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28th April 2009

Treasury secretary Yvette Cooper defended the government's measures for guiding Britain out of the recession, saying a failure to act would “cost us more in the long run”.

Cooper told MPs that support for families and businesses contained in the Finance Bill would ensure public finances were sustainable in the future.

She said the Bill, which changes tax law to enact measures announced in the Budget, contained “vital measures” to help the economy now and support Britain's “long-term prosperity”.

She also criticised opposition parties for failing to back the government's action plan.

Opening second reading debate on the Bill, Cooper said the world's economy was shrinking for the first time in peacetime since 1932.

It was also the first time that five major banks had been rescued by their national governments, demonstrating “the scale of the international challenge that we are facing”.

“This Finance Bill provides for vital measures to support the economy this year, to help British families and businesses through the more difficult times, and it also provides for help to support the long-term prosperity of Britain and to ensure that the public finances are sustainable in the future,” Cooper said.

“If we don't take action now to get our economy moving and growing it will cost us more in the long run.

Cooper said the 50 pence rate, to be introduced in 2010, was one of the measures in the Bill which would help bring borrowing back down once the economy was growing again.

There would also be a gradual reduction in the personal allowance for those earning more than £100,000, and a consultation on reducing pension tax relief for those on more than £150,000.

“We do think it is fairest for those who are on the highest incomes to contribute more because over the last 10 years those on the very highest incomes have seen their earnings increase by an average of £5,000 a year compared to £600 for the average tax payer,” Ms Cooper said.

A crackdown on tax avoidance and evasion would also help bring in more revenue and provide a “strong message” that people should pay their taxes.

Among measures in the Bill to help the economy now, Cooper said, were tax breaks for businesses, an increase in the personal tax allowance for lower earners, and a commitment that the VAT cut to 15% would run until the end of the year.

These were measures that would support 500,000 jobs, she said, but had been opposed by the Tories.

Such an economic policy was “not just bonkers but dangerous”, she added.

And she accused the Tories of seeking to implement tax cuts “for the very richest in the country” which would actually increase borrowing.

But shadow Treasury secretary, Philip Hammond, intervened: “To listen to what you have said so far, you one might get the impression that there were no tax increases on ordinary incomes.

“But more than half of the tax increases announced in this Budget for this year will fall on ordinary people, not people on higher incomes.”

Cooper said the Conservatives had ditched “any pretence at compassion” and were “returning to their ideological roots”. She accused them of “80s revivalism gone rampant”

Replying to debate, Hammond described Cooper's speech as “quite a rant”.

Hammond declared that it had been a “distraction” Budget. “It is a dishonest Budget that is all about protecting the jobs of the few on the Treasury bench rather than the many in the British economy,” he added.

“A crowd-pleasing, economy-damaging tax on the rich this side of the election, a hidden tax bombshell targeted at the many timed to go off after an election.”

Hammond pointed to the lack of certainty in the government's tax plans. He said the government had announced in the Pre Budget Report in November that the top rate of tax would be raised to 45 pence from 2011, but changed that in the Budget to a top rate of 50 pence to be introduced in 2010.

Hammond warned it would be “disastrous” if the Government's “failed” VAT reduction were to revert back on January 1 next year - in the middle of a public holiday and during the busiest time for retailers.

He said that instead of hitting responsible drinkers with a rise in alcohol duty, ministers should introduce a “smart” regime targeting drinks associated with drinking problems, like alcopops.

The Finance Bill, he said, risked being a “missed opportunity to prepare Britain for economic recovery in a climate of continuing fiscal restraint”.

Hammond indicated the Conservatives would not make any commitment to repeal any of the tax increases proposed by the government, because of the “extraordinary fiscal circumstances in which we find ourselves”.

He criticised the government for not listening to retailers on the practical implications of the returning the VAT rate to 17.5 per cent on December 31 2009.

For the Liberal Democrats, Jeremy Browne said the Budget was a “total humiliation” for Gordon Brown and the Labour Party.

He said: “The reputation of the former has been destroyed forever and the reputation of the latter for at least a generation and possibly irredeemably.”

The Bill would have a “catastrophic” impact on the country for “many decades to come” because of the level of debt.

He said: “The government in this country is now borrowing £480 million every single day.”

Referring to William Hague's money-spinning after-dinner speeches, Browne joked: “It makes the rate charged by the Conservative shadow foreign secretary seem positively mean spirited.”

Browne said the Finance Bill was the postscript to Labour's “12 years of missed opportunity”.

He concluded that Labour had presided over a “disastrous unbalancing of the Budget” and this would result in “deep cuts” in the public sector.

Financial secretary, Stephen Timms, insisted the Bill contained the right blend of short term support and long-term planning to help the economy take advantage of future opportunities.

Progress

House of Commons

First reading: April 28 2009 [HC Bill 90]

Second reading: May 6 2009

Finance Bill Committee:

Report stage:

Third reading: July 8 2009

House of Lords

First reading: July 8 2009 [HL Bill 63]

Second reading: July 20 2009

Royal Assent

July 21 2009: Finance Act

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