John Hemming's Web Log John's Reference Website
Wednesday, June 29, 2011
  Labour support 20% VAT
Yesterday's finance bill.

John Hemming (Birmingham, Yardley) (LD): I have found it odd recently that some private health insurers will pay those whom they insure to use the NHS. If that is the habit of private health insurance, where does the hon. Gentleman think the saving to the taxpayer is in allowing this tax relief?

Michael Connarty: I did not want to cite that example, although it is a good example of what happens when people use private health care and take resources away

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John Hemming (Birmingham, Yardley) (LD): I have found it odd recently that some private health insurers will pay those whom they insure to use the NHS. If that is the habit of private health insurance, where does the hon. Gentleman think the saving to the taxpayer is in allowing this tax relief?

Jonathan Edwards: The hon. Gentleman will be aware that I am in a different party from those on the shadow Front Bench and we do not normally negotiate on the clauses we table. I can only assume that my staff are more effective.

Richard Banks, the chief executive of UK Asset Resolution, said that the UK economy faced a tsunami of repossessions once interest rates rise. Increases will come sooner rather than later, partly as a result of the VAT increase. The increase in inflation has come about for a variety of international reasons, including the slow devaluation of the pound and increases in basic food and oil prices, but we have a 2.1% increase in prices across the board and I am sure that many businesses have racked up their prices by greater amounts. The increase in VAT is adding to the inflationary pressures on the economy and it therefore seems strange that the Treasury is using a fiscal measure that is playing its part in increasing inflation and will inevitably at some stage lead to a tightening of monetary policy, creating a further major headwind for the economy. It is the economic equivalent of shooting oneself in the foot.

John Hemming: I congratulate the hon. Gentleman on being more efficient than the official Opposition. However, he is proposing to reduce VAT in this financial year, which would mean an increase in the deficit and therefore an increase in the borrowing. Where would we borrow the money from and how much interest would we pay?

Jonathan Edwards: As the hon. Gentleman rightly says, I am proposing a temporary cut and I am endeavouring to convey that the priority of the Treasury should be securing sustained economic growth. In my view, the increase in VAT is hindering that. That is my key point.

Older people and pensioners who thought that they had enough to live comfortably for the rest of their lives now find themselves with very little interest but high inflationary costs in their everyday life. The Government’s attempts to save money by changing indexation from the retail prices index to the consumer prices index means that any benefits people receive are lower than the real world cost, rather than keeping up with it.

Families who are stretched by the costs of their daily living are dealing with wage freezes but finding that the cost of living is rising dramatically. Young families find it hard to save to buy a house, and others live in worry about the base rate increasing and being unable to cover their mortgage. The VAT change last year is reported to have taken £450 from each family with children across the UK.

11.15 pm

The UK economy is not growing and people’s standards of living are being compromised. Confidence amongst individuals and families is falling—that is key when we are looking at future economic growth prospects. Economic growth forecasts are being downgraded by all around except the Government and the unanimous response to today’s revised figures is that we are in for a period of subdued growth at best. As I say, the situation now is different from that of nearly three years ago when the VAT cut was first used as a part of fiscal policy. Back then, we were preventing the situation from getting worse and the recession from deepening; now we are looking at how we can generate growth. Part of the Institute for Fiscal Studies’ reason for backing policies such as a temporary VAT cut is that there is a time frame—people can see an end and know that they must spend to take advantage of it, as advocated by my new clause 9.

John Hemming: On the point about hitting the poorest hardest, does the right hon. Gentleman not accept that the poorest people, those on means-tested benefits, receive an up-rating for the cost of living, which is in fact in excess of the extra VAT, and so benefit by 1% in excess of the extra cost of VAT?

Mr Hanson: When the Conservative party, supported by Liberals who at the general election opposed VAT increases, imposes VAT increases, it does so on businesses and on jobs and hardest on the poorest people in our society. I will now give way to the Minister so that he can explain that.

John Hemming: I agree with my hon. Friend the Member for Redcar (Ian Swales), who is an accountant, that on the basis of expenditure deciles, VAT is a mildly progressive tax. I ask the right hon. Gentleman, whose name appears above unselected new clause 16 which would put VAT up to 20% once things improve, why the Labour party, having opposed VAT at 20%, now believes that it should be at 20% in the long term.

Mr Deputy Speaker (Mr Lindsay Hoyle): Order. We are not going to get bogged down in the VAT figures. We need to talk about the new clauses in the group. We are drifting into parts where we should not be.

Mr Hanson: I remind the hon. Member for Birmingham, Yardley (John Hemming) that new clause 10 calls for a review of the impact of value added tax on businesses and families over the next three months. Labour Members voted last week for a temporary reduction in VAT. Labour policy is to have a temporary reduction to tackle the real issues that we all face in our constituencies in relation to jobs, living standards and the future of our businesses.


John Hemming: My right hon. Friend the Member for Twickenham (Vince Cable) was quite clear when he said that the party did not rule out an increase in VAT, when he was asked that specific question—[Hon. Members: “Oh!”] The then Chancellor supported an increase in VAT to 19%, and the present Opposition now support a long-term VAT rate of 20%. The reason why they will not support new clause 9 is that the change it proposes is not temporary but permanent. Labour Members cannot criticise us for accepting a long-term VAT rate of 20% if they want the same long-term rate themselves. There is an argument about whether the stimulus that would, admittedly, result from a temporary cut in VAT would be in the long-term interests of the country, but it is a complex one. However, it is clear that we need to keep the deficit under control.

We have heard criticism from the Opposition today that the Office for Budget Responsibility has indicated that we might be borrowing more money than was originally forecast. The Opposition criticise us for the fact that the OBR forecasts higher borrowing. The Opposition’s solution, however, is even higher borrowing. They identify a problem and then put forward a policy proposal to make that problem worse. It is an absurd situation.

The real problem that economies face, as we see with the situation in Greece, is that as the deficit goes up, the people lending the country money to keep it going become increasingly concerned and the interest rate goes up, so it is not just the amount of interest on the amount of deficit in each year that goes up, as the rate of interest goes up, too. That is why people end up in the state that Greece has ended up in.

Ian Lucas: The hon. Gentleman ought to have listened to the debate earlier, particularly to the very good speech by my hon. Friend the Member for Newcastle
upon Tyne North (Catherine McKinnell), who explained that for every pound that is spent in the construction sector, £3 is injected into the economy. That would lead to three times as much being put into the economy for every pound spent in the construction sector. That means we should encourage that sector, not decimate it as the Conservatives are doing as we speak.

John Hemming: We should remember that VAT does not apply. I declare an interest, as a VAT-registered person. People who understand how VAT works will know that people who charge VAT can reclaim it on their inputs. We have to look at the details. On the hon. Gentleman’s further point, yes, there is an economic multiplier that has an effect. As demand is increased, there is a multiplier effect. At the same time, we have to look at the long-term effect on the deficit, the debt and the interest paid. As interest rates go up, wider damage is done to the whole of society.

It is true that in an ideal world we would not have higher rates of VAT. In an ideal world everything would be nice, and there would no problems and no difficult decisions to take. We have to get a balance. It is very pleasing to see that the official Opposition now accept that VAT should be 20% in the long term.

Clive Efford: There used to be a time when the hon. Gentleman was fond of quoting the Institute for Fiscal Studies, which called the VAT cut “an effective stimulus”. As for the construction industry, does he not recognise the figures showing a 19% increase in the number of business failures in the construction industry in the first three months of this year—since the increase was imposed?

John Hemming: There is no VAT on new build. The hon. Gentleman’s party believes that the VAT rate should be 20% in the long term; I thank him for agreeing with us about that.

The Government, essentially, have to bring the deficit under control to keep interest rates under control—and that is what we are doing.

Several hon. Members rose —

Mr Deputy Speaker (Mr Nigel Evans): Is the hon. Member giving way, or has he finished?

John Hemming: I thought I had finished.

Mr Deputy Speaker: That is good enough for me.
 
Saturday, June 25, 2011
  Labour's alternative strategy - borrow more money
I have linked to the debate as to Labour's alternative. They proposed on Wednesday a "temporary cut" in VAT (which implies they have changed their policy on VAT such that the permanent rate is now 20%).

This would increase borrowing in the year.

I asked a number of Labour MPs who they would borrow the money from and how much interest they would pay. It shows a considerable ignorance of economic policy relating to those who spoke in this debate.

The link gives the debate:

John Hemming The hon. Gentleman’s party’s solution is to borrow more money. From whom is it going to borrow it and how much interest is it going to pay?

David Anderson My party’s policy is not to borrow more money—it is to increase taxes on bankers and make those people pay.

John Hemming
Does the hon. Gentleman acknowledge that Tony Blair said in his memoirs that it was the Labour Government who did it?

Chris Evans No, he did not. This debate would be far more honest if we said that it was the banks.

Tony Blair - Memoirs p679 onwards This is incredibly difficult Of course, the key factor in our economy as elsewhere, is the global economic crisis and all nations are having to cut back and adjust. However, we should also accept that from 2005 onwards Labour was insufficiently vigorous in limiting or eliminating the potential structural deficit. The failure to embrace the Fundamental Savings review of 2005-6 was, in retrospect, a much bigger error than I ever thought at the time.
 
Saturday, June 18, 2011
  Albert the pensioner in the Irish Independent
This story is the details of the PIBS story. This is an interesting issue from the perspective of capital heirarchies and the voting against class interests (bondholder classes). However, the human story is quite real.

So, you want to burn all the bank bondholders? Read Albert the pensioner's story...
By Ciaran Byrne
Saturday June 18 2011
Meet Albert Kempster: he's 73, has a pension of just £56 a week and usually shops at night to buy the food supermarkets are about to throw out.

Financially, life isn't too easy. With the rising cost of food and utility bills, he enjoys no luxuries and rents a one-bed flat in the bleak high-rise suburb of Sighthill, Glasgow.

Albert is pretty much struggling to stay afloat. Now Bank of Ireland is about to sink him.

Thanks to an extraordinary move by the bank, adrift after years of disastrous lending and property speculation, Albert's lifetime savings of £24,000 (€27,294) invested in high- interest bonds are about to be snatched from him.


This is not an issue I am acting as a politician in, but instead as a bondholder. These bonds were launched in 1991 when this was a normal retail bond.

There are lots of interesting legal and financial issues behind this, but it is worth understanding some of the real human stories. Albert's story is far from unique.
 
Wednesday, June 15, 2011
  Health - a result
I think the way in which the NHS reforms have been produced is a good example of how government should work. I was always concerned that we should keep the NHS as an essentially co-operative organism with European competition law being kept out.

What has happened through a process of consultation is that a set of proposals for reform that deal with most of the serious criticisms have been developed.

I personally think that a government that listens and sometimes changes is a good thing for the country. The examples on Forestry, EMA (£100m extra money for 6th formers), the NHS and student finance (higher payments by higher earners) are all cases where the initial policy has been changed in a positive way as a result of a conversation with citizens. We have failed to explain the student finance one, but people will find out how it works over time.
 
Sunday, June 12, 2011
  Bank of Ireland story
There is a story today in the Sunday Independent which includes the following text:

John Hemming, the Liberal Democrat MP who used parliamentary privilege to reveal that Ryan Giggs was the footballer behind the recent superinjunction, is a leading Pibs-holder and part of the campaign. The group intends to write to the Irish government to condemn its "lack of common decency and fair play".

I would ask that people note that the quotation here is not quoted as something that I have said. My concern about the proposals from the Irish Government (aka Bank of Ireland) is that they are designed to protect the equity at the cost of the subordinated holders. This turns on its head the normal processes.

There is no need for the Irish government to put any more cash in than is proposed under the current scheme. In fact if the Sub holders were given a normal deal then the Irish government would put less money in.

However, the plan the Irish government has involves preferring one set of creditors above others. That is not normally lawful.
 
Friday, June 10, 2011
  Steven Neary - once a secret prisoner
The link is to Anna Raccoon's story about Steven Neary. Steven Neary was a victim of judicial secrecy. Happily he has been released from the clutches of the state and his case can now be talked about.

Sadly there are many others still trapped in the Kafkaesque world of secret imprisonment.
 
Wednesday, June 01, 2011
  Twitter and Legal Issues
There is another post of alleged injunctions on Twitter. This time it is done by someone who associates themselves with "anonymous" - this is clear from the use of the anonymous mask image.

For the avoidance of doubt I don't support putting up lists of injunctions.

However, there are lots of issues with trying to stop this.

Firstly, it is very easy for anyone who intentionally wishes to put something up anonymously on the internet to do so. If someone is in England or Wales they can go to an internet cafe and establish an anonymous account with false details.

Secondly, if someone is out of the relevant jurisdiction (that is England and Wales) then they are not breaking the law if they do this.

I am not myself sure what the authorities can do to deal with this. The only people who are likely to be trapped by any legal action relating to twitter are the innocent people who have been making jokes and gossiping.

In the medium to long term it is, of course, possible to produce a form of technological solution. However, that in my view would be wrong because it would have to involve a massive shift in the freedom of people to use the internet. In practice it would involve effectively cutting the UK off from the rest of the world for many websites. This is something I personally would oppose.

As with the first intentional breach, this breach is unlikely to be one which can be forcibly removed from twitter.

Hence we are in a position whereby either reality needs to be changed to fit the law or the law needs to be changed to fit reality.

Personally I am one for the latter. I don't think that criminalising gossip is the way forward nor do I agree with producing a technological solution to give a form of chinese censorship of the internet as appears to be the preferred solution of the judiciary.
 

Click Here for access to higher resolution versions of the photos The license for use allows use of the photos by media as long as they are attributed.

better brent chart

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