury a penny. Indeed, it could be the tax cut for business that saved the Government money as well.

There is too much needless regulation and too much regulation that does not do the job. Labour introduced extremely complicated mortgage regulation and more of it is out there. It obviously failed. As soon as we had all the regulation, the mortgage banks went down-something that they had never done before-because the wrong thing was being regulated. I want to regulate the cash, capital and solvency of those banks, but to make it easier for people to borrow money. Does the Minister know that the mortgage market is seizing up through too much of the wrong kind of regulation? Will he get on and fix it? I hope colleagues have a great debate.

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5.57 pm

Mr Redwood: I thank all who participated in this debate. It is a sign of the success of the Backbench Business Committee’s choice of topic that I do not have enough time to respond in detail to colleagues as I would like, having sat here patiently listening to some good contributions. I hope that the Minister recognises that my hon. Friends and I, as well as Opposition Members, are extremely worried about the position on bank credit. The hon. Member for Leeds West (Rachel Reeves), my hon. Friends the Members for Hove (Mike Weatherley) and for Northampton South (Mr Binley), the right hon. Member for Wolverhampton South East (Mr McFadden), the hon. Member for Edinburgh South (Ian Murray) and I made a number of points.

Although I am grateful for the measures that the Minister sketched for an economy of a few billion pounds, we are talking about a £1.5 trillion economy. A few billions will not make a big difference, and I urge him and his hon. Friends in the Treasury to look again at why the Bank of England is depressing the accelerator-printing money and telling people that the water is lovely-and the banking regulator is depressing the brake and saying that money cannot be lent to industries that need it, or for the big projects that are much needed throughout the country.

A Labour Member became excited when he thought he heard me say that we want a big public works programme paid for by the public sector. I clearly said that we need a big public works programme-paid for wholly or mainly by the private sector. That is what we need to release banking credit for longer-term projects. We need the power stations, the transport links and the broadband. Those are the things that could bring the House together.

This has been a well-tempered debate, and hon. Members have expressed their fears and worries for their constituencies, but all have come together to say, “Yes, growth is what we need; bring on the growth; all we love is growth, and we must do more to achieve it.” The Government must control their deficit, but they must also do rather more on infrastructure, regulation, taxation and a number of issues to get that growth assured faster. They must persevere throughout the whole four years that remain of this Parliament and the Government’s budget strategy, so that we get those jobs and the big increases in tax revenue that are much needed to deliver their plans.

A large number of Labour Members-too many to read out in the few seconds remaining-were very concerned that public spending cuts would have a depressing effect on the economy.

Mr John Redwood (Wokingham) (Con): Will the Minister please confirm that the directive on budgetary frameworks for all member states will apply to the United Kingdom, that the second regulation on budgetary surveillance for all member states applies to the United Kingdom, and that the regulation for enforcement for all member states also applies to the United Kingdom? There are twin proposals in each case, some of which apply only to euro members and some of which affect all member states. Surely the Minister must confirm that that is a massive extension of European economic government, and the UK has to comply with a lot of it.

The Financial Secretary to the Treasury (Mr Mark Hoban): There is nothing new in the macro-economic surveillance processes outlined in the document and, as I have said, we are exempt from the sanctions regime that the Commission and others have proposed, which applies only to eurozone countries.

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Mr Redwood: Will the Minister confirm that there are two big new regulations that relate directly to the United Kingdom? One relates to budgetary surveillance on all member states, and the other relates to enforcement against “macro-economic imbalances”, as the Commission so elegantly describes them. These are new powers in new regulations. Why are the Government consenting to them?

Mr Hoban: The enforcement point does not apply to the United Kingdom as a consequence of protocol 15 of the existing treaty framework, because we have opted out of that part. My right hon. Friend is knowledgeable about these things, and he will recognise that the Commission makes proposals, and that ECOFIN and the European Council have set out a clear policy framework on this, as reflected in the conclusions of the Van Rompuy taskforce, which make it very clear that sanctions do not apply in the UK.

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Chris Leslie (Nottingham East) (Lab/Co-op): I wish I could be firmer and clearer, but we are dealing with a malleable set of proposals. The bundle of directives keeps changing, moving and morphing from phase to phase, and the directives will clearly go into a different phase when the European Council meets in December, but we can discern the rough direction of travel, and many Members will take a firm view on that.

The Minister talked about the sanctions. Yes, it is the case that they may not apply to the UK because of our opt-out from the euro, but the range of non-binding standards and early warning requirements in the event of significant deviation from the adjustment path apparently would apply to the UK; I should be grateful if the Minister would confirm that that is the case. Even if the UK is to be subject only to such commentaries, public observations or other non-binding standards, the Minister should tell the House how they would work and what the implications for us would be. Clearly, what the taskforce report calls the new reputational and political measures will be phased in progressively, but is it correct to read the proposals as also applying to the UK? In other words, is it not true that we will be subject to reporting requirements, potential formal reporting to the European Council in certain circumstances and enhanced surveillance-whatever “enhanced” may mean-if the situation dictates? Is it not also true that we will be subject to onsite monitoring from a mission of the EC-which I thought was curious, and which certainly might be of interest to some Conservative Members-and possible publication in the public domain of these reports and surveillance? Will the proposed regulations to strengthen the audit powers of Eurostat also apply to the UK, and what are the anticipated compliance costs of those changes for the UK and the Treasury? If we fail to comply with the proposed requirements, is it not the case that sanctions could be applied to the UK?

Mr Redwood: If this House and a properly elected British Government have chosen a certain course of action on the deficit or the balance of payments-or on whatever-how does it help to have the EU marking the homework, condemning it and using moral suasion to say that this House is wrong?

Chris Leslie: Well, my point is that it may or may not be a sensible move-and as a pro-European I think benefit could come from it-but what is important is that we get clarity from the Government about what exactly is on the table. If there are to be treaty changes and other new regulations, the Minister has to be straight about that with the country and the House. The latest sanctions in the framework-in terms of interest bearing deposits, non-interest bearing deposits and eventual fines-may not apply to the UK, but there is a first phase to that process which is the application of standards and assessments of our economic and fiscal position, and that will apply to the UK. The motion seeks approval for the Government’s position that any sanctions should not apply to the UK because of our euro opt-out, but there are developments here that strengthen the role of the EU in respect of our economic policy, and while that may be a good thing, some Members of this House would be wary of it.

Chris Leslie (Nottingham East) (Lab/Co-op): This may be a naive question, but box 2.7 in the spending review says: “The Government expects the total amount of funding for the scheme to be in the region of £1.5 billion.” That is the envelope that we have been debating, and that figure matters quite a lot, especially for those other policyholders. However, the same box says that “£1 billion will be allocated to the Payments Scheme in this Spending Review period, which will cover…the initial costs of the first three years of WPA”- with-profits annuitants “regular payments, and all payments to other policyholders.”

Can the Minister explain the difference between the £1 billion and the £1.5 billion, and say how the timings will be affected? Presumably the other £500 million will arrive after the spending review period, but I am a bit confused on that point.

The Financial Secretary to the Treasury (Mr Mark Hoban): The hon. Gentleman makes an important point, which gives me the opportunity to clarify the make-up of the £1.5 billion. The figure includes the full cost of the losses to with-profits annuitants-approximately £620 million-which will be made through regular payments. However, taking into account the pressures on the public purse, the Treasury could allocate only £1 billion over the first three years of the spending review. That will cover two things: the first three years of payments to with-profits annuitants, and lump-sum payments to all other policyholders and to the estates of deceased with-profits annuitants.

It is important to start to pay off with-profits annuitants’ losses quickly, alongside the lump-sum payments to other policyholders. About £225 million of the £1 billion is for with-profits annuitants and their estates, leaving approximately £775 million for lump-sum payments to non-with-profits annuitants. The Towers Watson estimate of £620 million for with-profits annuity losses leaves approximately £395 million for the rest of the WPA losses from 2014-15 onwards. Those who are quicker at mental arithmetic than me will have worked out that the total comes to about £1.4 billion. The balance is a contingency, because the payments to with-profits annuitants are based on their longevity. We hope that they live long and healthy lives, and that buffer is set aside to cover this need. That is how the maths works out.

Mr John Redwood (Wokingham) (Con): Could my hon. Friend provide further clarification on the tax status of those receiving such payments?

Mr Hoban: My right hon. Friend pre-empts a point that I was going to refer to in the clause stand part debate. He gives me an opportunity to say now that the payments will be free of tax.

Mr John Redwood (Wokingham) (Con): At the end of the period, in 2014-15, the Government plan to spend £92 billion a year more, on current spending, on services than Labour did in its last year-that is a large 15% increase in the amount of cash. We need to ask ourselves why it is that every year public spending increases, yet the Government are proposing some extremely difficult or, in some cases, undesirable choices to be made in subsequent years to try to live within that rather big figure. I suggest to the Government that there are three areas that they could work on, and that their doing so would be in all our interests in this House, because if they could manage them better, they might not need to make so many of those difficult choices in the later years and would still be able to live within their totals and get the deficit down.

The first reason why there is a squeeze on some programmes that many Members do not want to see squeezed is the big rise in money allocated to pay for inflation; the plans assume quite a lot of public sector inflation over the five years. If the Government can do better at buying in goods and services-they are a very big purchaser and they say they are going to do so-they might reduce the average price of bought-in things. Instead of having positive inflation, they would have negative inflation on that part of the programme. If they can do a good deal with their employees, reassure them and get them to accept the kind of measures on pay that are being suggested-I believe that they are talking about a two-year pay freeze, for example-that will take a lot of extra inflation out of the system, because the biggest single item in these budgets is of course pay. Again, the more that we in the public sector can share the pain by moderate means, such as accepting pay restraint, the less we will have to take the difficult choices in later years that are built into the programme.

The next thing is staff numbers. A lot has been made so far in what passes for a debate in this House about having 490,000 fewer jobs in the public sector by the end of the period. These are not 490,000 redundancies. Given the large rate of resignations and retirements in the public sector to which the Chancellor has referred, I hope that most can be taken care of by eliminating posts after people have resigned or left.

Helen Goodman (Bishop Auckland) (Lab): I am most grateful to the right hon. Gentleman for giving way. Of course, in a very small-minded way, what he says is right. If those jobs are cut, where does he think that young people will get the new jobs that they need?

Mr Redwood: In the private sector, which is already generating tens of thousands of jobs every month. That is what we need to do. I am not saying that there should be a complete staff freeze. For example, if 480,000 a year are leaving, which was the Chancellor’s figure in the Budget, 250,000 people could be hired while still achieving half the reduction in the first year. I think that the Chancellor might have been a bit optimistic, but he referred to an 8% rate. If the percentage was half as great, the reduction could still be made in the first two years. There could be reductions of 250,000 without a single redundancy.

I urge my right hon. and hon. Friends not to pursue the redundancy route wherever possible. It is expensive, unpleasant and disruptive. I do not want to see lots of people retiring early from the administrative services on big pensions, and I do not want to see redundancy payments made with people coming back into the public sector at a later date, leaving us to wonder why all the cost and disruption has been incurred.

The next big area that puts pressure on the increased money is debt interest. I entirely agree with the Government, and with Opposition Members who knew this when they were in government, that we have to bring the deficit down before it kills the whole budget. If we allow the deficit to keep on rising, as the Opposition originally proposed, debt interest will take more and more of the increased spending and we will have to make unpleasant cuts to the things that matter. How can we reduce that debt interest burden more quickly? If we can get more cash into the public sector, starting today-we do not need to wait to start the programme next year, as is implied in the figures-we will reduce the increase in the debt day by day. If we sell more assets, we will not have to raise so much money in the debt markets, which will keep the debt down.

It is very good news that the Government’s programme has restored a lot of confidence in the markets, so that the rate at which they now have to borrow is now lower. That will obviously make a contribution to getting the debt interest rate programme down.

I have to say to the Government that I do not think that we can afford to give £80 billion to foreign countries over the CSR period. If we add the overseas aid programme to the European Union programme, the total is £80 billion over the period. I do not want to take any money away from the poorest countries or from humanitarian aid. Those are good things and I fully support the Government’s intention to carry on with them, but I do not think that there is any need to subsidise China, India or Russia-nuclear weapons powers with, in the case of China, $2.5 trillion in the bank. It is a bit odd to give China a grant when we then have to borrow the money from China to pay the grant to China. That cannot make any sense.

I believe that the Government are now going to remove the aid to the richer and more successful countries. Cannot we pocket that for a couple of years and then become more generous when we have the deficit under control? May we please get the European amounts down? They are the most unforgivable ones; poor people in Britain are paying tax to offer grants to rich countries in Europe, and that is not acceptable in the current conditions.

The more that these pressures-the grants abroad, debt interest, costs, inflation and staff numbers-can be abated, the more we will have money available to do better things with the growing programmes. It is good news that nine of the Departments have level or rising cash throughout the period, but it is bad news that one or two other Departments will find that the shoe pinches a lot. That is why I think that we need to make more rapid progress in controlling costs and staff numbers, particularly in administration, and in dealing with the debt interest programmes, so that we have a bit more free to ease those areas that will be very tight in future years.

I do not for one moment believe the figures from 2013 to 2015 anyway, because I think that they will subject to subsequent revision because of the pressure of events. As inflation changes, we will need to revise them. As the state of the economy changes, we will need to revise them one way or the other. Let us hope it will outperform and we will have a bit more scope.

As an election draws near, politicians tend to want to spend more, so we should discount the 2013-15 figures and concentrate on what is happening now. Will the Government please bring forward as many of the reductions as possible to this year, and not wait until next year? The more we save now, the less we borrow and the more the pressure is reduced on subsequent years’ programmes.

Mr John Redwood (Wokingham) (Con): If we have a body such as the Electoral Commission which needs to be impartial, it is most important that we should not charge it with deeds that put it in a position where others may think that it is not being impartial. I therefore hope that the Minister will listen carefully to the points made from the Opposition Front Bench and to those made by my hon. Friend the Member for Harwich and North Essex (Mr Jenkin), because there is a danger here.

The process may start with the best of intentions. The Electoral Commission might feel that its draftsmen and women are sufficiently capable of setting out, in short and clear prose, exactly how the two different systems operate. However, it is easy to tiptoe from straightforward explanations of complex systems to value judgments. As we have already heard from my hon. Friend in speaking to his amendment, the language describing the two systems is already charged with prejudice and opinion. Calling the current system “first past the post” may make it attractive to those who like horse racing, but it may also make it anathema to those who do not, because it perhaps invites a comparison with the grand national, about which people have passionate views, both for and against.

“First past the post” is not a particularly elegant way of describing a system in which the person who gets the most votes wins, which is probably how I would describe the current system. People can win an election by having more votes than any other candidate in that election.
That is a relatively simple approach, but it is not contained in the name of the system. I find the alternative vote much more difficult to describe. As colleagues will know, I am probably not a great fan of it. It is inherently complicated, because of the reallocation of votes and the fact that people who vote for losing candidates effectively vote twice, while people who vote for winning candidates vote only once. Again, however, that takes us into opinion. I am setting out my opinion, but how does one describe the system in language that does not in some way prejudice that description or imply that the extra choice for some electors is a good thing, and that people should therefore warm towards it?

It will be very difficult for the Electoral Commission to come up with language describing both systems that is thought to be fair, and this is particularly true for the alternative vote. There will be rows over the question, which will drag the Electoral Commission into the proper conduct of the election. That raises the danger of a well-intentioned body being dragged into a political argument that it should be well above, leading to the possibility of one or both sides in the referendum campaign feeling that they have not been fairly treated, because a word, a phrase, a sentence, a paragraph or even a whole document was in some way misleading, or was telling only half the story or using prejudicial language.

Mr Jenkin (Harwich and North Essex) (Con): Let me apprise my right hon. Friend of an example of just such a problem. I have seen the Electoral Commission asked whether it is true that a candidate has to get 50% of the vote to win under the alternative vote system. The Electoral Commission immediately replied that this was a subjective judgment and that it would not get dragged into the evaluation of the two systems, but how then could it describe the system? It is either correct that a candidate needs more than 50% of the votes to win or it is not, so what is the Electoral Commission going to say? Will it decline to inform the voters about the very nature of the system in order to avoid controversy? If so, it might as well not put out any information at all.

Mr Redwood: I agree, and the conclusion is just that: the Electoral Commission should not put out information because that might drag it into the debate. The whole purpose of testing a proposition in a referendum or testing candidates in an election is to allow a free exchange of ideas and views. The two campaigns will, of course, be heavily involved, but there will also be lots of other people, institutions, media representatives and newspapers claiming to be doing impartial analysis on the claims of the two sides. Some of them might even do something that gets close to being an impartial analysis of the claims of the two sides, but they will all discover, as we saw in the last general election, that having something that everybody regards as impartial is an impossibility.

The issue behind this debate may be for the political classes only. I do not think that it is the subject of much discussion in the pubs, clubs or schools of Wokingham, for example, but it is of passionate interest to the political classes. A large number of people now earn their living out of politics one way or another, and they will be watching every word and every sign, in every part of the referendum campaign, to see how it is going and whether it is fair.

I do not think that the Minister is about to give ground on the non-Government amendments in this group. I would therefore urge him to say to the Electoral Commission, ex cathedra, from his pulpit, “We love you dearly. We wish you to be impartial. Hesitate, hesitate and hesitate again before you start to make statements about this highly charged territory.” While there may be 40 million people out there who are not much moved by this subject, there are another 1 million or 2 million who are very moved by it-whose livelihoods depend on it or who are preoccupied by it-who will be watching every word. It will be extremely difficult to come up with that perfect, impartial prose that even describes the system, let alone avoids the obvious pitfall of wandering into opinion. There is nothing more annoying in the heat of an election campaign than for someone to claim impartiality, but then to say something critical of one’s own position, which is what happened in the last general election.

Simon Hart (Carmarthen West and South Pembrokeshire) (Con): I would like to bring to my right hon. Friend’s attention a particular difficulty in Wales that may be relevant. On the day that the referendum is taking place, a Welsh Assembly election is also taking place, the vote for which will use yet another different system. I wonder whether he has a view on whether we are confusing people even further, and in particular the Electoral Commission, by suggesting that it needs to explain that the subject of the referendum is a different system from that being used when people cast their votes on the same day.

Mr Redwood: My hon. Friend makes an important point. A powerful point for the no case in the referendum-the case against a change in our electoral system-is just that: that so many electoral systems are already in use, particularly in Wales and Scotland, that it could become quite complicated for people trying to remember which system they are voting under. If people are voting under a system other than the current, general system for the national election, they may wish to vote more tactically. One feature of AV is that a natural Liberal Democrat voter who wanted to make their party greener might think it a good idea to vote Green for their first preference and to give the Liberal Democrats only their second preference. That would be a perfectly rational strategy for that voter to make their party greener, but they would need to know that they were voting under that system to make doing so sensible.

However, I have wandered a little from my main point, which is that in order to preserve that impartiality, it is better to say nothing. The whole point of an election is to tease out the issues, so that electors can make their own decisions. In the last general election, the different parties made claims, and we then had to watch or listen to the BBC come out with so-called experts who said that they could find the truth, either by saying that it was between the two parties, or by concluding that neither party was telling the truth and then coming up with the BBC truth. This is a free society, and that was probably quite helpful in the election-if that is what turned the BBC on and what it wanted to pay people good salaries to do-but I do not think that many voters think, “Ah! At last I’ve got the impartial truth! The BBC correspondent has told me that Labour weren’t right on this issue and that the Tories weren’t right on that issue, so I now know the truth.” I think that the elector goes off and forms their own judgment.

George Eustice (Camborne and Redruth) (Con): I want to pick up on the point about impartiality. Does my right hon. Friend agree that the best way to guarantee the impartiality of the Electoral Commission and the information it puts out is to ensure that it has the agreement of both campaigns, which would prevent it from straying into this area? It was said earlier that the no campaign in a previous referendum was putting out misinformation, but in this referendum the NO2AV campaign has called for the Electoral Commission to issue an explanatory booklet because we want that information out there. Does my right hon. Friend understand that that information will be stronger if it is agreed by both campaigns?

Mr Redwood: I am grateful for that intervention, from which I learned that the no campaign would like one of these booklets. However, I rather prefer the lock on the door that my hon. Friend the Member for Harwich and North Essex is proposing, as I remain to be persuaded that such a booklet can be phrased in a way that everybody would find fair. The fairest thing to do is to put this lock on the door; then we will know that we have had a fair referendum because everybody will have consented to it.

If the Minister will accept amendment 247, that will be wonderful and my hon. Friends will rest content. If, as I suspect, he will not, will he at least say that he will warn the Electoral Commission not to try to write a definitive document, as it would just be torn to pieces?

The Parliamentary Secretary, Cabinet Office (Mr Mark Harper): There are three amendments in the group, which seek to clarify the role of the Electoral Commission in providing information about the voting systems on which the public will be asked to vote. I ask hon. Members to support Government amendment 264, which clarifies the Electoral Commission’s role, making it clear that it can make appropriate information available in line with its stated intention to provide strictly factual or neutral information to voters on how the different systems work in practice.

Hon. Members will know that when the Electoral Commission was doing its research on the question, which we debated last week, one important conclusion highlighted the limited knowledge of voters about different voting systems. My hon. Friend the Member for Harwich and North Essex (Mr Jenkin) raised the same point in his remarks. The report acknowledged that the referendum campaigns and media coverage will increase public understanding. The current public awareness role of the Electoral Commission, seen in paragraph 7 of schedule 1, is to provide information about the mechanics of the referendum-how it takes place and how to vote in it. My hon. Friend had a bit of fun with the language earlier, but I am sure we can agree that what is important is the practicalities rather than whether to vote yes or no. We are not going to table an amendment to mandate the answer, I am afraid to say. The Government are, of course, neutral on the result.

Mr John Redwood (Wokingham) (Con): Conservative Members clearly have a very simple message for the Minister: we wish her well and we wish her to be strong and fierce in argument and debate, because we think she should be more ambitious. It is not enough just to freeze this budget; this budget has to be brought down. If there is any budget of all the budgets we look at in this difficult time about which we can say, “We can get away with cutting that,” it is this budget. I suspect many Opposition Members would agree with that, were they being honest about it. We are talking about a budget of €143 billion or £120 billion, which is more than we spend on the national health service. A big chunk of that budget is down to us, and we get nothing like the value out of it that we get from the NHS.

I therefore hope the Minister will look to the following very important precedent. The last time we had a good battling female Minister who stood up for Britain she was armed only with a handbag, yet with that one piece of equipment she came back with the biggest rebate we ever got: the rebate the Labour party stupidly gave away, and the rebate we need back. That rebate would give us twice as much money as the amount the Government are hoping to save from the cut in child benefit. We know the Minister has the right equipment. She assures me that she has an excellent handbag, so we wish her every success in putting that argument.

The argument to the Greeks, Italians and Portuguese must be that they are having to make far worse cuts than any that are suggested for the European budget. We can cut collectively in a much more sensible way than the damaging domestic cuts they are having to put to their electors. The French have already had riots on the streets over their domestic cuts. I am sure they will agree with our Minister that there are some easy pickings to be had by removing items from this European budget. I therefore also hope the Minister will point out that because this is a levy on all the member states and all the member states are borrowing too much money, every penny and cent of that €143 billion is going to be borrowed. The taxpayers will not just have to pay once, therefore; they will also have to pay all the interest on that and be ready to repay the debt.

Is this really the kind of thing we want to be borrowing money for? Of course it is not. So Godspeed to you Minister: put the case, and win over all those other Governments. They will surely agree with us that it is better to cut the European budget than to cut important domestic programmes.

Mr Redwood: My hon. Friend the Member for Christchurch (Mr Chope) has highlighted the two very important and different issues of health insurance and motor insurance. Let me start with motor insurance, which is a legal obligation that is imposed on everyone who wishes to own and drive a car.

Like my hon. Friend, and, I suspect, everyone else in the House, I think it quite right that there should be that obligation. It reminds people that driving a car is a serious business and that they could do considerable damage to others or themselves if they do it badly. It also means that, were someone to drive badly or to be involved in an accident that was not their fault, there would be redress and injured third parties who might need substantial compensation would not be left without it. For all those reasons, we think that car insurance is a very good idea and we accept that it should be a legal obligation.

The coalition Government think that one way of raising more revenue is to increase the tax on that compulsory purchase, but quite a lot of people in the House think it would be better to raise more revenue from the existing level of insurance tax on motor insurance by getting more people to be insured. We are rightly very concerned that, because of the way in which the insurance market works, a significant number of people, particularly younger people, may not be taking out any insurance or may not be taking out proper insurance for their circumstances, and that that places other people at risk and could mean losses that those young people could not afford to pay if they had an accident. That clearly means a loss of revenue for the Exchequer, because those people are not making their contribution by paying their share of insurance tax. We would like the Minister to consider whether better enforcement of the insurance rules could help with his task of filling the coffers and narrowing the deficit. That might be a better route than increasing the tax. I am sure that the Minister will remind us that we are talking about a 1% increase and that it is quite a modest sum of money. We have been reminded a few times that young people with certain kinds of vehicles, or some young people with any kind of vehicle, can be required to pay a four-figure sum each year for their motor insurance, so we could be talking about £10 or more. The additional increase would not be welcome, because most young people find such sums of money quite large in the first place, and a further 1% would not be helpful.

The increase might only be a straw, but the camel’s back is already well and truly loaded. The poor old motorist is always at the top of any Government’s list when they are rattling the collecting tin and trying to raise more money for a variety of state purposes. I just hope that the Government will reflect on this matter. They will have other opportunities to look at the total burden on the motorist, and they might not wish to consider this particular burden today and therefore immediately grant my hon. Friend the Member for Christchurch’s request. I see no sign of the Minister leaping to his feet to welcome the proposal, just and fair though it might be. We know, for example, that the coalition Government are going to look at a fair fuel levy-an escalator that comes down when the price goes up and goes up when the price comes down, to keep fuel prices at a more realistic level.

Claire Perry (Devizes) (Con): In trying to square the circle of how we can raise taxes when there is no money, it is interesting to note that we have not committed to Labour’s rise in fuel tax, which was going to add a further £425 million- [ Interruption. ] If you read the small print in Labour’s last Budget, you will see that there was a plan to raise an additional £425 million-

The First Deputy Chairman: Order. We are not referring to taxes that are not proposed in the Bill. We are talking specifically about the amendments to the Bill.

Mr Redwood: How wise you are, Mr Evans.

I was making the point that the Minister, in responding to this debate on the insurance premium tax, might assuage some of our grief if he were to say that the Government had looked at the total package of taxes on the motorist and that they were aware that this was yet another example of the piling high of taxes on the motorist. Although this individual tax increase will not be large for many motorists-it will be more penal for young drivers and high-risk drivers-it is none the less an additional burden. Even if the Minister cannot accept the amendment, I hope that he will look at other ways of dealing with the problem of fair motoring taxes.

Every time something like this happens to motorists-this time, it is the insurance tax levy-they say, “We are being sandbagged again. Where are those better roads? Where is that safer junction? Where is the wish to spend money on improving the flows on the roads so that we can travel in a more fuel-efficient, green manner of which the Environment Secretary would approve?” There never seems to be the money to do that. We know that this bit of taxation on the motorist, like most others, primarily goes not to making better roads but to a wide range of other purposes; it gets lost in the general coffers.

Lorely Burt: A number of speakers today have singled out specific kinds of insurance, but as I understand it, the Bill proposes to increase insurance premium tax on a whole range of insurance products, which we would encourage people to take in a responsible manner. I have every sympathy for young drivers and for other motorists, but why does the right hon. Gentleman feel that we should specifically single out motorists or people who take out private health insurance? Why should those people be specifically excluded?

Mr Redwood: That is what I am trying to explain, while remaining in order on this narrow amendment. The bottom line of my case is that motorists comprise a large category and, when polled, they say that they feel badly done by because they pay a disproportionate amount of tax and do not get much back. It is argued that motorists ought to pay more because they get the use of the roads, which are provided free at the point of use in most cases. It is not like that, however, because the bulk of the taxes levied on the motorist, including this insurance premium tax, are used for purposes other than roads and motoring. That is why motorists feel hard done by.

I hope that the Minister and his colleagues will consider carefully the general category of the motorist. I would love it if he could make a concession to my hon. Friend the Member for Christchurch, but if he cannot, it would help us and the people we represent if he could say that the Government were at least aware of the bad deal that the motorist has been getting in recent years, and that, where possible, they will do something about that. As we have heard, people in rural areas have no choice; they have to use their cars. People in urban and suburban areas also have no choice at certain times of the day or at weekends. People who work antisocial hours clearly need a car. Most MPs need a car, for example, because we still work antisocial hours.

Mr Liam Byrne (Birmingham, Hodge Hill) (Lab): I am following the right hon. Gentleman’s argument with some care. He said that motorists get only a limited amount back from the taxes that they put in. Does he therefore support arguments in favour of the greater hypothecation of taxes such as the insurance premium tax, to help to resolve that problem?

Mr Redwood: No, I do not. I am sufficiently in tune with Treasury thinking to know that all Treasuries under any Government hate hypothecation, and I understand the complication. Critics of motoring and cars often argue that motorists are walking off with all these free goods, but people have come up with lots of figures that show conclusively that, in a hypothecated way, motorists get a particularly poor deal. People now look at these issues in such a way partly because the green movement has made them do so. It has now been demonstrated that, calculated in a hypothecated way, motorists put in a lot more than they get back. I do not think that the Treasury should operate all its taxation on that basis, but it does need to take account of the mood and the politics surrounding this question, which we are here to represent.

The feeling of unfairness is now quite extreme among the motoring community, and motorists want to communicate through us the fact that they are often motorists because they have to be. There is no train to take them to the shops, for example. The train might be 2 miles away from their home so, unless they have plenty of time to walk to the station, they need to start their journey in the car and sometimes they might as well finish it in the car as well. There is often no alternative, which is why some 86% of our journey miles are carried out by car, and only some 6% by train. There is a basic necessity, which is why we need to be fair when making any tax proposals affecting motorists.

The case of private health insurance is somewhat different, as I am sure my hon. Friend the Member for Christchurch would agree. I make my declaration: I have no private health insurance, so I am not arguing my own case. I rely on the NHS, should ill health befall me, as I am sure do many other Members. However, I am not saying that some of my constituents are wrong to take out private health insurance. It is still a legal thing to do. Indeed, in a way, I feel that I am cheap-skating at their expense, because they are paying twice and I am paying only once. I pay my taxes, and if something happens to me, I hope to receive NHS care, whereas they contribute to everyone else’s NHS care through their taxes-they have no choice, of course, but some of them do it graciously-and then make the additional choice to pay for their own insurance. There is a double advantage: more money comes into the health sector, but when those people become ill they make no claim on the health service, even though they contribute to it.

My hon. Friend the Member for Christchurch is making a reasonable point. Given that it is not illegal to have private insurance, and that those who have it help to eke out NHS funds, should we be taxing it more? That is a very good question to raise. I shall make no stronger statement than that, but it will be interesting to see how the Treasury responds. After all, on this side of the House, we are all now big society fans and advocates- [ Interruption. ] Well, practically all of us, perhaps. There might be one or two of my right hon. and hon. Friends who are not so enthusiastic about it, but I am; I think it is a great idea. The essence of the big society idea is to harness private money, voluntary effort and charitable activity, and to understand that the state cannot solve all the problems. In a complex, difficult and expensive area such as health care and related social care, we need voluntary and private contributions as top-ups, or in addition to public sector care.

This issue poses a particularly interesting question for Ministers. If they are really serious about the big society idea, do they want to increase the taxes on people who make voluntary contributions and take some of the demand away from public services? Ought they not to be encouraging people to do such things? I look forward to hearing my hon. Friend the Minister’s reply to these nice philosophical questions in this wonderful caring, sharing age of coalition government, in which the big society will require some erosion of the old boundaries between public and private.

Mr Redwood: Let me start by saying a few words about my new hon. Friend the Member for Lincoln (Karl McCartney). I am sure that the House will join me in praising him for his speech and in wishing him every success now that he has joined us here. It is good to hear someone with a radio face with a passionate voice for his constituency. If he continues that, I am sure that his constituents will be well served. It was great to be reminded of the hugely important Lincoln cathedral, which many of us have visited and admired, and of the fact that Parliaments were once more peripatetic. In those days, there was probably less security and fewer people in the baggage train, so it was probably cheaper to take Parliament around the country than it would be today. I fear that he might have quite a long wait before the next Parliament at Lincoln.

We are here to debate tax avoidance and evasion. I listened carefully to the hon. Member for Hayes and Harlington (John McDonnell), but I think that the House is pursuing a will-o’-the-wisp if it seriously believes that there is £120 billion of tax evasion and avoidance generally, and that there is substantial tax evasion and avoidance in particular on corporation tax, which we are debating, that we can tackle and get the money in from. Every hon. Member would like to think that there is an easy way out of the financial crisis. If there were a great pot of money representing tax dodging that we could identify and bring into the Treasury, it would have been done by now. It is not a matter of party dispute. If there are tax evaders out there whom we know about, they need to be brought to book-we all agree with that. Labour spent 13 years trying to do it, but the hon. Gentleman does not think that it did it well enough, and is now urging the coalition Government to do it. The coalition Government will pursue it in similar ways, with similar intensity, to the outgoing Labour Government. I fear that they will be no more successful than the previous Government at finding that £120 billion pot of gold because, in all honesty, I do not think that it exists in the form that hon. Members wish that it did.

Let us take evasion-the more serious case. I am sure that everyone in the House agrees that if someone is deliberately evading tax, it is a criminal offence. The House has said that it is a serious offence, and made it a criminal offence, or series of criminal offences, and we wish to see those people pursued and prosecuted. In the case of corporation tax, for example, if a company deliberately misreports its income, and says that it receives less income than it earned-one way of misleading the tax authorities over corporation tax-the book should be straightened, the record corrected, and they should be prosecuted. If the company deliberately overstates its costs to try to suppress its profits-the other way in which people could evade corporation tax, if they were seeking to do so-that, too, should be something that the authorities can identify on investigation, leading to a correction of the accounts. False accounting would be involved, as well as the criminal offence of tax evasion, and there are methods of tackling it. The state has a range of powers, introduced by Governments of all persuasions, to allow company investigation, including second-guessing the audit, and going in if it is thought that crooked directors are misrepresenting their costs or revenues, and the auditors have missed it. I wish my right hon. and hon. Friends the Ministers in the Treasury every success in trying to capture genuine crooks, because we do not need them in our community, and we need to flush them out.

There is another kind of failure to pay the amount of tax that the corporation tax authorities think is correct which, in some people’s language, could be evasion. A company may report honestly its revenues and costs, but comes to a different conclusion from the Revenue about what the taxable profit should be, given its income stream and costs. It attempts to understand the complexity of the law-it may well have its own tax advisers and auditors in support, because any medium or large company does not do this in isolation; the directors want the comfort of knowing that they have serious tax experts behind them, because of the complications of the law-and it makes its case to the Revenue, which disagrees with them. I do not think that that should be treated as a severe criminal offence leading to the imprisonment of the directors. What should usually happen-and what tends to happen-is a fierce of exchange of views between the Revenue, which is trying for one view of the tax, and the company and its tax advisers with a different view. Eventually, agreement is reached. If it is thought to be a bad case, the Revenue has the power to impose financial penalties as well as to secure the tax that it thinks that it is owed.

Clive Efford (Eltham) (Lab): I am interested in the right hon. Gentleman’s train of thought, but will he clarify something? Is he saying that there is no such thing as avoidance of corporation tax, or is he saying that anything that comes about is just the result of a misunderstanding?

Mr Redwood: Has the hon. Gentleman been in the Chamber while I have been talking? The first part of my speech was about bad cases of evasion in which a company has deliberately misrepresented its financial condition. Like him, I think that those cases should be taken seriously, and prosecution should result. I am going on to the second set of cases, in which evasion is thought to have taken place according to the Revenue, but when we look at what is going on there is a genuine disagreement between one group of tax experts, lawyers and company advisers and another lot advising the Revenue, which sometimes needs to consult counsel on these complicated matters to try to reach a conclusion. Such cases are often sorted out slightly more amicably, and rightly so, because the companies concerned were obviously not trying to do down the Revenue but to pay the minimum amount of tax to comply with the law, as most sensible people try to do, and there was a disagreement that had to be sorted out sensibly. That might result in financial penalties or in an agreement not to have financial penalties, but usually the Revenue has a certain amount of strength in having its way.

That is evasion, and then there is avoidance, which is much more problematic. I am sure that billions-worth of avoidance is going on all the time, because it is a perfectly legal approach; one man’s avoidance is another man’s sensible tax planning. That is why I asked the hon. Member for Hayes and Harlington for an example relating to personal income tax, which is easier for people listening in to this debate to understand. Many small savers switch from tax-paying savings to tax-free savings, which is avoidance of tax, is it not? They realise that they can do better by having a tax-exempt savings product; surely we should not condemn that, because it is about someone trying to get the most for their money. Indeed, that is something that the Government positively encourage. They encourage tax avoidance because they say, “We have the unique power to provide tax-exempt products for savings, and we want you to buy ours rather than the taxed private sector product.”

Stephen Timms (East Ham) (Lab): My hon. Friend the Member for Eltham (Clive Efford) asked a telling question, and I am not sure what the right hon. Gentleman’s answer is. The question is this: does he deprecate any tax avoidance, or is he saying that as long as it is strictly in compliance with the law, anything goes? As he knows, there have been some very ingenious, and indeed expensive, schemes used by companies to avoid paying tax, clearly contrary to the spirit of the law but arguably in compliance with the letter of the law. Does he not deprecate that kind of activity?

Mr Redwood: I do not want to get drawn into the moral issue of deprecating or not deprecating: what I am interested in is the efficiency of revenue collection and the clarity of the law for the people having to meet it. It is the job of this House to have a clear tax law that people have to follow, and we often have these debates to try to carry out that task. Sometimes tax law is so complicated, or people outside this House are so ingenious, that there are ways round it that I might disagree with and the right hon. Gentleman will often disagree with, and that is when we come back to legislate again. We say, “We haven’t done our job well enough. People are avoiding tax more easily than we would like them to be able to, and so we’re going to add another complication”-or sometimes even a simplification or clarification-“to the tax law to try to capture that.” That is the job of this House. The shadow spokesman and I will sometimes agree that an avoidance scheme goes too far and we need to legislate to stop it; on other occasions, we will disagree. I will say, “That’s perfectly rational tax planning-don’t be such a party pooper”, he will say, “I don’t like people getting away with that kind of thing”, and we will have our disagreements.

Mr Love: Given the thrust of the right hon. Gentleman’s remarks, does he agree with my hon. Friend the Member for Hayes and Harlington (John McDonnell) that cutting the number of HMRC employees by 10,000 might not assist in the process that he is outlining of ensuring that those who take part in avoidance are brought to book?

Mr Redwood: It would clearly be a false economy to cut back on the number of staff needed to tackle serious cases of tax evasion; I do not think anybody wants to do that, and I certainly would not recommend it to Front Benchers. It would also be wrong, however, to exempt Revenue and Customs from pressure to improve efficiency and to do more with less at a time of enormous strictures on public spending. I hope that there will be ways to accommodate the hon. Gentleman’s wish for us still to have Revenue and Customs pursuing tax evasion and our coming back to legislate on tax avoidance that it thinks is going too far, as we have under past Conservative and Labour Governments, and that that will be done efficiently and effectively in the way that we wish to see.

John McDonnell: To follow up on the question of my right hon. Friend the Member for East Ham (Stephen Timms), are there any measures that the right hon. Gentleman would consider tax avoidance that should be brought within the purview of Her Majesty’s Revenue and Customs, such as the large-scale offshoring mechanisms that corporations use to avoid tax? All that the amendment asks is for a report to be made about the measures that the Government will take on such issues.

Mr Redwood: I do not necessarily disagree about the need for us to consider another report on tax avoidance and evasion, but I am trying to set some of the parameters for that report and the framework of the debate. This is an opportunity to discuss why the matter is difficult, and why past Governments have not lived up to the hon. Gentleman’s expectations. I have no problem with having a report, although I do not want to link it to the particular corporation tax rate in clause 1, as his amendment would.

John McDonnell: I am grateful for that response. Successive Governments have pragmatically examined the latest tax avoidance mechanisms and then sought to work through them systematically to address them. The amendment is intended simply to bring forward a report on those mechanisms so that the House can have more oversight of that process.

Mr Redwood: As the hon. Gentleman knows, I am all in favour of more oversight by this House, and the more informed a debate we can have about this and other issues the better. Public debate in Britain has been stifled in recent years for all sorts of political reasons that we need not go into. It is better if we can bring such debates out into the open, but we need collectively to think through what avoidance is and what evasion is. If we do not know that, we cannot hope to guess its scale or optimise our measures for dealing with the features of it that we do not like. I am trying to deal with avoidance, on which I believe there is more scope for disagreement than on evasion, which we are all against.

I return to the point that some people’s avoidance is a bad practice and other people’s is common sense. Let us take another example of a matter on which the Government encourage avoidance. I gave one from personal tax, but we ought to be concentrating on corporation tax. The previous Labour Government were keen to encourage avoidance of corporation tax because they wanted companies to invest-a perfectly worthy aim. They said to companies, “If you invest more than you otherwise would do, that is an allowance against your corporation tax so that you will be able to avoid some tax in order to invest more.” One debate that the Committee will have is whether this Government are cracking down too much on investment avoidance by removing some of that allowance and giving everybody the benefit of a lower rate. I hope that Opposition Members will see that they are not as pure as they think they are on avoidance, and that there are certain types of avoidance that they see as a very good thing. It is a well-known feature of many tax structures to encourage avoidance in order to encourage good works or change conduct.

Mark Tami (Alyn and Deeside) (Lab): The right hon. Gentleman talks about avoidance all the time, but is it not about the Government giving companies incentives to invest, rather than allowing them to avoid tax?

Mr Redwood: The hon. Gentleman has made my point beautifully. I have just said that one man’s avoidance is another man’s tax incentive-that is exactly the point that I am trying to make. There are good types of avoidance and bad types. Sometimes all the parties in the House agree that a certain type of avoidance is bad, and then it is in our own gift, because we are the legislature, to table business on any day to stop that tax avoidance in its tracks by changing legislation explicitly and clearly to send a signal. At other times we come together to legislate in favour of tax avoidance, because there are things that we wish to encourage. As he rightly says, sometimes the best thing to do is to give people a lower tax bill to encourage such procedures. That is surely encouragement of tax avoidance of a benign kind and a perfectly reasonable thing to do.

Mark Tami indicated dissent.

Mr Redwood: The hon. Gentleman shakes his head, but what else is it? Why are people investing more than they otherwise would have done? Because they are allowed to avoid tax and pay less tax than they otherwise would.

Stephen Timms: The right hon. Gentleman is uncharacteristically abusing the English language. To say that something that is explicitly provided for in the law is tax avoidance is not what most people mean by the term.

Mr Redwood: Fine-that is a very good linguistic point, and if the right hon. Gentleman wishes to define tax avoidance more narrowly as actions that we all disagree with, we can do that and it makes the debate much simpler. However, he has to understand that there are a series of grey areas, and it is not a black-and-white matter. There is not a set of actions that everybody agrees are tax avoidance and another set that everybody agrees are perfectly reasonable incentives or sensible ways of paying less tax.

Let us get on to the more difficult corporation tax cases, having dealt with the investment one-everybody in the House thinks that investment is a good thing and that corporations should therefore pay less tax one way or another, either through the rate of tax or through explicit relief.

Let us consider overseas offshoring, which has already been mentioned. Multinational companies have some flexibility about where they invest, borrow and carry out their activities, and they regard the taxation regime as one of the important considerations in determining all those matters. If it is benign, they are more inclined to borrow the money, put up the facilities and earn the full profits in the country concerned by carrying out the whole process and adding all the value. However, if the taxation regime is more hostile to enterprise, they might make different arrangements. Any country that takes part in the multinational free enterprise world has a choice. It must decide whether it wants to be tax friendly, in which case it has to allow people to pay rather less tax, or tax tough, in which case those who stay will end up paying more tax, but there will not be so many businesses here, and some will decide to offshore more of their activities.

Offshoring presents a difficult set of cases. I am sure that Opposition Members can find examples of offshoring that we would all regard as unacceptable avoidance, but much other offshoring represents simple, rational business decision making because the country being offshored against does not have a favourable tax regime, and that is why our decisions tonight and on other occasions when we try to settle the corporation tax regime are terribly important to whether our constituents get more jobs, whether our businesses make more money and whether more action will take place here. Companies have many footloose decisions that they can make about where to borrow, where to spend, where to invest, where to create jobs and how much value to add.

I see nothing wrong with more parliamentary accountability and scrutiny. If my hon. Friends have more capacity to produce a report on tax avoidance and evasion, it would be useful. I hope that my remarks have outlined some of the complexities of trying to determine the elements of avoidance that are to be condemned and about which we need to legislate more, and those that are simply common sense, or even tax promotion schemes, which the Government are producing.

I remind the House that I have recorded in the Register of Members’ Financial Interests that I offer business advice to a global industrial company and to an investment company.

Mr John Redwood (Wokingham) (Con): I remind the House that in the Register of Members’ Financial Interests I have declared that I offer business advice to an industrial and an investment company.

In this debate, the Labour Treasury spokesman wanted to talk the economy into a double dip. He was trying to create a mood of gloom and doom. He rejected the independent forecasts provided in conjunction with the Budget and the many independent forecasts put together by people outside the House, and sometimes outside the country, which all say that a recovery is expected for the British economy over the next five years and that that recovery will be led by investments and exports.

Obviously, the scepticism among those on the Opposition Benches arises because Labour Members have not understood one fundamental thing. The economy was so badly damaged and devastated by what happened in 2008-09 that it can indeed, I am pleased to tell the House, have a recovery based on higher exports, higher manufacturing output and higher service sector output-because the outputs were so badly hit in ’08-’09. That does not mean that we will go into a new utopia or suddenly into overdrive with superbly high growth rates; it means that we will start recovering from a disastrous banking crisis and recession, which some of us felt were made far worse by the policies and antics of the Labour party when it was in office.

To try to buttress its double-dip case, the Labour party is now saying that the true Treasury forecast says that, far from there being a drop in unemployment, there will be 1.3 million job losses and that somehow my right hon. and hon. Friends at the Treasury are trying to conceal that. As I understand it, the leak to The Guardian was misjudged because it was a working paper with lots of errors in it. The proper expression of Treasury opinion was passed to the Office for Budget Responsibility, which is manned by people of independent judgment who could ask the Treasury for all the details that they wanted about its workings, and could use the Treasury’s own models. They came to the perfectly sensible conclusion, shared by most other forecasters, that there will be nothing like that degree of job loss and that unemployment will indeed fall over the period of the forecast.

Kelvin Hopkins: The right hon. Gentleman has paid a glowing tribute to the Treasury. Was it not the Treasury that advised the 1979 Conservative Government, who drove us into a massive recession, with 3 million unemployed? Was it not the Treasury that advised the then Conservative Government to go into the exchange rate mechanism and cause 2 million to be unemployed? Did not the Treasury get things wrong time and again? Is the right hon. Gentleman not praying in aid an organisation that has demonstrated its failure over and over again?

Mr Redwood: The hon. Gentleman is making my case for me; I am saying that the 1.3 million forecast figure was an error, and that it will be seen as such. He rightly says that the Treasury can make mistakes. On this occasion, we are pleased to say that an independent judge outside is reviewing all the facts and figures and the working papers and coming up with a forecast that reflects the views of many more people outside the Treasury.

Owen Smith: Given the right hon. Gentleman’s admission that the OBR’s forecast on job losses may be wrong- [Interruption.] Well, if he was not implying that, that is what I took him to be implying. Irrespective of that, I want to ask about the OBR forecast’s and the leaked Treasury document’s anticipation of increases in private sector jobs over the next five years. Given the right hon. Gentleman’s long experience of economic matters, will he comment on the plausibility of that suggestion, given that during no period in the past 40 years has that volume of private sector jobs been created, apart from in the early 1980s-and then only through the fiction of the privatisations.

Mr Redwood: The point that I have been making for the Labour party’s benefit is that I think it is possible to get a reasonable private sector-led recovery from here, because the private sector was so gravely damaged and battered, and the figures were so awful, in ’08-’09. We are talking about rates of change from a very low base, so it is quite possible for things to get going.

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Grahame M. Morris (Easington) (Lab) rose-

Mr Redwood: I should like to finish my point.

At the moment, there are worries, reflected in the comments made by the shadow Chief Secretary to the Treasury, that the clouds may be gathering again in the international community, and we need to watch that. I suggest to those on the Treasury Bench that we need to do more work on ensuring that our banks are capable of lending in sufficient quantities so that all the private sector projects we need and all the private capital we need for the public projects as well can go forward as rapidly as possible.

We can encourage that to happen in many ways. An important part of the policy is that when we get some control over public spending and the public deficit, to instil confidence in the markets, we use those markets for a well financed private sector-led recovery, so that we can surprise on the upside in comparison with the fairly cautious figures given by the OBR. I am certainly not challenging the OBR figures, which are the best available at the moment. I would like to think that we could improve on them over the five years. If we do more about how the banks work and are regulated, so that we can accept that they have enough cash and capital for this stage of the cycle, and if we allow them to get on with the job of lending more money to businesses and worthwhile public projects, we can make progress.

We can also make a lot more progress in the public sector in respect of the public spending plans published in the Budget. Those public sector spending plans show public spending going up every year in cash terms over the five years to which the Finance Bill relates and is trying to finance. The increases are not very big, so if there were lots of wage increases and a lot of price inflation for the things bought by the public sector, and if there were the explosion in benefit claims that Labour is wrongly forecasting, there would of course be a big squeeze on much valued public services. We Government Members do not wish to see that any more than Labour Members do, and I wish that they would not keep pretending that somehow we want to cut the services, because we do not.

Grahame M. Morris: Two simple decisions arose from the Budget: the new £464 million hospital north of the Tees and the £500 million Building Schools for the Future projects in County Durham were cancelled. All would have been built by the private sector. How will those cancellations assist the growth in the private sector, particularly in respect of jobs in my constituency?

Mr Redwood: As the hon. Gentleman should be aware, the outgoing Government’s capital spending plans have not been changed by this Government. We have to accept the previous Government’s plans for a modest increase in the capital stock of the state over a period of great stress in the budgets. But the cancellation of the Building Schools for the Future programme and its replacement with a programme that gives better value for money is exactly what we want. The trouble with Building Schools for the Future was that there were three years of delay and £10 million of consultancy costs before bricks and mortar or steel and glass could even start to be laid.

What my right hon. and hon. Friends rightly want to do is cut out all that nonsense, stop wasting all the money on the documentation, delays, consultancies and all the rest of it, and have a more straightforward approach, so that a bigger proportion of the inherited capital expenditure budget can be spent on bricks and mortar and bricklayers’ wages, as the hon. Gentleman wants.

Owen Smith: Is the right hon. Gentleman worried in any way by the remarks, made during the radio discussion that he took part in this morning, about the £50 billion of contracts that would be taken out of the construction industry as a result of the cancellation of the Building Schools for the Future programme? Will that not have a detrimental impact on the economy-specifically, on jobs in construction?

Mr Redwood: Once again, the hon. Gentleman is not listening. I was explaining that the coalition Government have made no change to the capital expenditure line that they inherited from the outgoing Government. What they will do is get more bang for the buck-to get more spending on construction, relative to the total investment line in the Budget. On the radio this morning, I was able to satisfy the other people in the discussion; the independent forecaster’s overall forecasts for the economy say that investment is going to rise. There will be an overall increase in investment because more homes will be built over the next five years than the pathetically low figure that was reached under Labour. There will be more investment in housing improvement, and more investment by the private sector. That more than offsets the decline in the investment programme in the public sector inherited from Labour.

Mr Meacher: The right hon. Gentleman’s fantasy that there will be a continuation of or an increase in capital investment is completely belied by the OBR forecast on page 90 of the Treasury Red Book, which shows that net investment will fall from £49 billion in the current year to £21 billion in 2014-15. That is a colossal drop.

Mr Redwood: Those are Labour’s figures for the public sector. I have just told the House that I am talking about total investment across the economy. Overall, the right hon. Gentleman will find in the Red Book that it is anticipated that the rises in investment elsewhere will more than offset Labour’s cuts in the capital programme, which we have decided to live with. I should also tell him that he is quoting the net line when he should be quoting the gross line. In other words, he is knocking off the depreciation, whereas we are interested in the total spend-the gross line, which is much higher than the figures that he has inadvertently, I think, given the House in error.

Mr Meacher: How can the right hon. Gentleman believe that private investment will remotely compensate for this enormous fall in public sector net investment, given that household consumption is falling, particularly with the increase in VAT, the banks are not lending, and export markets are fading because of the situation in the eurozone? Why should the private sector invest in those circumstances?

Mr Redwood: That is what I have been explaining to the right hon. Gentleman. We are in this position because everything has been so awful. The private sector has just been through a couple of years when it has invested practically nothing because companies could not get any money and were not making much profit. Now, profit margins are growing, there is a bit more money around and they are getting more confident for the future.

It would be much better if Labour Members got behind their voters and constituents, who want the jobs that we wish to see created, got behind the recovery that everybody else is forecasting, and started to live in the real world. They presided over the collapse. Throughout their years in office, manufacturing fell, whereas in the Tory years before that, manufacturing rose. We want to get manufacturing rising again. From that point of view, the one good thing that they did was to preside over a collapse in the value of the pound. They probably allowed it to collapse a bit too much, and it is beginning to rise again under the new Government. That gives those in manufacturing a huge opportunity to make better profit margins, to invest more money, and to produce more. That is exactly what they are beginning to do, and there will be a beneficial effect.

Owen Smith: In the light of what the right hon. Gentleman suggests about manufacturing, is he not worried when he sees the prediction in the Deloitte manufacturing index that over the next five years our manufacturing will decline, not grow, and that we will shift from our admittedly low position of 17th on that index to 20th?

Mr Redwood: A shift in the relative position predicted by someone else does not necessarily mean that manufacturing is going to decline. The figures in the official forecast, and I think in most sensible forecasts outside, show that manufacturing will recover from the very low base that it reached in 2009-10. That is what is needed, and we need to have policies that do just that.

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Mr Redwood: I am going to conclude, because many people wish to participate in this debate. Labour Members may want to be here until 3 o’clock in the morning, but they never used to when they were in the dock and did not allow us the time to debate these things properly.

The Budget is a necessary evil to clear up the mess inherited from the previous Government. This is a necessary task to instil confidence and to avoid interest rates going through the roof. Labour Members should look at what has happened in Ireland. Ireland had extremely big cuts-bigger, I am pleased to say, than those in this Budget. In the last quarter, the Irish economy started to grow extremely well, which is exactly what Labour Members are predicting cannot happen if one starts to get control of public spending.

I urge the Government and the whole public sector to work strongly together to ensure that these modest increases in cash spending translate into maintained and improved public services, as they can if we take the right action over pay rates, efficiency levels, improved process, investment in technology and so forth. I hope that we will get the banks working better by creating a more competitive environment so that we can then have the investment we need in the private sector to fill the gap and create the jobs. This is a doable task and a feasible profile, and it is backed by the independent forecaster. We need to be very sure that we are going to pump everything into that task, because recovery is what we all want.