(12 years, 9 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
Edward Miliband (Doncaster North) (Lab)
The Chancellor spoke for an hour, but one of his usual phrases was missing; there was one thing that he did not say. Today marks the end of “We’re all in it together”, because after today’s Budget—[Interruption.]
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Mr Gummer, I do not think we need you to lead the cheerleading. We have given respect to the Chancellor of the Exchequer, and I expect the same respect to be given to the Leader of the Opposition.
Edward Miliband
After today’s Budget, millions will be paying more while millionaires pay less. A year ago, the Chancellor said in his Budget speech that
“now would not be the right time to remove”
the 50p tax rate
“when we are asking others in our society”—[Interruption.]
Is the Chancellor saying that he did not say it? He said that
“now would not be the right time to remove”
the 50p tax rate
“when we are asking others in our society on much lower incomes to make sacrifices”.—[Official Report, 23 March 2011; Vol. 525, c. 957.]
That is exactly what he has done. With tax credits cut, child benefit taken away, and fuel duty rising, what has he chosen to make a priority? For Britain’s millionaires, a massive income tax cut each and every year. The fairness test for this Budget was whether the Chancellor used every penny he could to help middle-income families who are squeezed. He has failed that test. Anyone who listened to him will be asking the same question: what planet are he and the Prime Minister living on? There are 1 million young people out of work and 50 businesses going bust every day, and there is a cost of living crisis for families. They promised change, but things have got worse, not better.
What did the Chancellor promise us in last year’s Budget? He said that he would
“put fuel into the tank of the British economy.”—[Official Report, 23 March 2011; Vol. 525, c. 966.]
He promised growth of 2.5% in 2012, but today he comes to the House and tells us that it will be just 0.8%: growth down last year, growth down this year, and growth down next year. Every time he comes to the House, he offers a different excuse, but the reality is that his plan has failed. Last year, he told us that unemployment would peak in 2011, and what has he delivered? We are into 2012, and unemployment is rising month upon month upon month. His plan has failed. He promised us last year that the deficit would be gone by the end of the Parliament, but today he admits that he is borrowing over £150 billion more than he said he would. His plan has failed.
In the face of failure, what does the Chancellor offer? Not a change in economic strategy, not a guarantee of jobs for the young unemployed, not targeting every penny he can at working families. We know that for the Chancellor the driving ambition of this Budget was to deliver a tax cut for people earning over £150,000 a year. There are 30 million taxpayers in this country; this policy will do absolutely nothing for 29,700,000 of them. How can the priority for our country be an income tax cut for the richest 1% at a time when the squeezed middle are facing rising petrol prices, higher energy bills, and cuts in tax credits and child benefit?
Let us think of what the Chancellor could have done with the money. He could have reversed his cuts to tax credits. He could have done something for pensioners; in fact, I think there is a tax rise for pensioners hidden in the detail of this Budget. He could have done more to undo the damage to child benefit, but he claims he cannot afford it. Let me tell him this: every time in future he tries to justify an unfair decision by saying that times are tough, we will remind him that he is the man who chose to spend hundreds of millions of pounds on those who need it least. Wrong choices, wrong priorities, wrong values; out of touch, same old Tories.
Let me come to his claims on stamp duty. There are 300,000 people benefiting each and every year from his top rate tax cut, and there are 4,000 houses sold each year for more than £2 million. So 99% of those who gain from his millionaires’ tax cut will be totally unaffected by the rise in stamp duty and will get a massive windfall from this Chancellor. He did not tell us what this meant in pounds and pence—[Interruption.] Oh, the Prime Minister thinks that the Chancellor did say how much each person is getting as a result of the top rate tax cut. He did not, and I am going to tell him the figure. There are 14,000 people earning over £1 million in Britain. The Chancellor’s decision today means that each of them will get a tax cut—not of £1,000, not of £5,000, not of £10,000, but of over £40,000—[Interruption.]
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. It is not good if the Leader of the Opposition is not allowed to speak.
Edward Miliband
That tax cut is not just for this year but for every year. What happens to families who earn in one year half what the Chancellor has so casually given away to the richest in the last hour—families on £20,000 a year, perhaps those of a nurse or a lorry driver? Even after the personal allowance change, they are not going to be better off; they are going to be worse off. Putting aside the VAT rise and all the other tax rises that have happened, from this April alone they will be a further £253 a year worse off. All he is doing for ordinary families is giving with one hand and taking far more away with the other. This is a millionaire’s Budget that squeezes the middle. Wrong choices, wrong priorities, wrong values, out of touch—same old Tories.
Under the Chancellor’s tax cut, a banker earning £5 million will get an extra £240,000 a year. Let us call it what it really is: the Government’s very own bankers’ bonus. Presumably, he wants us to believe that the £240,000 tax cut is necessary to make the bankers work harder. It is one rule for them and another rule for everyone else. This April, the Chancellor will be telling a family working for 16 hours on the minimum wage that, if they do not work more hours, they will lose nearly £4,000 in tax credits. That tells people everything they need to know about the values of the Chancellor and the Prime Minister: the poor will work harder only if they are made poorer; the rich will work harder only if they are made richer. Wrong choices, wrong values, wrong priorities—same old Tories.
While everybody else is squeezed, what is the Chancellor’s priority? It is a massive tax cut for those on his Christmas card list. The Chancellor talked a lot about tax transparency. Let us have some—[Interruption.]
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Mr Hands, I think that you need to calm down. What you are doing is not good for the House.
Edward Miliband
Let us have some tax transparency. Hands up in the Cabinet if you are going to benefit from the income tax cut. Come on. Come on. Come on. [Interruption.]
Mr Deputy Speaker
Order. Mr Shelbrooke—[Interruption.] Order. Mr Shelbrooke, I have looked at you twice and I do not want to continue to do so. We need a bit of silence from you. If not, you might be better off leaving the Chamber. I think that we understand each other.
Edward Miliband
The Prime Minister is the man who said that
“sunlight is the best disinfectant”.
Here is the challenge. Just nod if you are going to benefit from the income tax cut or shake your head if you are not. Come on. Come on. Come on. Come on, we have plenty of time. [Interruption.]
Mr Deputy Speaker
Order. Members on both sides of the House will come to order. The Leader of the Opposition will be heard with the same courtesy that was given to the Chancellor. I do not want to have to rule further, because I will have to get firmer. It is only right that the country hears what the Opposition have to say. [Interruption.] I do not need any examples from hon. Members.
Edward Miliband
One more chance. Nod or shake your head. Are you going to benefit? I have one thing to say to the Prime Minister: let sunshine win the day. I hear that this is good news for him, because now he will be able to buy his own horse. [Interruption.]
Mr Deputy Speaker
Order. We will not have any clapping in the Chamber. Seriously, it does not do this House or its reputation any good when we cannot hear the Leader of the Opposition. Members on both sides must show courtesy.
Edward Miliband
What about the hapless accomplice, the Deputy Prime Minister? Only the Liberal Democrats could be dumb enough to think that a George Osborne Budget is a Robin Hood Budget. Calamity Clegg strikes again! A few months ago, the Deputy Prime Minister said of the 50p tax rate, with no ifs and no buts:
“I do not believe that the priority…is to give a tax cut to a tiny, tiny number of people who are much, much better off than anybody else.”
The party that once followed Lloyd George is now reduced to following George Osborne. The party that delivered the people’s Budget of 1909 is supporting the millionaire’s Budget of 2012. The Liberal Democrats should be ashamed. For all the talk and all the briefings, the Deputy Prime Minister has done what he has done on every big issue, from tuition fees to the betrayal on the NHS—he has rolled over and said, “Yes, Prime Minister.”
The truth is that for ordinary families, it is hurting, but it is not working. We know why that is. This Government have been cutting too far and too fast. What did the Chancellor say last August about America’s more balanced deficit reduction plan? He said:
“Those who spent the whole of the past year telling us to follow the American example…need to answer this simple question: why has the US economy grown more slowly than the UK economy”?—[Official Report, 11 August 2011; Vol. 531, c. 1108.]
The numbers are in. The Chancellor is plain wrong. The US economy grew by 1.7% last year—twice the rate of ours. The Government have run out of excuses. It is their mistakes and the failure of their plan that are damaging our future.
Today we have heard about more schemes from the Chancellor, but why should we believe him? Every scheme that he has put forward so far has failed. What was the big idea of his first Budget? The national insurance holiday. We did not hear much about the national insurance holiday today, and it is no wonder. He told us in his June 2010 Budget that it would help 400,000 firms. He has missed his target by 97%. The Chancellor’s plan has failed. What was the centrepiece of last year’s Budget? It is easy to forget now, but it was called the “Budget for growth”. This scheme is my favourite. It is called the business growth fund. Six regional offices have been opened and how many businesses are benefiting? Six. [Laughter.] It is true. One business for each office. The Chancellor’s plan has failed. We needed a plan for growth that would work. We needed a guarantee on youth jobs. We needed a British investment bank to help small business. On growth, jobs and how we pay our way in the world, this Chancellor has failed.
On the film tax relief proposal, it is great to support great British success stories such as “Downton Abbey”.
Edward Miliband
Indeed, and Wallace and Gromit. It is important to support “Downton Abbey”, the tale of a group of out-of-touch millionaires who act like they were born to rule, but turn out not to be very good at it. It sounds familiar, does it not? We all know that it is a costume drama; the Cabinet think it is a fly-on-the-wall documentary.
This Budget will be remembered for the Chancellor’s failure on growth and jobs, and for the top rate tax cut. That is not just a bad policy or a misjudgment. It destroys the claims that the Prime Minister made about who he was and what he believed. He said personally in the aims and values document that he sent to every Conservative party member:
“The right test for our policies is how they help the most disadvantaged in society, not the rich.”
The document was called “Built to Last”. That was his test. It is a test that this Budget fails spectacularly. This is the death knell of his project and of his compassionate conservatism. He and the Chancellor have shown their true colours. They promised change, but they have failed on growth, on jobs, on borrowing and on fairness. It is unfair, out of touch, and for the few, not the many—an unfair Budget built on economic failure; an unfair Budget from the same old Tories.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I ask Members who are not staying to clear out quickly. I call Mr Andrew Tyrie.
Mr Deputy Speaker
I remind Mr Tyrie that there is a time limit of 10 minutes.
Mr Deputy Speaker
I have not started it yet. I am allowing the Chamber to clear. The hon. Gentleman need not worry, because we want to hear what he has to say.
Mr Andrew Tyrie (Chichester) (Con)
I am also available for injury time, if anybody wants to chip in. After the generals, it always falls to me to be the first of the foot soldiers.
The first point that I want to make is about the overall Budget judgment. The issue that overshadows all the others to which the Chancellor referred is that Britain is living beyond its means. We are borrowing £1 for every £4 we spend. That is why the last Chancellor of the Exchequer was right, in his final Budget two years ago, to set out a tough deficit reduction plan, even if his neighbour argued about it all the way. It is also why the current Chancellor was absolutely right today to stick to a clear plan for deficit reduction. Although it is not popular with most Members to say this, I also deeply respect the Liberals for helping to make that plan a cornerstone of coalition policy, despite all the flak they take.
Some have argued that the economy needs a further fiscal boost on top of the deficit that we are already running. It is worth bearing it in mind that the last Chancellor injected a £20 billion boost in 2009, but that sum pales into insignificance compared with the £100 billion of quantitative easing over the past 12 months or the £300 billion of quantitative easing since the crisis began. Even though quantitative easing and fiscal policy are not directly comparable, it is clear that monetary policy has played a huge role in managing the recession.
The biggest influence on overall macro-economic policy at the moment, therefore, is probably the Bank of England. It is becoming more powerful than ever before, which is why the Treasury Committee will look closely at how much of the latest round of quantitative easing is finding its way into final demand. It is also why strong accountability of the Bank to Parliament is essential. The Treasury Committee is united in the view that the proposals currently in the Financial Services Bill are simply not enough, and we will press on behalf of Parliament for significant improvements on Report.
Hugh Bayley (York Central) (Lab)
At the time of the last general election, the national debt stood at £760 billion. It has now risen to more than £1 trillion for the first time in history and is on track to rise to about £1.5 trillion. What does the Chairman of the Treasury Committee think the impact on interest rates will be by the end of this Parliament?
Mr Tyrie
I think I will ask the Bank of England that question when it comes to see the Committee, but I agree that the issue needs to be taken into consideration.
One measure that was announced yesterday, about which I might just have time to say a few words now that I have some injury time, was credit easing. Yesterday’s announcement on the loan guarantee scheme responded to many constituents’ complaints that they simply cannot get the money they need to run or start up small businesses. We all have constituents in that position, and the scheme will offer some welcome relief. How much relief? I think it will offer only a little, and there is a risk of the banks pocketing most of the money. The Treasury Committee, the Public Accounts Committee— I do not know whether its Chair is in her place—and the National Audit Office all need to play a role in ensuring that the banks do not run off with the money, and that value for money is secured.
None the less, I still think the scheme may turn out to be valuable, for several reasons. First, by announcing it the Chancellor has raised the salience of an important issue and put pressure on the banks not to dismiss requests for loans without examining them properly. Furthermore, it seems to me that the Treasury’s own pessimistic briefing yesterday that the money will go only to existing borrowers is almost certainly mistaken. There is very likely to be some more lending, because banks will benefit from the stronger financial position of firms to which they have lent. Those loans, in turn, will be less risky for the banks, so they should have some more headroom for new lending without altering their risk profile.
Andrea Leadsom (South Northamptonshire) (Con)
Does my hon. Friend agree that one of the best ways to improve lending to small and medium-sized enterprises is a dramatic improvement in the amount of competition in the British banking system?
Mr Tyrie
I absolutely agree. My hon. Friend serves with me on the Treasury Committee, and we have published quite a detailed report on competition in retail banking that has won the support of Vickers and of the Joint Committee on the Draft Financial Services Bill, chaired by my right hon. Friend the Member for Hitchin and somewhere. [Interruption.] Harpenden, is it? My right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley)? Anyway, wherever it is, it is somewhere in Hertfordshire.
The loan guarantee scheme was at least announced. I have to tell the Chancellor, who is in his place, that several colleagues on both sides of the House have complained to me about the leaks and briefings in the days prior to the Budget. All I will say at this point is that the Treasury Committee will look at the matter.
The Committee will also publish a preliminary report on the Budget in time for the consideration of the Finance Bill. The timetable proposed by the Government is very tight, but we will do our best. In particular, we will scrutinise what the Chancellor has described—correctly, by the look of things—as a tax-reforming Budget. We will examine whether the main tax measures live up to what it is claimed they will achieve. We will assess them against a number of principles that the Committee believes should guide tax reform, which we set out in a report 14 months ago, “Principles of tax policy”.
Dame Joan Ruddock (Lewisham, Deptford) (Lab)
Will the hon. Gentleman give way?
Dame Joan Ruddock
I am most grateful. I hope that when the Committee does its review, it will consider the fact that for an ordinary family with two children, the losses coming this April will amount to £530 and the compensation that the Chancellor boasted of giving will amount to only £220.
Mr Tyrie
We will seek evidence on that point and on all the main measures, and we will publish it as quickly as we can. I thank the right hon. Lady for making that point.
The principles that we set out in our paper a little over a year ago were more or less endorsed by the Chancellor today. They were: does a measure make the tax system more simple, predictable—the Chancellor used that word—stable, fair and coherent, and does it unlock higher economic growth? As last year, we will ask the major accountancy bodies—the chartered accountants, the certified accountants and the Chartered Institute of Taxation—to score each major measure against those principles. We hope the Committee can thereby assist the House in gauging progress towards a simpler, fairer tax system. That is what all our constituents want.
We will also ask those bodies to scrutinise some of the measures that have been announced today—the cap on tax reliefs and its workability; the yield from the 45p rate; the general anti-avoidance provision, about which a number of us have concerns; and the reference to retrospection in the tax system that is associated with that provision, which many have held could damage the yield in the long run. We will also take a look at the Leader of the Opposition’s point that this was a Budget for millionaires, at the expense of the squeezed middle.
A number of colleagues have asked the Committee also to examine measures that were introduced in previous Budgets, to see what the effect of them has been. Have they had the effect of raising more revenue and generating more efficiency than was outlined for them when they were introduced? We have not made up our mind about which measures to examine in that respect, but I suspect that in a few years’ time the cut in the top rate of tax announced today will be a prime candidate. We will be able to judge whether Mr Laffer really was out and about.
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)
Will the hon. Gentleman give way?
Sir Robert Smith
I thank the hon. Gentleman. In looking at the tax system, will he consider how the constructive engagement between the oil and gas industry in the North sea and the Treasury has led to a change of heart, some certainty on decommissioning and added incentives to encourage further investment and more revenue for the Treasury?
Mr Tyrie
We were a bit concerned about that. The Chancellor announced in either his first or second Budget that he would not alter the framework for the North sea tax regime, and then in his following Budget announced significant changes. That does not do wonders for tax certainty, of course. We need to keep an eye on exactly that sort of thing. We need to move steadily and remorselessly towards a simpler, fairer, clearer, more certain and more reliable tax system. That is what will unlock the huge potential for investment in the private sector; medium-sized and large firms are often sitting on cash piles and have very strong balance sheets.
I am sorry—I have lost my way.
Mr Tyrie
I will do my best to assist the hon. Gentleman and get back into the groove.
The tax changes that have been announced today should play a crucial role in encouraging economic activity. However, that is only part of what is required to transform the growth potential of the economy. We also need a much wider supply side agenda to be implemented. We need labour market reform. The Chancellor has announced his intentions on planning, and we need simpler regulation. He combined the planning and the regulation points in his speech today.
The decision to tell taxpayers in each statement that they receive how their money is spent and how much tax they pay as individuals is a huge step forward. My hon. Friend the Member for Ipswich (Ben Gummer), who is no longer in his place, has been pressing for that for a few years. I argued for it 25 years ago when I was at the Treasury.
Britain is in the early stages of recovery from the biggest boom and bust cycle since the war. The UK has had to absorb the biggest bank failure—RBS—that, as far as I know, the world has ever seen. We are now having to absorb a crisis among our closest trading partners, generated by fundamental flaws in the design of the eurozone. The times are uncertain and confidence is at a premium. Whatever one’s view of the overall Budget judgment, most people agree that confidence is bolstered when Governments do what they say they will do. In the Budget, the Chancellor has done just that.
Ann McKechin (Glasgow North) (Lab)
There has been much trumpeting and advance spinning of the Budget in recent days, so almost every announcement this afternoon came as no surprise. There are also hidden messages in the Budget: those who are poor and whose income is being squeezed are being asked to work longer; but for those in the top income bracket, the message is, “Let us ease your pain. We’ve reduced your corporation tax bills, lowered your banker’s bonus tax, now let’s cut your income tax rate.”
Robert Flello (Stoke-on-Trent South) (Lab)
Was not another thing sneaked through the Budget quickly and carefully: the more than £1 billion hit that British pensioners will take as a result of the announcement on “simplifying” personal allowances for pensioners?
Ann McKechin
My hon. Friend has cleverly noted that hidden message, to which, I am sure, the Chancellor was keen to avoid drawing attention. However, pensioners are not as daft as he thinks, and I think that they will soon reckon that they are paying for the millionaires’ tax bonus announced today.
There has also been complete radio silence on other matters: women, for example, or children. By any rational definition, the Budget has not only ducked the hard issues, but entrenched the division in our society.
Robert Halfon (Harlow) (Con)
For 13 years of the Labour Government, the millionaires’ tax rate that the hon. Lady mentioned was at 40%. That was changed only in the last stage, and it is now 45%. Why was it 40% for so long while she was in office?
Ann McKechin
As even the Chancellor would admit, the economy was very different. [Interruption.] We had job growth and we were taking people out of poverty—that was the difference, which the hon. Gentleman seems to have completely failed to realise.
The Chancellor must by now be all too aware of the criticism levelled at his efforts in the past two years. Women were left paying more than 72% of the net cost of the changes in taxes, benefits and tax credits in his June 2010 Budget, and the subsequent comprehensive spending review ushered in yet more of a burden on women and families. Of the £18.3 billion raised through net direct tax, pay and pension changes up to now, £13.2 billion is coming from women. For children, the position is even worse. If we are to reach the target set in the Child Poverty Act 2010, the Government need to reduce the number of children in poverty by 120,000 per annum.
Ann McKechin
In a minute. The Institute for Fiscal Studies has told the Government that their current policies will see poverty increasing by 100,000 people a year. What does it say about a country when it allows tax cuts for the richest but at the same time allows more of its children’s lives to be stunted? I will be interested to hear what the hon. Gentleman has to say about that.
Dr Huppert
The hon. Lady raises the issue about women, which is clearly important. That is why it is disappointing that at the end of the 13 years of the Labour Government, 28% more women were unemployed than at the beginning. Does she accept that, of the 2 million poorly paid people who will be lifted out of income tax, a huge proportion—[Interruption.]
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. If the hon. Gentleman wishes to make a speech, he should put in for it. He is not going to do it through an intervention.
Ann McKechin
I am grateful, Mr Deputy Speaker. The hon. Gentleman should remember that under this Government, unemployment among women is at its highest for more than 23 years. The Chancellor did not make one mention of what he will do about that scandal.
The Lib Dem part of the Government has made great play of the increase in personal allowances, but more than 70% of that benefits higher and middle earners and fails to benefit those at the lowest levels, who already do not pay income tax. I point out to the hon. Member for Cambridge (Dr Huppert) that, funnily enough, the majority of them are women.
While middle earners stand to gain £379 when the threshold reaches £10,000, low earners on housing benefit and council tax benefit will gain only a paltry £57, as the rest will be tapered away. Overturning the perverse reductions in tax credits, which increased child care costs and penalised those trying to work on the lowest income scales, would have helped those in need the most. As my hon. Friend the Member for Stoke-on-Trent South (Robert Flello) said, pensioners will also bear the burden as the years go on.
It is estimated that the reduction in tax credits on child care from 80% to 70% has pushed tens of thousands of parents out of the labour market, with 44,000 fewer families claiming support in December 2011 than in April that year. We have a Chancellor who thinks that it should be no problem for a cleaner to increase their hours from 16 to 24 hours a week to claim tax credits. Frankly, that is the reaction of someone living in a parallel universe, who fails to listen to those who have to attempt the challenge at a time when overtime and extra hours are almost impossible in most low earning jobs. As the Union of Shop, Distributive and Allied Workers reported yesterday, two thirds of those already receiving tax credits who are about to lose them next month already live in poverty: 200,000 couples with children face losing £3,870 per annum and an extra 80,000 children will be pushed into poverty by this one measure. It is immoral, unfair and unjust. I wait to see if anyone on the Government Benches can mount any argument to support such an outrageous measure, given that it completely fails their own core test of making work pay in every case. Even at this late stage, I hope that the Government will see sense and postpone the measure until universal credit is in place. If we are all in it together, why was there no mention of that today? It is a scandal of the Budget.
As the Scottish TUC pointed out in its Budget submission, it is now indisputable that Government policy is hitting wages much harder than profits. Indeed, as I pointed out at last week’s Business, Innovation and Skills questions, UK companies are now sitting on the highest ratio of cash reserves of any major western economy. That is not only unfair, but bad economics. We need more of those profits to be converted into real investment, and we need a much greater rise in consumption if we are ever to achieve the necessary higher growth.
The Government’s austerity plan has led to lower tax receipts and further downward revisions of growth, which is exactly the opposite of what we need. The Business Secretary has asked for a report on how to release company cash reserves. I welcome that, but I detect a complete lack of focus or priority in tackling the issue, just as I do in efforts to achieve a coherent industrial policy. Where is the Budget to create jobs? Where is the analysis to explain why, in the past year, female unemployment in Scotland and across the UK has increased by more than 17% , but male employment has increased by only l%? Where is the analysis on the increasing move into involuntary part-time working? Where is the analysis and policy on how to shift jobs into the industrial and manufacturing sectors, and to retrain those who have lost their jobs to enable them once more to hold down secure employment? Answer is there none.
The fact that we now have the highest female unemployment in 23 years was ignored in today’s Budget speech. That is not going to go away, and I fear that the consequences have been heavily underestimated by the Government, economists and our media. Far more women work in the public sector, and increasingly, men enter and compete for traditionally female-dominated work in the private sector. We are told that three quarters of public sector reductions are still to come, with the inevitable contraction of the work force, but there is absolutely no planning on how to create new jobs for the many women who will seek work.
Announcements on infrastructure are welcome, but construction jobs are entirely male dominated. Only about 1% of electricians are female, for example, and we have the lowest proportion of female engineering professionals of any EU nation, at less than 9%. The Government need to use procurement in such a way that will encourage and increase the numbers of women. There is an example for them to follow—the Olympic Delivery Authority has got more than 1,000 women into work in construction jobs—and I want to ensure that that good practice is followed throughout every major Government procurement programme to come.
Charlie Elphicke (Dover) (Con)
I agree with the hon. Lady that we need more women in work, and to look after women and take them out of tax, which is what the Government are doing. Nevertheless, she mentions jobs. In her constituency in the last Parliament, unemployment increased by 44%; in this Parliament it has hardly changed. Does she agree that the previous Labour Government’s policies caused massive damage to this country?
Ann McKechin
The hon. Gentleman distorts the employment figures in my constituency and my city, where jobs were growing before this Government started to suppress demand and consumption and to take away huge amounts in benefit. I do not want women out of tax; I want them to get better-paid jobs so that they are in a position to pay tax. That is the fundamental problem, and taking people out of tax is an acceptance of it. Far too many people work in jobs that are too low-paid, but we are not doing anything about it.
As the Joseph Rowntree Foundation and others have repeatedly pointed out, we have a high level of under-employment in this country—4 million to 6 million people are in that category. The Scottish TUC has calculated that more than 0.5 million people, or more than 17%, are either unemployed or under-employed. Tax and benefit changes do nothing to change that long-term lack of demand for jobs.
The Government had the opportunity today to move away from their failed policy of austerity and to focus on stimulus for growth and jobs. They have failed, but the consequences will stay with this country and the communities we represent for many years to come. I am sure that point will depress many hon. Members, and it should depress all hon. Members on both sides of the House.
Mr John Redwood (Wokingham) (Con)
I fully support the Government’s aim. We need to earn our way out of the fiscal crisis, the massive over-borrowing and the large deficits. I also fully support their aim to get more money from taxing the rich, and we need a tax break for everybody else. We need a stimulus to demand and growth in this country and it is welcome that, given the difficult figures before the Chancellor today and the situation he inherited, he has managed to find a way of cutting tax for most people. That will be welcome relief from the relentless pressures on private budgets that hon. Members and their constituents have been experiencing as we try to climb out of the crisis.
It would be helpful to remind the House of the general shape of the five-year programme to try to get the deficit down. We want to get to a position in which we are adding less to the new borrowing. It is not that we are paying off the debt or dealing with the nation’s mortgage and credit card; we are just not flexing them quite as much as before. The Government have said that, over the five-year period of the planned coalition Government, they wish to increase current public spending by £90 billion and tax revenues by £174 billion a year by the fifth year of the programme, compared with the last Labour year. The House can see that, on most normal ways of looking at the situation, the plan is for the heavy lifting of getting the deficit down to be done by a very large increase in tax revenues.
Those tax revenues best roll in if the economy grows reasonably rapidly. The more quickly the economy grows, the easier and less hurtful it is to get money out of people; the less the economy grows, the more the choices become difficult.
Barry Gardiner (Brent North) (Lab)
The right hon. Gentleman says that the heavy lifting will be done by the rise in tax, but does he accept that there is a ratio of 4:1 in the amount that will come from cuts in public spending and benefits to the amount that will come from tax rises?
Mr Redwood
I have just given the figures—they are taken from past and current Red Books—and the hon. Gentleman must make his judgment. I am giving the House my interpretation. Most people who see spending going up by £90 billion and revenue going up by £174 billion will say that the increase in revenue is doing the job of bringing the deficit down. If he compares that with Labour’s plans for even bigger increases in public spending, he can make a case. He may also have in mind—we have debated this in the House before—whether the cuts are real or not. Some programmes will experience real cuts. We know that because there is a much slower rate of growth in cash spending than anything this country has been used to for a very long time.
If debt interest takes too much of the extra money, and if welfare benefits take too much, other things will obviously be squeezed more, which could lead to very unpleasant consequences. That is even more reason why the Government are right to try to get the deficit down, so that we do not keep on increasing the debt at such a huge rate, and why they are right to keep official interest rates low—that helps with the cost of the deficit. It is also why they are right that we need to earn our way out of the situation by getting many more people back into decent jobs, so that they are paid more in work than they are paid on benefit. Surely the whole House can agree on that and share that aspiration.
Sheila Gilmore (Edinburgh East) (Lab)
We obviously want to get more people into jobs, but will the right hon. Gentleman comment on something the Prime Minister said in Prime Minister’s questions? He said that 600,000 new private sector jobs had been created since the election, but a year ago he said that 500,000 new private sector jobs had been created since the election, and three months before that he said that 500,000 new jobs had been created since the election. Is not the rate of creation of new jobs slowing down massively under this Government?
Mr Redwood
We all know from the output and jobs figures that the economy did not do as well at the end of last year as it had done at other times since the Government were elected, but we also know that the forecasts are that growth will now pick up. I am sure the hon. Lady will welcome that and join me in having a serious debate on what this Parliament can do to make it more likely that my constituents and hers have jobs, and more likely that they are better-paid jobs.
The question whether real public spending is falling or not depends on the rate of inflation in the public sector, so I urge again that we take advantage of the tough times. There is a two-year pay freeze for public sector workers, and the Government say that they are buying things more cheaply throughout the public sector. In addition, there are recessionary conditions in Europe and other parts of the world. If we take advantage of those things, it should mean that we do not have to have big real cuts in spending, because we will have that £90 billion per annum to spend by the fifth year of the strategy.
However, we should focus today on taxation, which is clearly what the Leader of the Opposition wanted to focus on. I do not think he listened to the Budget speech or the numbers he was told, because my right hon. Friend the Chancellor made it very clear that he had come up with a series of targeted measures to tax the very rich more than if he had not made the changes. That is fine by me, and I would hope it is fine by the Labour party, but the Leader of the Opposition seemed to say that it was not fair, because some rich people would still get away with it. However, if we get enough or more out of them overall, is that not worth while? Surely even Labour would accept that if we raise rates too high, the very rich go away—they find ways around paying the tax or do not pay.
Labour in opposition does not take that seriously enough, but the former Chancellor and Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), took it very seriously when he was in office. As Chancellor, he had the option of putting the 40% rate up to 45% or 50%, or the 83% that Labour had when previously in office, but he never chose to do it. I wish he were here today. If he were, I would ask him, “Why not?” I think his answer to Labour groups around the country is, reportedly, that had he raised it above 40%, he would have raised less money in taxation rather than more. Naturally he wanted to get more out of the rich—on that I agree with him entirely—but the way to do that was to keep the rate at a sensible level.
The Opposition should study the figures for tax receipts. If they look in the new Red Book, they will see that self-assessment income tax is plunging this year. That is exactly the problem that my right hon. Friend the Chancellor has to tackle. Under Labour, self-assessment taxation at 40%—the then rate—brought in £22.5 billion at its best, before it made a mess of the economy. The forecast for 2010-11 out-turn is £22 billion, and the forecast for the 2011-12 out-turn—soon to be seen—is only £20 billion. That means that the Treasury now expects a 10% reduction in self-assessment income tax receipts, which is where many of the high earners congregate with their complicated tax affairs. Those, then, who think that a 50p rate raises a lot more money have a lot of explaining to do given that we are in the middle of this collapse.
Mr Redwood
I am sorry but I will not get any more time, so I am afraid I cannot.
If the Opposition study the Red Book, they will also see that when the 45p rate is firmly up and running, there will be a surge in revenues compared with the current bitter experience with 50p. Self-assessment income tax is scheduled to rise to £28.5 billion by the last year of this Parliament, showing that, according to the Treasury’s own model, growth is expected. However, I think we will see a much disrupted experience of tax collection now, because if we give advance warning of a new lower rate, we might have a problem in the year before, but we will have to see—we will watch with great interest.
Overall, however, the House should note that there are difficulties with getting the massive increase in taxation from the country which everyone wants. According to the current receipts table, there has been slippage every year in the current receipts forecast under national accounts taxes compared with the autumn statement. Some of that, of course, is the result of the policy change on lower tax designed to help people—we welcome that very much—but we have to understand that it is very difficult to get as much tax out of the economy as many MPs would seem to like.
The Government are right to want a Budget for aspiration; they are right to want a Budget that allows us to earn our way out of this situation; and they are right that we need to make it more worthwhile to work. I hope that they will reinforce that message in future Budgets. Since the 1970s, in which time we have had Labour Governments as well as Conservative and coalition Governments, no Government have ever been able to raise more than 38% of the total national income from taxes. I am sure that Labour would like to try it, but actually the record shows that Conservatives have taxed a bit more as a percentage of national income than Labour—normally because they have had to clear up the mess, the debts and the deficits that they have inherited.
There is a natural ceiling on how much we can get out of people in a free economy. When we have a footloose international economy, it is all too easy for the people with talent and money—Labour might not like them—to go somewhere else, spend their money somewhere else and invest in jobs somewhere else. We desperately need every job that we can get, and we desperately need the good will of those with money, talent, entrepreneurial flare and ability. We also need the money of some of those who do not have any of the above—we still want them here and to ensure that they spend their money here.
The Budget therefore has to concentrate on the crucial issues of how we reward aspiration and generate true prosperity. A much greater man than I, I think, said, “You cannot tax a country into prosperity.” This country is not short of taxes. Governments have been incredibly inventive in finding all sorts of ways of taking money off people. They are taxed again and again and again—on income, on spending, on savings, on capital gain. There are endless taxes. We are not short of taxes. We do not need new taxes. We need a growing economy and to persuade people to pay the taxes that we have put in place trying to pay for the public services.
We want great public services but we need to understand the language of priorities. I think those priorities are shared across the House. Both Labour and Conservative Members would choose to make health and education their top priorities for public spending. The last Government certainly did that with large sums of money, and this Government are doing it with what money they can find. However, I also hope we would agree—this is more difficult when Labour are in opposition—that we need reform of those public services so that every pound we spend is a pound well spent. We need to increase productivity and quality, and get more for our money, because everyone has to accept that times are hard and the amount of money available will be limited.
The Front-Bench team need to do all they said in the Budget to promote growth; they need to do more to sort out the banks because until we have properly functioning and competitive banks—super-charged to lend against good projects—we will not go as quickly as we would like; and they need to ensure that every pound they spend in the public service is well spent. That is the way to earn our way out of the crisis and into prosperity. We cannot tax our way into prosperity but we can earn our way there.
Derek Twigg (Halton) (Lab)
I am grateful for the opportunity to speak in this debate. As always for the first speakers, the devil will be in the detail—as we pore over the Budget booklets to see what the Chancellor actually said and what it means to ordinary people. It is certainly clear, however, that it is not a Budget for fairness or growth. As the Leader of the Opposition made clear, the cut in the 50p tax rate is a cut for millionaires—not least, of course, for rich bankers.
Derek Twigg
I have just started. Can hon. Members hang on a second? I am sorry to excite them so much. I am happy to give way to one of them in a minute.
As we heard today, it is also a cut for many in the Cabinet. It is a £40,000-plus tax cut for millionaires—an amazing amount.
Charlie Elphicke
The hon. Gentleman said that this is a tax cut for millionaires. If Labour feels so strongly about this, why has the shadow Chief Secretary just been on the television refusing to commit to scrapping it? Does he regret that and think that she should rethink that position?
Derek Twigg
We are here to discuss the Chancellor’s Budget. He is suggesting that it is a fair Budget that helps particularly low-paid people, but, as we have seen, it helps the richest, not least some on his own Benches. Let us be clear about that.
Again, on personal allowances, we need to look at the detail. Let us consider the cuts to working family tax credits and the loss of child benefit. On the latter, by the way, the Chancellor used the phrase “cliff edge”, but we are still on the cliff edge—it is just a bit more complicated to get to it. That is the big change. Then there is the cost of living—energy prices, food prices and, interestingly, petrol prices. The Chancellor used to attack Labour over petrol prices when we were in government. I remember the fuel tax demonstrations. We have not seen many of them recently but the Chancellor has done nothing to ease the burden. We know what he did for VAT. That is what added to the cost of petrol and fuel for the people of this country. But the Chancellor did nothing. Many of my constituents have written to me asking that the Chancellor do something about it, so they will be bitterly disappointed today.
Brandon Lewis (Great Yarmouth) (Con)
Does the hon. Gentleman not agree that the Chancellor has done something about fuel duty by cutting the increases proposed by the previous Government?
Derek Twigg
We can go back to the fuel escalator and see who introduced that in the first place. The fact is that the Chancellor put VAT up, and that has been a major problem for people having to pay the extra, but of course the Chancellor has ignored that and done nothing.
The Budget does nothing for growth. We need growth in the economy to provide jobs and investment in businesses around the country. Someone said that all politics is local, and I will return in a minute to the specific issue and how it affects my constituency. Borrowing is £158 billion more than planned, and today we see that the February borrowing figures are much higher than expected, despite some of the spin beforehand.
Let me turn to unemployment, which is a crucial issue for my constituents. Unemployment has increased in my constituency, with a significant increase in the latest figures, not least in youth unemployment. Many hundreds of young people are not being given the chance for employment in my constituency, because the Government have no growth policy. Their policies are not having an impact in my constituency in terms of providing the additional jobs and growth that are needed. I have had more and more people come to me personally to ask specifically what the Government are doing—and what I am doing, as well—to help young people who are unemployed. I had a mother come to my surgery a couple of months ago who has two young sons who are unemployed and who are desperately trying to get jobs. It is all very well for the Chancellor and the Prime Minister to talk about how we should clamp down on the benefits system to encourage work, but people cannot find work in many instances. That is an important point that we should bear in mind.
Small businesses have been mentioned already. I have raised this issue on a number of occasions with the Chancellor; indeed, he was even gracious enough to say that he had listened to some of the points that I had made in announcing today’s initiative to help bank lending to small businesses. However, let me give hon. Members two examples of problems in my constituency. One company was unfortunately left with a large debt after the larger contractor it was working for went out of business. The company still had a full order book, but the bank refused to lend it money—a scandalous situation. Another example, which is just as scandalous, is that of a business person in my constituency who needed an overdraft for one day because of a short-term problem. However, the banks refused to grant it.
We shall see whether the Chancellor’s initiative will work in getting banks to give more help to small businesses, but my worry is that although those businesses that are able, much more established and probably in a stronger position may be able to get the money quite easily, the businesses that are struggling—the ones that are riskier to lend to—are the ones that we should be helping in particular. We will wait and see whether the Chancellor’s initiatives today will help those businesses. With the right help, a lot of those businesses can survive and maintain or increase employment. The message that I have been receiving from small businesses in my area is that they have not been getting help from the banks. I hope that the Chancellor’s initiative today will make a positive impact. However, I remain sceptical because of his previous announcements on trying to address the problem. When I mentioned it to the Business Secretary even last week, he said, “Yes, it is a problem.” That was his answer. We need real energy from the Government on helping small businesses. I therefore look forward to seeing whether this initiative works in the way the Chancellor has outlined today, although I remain sceptical.
We heard nothing about local government in the Budget. We have talked about fairness, so let me give some examples of unfairness in the way local government is funded—a crucial area that impacts on jobs, investment, planning and other issues. In Halton, for instance, we will be losing £44 a head in the next financial year because of the cuts. That compares with £28 a head for the much more prosperous Cheshire West and the city of Chester, and a loss of £19.32 for Cheshire East. Guess who is one of the MPs in Cheshire East? Surprise, surprise: the Chancellor. The 27th most deprived borough will face the largest cut in local government expenditure among those authorities. I am amazed—although I should not be amazed, really—that the Liberal Democrats are going along with this deliberate attempt by the Tories to push money out to Tory authorities at the expense of the most deprived areas in the country.
Why is this issue important? It is important not just so that local authorities can maintain crucial services such as education, social services, development and so on—many people on low incomes are particularly affected by cuts to those services—but so that local authorities such as Halton can regenerate and attract businesses to their areas. Indeed, Halton borough council has been particularly good at attracting development—it was mentioned the other day in a BBC report—whether in shopping and retail facilities, or development by other businesses, such as Stobart and Tesco, which opened up a chilled warehouse that is a large employer. Halton has been particularly good, including on planning and trying to encourage business.
The Chancellor talked about trying to reform the planning system to ensure that local authorities do more to secure investment and attract businesses to this country, and, of course, to their localities. We have fantastic opportunities in Halton, not only in our retail facilities or the developments by Stobart, but in business development, in areas such as the Heath business park, which is one of the foremost business parks in the region, and Daresbury laboratory, which Labour saved from closure and invested in and, I am pleased to say, whose science and business development the current Government are continuing to invest in. Our local authority has been able to achieve much in difficult times. A lot of that was put in place thanks to investment by the last Government. However, the cuts made by this Government are having a negative impact and will cause councils around the country a great deal of problems.
Interestingly again, there was no mention of the NHS in the Budget. That is no surprise. The Liberal Democrats have now supported the Health and Social Care Bill, which we have heard so much about. I have to say to them that every other month we get new recruits joining the Halton Labour party from their party, because they are fed up with the Liberal Democrats’ support for the policies of this Tory Government. In fact, people can no longer see the difference between Tories and Liberal Democrats, which is why—I am guessing—Liberal Democrats in my constituency are saying that what they are doing is a disgrace.
I want to say a couple of things about infrastructure. I agree with the Government that investment in infrastructure is crucial to give the economy a boost and attract more investment, not least from overseas. With the Olympic games, Crossrail and so forth, we have seen massive investment in London and the south-east. That will of course benefit certain parts of the country, but it will not deliver major benefits to areas in the north-west such as Halton. On the credit side for the Government, they have given the go-ahead to the Mersey Gateway bridge in Halton—a scheme, by the way, that was started under Labour and supported by Labour, and signed off by the coalition some 18 months in government. The project will help to provide up to 4,000 to 5,000 jobs in the Merseyside and Cheshire areas. We have all-party support for the scheme, which will be crucial for encouraging investment in my area, as well as the wider Merseyside and Cheshire areas. However, it will also provide hundreds of construction jobs, which will be important, as we have a particular difficulty with the construction industry at the moment.
At the same time, however, the Government are taking the lion’s share of any toll revenue over and above what is projected, as well as any savings on the project, and they are also limiting the discounts that the council can give to local people. It is important that local people, who use the current crossing for free, should get big discounts or pay nothing at all. I have already written to the Government, but we cannot get a proper answer to why they are doing that. Why should they take the lion’s share of any additional income or savings? They should be ploughed back into Halton, so that local people can be given bigger discounts.
My final point is about town centres and shopping centres. I did not hear much from the Government about how they are going to encourage the regeneration of town centres. We had a debate in this place a number of weeks ago, and I did not hear much in that either. For various reasons, areas such as Widnes in my constituency have done well at improving their town centres and developing their shopping and leisure facilities. However, as I mentioned in a previous speech, Runcorn is struggling to regenerate its town centre, for various reasons that I do not have time to go into today. Runcorn has potential, not least the attraction of its waterways, but the Government have had nothing to say about that. What we want to hear from them is what they are going to do, in real monetary terms, to help town centres such as Runcorn.
Stephen Williams (Bristol West) (LD)
All Budgets are packages, and all of them are balancing acts, and that is particularly true of a Budget presented by a Chancellor in a coalition Government. It is fairly clear for all to see, in bold primary colours, which are the yellow and which are the blue packages in this particular Budget. What is also clear is the string that binds together this Budget and this coalition Government: reducing our deficit from the position that we inherited, where £1 in every four was being borrowed; restoring our economy to balanced and sustainable growth; restoring and maintaining confidence in the international markets; and bringing about a fair tax system that rewards work and enterprise, and taxes wealth. Labour borrowed us all into the mess that we inherited in 2010, but under the coalition Government, Britain will earn its way back to prosperity.
As Liberal Democrats in the coalition, we wanted three tax changes in this Budget. First, we wanted a fair income tax system that would lift the low-paid out of tax and bring about a tax break for middle earners. Secondly, we wanted a system that would tax accumulated and unearned wealth fairly and effectively. Thirdly, we wanted action to tackle the abuse of the tax system that was taking place through aggressive tax avoidance schemes. All three of those objectives have been met by the Chancellor’s Budget.
Two years ago, we were all about to go out on to the streets to start the general election campaign. The Liberal Democrats’ No. 1 priority at the time was to achieve in this Parliament tax-free pay for all our fellow citizens earning less than £10,000. That objective is in the coalition agreement, and significant progress has already been made towards achieving it.
Dame Joan Ruddock
The hon. Gentleman is part of a Government who have voted to reduce the income of the average family with children by £530 from the beginning of next month. There is no measure in the Budget that will make up for that, and frankly, people in my constituency will see it as an insult to their intelligence.
Stephen Williams
The right hon. Lady will hear as I make progress through my speech that working families up and down the country, with or without children, will benefit significantly from the tax changes that the Government are making.
In the current tax year, we have raised the allowance from £6,475 to £7,475, lifting 800,000 people out of the income tax net altogether and providing a £200 tax cut for every basic rate taxpayer.
Stewart Hosie (Dundee East) (SNP)
Before the hon. Gentleman continues with his party political broadcast, may I ask him to look at his own Government’s Budget? Every single quintile will still be worse off after the Budget. It is in the Red Book. He is wrong.
Stephen Williams
These are extraordinarily difficult times, and none of us has ever shied away from the fact that we are in a tight fiscal squeeze or that there is a tight squeeze on family budgets. That is why it is important that we put more of people’s own money back into their pockets through the tax changes that we are introducing.
When the next tax year starts in two weeks’ time, the personal allowance will rise again, to £8,105, lifting 1.1 million people out of taxation altogether and providing a tax cut of £330. Also in two weeks’ time, as well as those tax changes, the largest pension increase for a century will have been delivered by this coalition Government.
Teresa Pearce (Erith and Thamesmead) (Lab)
Will the hon. Gentleman give way?
Stephen Williams
I cannot give way any more.
In this Budget, our Liberal Democrat priority was to move further and faster towards our goal of £10,000 tax-free pay. Liberal Democrats in the coalition Government are therefore delighted by the confirmation that the rise in the personal allowance of £1,100 will proceed in April 2013. It is the largest rise in the personal allowance for 30 years—that is, in all our working lifetimes. In April 2013, people will be able to earn £9,205 without paying tax, which will lift a further 840,000 people out of tax. Over three years, 2 million British people will have been raised out of income tax. That will help everyone who works part time, the majority of whom are women. The measures will lift young people on the minimum wage out of income tax altogether, and 24 million basic rate taxpayers will be better off to the tune of £546. These changes will allow people to keep more of their own money. They will inject spending power into local economies and they will make work pay.
As the front page of the Liberal Democrat manifesto promised, we have delivered more than £500 into the pockets and purses of Britain as a result of this Budget. It will have been obvious from the fact that my colleagues were waving their Order Papers earlier that we are extremely pleased to have achieved that. Let us contrast it with the last Budget under the leadership of the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), when Labour MPs waved their Order Papers following the abolition of the 10p tax rate. There could not be a greater contrast between the priorities of this coalition Government and those of the last Labour Government.
Charlie Elphicke
Does my hon. Friend agree that this Budget shows how effective partnership working can be in the coalition? Has he seen chart B.1 in the Red Book, which shows that those in the top decile—that is, the most well off—will experience the greatest reduction in income? They are being made to pay, despite Labour’s 1970s class war rhetoric.
Stephen Williams
I shall come to how the Budget will affect the most well off in society shortly.
Our second objective in the Budget was to rebalance the tax system, so that taxes would fall lightly on work and enterprise and more heavily and effectively on wealth. Already, this coalition Government have raised capital gains tax from the historically low rates that we inherited from the last Labour Government, and there have been no changes to inheritance tax. Some people might have wanted to drop the 50p tax rate altogether. However, we all know that 2012 is going be a difficult year for families up and down the country, and Liberal Democrats have been clear that now would not have been the right time to reduce the top rate of tax. I am pleased that the Chancellor has agreed with our position.
By April 2013, our top rate of tax will be in line with that of our competitor states in the European Union and the United States of America, but we will also have effective taxes on wealth in place by then. Stamp duty will be 7% on house sales of more than £2 million. We might not have got a mansion tax in this Budget, but we have certainly got a mansion duty. That mansion duty alone—just that one measure—will raise three times the amount lost through the lowering of the 50p tax rate by 5p.
The third objective that we set in this Budget was to take action on tax avoidance, and I am therefore pleased by the introduction of a 15% charge on personal property that is under corporate ownership. I am pleased that tycoons will have the reliefs that they claim restricted to 25% of their income, and I am particularly pleased that the general anti-avoidance rule for which I have argued for so long is to be introduced by this Government. I see that rule as a kind of electric fence across the tax system: a clear warning to every taxpayer that this is a line that they must not cross.
The Budget makes further changes to rebalance the economy, to restore green growth to the economy and to build on Britain’s strengths in engineering and the creative industries. In 2012, we shall see the launch of the green deal, which was spearheaded by my right hon. Friend the Member for Eastleigh (Chris Huhne), when he was Secretary of State, and which is now being taken forward by the Secretary of State for Energy and Climate Change, my right hon. Friend the Member for Kingston and Surbiton (Mr Davey). Last weekend, I witnessed the demonstration projects that are already taking place in my constituency under the Bristol Green Doors initiative, which are showing what every householder can do to take advantage of the green deal. Also in 2012, the green investment bank will be making its first investments.
The creative industries are incredibly important to our national economy, and I was pleased that video games were given recognition in the Budget. As a Bristol and west country MP, I was particularly pleased to see the extension of film tax credits to the television industry. The Chancellor mentioned Wallace and Gromit. Despite Wallace’s Lancashire accent, their home is of course Bristol. The films are made in my constituency by Aardman Animations, Europe’s largest animation company. It is incredibly important to the economy of Bristol and is a great British brand that sells millions of pounds of exports all over the world.
Mr John Denham (Southampton, Itchen) (Lab)
Will the hon. Gentleman tell me what the difference is between the tax breaks introduced by the Chancellor in today’s Budget and the tax breaks introduced by Labour that the same Chancellor scrapped in 2010?
Stephen Williams
The difference, as I understand it, is that these tax breaks are going to be focused on high-end television production, so that we no longer find ourselves in a situation in which “Coronation Street” can claim tax credits, as it did under the last Government. I do not think that there will ever be a risk of “Coronation Street” moving to China, but there was a serious risk that Britain would lose its animation industry to the rest of the world. These measures are right if we are to maintain British talent and innovation in this country, but it is also culturally right that children should watch programmes that have been made with the right regional accents and made around Great Britain.
For Liberal Democrats in this coalition, the headline of this Budget is that we have delivered a tax cut for millions of Britons and effective taxes on the wealth of millionaires. It is a Budget that maintains the confidence that Britain is back on track. It is a Budget that delivers the biggest tax break in a generation for millions of hard-working families. As a Liberal Democrat in this coalition, I am proud of the role my party has played in making Britain a fairer country.
Mr John Denham (Southampton, Itchen) (Lab)
My morning newspaper today said that the coalition parties were inviting me to regard this as a Robin Hood Budget. I enjoyed the stories of Robin Hood when I was younger, but I must have missed the bit where Robin goes back to Nottingham castle and says to the sheriff, “You look a bit hard up. Would you like some of your taxes back?” I must have missed the bit, too, where Robin went to the front door of the cottage, cash in hand, while the rest of the merry men went round the back and made off with the tax credits, the child benefit, the VAT and all the rest of it.
This Budget does not deliver what the Liberal Democrats or the Conservatives say it will deliver. The Government will fail on each of the three main tests that they have to meet today. Of course, just a few minutes after the Budget statement, it is impossible to make a comprehensive assessment of it, but I suspect that the detail of the pensioner tax changes will come as a deeply unpleasant surprise to Government Members who were waving their Order Papers so cheerfully earlier on.
Teresa Pearce
It came as a surprise to me to read through the detail of the impact assessment, which says that in 2013-14, 4.41 million people over 65 will be worse off because of the age allowance, and that 230,000 people will be brought into income tax. I wonder whether the Liberal Democrats will be proud of that.
Mr Denham
I am grateful to my hon. Friend: 4.41 people—4.41 million older people—[Interruption.] Government Members may laugh, but they have just cheered a Budget that is going to make more than 4 million pensioners worse off, because they did not understand what they were cheering.
The Budget has three tests. The first is the immediate action needed to create growth and jobs in the economy, to bring in taxes and to reduce the deficit. The second challenge—even if the Government get the first right, painful times cannot be avoided—is to ensure that the burden of the challenges is shared fairly; in other words, whether we get fairness in tough times. Does the Budget really say, “We’re all in it together,” or does it look after those already better placed to get through the next few years more generously than those who struggle hardest?
There is a third challenge for this Budget. The Institute for Fiscal Studies made presentations to MPs this week. It said that the slowing of growth since this Government were elected meant that even by 2016 the economy would be 3.5% lower than it would otherwise have been and perhaps 12% smaller in comparison with the growth rates of 2008. The Resolution Foundation, also drawing on the Office for Budget of Responsibility, calculates that disposable income for low and middle-income households will fall by 8% between 2008 and 2015. What that means is that our economy will have fallen behind, our incomes will be lower and our capacity to fund public services and social security will have been reduced. I hazard a guess that nothing that has happened today will change that grim picture by any significant degree.
The third question, then, that the public will be asking is how, after all this pain, we will pay our way in an increasingly competitive world? If we cannot compete and cannot create wealth by succeeding in global markets, we will never offer new opportunities and hope to those young people whom The Financial Times described on Saturday as “the jinxed generation”. The world economy will have moved on massively and the challenge of building British companies into those that can succeed in ever-tougher global markets will be harder than ever. If we do not lay the foundations for that success now, it will be harder to start later.
The truth is that on each of those three tests—the immediate future, fairness and laying the foundations for the future—the Chancellor’s speech gave little ground for optimism.
Caroline Lucas (Brighton, Pavilion) (Green)
Would the right hon. Gentleman add a fourth test to the three that he has set out, which is whether or not this Budget takes us in a more sustainable direction? On that measure, the Chancellor started by saying that oil prices are of great concern, but what he has now done is to give a huge tax break for more oil drilling.
Mr Denham
I am happy to include that test. One of the missed opportunities will turn out to be in the low-carbon economy that will dominate the global economy in the 21st century.
Things have turned out so much worse than in the heady days of the new Chancellor’s optimism when he told us in his first speech that the economy was set to grow steadily; that unemployment would fall year on year; that the deficit would drop like a stone, yet front-line services would be protected; that the private sector would expand magically, more than filling the space left by public services; that the banks would lend; and that the whole tiresome infrastructure of regional investment, job guarantees for young people and a coherent planning system could simply be swept away. Well, the Chancellor, the Deputy Prime Minister, the Prime Minister and the whole coalition were wrong.
The spending cuts, drawing billions out of the economy, were too far and too fast. The Government’s gloomy talk first unnerved and depressed consumers; then the VAT hike took money from them when we needed them to spend. Now the cuts are really beginning to bite. The Government were so cocksure and complacent that they strung together, purely for cynical political purposes, a series of half-baked, ineffective measures that were more or less abandoned as soon as the last press release had been issued: the national insurance holiday; the regional growth fund that does not pay out any money for months or years; the business growth fund with few investments; the special support for exporters with a handful of users; the Work programme that does not work; Project Merlin; and the youth contract that has not even started two years after the future jobs fund was scrapped. Any right hon. or hon. Member who gets excited by any measures announced in a press release for this Budget should remember what happened to the last lot.
Opportunities were missed—to tax bank bonuses, to fund real jobs for young people, to cut VAT for families, to cut national insurance contributions for small businesses taking on staff, to bring forward infrastructure spending. But what did we get? Just a feasibility study on Monday of this week, two years after the need was first identified. No, the short-term measures have failed, and we have seen no change.
Fairness has been well debated today. Let us remember one point—in April, families with children, taking into account the personal allowances and all the other changes, will be £530 worse off on average. When we look at next year’s personal allowances, I am sure it will also be clear, when the dust has settled and the IFS has done the figures that take into account all the other changes, that those families will still be worse off. Hon. Members should look at the Red Book and see which families are going to pay a higher proportion of their income, and it is those on low incomes.
This Government have been mired in unfairness from the beginning. We should remember that one of their first actions was to cancel changes to pension tax relief, which would have brought in £1.6 billion from the very highest earners in this country. We did not hear the Chancellor reminding us of the things he has already done to tilt the system to those best able to get through the next few years. I believe that the Government will pay the price for that.
The truth is that it is not a matter of whether stamp duty brings in more money or whether the anti-avoidance measures—the Government should tackle avoidance in any case—bring in more money. The challenge for this Government and this Budget was to devote every single available penny to raising the incomes of hard-pressed low and middle-income families and to get the economy growing. There was no justification for singling out the highest rate of income tax on earnings over £150,000 a year. The average person in work in my constituency will have to work for seven and a half years to earn £150,000. To single out that higher-earning group and to cut their tax was wrong.
This was not the fairness in tough times that the country needed, but the other failure in the Budget was the failure to lay the foundations for the economy that we need in the future. The truth is that despite the pressure on the public finances, there is no shortage of money to rebuild the economy. UK companies are cash-rich. Sovereign wealth funds are out there. There are pension funds, closer to home, with money to invest.
Mr Denham
I will not give way, because I have only a few minutes left. The problem is that those bodies are not investing, or at least not investing in Britain. The reasons are clear: in the short term, Government mistakes have caused the economy to stagnate, and there is also no certainty—no “compelling vision”, as the Secretary of State for Business, Innovation and Skills rightly put it. Some of us thought it was his job to come up with a compelling vision, but he is right that it is not there. There is no predictability.
Goodness knows it took my Government long enough to take a decision on Heathrow. That decision was then cancelled, and then ruled out. Today in the Budget, we find that Heathrow is back on the agenda. Billions of pounds of business investment cannot take place because of the failure of Governments to take that decision, one way or another. That uncertainty and unpredictability runs through the Government’s business failures. Low-carbon energy manufacturing and services will dominate the 21st-century global economy, but the Chancellor says that he does not like the environmental policies, while the Deputy Prime Minister says that he does. We had illegal flip-flops on feed-in tariffs, which means that a whole group of investors will never come back and invest in green energy again. Those on the Government Benches have no idea that business needs certainty and predictability, not short-term changes.
We have today heard all that stuff about the oil industry. In last year’s Budget, the Government massively increased the risk penalties for investing in the North sea by means of a last-minute political gimmick that changed the tax regime that applied there; again, that meant uncertainty and unpredictability. Despite the Chancellor’s words, there is no serious attempt to identify the technologies and capabilities that will give us the ability to compete in future. The odd speech here and the odd announcement and press release there does not match up to the job—not when we look at what our competitors are doing.
Today, we again heard about broadband, but what did the former chief operating officer of BT say about the Government’s broadband strategy in another place just a couple of days ago? He said that it was so weak that this country will be
“frozen out of the next industrial revolution”.
Just because there is a mention in the Red Book about the broadband strategy does not mean that there is one, or that it is good enough, so it is a no on that third test, which is probably the most crucial.
The next few weeks, months and years will be hard for everybody. People in this country are stoic. They will tolerate a lot if they think that the right things are being done to build a future for their children and families, and to give us long-term security. The Government do not have a clue how to create the conditions in which investment will take place, business will grow, and we pay our way and have the jobs and wealth that the people of this country desire. The Budget is unfair, has missed opportunities, and will fail the country.
Stephen Mosley (City of Chester) (Con)
I welcome the measures that my right hon. Friend the Chancellor announced in his Budget—measures that continue to lay the foundations of an economy underpinned by enterprise, opportunity and wealth creation. The European and global economies have had a torrid time over the past two years, but the Chancellor has been unwavering in his commitment to bringing our spending and our deficit under control. Unless we do that, we have no chance of creating the future economic success that we all desire. I am delighted that the Chancellor is taking strategic decisions on how our economy should evolve and compete in future.
Jane Ellison (Battersea) (Con)
The right hon. Member for Southampton, Itchen (Mr Denham) completely ignored all the announcements about corporate tax rates. I wonder whether my hon. Friend will cover those rates, and the way that they incentivise business growth.
Stephen Mosley
Corporate tax rates, of course, are one incredibly important area, but there are many others. In my speech, I shall concentrate on some of the issues that the right hon. Member for Southampton, Itchen (Mr Denham) talked about, to do with investment.
Many people rightly ask, “How will we, in Britain, earn our living in the global marketplace of the future?” Like the Chancellor, I believe that there are sectors in which the UK can take a global lead, in which we have the ability to excel, and that have the potential to generate growth for future generations. The one that I will concentrate on is the digital economy.
The UK’s information technology and telecoms industry makes a gross value added contribution to the British economy of some £81 billion a year. That is around 9% of the total economy—it is a very similar figure to that for the financial services industry. Around one in 20 members of the work force—1.5 million people—are employed in IT and telecoms. There are around 100,000 unfilled job vacancies being advertised, and it is estimated that more than 500,000 new IT and telecoms professionals will be needed over the next five years. By exploiting the full potential of the technology industry, we could boost the UK economy by an additional £50 billion over the next seven years.
The Chancellor’s speech gave extremely encouraging signs that investment in information and communications technology is set to continue, but more needs to be done if we are to harness our real potential to make our country a global leader in the digital economy. We have a world-class base from which to grow further, but we require proactive engagement from the Government if we are to speed up growth and increase the economic potential of ICT businesses. We must be much more vigorous in promoting the industry to stimulate wider and sustained economic growth.
Ian Lucas (Wrexham) (Lab)
I am listening carefully to the hon. Gentleman’s speech, not least because he is my neighbour, and I agree with much of what he has said, but does he not regret that the Government put back the delivery of universal broadband by three years, from 2012 to 2015—two years after it will be delivered in Morocco, which I visited last week?
Stephen Mosley
If the hon. Gentleman, my neighbour, will bear with me for 30 seconds, I will get to broadband.
Stephen Mosley
Ultra-fast is, I think, the current term. Mr Deputy Speaker, I know that you have been involved with the Parliamentary Internet Communications and Technology Forum. We recently arranged a series of meetings with parliamentarians and industry representatives, including the UK chief executive officers of some the world’s leading IT businesses—for example, Facebook, Intel, IBM and Fujitsu, among many others.
The universal message emanating from the meetings was that the UK technology industry must be promoted by Government whenever possible, and that greater care is needed if the UK is to attract, train and retain the highly skilled individuals who will help our economy to grow. Specifically, five key recommendations were made. The first had to do with the broadband issue: the Government must speed up the roll-out of superfast broadband. I totally support that, which is why I am absolutely delighted to welcome the Chancellor’s commitment to investing more than £780 million in broadband infrastructure to make sure that Britain has the best superfast broadband network in Europe by 2015. I am also pleased about the Government’s commitment to start the roll-out of 4G mobile networks, with the spectrum auctions planned for later this year.
Mr Graham Stuart (Beverley and Holderness) (Con)
Does my hon. Friend agree that we must reverse the disastrous collapse in the number of graduates coming out of universities with computer science degrees, which took place over the last decade in which the previous Government were in power?
Stephen Mosley
It is funny that my hon. Friend should say that, because our group’s second recommendation was that the Government should increase investment in ICT in schools. I was pleased to hear the Chancellor highlight the importance of education in building our skills base, because if any industry hopes to compete and thrive, the fundamental basis is the skills base of the domestic work force. My right hon. Friend the Education Secretary recently announced a shake-up in the way that computing is taught in schools. That follows calls from industry and academia, who suggest that ICT in schools is too focused on the use of specific software packages, and not focused on the underlying technologies or on learning the computer programming skills that will help to encourage young people to develop their own products and be on the cutting edge.
Rebalancing the curriculum is a vital step, but there also needs to be greater emphasis on the quality of ICT teaching in schools, along with a concerted effort to champion future careers in the sector. I have already outlined the huge significance of IT for the wider UK economy, yet since 2002 there has been a 33% reduction in applications for computing degree courses. More must be done to encourage our young people into an ICT career if we are to reap all the potential benefits to our economy.
Diana Johnson (Kingston upon Hull North) (Lab)
Does the hon. Gentleman share my disappointment that the Education Secretary has not included ICT as one of the core subjects in the English baccalaureate, and therefore as one of the key areas that our young people need to study?
Stephen Mosley
The English baccalaureate covers the key core skills we want people to learn. ICT is an important skill, but I do not think it should be included in the baccalaureate, which covers maths, English, basic sciences—the basics. IT is a highly skilled area. Some people might be suited to study it, but others might not. Those who have an aptitude for it should pursue it and achieve.
Thirdly, it is imperative that the UK trains and retains world-class individuals. Over the past decade, the UK has become a receiver of technology developed abroad, which has slowed down the development of technology in the UK. The overriding message coming from industry is that the single most important criterion when deciding where to make new investment is whether the skills to support the investment are available in that location. We have the broad skills base in this country to push on and achieve great things, but without the right commitment and investment—such as in ICT apprenticeships—the UK risks being left behind by our global competitors.
Fourthly, we need a strategy to encourage the take-up of new technology by small and medium-sized enterprises, and to encourage their growth and development. Specifically, it was recommended that the Government can assist by encouraging venture capital investment for the longer term. We have a huge wealth of talent in the UK but, in order for our entrepreneurs to grow their ideas into successful long-term businesses, they often have to sell their ideas and businesses abroad. A prime example of that is the once globally dominant UK computer games industry, which is now mainly foreign-owned and seeing future investment disappearing offshore. I was therefore extremely pleased to hear that the Chancellor will focus on that industry. If we want our smaller businesses to flourish, we should be encouraging investment to help nurture existing small businesses to become medium-sized businesses, and medium-sized businesses to become large ones.
I pay tribute to the Government for their catapult centre programme. We in the UK have always been on the cutting edge of technology, but our inability to transfer intellectual advances to market has often proved to be a stumbling block. The new catapult centres will help to commercialise the results of research in technology areas where there is potential for multi-billion pound global markets, including the digital economy. That is to be wholeheartedly welcomed.
Finally, the Treasury must emphasise and reiterate the importance of technology to the economy and commit to the long-term opportunities that the sector has to offer. We in the UK are attracting world leaders in new and emerging technologies to our shores. We have the skills base, the flexibility and the economic foundations to encourage more companies to invest here. The Government must champion the technology sector more vigorously if we are to harness its great potential to act as the catalyst for long-term growth in the United Kingdom. I am delighted that, as spelled out in the Budget, the Chancellor and the Government are now grasping that opportunity.
Sammy Wilson (East Antrim) (DUP)
We all recognise that the Chancellor has been confronted with a difficult task in this Budget. He has had to walk a tightrope: if he goes too far one way, our financial credibility is immediately questioned so interest rates have to rise, yet if he goes too far in the other direction, we impair our ability to earn our way out of the recession.
My party does not have any political points to score against the Conservative party, as it is not represented in Northern Ireland, so we simply want the Chancellor and the Government to succeed. That is the basis on which I assess the Budget. Is this Budget likely to achieve the objectives we all want: restored growth and increasing employment?
Some of the Budget’s measures are very welcome. From a Northern Ireland perspective, we welcome the devolution of air passenger duty, which will be included in the Finance Bill. That will enable the Northern Ireland Executive to set its own rate for long-haul direct flights from Northern Ireland, which is essential to our investment strategy and to tourism. We also welcome the reduction in corporation tax as it brings our rate closer to the rate in the Irish Republic, which is our main competitor for foreign direct investment—although those rates are still far apart. We welcome, too, the film and high-end TV tax concessions. We have been seeking to promote that industry in Northern Ireland. The Executive have pushed for that. “Game of Thrones” is now filmed in Northern Ireland, and it has been a big revenue earner. We have also pushed for Belfast to be chosen as one of the broadband cities.
However, although there is clearly much to be welcomed, I am concerned about three aspects of the Budget. First, the Government could spend more money on infrastructure in the United Kingdom. That would enhance economic growth. Such pump-priming by the Government could enable us to draw upon some of the funds—£700 billion in cash—that private companies are currently hoarding.
After all, does the Chancellor believe his own rhetoric? He says that both the deficit and debt have fallen as a percentage of GDP, that the public sector net debt peak will not be as high as previously anticipated, and that we are on course for deficit reduction. He must therefore know that his credibility in the international money markets is sufficiently high for him to be able to invest in projects that offer a rate of return and that could help to promote economic growth, rather than merely pay unemployment benefits. Either he does not believe his own rhetoric, or else he is deliberately—perhaps for ideological reasons—holding back on what I believe could be an important means of investment.
Secondly, I am concerned about a choice that has been made. At a time when we are preaching austerity to people who are bleeding in that many of them cannot pay their heating bills or their rent or buy food, it is bizarre that the Government should choose to prioritise reducing the top rate of tax for the top 2% of earners in this country. That demonstrates a blatant disregard for the very difficult sacrifices that we are asking people to make.
Let us consider how the money could have been spent. There has been much argument today about whether or not the rich will pay more. The one thing we do know, however, is that it has been calculated that that reduction in the top rate of tax will immediately release £3,010 million to the top 2% of wage earners. The Government are relying on tax exiles flooding into the United Kingdom and beating on the door of Her Majesty’s Revenue and Customs to ask, “May I pay my tax in the United Kingdom now?” The Treasury hide behind the theory of “behavioural assumptions”, but we need only look at the literature to see that there are a lot of assumptions that may, or may not, be realised. The same situation applies for the money that could come from stamp duty and limits on the back claims.
The fact is that this money could have been used in a better way. For example, the Government could have used it to lower fuel duty, but despite the fact that fuel prices are going up, the Government are going to take £800 million more off motorists in the United Kingdom this year.
Jesse Norman (Hereford and South Herefordshire) (Con)
I am thoroughly enjoying the hon. Gentleman’s speech and would not wish to interrupt it for a second, but may I ask him what money he is referring to when he talks about a better way of spending that money? What we know from the Treasury is that our top rate raised very little incremental cash and that reducing it is likely to raise more money from the same people. So what money is he talking about?
Sammy Wilson
According to the Treasury, the direct impact—the direct static cost—is going to be £3,010 million. That is the figure that the Treasury has put out. Some of that money will be offset by behavioural change, but that is based on assumptions about tax income elasticity and what happens to income. So real money will go back to people who currently are top rate taxpayers. My argument is this: if the Government were going to release that kind of fund, would it not be far better to release it either to bring more low-income families out of tax or to release the hard-pressed motorist from the fuel duty that is going to be imposed on them?
Sammy Wilson
That is so, and I wish to discuss another measure in this Budget that will affect hundreds of thousands of people.
Mr Nigel Dodds (Belfast North) (DUP)
The people of Northern Ireland are grateful to my hon. Friend for the work he does as Finance Minister in Northern Ireland to move its economy forward. Does he agree that people up and down the country are terribly disappointed that the Budget contains no additional measures to reduce the amount of fuel duty and VAT on petrol and diesel, which, in Northern Ireland, is the highest in the entire European Union?
Sammy Wilson
The continuation of the measures that the Government have in the Budget already will take a further £800 million out of motorists’ pockets over the next year.
The final point I wish to discuss is regional pay. Some people may regard what I am about to say as special pleading for Northern Ireland, but may I remind hon. Members that this will have an impact on those who represent constituencies outside London and the south-east of England? This measure will have an impact on all the rest of the United Kingdom. Some have the idea that, because there is currently a difference between private sector and public sector wages—it is important to make the point that the difference is current—wages should be frozen for people in the public sector, so as to stimulate the private sector. I do not quite understand the economics behind that, because freezing wages in the public sector will have a deflationary impact, especially outside the south-east of England, given the prominence of the public sector not only in Northern Ireland, but elsewhere. The areas of the United Kingdom that are currently falling behind, even given the slow rate of economic growth for the country as a whole, will be the parts that will be most punished. This is one of the most divisive measures that I have ever heard about and it does not even address a problem, because there is no evidence for it. We have 3 million people unemployed and we are not recruiting in the public sector, so how on earth are higher wages in the public sector going to prevent private sector employers from being able to find workers? This argument does not work. The impact of the measure will be very detrimental. I hope that we will have an opportunity to re-examine that in much more detail in this House, because I believe it is one of the most pernicious measures floated in this Budget.
There are things that the Government could have done but have not done. There is an unfairness in this Budget; it is an unfairness in respect of not only different income groups, but different regions of the United Kingdom. I am a Unionist and I believe in the value of the Union. I believe that it is important that, as part of the Union, we bear the burden when there is a problem. As my right hon. Friend the Member for Belfast North (Mr Dodds) mentioned, that is one of the reasons why, despite the unpopularity that this has probably led to in Northern Ireland, I have made the case that if there is an economic crisis facing the United Kingdom, we cannot ask to be exempt from the burden to be borne. However, it makes it far, far more difficult to say to public sector workers that their wages are going to be frozen, to say to the ordinary citizen that they should tighten their belt and to say to people who live in Northern Ireland that they have to go through these hard times when the Government are saying to those who can most afford it, “We are asking you to loosen your belts. We are going to fill your pockets.” That is exactly where the unfairness in this Budget lies.
For that reason, although I want the Government to succeed, I believe that they have not taken the opportunity to inject money into the economy. If they have credibility, they should use it in the financial markets and borrow to invest in infrastructure, rather than paying people to sit on the dole. If the Government want people to face up to the hard economic facts, they should do things fairly and not in a unjust and uneven way. If they want to be the Government for the United Kingdom, let us make sure that some parts of the United Kingdom do not have to bear a bigger burden than others.
Brandon Lewis (Great Yarmouth) (Con)
I wish to focus primarily on the Budget’s impact on business and growth, but before doing so I wish to touch on one other area: duty stamping on alcohol. The Red Book says that the Treasury will look to move forward with its consultation on duty stamping, and I welcome that important step. The wholesale industry estimates that the revenue lost to the Treasury through the lack of duty stamping on beer alone is about £500 million a year and that the loss might be the same again in respect of wine. We need to consider beer and wine together, because the two products are clearly becoming competitors and we cannot deal with one without looking at the other. Duty stamping on spirits is already in place and it has not affected the sale of spirits or the industry, as spirits sales in this country have increased by 8%. So it is really important to examine this area, in order to plug another hole and get back for the Treasury some of the money that was wasted and spent by the previous Government.
Such an approach will also have a knock-on benefit, as so much of the Budget does, for other Departments and other areas. For example, a benefit to the health industry will result from a lack of the cheap alcohol that can be found in small corner shops in some parts of our country. Such shops do not necessarily buy through the legal market, taking advantage of alcohol for which the duty has not been paid and which is then sold cheaply to young people. We can cut that out, too; this has a big economic impact and a big health impact, and I welcome the move in the Budget.
Jesse Norman
My hon. Friend may not be aware that I have just been granted a Westminster Hall debate next Tuesday on precisely this issue, so I am extremely grateful to him for introducing it in the main Chamber.
Brandon Lewis
I congratulate my hon. Friend on securing that debate and I look forward to joining him on Tuesday to discuss the issue in more detail.
No Budget stands alone, and what is important about this one is how it builds on what has been done in the past couple of years, particularly for business. When we consider how we want to move forward in having an economy that grows, with more jobs and more prosperity for all, it is important to remember that we need to rebalance our economy and have growth in the private sector. So the moves that have been taken for business are hugely important, and the further lowering of corporation tax and the speeding up of that process is very welcome. It makes it very clear that our door is open for business. When private sector businesses grow, they need more staff and more money. Less is then spent through the welfare state and our whole economy benefits.
The change in the top rate of tax, which gets rid of the 50% rate, is also important. Apart from the economic arguments that have already been rehearsed today, that has a psychological impact. A message goes out to high earners—the people who are business leaders and business owners—that we value the work they do. People who aspire to get to that position see that they can work hard, develop and grow their business, and benefit as well.
Austin Mitchell (Great Grimsby) (Lab)
Does the hon. Gentleman accept that as well as giving those people that possible incentive, the change also gives them an incentive to spend more time on the golf course?
Brandon Lewis
That shows a lack of understanding of how the business world and business leaders work.
Andrea Leadsom
Does my hon. Friend agree that it is astonishing that the Opposition do not seem to realise that it is the private sector, wealth generation and incentives that create the income for the Exchequer that enables us to pay for good, sound public services?
Brandon Lewis
I thank my hon. Friend, who makes an important and valid point.
One of the important things that the Government have done is to introduce enterprise zones. I appreciate that I have an interest in that as chairman of the all-party group on enterprise zones and local growth, but they are hugely important. In the New Anglia enterprise zone alone, we are looking at about 2,000 extra jobs in the next couple of years, growing possibly to 15,000 in just one enterprise zone in the East Anglia region that is focused on energy.
It was pleasing to hear the Chancellor explain today that one of the industries on which the Government are focused is energy. There are huge opportunities for growth for this country, with £50 billion of business available to companies along the coastline of East Anglia. We have a whole energy offer and proximity to the energy market that are almost unique. We are most often competing with countries overseas for that business, so it is hugely important to companies to understand that the Government are supportive and want that business to be based here in this country.
The moves on corporation tax and capital allowances for enterprise zones are hugely important. I have a couple of asks, to follow on from Prime Minister’s questions today. I make a plea to the Chancellor and the Treasury to look hard at whether we can extend that capital allowance opportunity to all enterprise zones to provide a supercharged boost as they move forward to growth.
Bob Stewart (Beckenham) (Con)
Does my hon. Friend share my hope that we can bring corporation tax down again next year? That would really help business. Does my hon. Friend agree?
Brandon Lewis
Absolutely. That is why I welcome the Chancellor’s comment today. The further and the faster we can go on that, the more welcoming we will be for business, and therefore jobs and economic growth.
I have one other suggestion for the Treasury to consider in the years ahead—how we deal with regulation. The changes to planning will be a massive advantage to businesses. One of the attractions of the enterprise zones is how they make planning so much easier by freeing it up. We can do more on regulation. One in, one out is a great aspiration, but it depends on what the one coming in is. There is a strong argument for looking at the billions of pounds a year that business has to spend on dealing with regulations, and targeting a value figure to cut the cost of regulations in this country.
I welcome the Chancellor’s statement about creating certainty for decommissioning, particularly for the oil and gas industry. That will be widely welcomed by the industry and I am sure it will be welcome in Great Yarmouth, as we have a huge number of businesses working in that field, developing and investing massively in our country and offering more jobs and more employment. It further builds on the opportunities for the New Anglia enterprise zone.
To see the benefit for business, we need strong, growing, improving infrastructure. I appreciate the work that the Government have done and the announcement last year of the dualling of the A11, which will open up that corridor of economic growth right through East Anglia, particularly in Suffolk and Norfolk. I make a small plea for something on which the Norfolk and Cambridgeshire Members of Parliament are working closely—to open up the spine that the A11 joins, with the full dualling of the A47 from Great Yarmouth through to Peterborough. We will continue to build the case for that and the economic growth that it would bring.
The Budget brings further benefits through the mobile infrastructure fund. The A143 from Great Yarmouth to Haverhill will benefit. The Growing Places fund will put almost £6 million into the New Anglia enterprise zone. Both of those provide more beneficial opportunities for business. As well as unlocking infrastructure growth, we should turn our attention to unlocking growth in the construction industry, which is a huge employer. We need more homes and more infrastructure to be built.
Employees and customers must be able to get from their base to the marketplace, and rail infrastructure can play an enormously important part in that. My hon. Friend the Member for Mid Norfolk (George Freeman) is working hard on some ideas about how to take that forward. He is to be congratulated, and I know he will speak in the House shortly. Through the work being done by the Department for Transport and supported by the Treasury, we have a further opportunity to unlock economic growth. We have just over 2,500 railway stations across the country, many of which we would all like to see regenerated and improved. Dealing with them as real estate rather than just as transport hubs would allow us to unlock up to £27 billion of business for the construction industry.
It is important that that kind of infrastructure develops and grows so that people can get to the marketplace quicker and businesses can transport their goods, products and customers from their bases to where they need to be faster. Broadband will open up communications and be a hugely important part of that, particularly for areas, such as Norfolk, with rural hinterlands where the transport infrastructure is not as good as we would like it to be. Broadband communication could make up for that deficit, so the target of 2015 is very welcome in Norfolk.
We have huge opportunities for growth. This Budget knits together work done by a number of other Departments and the past few Budgets and presents a real opportunity to encourage business to grow. It sends a strong message to business that this country is not only open for business, but clearly working hard to create the infrastructure and environment in which business and business people can flourish, and I welcome that from the Treasury.
Stewart Hosie (Dundee East) (SNP)
I will start by welcoming a couple of the measures announced today. The Chancellor spoke about backing the creative media sector, which has the potential to be very helpful for the games industry in Dundee. It is just a pity that the old scheme was scrapped and we had to have a hiatus until this one was introduced. We will of course look at the fine print to find out precisely what it does. I also welcome the doubling of council tax relief for serving service personnel, which some of my hon. Friends have campaigned on for many years, and the Chancellor’s comment that he expects to see exports doubled. I hope that when that work is under way the UK Government will work with Scottish Development International, which is already working with nearly 10,000 businesses to internationalise their work.
At face value, the changes to the decommissioning scheme and the new field allowance for the North sea are very welcome. Of course, that is a huge humiliation for the Chief Secretary to the Treasury, whose bright idea it was to increase North sea taxation last year without consulting the industry. However, I have to point out that from 2013-14 onward the decommissioning scheme will actually bring in an additional £1.2 billion to the Exchequer and from 2014-15 onward the new field allowance will bring in £130 million. That might be behavioural change; we will have to see precisely what it means. I also point out, in a gentle aside to the Liberals who have talked about how marvellous the Budget is, that in relation to the squeezed middle the threshold at which people pay the 40p rate of tax will decrease next year to just over £32,000—they have been not so much squeezed as almost halved by the actions of the Government.
The Chancellor, unsurprisingly, sought to take credit for his stewardship of the economy, but before he and his friends get carried away let us look at what he actually did. The deficit on the current budget for 2011 was meant to be £104.8 billion, and it was forecast to be £90 billion for 2011-12. Today the forecast for 2011-12 was increased to £98 billion. The net borrowing requirement was forecast to be £145.9 billion for 2010-11 and £122 billion for 2011-12. Today the forecast for 2011-12 was increased to £126 billion. The national debt, on the treaty calculation, was due to peak at 87.2% of GDP, or £1.2 trillion, in 2013-14, but today it is now expected to peak at 92.7% of GDP in 2013-14, which is £1.36 trillion.
Therefore, there was not a great deal for the Chancellor to be pleased about. That will, of course, allow him to claim that he is on track to meet his fiscal rules—that the structural current deficit should be in balance in the final year of a rolling five-year programme and that debt is falling as a share of GDP by the end of that period—but both those objectives are highly dependent on GDP growth, which, as we have noted in previous Budgets, is massively dependent, according to the OBR, on quite incredible, unbelievable and unmet rates of business investment.
In 2010 the Government suggested that business investment had to grow between 6.7% and 10.6% a year. By the time we got to the OBR’s fiscal outlook in November 2011 growth in business investment had turned negative for 2011 and the forecasts had been changed to deliver business investment growth from 2012 to 2016 of 7.7% to 12.6% a year. What we expect now, the Government having failed on all their measures so far, is business investment growth of between 6.4% and 10.1% from 2013 onward. I am certain that when we get to the autumn statement and are looking at weaker numbers and next year’s Budget the Chancellor will simply fiddle and make more aggressive the business growth investment figures for future years to pretend he is on target to meet his own rules.
That is why the OBR told us last autumn that the contribution of general Government consumption to UK GDP growth would be negative throughout the spending review period, and according to today’s Budget it still will be. It is also why this coalition’s cuts are hugely damaging not least in Scotland, and the changes over the spending review period that delivered an 11.3% real terms cut to Scotland and a 31.7% cut to the capital budget are barely altered by today’s announcements.
Never letting the facts get in the way of a good attack line, the Chancellor made the point that the UK Government are able to borrow quite cheaply at the moment. What he did not mention, and this was genuinely surprising, was the triple A rating that he normally uses in that argument. I suspect that it is because he has worked out that, although the UK had its triple A rating put under threat in February, it was paying an amount of money in yield on its five-year, 10-year and 30-year bonds, while Japan, which had a net debt twice that of the UK and two double A negative ratings, was paying a fraction of the yield on its bonds.
So, although I am very pleased that the UK is able to borrow at reasonably god terms, I am pleased also that the Chancellor has abandoned his boasts about the triple A rating, stopped fetishising it and is concentrating on what really matters, which is the yield that the UK pays.
Jesse Norman
The hon. Gentleman is slightly understating the case, is he not? The fact is that we are borrowing at extraordinarily low—historically low—nominal yields, and, given the level of inflation, at even lower real yields. That is a result of the deficit reduction strategy that has been followed, and one reason why we should not fret about double or treble A ratings is that the United States itself has been downgraded, as have one or two other countries, and their borrowing costs have not necessarily been affected. That is just a rational reaction to events in the capital markets.
Stewart Hosie
One might also make the case that the United States, with a fiscal stimulus programme, is borrowing money at negative real terms percentages. It has engaged in fiscal stimulus, not in the cut-and-burn approach of the UK Government, and, as the right hon. Member for Doncaster North (Edward Miliband) says, the US has succeeded where the UK is failing.
Andrea Leadsom
Surely the hon. Gentleman agrees that the US economy is not the same as the British economy. The US benefits enormously from being a foreign reserve currency, for example, so the situation is very different, and we cannot simply equate what happened in the US with what happened in the UK.
Stewart Hosie
The hon. Lady is obviously right that we cannot draw a direct comparison, and that is why I would not draw a direct comparison with the yield rates paid in Japan, but the point I was making is that it is wrong for any politician, particularly the Chancellor, to imply that a credit rating agency’s score is in any way related, or correlates directly, to the real yield that a Government pay.
Of all the things that the Chancellor could have done in the Budget but did not, the failure to act on the rising price of fuel was the most disgraceful. The previous Government were awful on fuel. They introduced the fuel duty escalator and opposed the introduction of a fair fuel regulator at every turn, but this Government, notwithstanding the rhetoric before the election, are little better.
Let us understand what this Government’s fair fuel stabiliser actually does. Fuel continues to rise by inflation and will, as confirmed today, when the price of oil is high, rise by inflation-plus—an escalator—when the price is low. A real fuel duty stabiliser would see the duty rate fall when the price rose, precisely because the UK Government already receive a VAT windfall at the pump or a North sea windfall at source in order to pay for it. Given the scale of the North sea windfall in particular, with £70 billion forecast over six years in last year’s Budget, which was £17 billion more than was identified the previous November, the failure to tackle properly the rising cost of fuel genuinely is a disgrace.
This year the forecast revenue for the six years from 2011 onwards is almost £50 billion, but that is based on a price for this year and the next two years of $111, $118 and $112 a barrel. The spot price today is $124.7, so we can safely conclude that, as usual, the UK Government’s assessment of North sea revenues will be understated. There is more than enough money to tackle the rising price of fuel properly, and not as this Government have done.
It has been described as pernicious already today; it is a pernicious measure to be cemented, I think, in future policy—I am talking about the unfairness of the proposal for regional pay. It will be extraordinary if the same person doing the same job in the same office with the same clients is paid differently in different parts of the country. I am very pleased indeed that the measure will not apply to Scottish Government civil servants, although I suspect that there will be huge resistance to the proposal from UK civil servants working outwith London.
Jake Berry
The hon. Gentleman is being extremely generous in giving way. Before I came to this place, I worked in a law firm. We had three offices—one in Manchester, one in Liverpool and one in London. We all did the same job, but we were all paid different salaries. Does the hon. Gentleman think that that was wrong?
Stewart Hosie
That was in the private sector. I am sure that the hon. Gentleman would say that he would negotiate his own wages or join others in a union to negotiate wages. We are talking about public service. If the hon. Gentleman’s attitude is the same as that of his party’s Front Benchers, he will seem to be saying that a public servant in Dundee or Dudley is not worth the same as a public servant doing the same job in Dartmouth. That would be worrying.
The real actions needed to kick-start the economy were almost wholly absent from today’s statement. The limited action on bank lending was announced yesterday and we have heard many of the promises before. I hope that the national loan guarantee scheme works, but to ensure that it does can we have transparency? Can we disaggregate the numbers so that no sector and no part of the UK is sold short in respect of that additional covered lending?
There was no specific action to get people to work or keep them in their jobs. Nowhere is that issue more important than with young people. The introduction of a national insurance break to help employers take on youngsters who do not meet the criteria for the Work programme would have been very welcome, but that was missing.
Shamefully, there was no action on direct capital investment, the most important thing that any Government can do. I am surprised that those on the Treasury Bench did not listen when the OBR said in 2010 that the impact multiplier for direct investment was 1:1, that for tax cuts it was 1:0.3 and that direct capital investment was three times more important and three times more beneficial at creating GDP growth than tax cuts. The Government even kept the squeeze on the very businesses that we need to create the growth. There was no change to the miserly annual investment allowances and that was a shame.
The Chancellor said that the Budget was fiscally neutral. To pay for his tax cut for the rich, he is squeezing the cash for services for those who need them most. When one considers that the total cost of the fiscal consolidation by 2015-16 will be £155 billion, that year and every year after that, and given a ratio of 4:1 spending cuts over tax increases, we can see where the priorities of the Government lie—not with people, not with jobs and not with growth.
Mr Robert Syms (Poole) (Con)
First, I draw Members’ attention to my directorship and shareholding in the Register of Members’ Financial Interests.
We have to understand that the coalition Government inherited an extremely difficult situation, with a massive deficit. The situation cannot be dealt with in one or two years; we are talking about a process over several years to get the public finances into reasonable order. Of course that would be easier with a benign world economy, but given the eurozone issue and higher fuel prices, there have been a lot of headwinds over the past 12 or 18 months. Nevertheless, the British economy has continued to grow and many jobs are being created, although the outlook is more difficult.
I welcome the fact that today the Chancellor has stuck to his plan—long-term fiscal consolidation. Clearly, there is very limited room for manoeuvre. I despair a little when colleagues are always trying to spend more money because, as we heard from the last Government, the money has run out. We are really talking about marginal changes to the tax system. Early in his speech, the Chancellor said that the Budget was fairly neutral in terms of its impact on the British economy, and that is probably right. Indeed, I am of the school of thought whereby I sometimes think it would almost be better to cancel the Budget and continue with the same policy rather than have to jump up and make lots of announcements and pretend that one is being hyperactive.
There are things in the Budget that I welcome. I certainly welcome the rise in personal allowances. It is vital that we increase incentives to work. Universal credit, when it comes in, will be vital in increasing those incentives, and the benefit cap is also significant. On the other side of the equation, it is important that people on low pay, who pay tax at higher rates than many people abroad, should be taken out of the tax system. We have made progress today, and I hope that we will make further progress in going beyond the £10,000 limit, because we have to get to a position in which people on relatively low wages really feel that there is an incentive to get out there, take a job and make a contribution for their family.
I welcome the Chancellor’s reiteration of his view that we should pay our way in the world by restoring the balance of trade, getting investment in, and trying to improve investment in the manufacturing sector, which has shrunk for too long. We need a good financial services sector, but it is vital that we nurse and increase investments in manufacturing. Recent announcements on the car industry are very welcome and bode well for future export levels.
One of the legacies of the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) is that we have one of the longest tax codes in the world. We must simplify it because businesses and individuals spend an awful lot of time trying to deal with its complexities instead of running their businesses and selling their products. I welcome the Chancellor’s proposed tax simplifications, which are vital.
Over the past few months there have been negotiations about the European Union treaty on more fiscal consolidation and co-ordination of tax policy. That gives Britain a great opportunity. If we can get our tax rates below those of our competitors on the continent, we will get a lot more inward investment. I welcome what the Chancellor has done on corporation tax, because we must reduce the rate. Let us not forget that most British companies are owned not by multi-millionaires but by pension funds. This measure means that we will leave more money in businesses and create a better environment for investments and pension funds, and that we will all be richer and more employed.
I welcome the Chancellor’s acknowledgement of the fact that we need to do more about airport capacity in the south-east. I recognise that there are problems to do with noise at Heathrow, Gatwick and Stansted, but it is not sustainable in the long term to say that we cannot have another runway at any of those airports; we have to have it somewhere. I do not know whether a new magic runway somewhere to the east of London is the answer. If we are to compete in the world economy, we must have routes to the world so that we can sell our exports. Some continental airports, including Schiphol in Amsterdam, Frankfurt and De Gaulle, now have routes to centres that we cannot accommodate within our system. We must have regard to the environmental problems but we must also, as a forward-thinking Government, consider how we can get more airport capacity.
The 45p tax rate has generated a lot of heat, although it is not happening yet. At the end of the day, one should try one’s best to raise money. The existing rate is not raising sufficient sums, and those who pay themselves greater amounts are in a good position to vary what they are paid in ways that give them opportunities to avoid taxes. Today’s approach has been to see capital gains tax and stamp duty on very expensive properties as a more predictable way of raising money than trying to maintain a rate that is not doing the job.
Dan Byles (North Warwickshire) (Con)
Given all the hoo-hah about the 50p tax rate, does my hon. Friend find it interesting that in its 4,753 days in government, Labour had a top rate of 50p for only 37 of them?
Mr Syms
Absolutely. Most of our competitors have lower top rates of tax, and that is significant because it means that this is about how we compete with them. If we want to get more manufacturing and jobs in Britain, then it is important to remember that some of the people who are looking to invest in Britain are top-rate taxpayers. It is significant that the stamp duty changes will raise five times as much as would have come in from the 50p top rate of tax.
I welcome what we are doing to encourage the oil and gas industry. It is important that we do more to use those assets. The changes that we made last year were not very helpful. One of the components of GDP that has fallen the most over the past 12 months is oil and gas and quarrying. If we want to maintain the advantages of our oil and gas industry, we need to do far more to extend its life. The tax changes in that area are to be welcomed.
Overall, the strategy has to be “steady as you go”. We have to increase the incentives to work. The main aim is to leave latitude for the Bank of England. As the Chairman of the Treasury Committee said, low interest rates and, certainly in the short term, quantitative easing will have more of a direct impact on the economy than anything that the Chancellor could have done fiscally today. If we have increased the incentives for lower-paid people to take work, if we have stuck to the plan, if we have given confidence to the markets, if we have made a number of announcements that will help the economy, such as those about broadband and investments, it is a job well done. I welcome the Budget.
Diana Johnson (Kingston upon Hull North) (Lab)
As usual, the hon. Members who speak later in the debate will have the advantage of having been able to study the Budget more as it starts to unravel. I will make some initial comments about what is clear so far from the Chancellor’s speech. I think that it is hugely discourteous to the House of Commons that almost everything that was announced in the Budget has appeared in the papers and on other media in the past few days.
Unfortunately, I do not believe that this is a Budget for growth in areas such as Hull, which I represent, nor that it is fair for people in my constituency. On 23 June 2010, after the first coalition Budget, I said in the House that
“wealth creation and enterprise will suffer in Yorkshire.”—[Official Report, 23 June 2010; Vol. 512, c. 326.]
It did suffer. On 23 March 2011, after the second coalition Budget, I said:
“this is not a fair Budget; neither is it a Budget for growth.”—[Official Report, 23 March 2011; Vol. 525, c. 1024.]
It was not a Budget for growth. The growth that was starting to return under Labour in 2010 was snuffed out by 2011. We have now had a year of flatlining. In Yorkshire and the Humber, 40,000 private jobs have gone in a year. We are supposed to be gaining private sector jobs, not losing them. Private sector jobs were supposed to replace the public service jobs that are being slashed, to create the growth that is needed to cut the deficit. We all, of course, want to see that.
Just outside Hull, there are 845 long-standing, skilled employees at BAE Systems, working in the strategically vital defence manufacturing industry, who will probably lose their jobs this year because of BAE’s decision. Taxpayers will have to meet costs of up to £100 million because of those redundancies. Those skilled jobs will be exported to countries that have Governments who are willing to nurture their industries for the long term. It is worrying that the defence White Paper, which was produced just a few weeks ago, indicated that the British Government would not necessarily buy defence equipment from British companies, but they certainly want other Governments to buy from British companies. What kind of message does that send out to support exports?
Hull’s future is as a national hub for green technology. Thanks to the local efforts of businesses, councils and others, Siemens will we hope be bringing offshore wind turbine manufacturing to Hull shortly. That would open up a wealth of opportunities for the city and the sub-region. Hull would have been an ideal location for the green investment bank, but unfortunately that has gone to Scotland. In one sense, squandering the chances to attract new jobs in sunrise industries to Hull is more damaging than losing existing local jobs. Recently, 100 jobs were under threat at Warmsure in Hull because of the Government’s decision in the solar feed-in tariff debacle. We know that there is strong overseas competition in renewables. We cannot afford to export jobs in these growth industries. We need to export our products, not our jobs. I was concerned that the Chancellor did not give a clear message today about the Government’s commitment to renewables.
Hidden in the Budget is the announcement that VAT will be charged on caravans. That will have a real impact on the economy in Hull, because we manufacture a great deal of this country’s caravans. I understand that it could reduce demand by almost 30%, which would be another hammer blow.
Mr David Hanson (Delyn) (Lab)
My hon. Friend may not know that only two weeks ago, I opened a new caravan park in my constituency in north Wales with caravans supplied by manufacturers in Hull. The proposed VAT on caravans will have a dramatic impact, and as she has just said, it will reduce demand by 30%. Is it good practice to reduce demand for the manufacturing industry in the UK through a tax that will damage our economy?
Diana Johnson
My right hon. Friend makes a very good point and indicates, again, that this is not a Budget for growth—the very opposite, it seems.
The latest official statistics show that there are 5,447 jobseeker’s allowance claimants in Hull chasing 177 vacancies. That is 30.8 people after each job, which is the 10th worst rate in the country. The overall claimant count across Hull was up by 12.4% in the latest period. Kingston upon Hull North’s long-term youth unemployment among 18 to 24-year-olds has gone up by 155% in the year to February, which is shocking. Hull needs a determined focus on specialist vocational education and training, to equip our youngsters to get the jobs in green industry that could be important to the economy of Hull and the region.
Engineering qualifications are very important, and I was disappointed that the Secretary of State scrapped the diplomas scheme, particularly for engineering diplomas. As I asked the hon. Member for City of Chester (Stephen Mosley), why is information and communications technology not part of the English baccalaureate to show how important ICT skills are for our future?
The Government have talked a lot about rebalancing the economy, but people in the north who are seeking work—the north’s jobless—are being told to move to the south for work, and those in the south who are looking for affordable homes are being told to move to the north. Is that rebalancing the economy? The Government have to think again. They should ensure that there are enough jobs and homes in each region to make the whole country work together effectively.
I wish to focus on some of the key announcements in today’s Budget, starting with the raising of the personal allowance to £9,000 next April. Citizens Advice has already put out a quote on the matter, stating:
“Raising the personal tax allowance is an empty gesture to struggling families on low wages.”
That blows a hole in the argument that the Liberal Democrats try to put forward about the Budget promoting fairness.
Like cuts to income tax rates, raising the personal allowance could be part of a plan to boost demand and growth, provided that it was part of a group of measures such as those outlined in Labour’s five-point plan. In a time of scarcity, the Government’s plan, costing about £3.3 billion, is an inefficient way of helping the poorest in our society. It is clear that middle and upper earners will benefit most from the change. I understand that they will get about an additional £175 each year.
We must consider that against the losses that individuals and families will experience. For instance, the average family is due to lose £530 from 1 April because of the changes to VAT and benefits, including child benefit freezes. This April’s changes to the working tax credit requiring couples working part time to do a 24-hour week rather than a 16-hour week, at a time when a lot of people’s hours are being cut and jobs are disappearing, will affect 212,000 families across the country, including nearly 450 in my constituency. They will lose nearly £4,000 a year, and they are families that are struggling just to get by. What help was announced for those families? There was nothing. If the Government were serious about fairness, they could have done something about that.
Research by the Child Poverty Action Group shows that two thirds of the families who are about to lose tax credits are already in poverty, so I dread to think what will happen to them now. They are punished for doing the right thing and for trying to hold down a job at a time when it is so difficult to get a job or to get further hours of work.
To make matters worse, the coalition is now moving ahead with regional pay in the public sector, with the Liberal Democrats’ support. That is not surprising, because the Liberal Democrats have often advocated a regional minimum wage. Regional pay is more evidence-free policy making by this Government, based on free market dogma. There is no real evidence that national public sector pay crowds out the local private sector. Indeed, public sector workers, living and spending locally, are a vital part of supporting the private sector in Hull’s local economy. We already have London weighting to help workers with the extra costs of living in the south, so there is no reason for different pay rates between the regions.
Local or regional public sector pay could drive down wages in some of the poorest areas, taking billions more out of local economies and accelerating the growing north-south divide. So much for rebalancing the economy.
Andrew Gwynne (Denton and Reddish) (Lab)
My hon. Friend is making a pertinent point, but in some parts of the public sector will not the opposite be the case, so that, for example, hospitals, desperate to recruit the best clinicians, will end up paying more to compete with hospitals in London and the south?
Diana Johnson
Absolutely. My hon. Friend makes an important point. We know that the NHS is in for a torrid time in the months and years ahead, and he has identified another problem that it has to tackle.
The combination of regional pay and the unfairness in the Budget contradicts the coalition’s rhetoric about making work pay and rebalancing the economy, sucking even more money out of areas such as Hull and the north in favour of the wealthier areas, mostly in London and the south-east.
I am also worried that regional pay could mean that some of the brightest and best, for example, teachers—we need the brightest and best teachers in areas such as Hull—will not come to Hull if the pay is not the same as in some other parts of the country.
Let me comment on the Liberal Democrats’ spin to the effect that this is a Robin Hood Budget. It joins the long list of broken Liberal Democrat promises. We had the abolition of tuition fees, which were then tripled, and education maintenance allowance was axed. The Liberal Democrats promised 3,000 more police but we are getting 16,000 fewer. They promised opposition to VAT, but we how have higher VAT. They seem to have dropped the armed forces pay increase and many more of the opportunist promises they made before 2010, when they had full knowledge of the deficit that would face them. The tycoon tax is just the latest Lib Dem slogan. Increased stamp duty is all very well, but it hits only the minority who sell the property in any year. It needs to be matched by a clampdown on general stamp duty avoidance.
The other major announcement is to cut the top rate of tax. [Interruption.] The Liberal Democrats have no defence on that.
Madam Deputy Speaker (Dawn Primarolo)
Order. The right hon. Gentleman will not shout across the Chamber at somebody who is speaking. If he wishes to intervene, he should do it in the normal way. That applies to all hon. Members.
Diana Johnson
The other major announcement is the top rate of income tax reducing from 50p to 45p for those earning more than £150,000. To do that, given the current state of public finances and the economic situation, is simply wrong and unfair. I do not understand why the Liberal Democrats have agreed to that when it will deliver a £40,000 windfall to 14,000 people. That helps the wealthiest, which always seems affordable to the Government. Boardroom pay rose by 49% last year; the bonus season is running riot—we are not all in this together. It is austerity for the many and wealth for the few.
Jesse Norman (Hereford and South Herefordshire) (Con)
Several speeches have reminded me of Herbert Asquith speaking on the Licensing Bill in 1907, when he gave an eloquent speech for about an hour and a quarter and was then asked for a summary of his notes, which consisted of one page with the words, “Not so many pubs.” In other words, we have had an enormous amount of words but not much content; a lot of
“sound and fury,
Signifying nothing.”
I welcome the Budget on three grounds. First, I welcome it for my county of Herefordshire. Many of its provisions are extremely good. We have 100% council tax relief for servicemen and women, which will make a great difference to many of my constituents. We have a commitment to infrastructure, which we need in our rural areas. We have support for smaller cities and broadband, of which we hope to take advantage, and we have tax simplification for small businesses. All that is extremely welcome.
I also welcome the Budget from the standpoint of the nation as a whole. It has so many things to recommend it. I think of the expansion of support for exports; the northern hub, which will start to fill the gap created by the amazing lack of infrastructure linking northern cities; the integration of the tax and national insurance systems; and the new tax statement, for which my hon. Friend the Member for Ipswich (Ben Gummer) is greatly to be thanked. I also think of the Treasury’s work on its new review of employee ownership. That would be an important repopulation of our system and a move away from the crony capitalism of the past decade.
Debbie Abrahams
Does the hon. Gentleman agree with the Chancellor that “aggressive tax avoidance” is “morally repugnant”? If he does, why does he believe the Chancellor failed to mention how he will address the tax avoidance of private health care companies—the same companies that have been lobbying in favour of the Health and Social Care Bill?
Jesse Norman
The answer is that a general anti-avoidance rule is what it is. If there is avoidance by health care companies, I hope they will be captured by the rule, in just the same way that I hope the rule extends to include the tax affairs of Ken Livingstone as he runs for the London mayoralty.
Finally, I welcome the lower corporate tax rise, and most of all the rise in the income tax threshold. This is an extraordinarily important moment in British history, in which we begin to roll back the ever-pervasive state created under the previous Government, and in which people are given freedom and control over their economic affairs. I greatly welcome that.
The Budget continues a path of renewal that was begun two years ago. We must never forget that this country lost ground during the so-called boom years of the late 1990s and 2000s. When we adjust the gross domestic product per capita numbers, we see that, in fact, they overstate the country’s success, which relied on immigration, a boom in house prices and a boom in personal indebtedness. When those booms collapsed, so too did our economy.
We lived under the illusion of growth. We thought we were doing better than other European countries, but in fact we were not. We were having our breakfast, lunch and dinner eaten in front of us by Brazil, Russia, India and China and other emerging countries. That was also a time in which a culture of crony capitalism took over this nation. The effect of uniquely targeting inflation gave support to those asset bubbles, which in turn created an economy that was reliant on revenues from the financial sector and fed into the lack of balance, which the Government and this Budget are doing much to address.
On local grounds, speaking for Herefordshire, on national grounds, speaking for the country as a whole, and on historical grounds, as this country continues a transition from cleaning up the mess to rebuilding and renewal, I welcome this Budget.
Mr David Lammy (Tottenham) (Lab)
This is my first opportunity to speak about a Budget following the spotlight that fell on my constituency in the summer, so I want to begin by supporting some measures in it. Business and shopkeepers on Tottenham high road recovering from the mayhem and violence, burnt shops, broken windows and the loss of business will welcome the simplification of taxes. Many of those small businesses still grumble and talk about the complexity of such regulation.
There has been a lot of concentration in the House over the past few months on the undeserving poor. There has been heated debate, and I have certainly made my views clear on issues such as housing benefit. I therefore welcome the fact that the Chancellor has concentrated his attention on those who play the system in another way, and that he has looked at unearned income and property taxation. The changes to stamp duty and capital allowances are to be welcomed.
I represent the constituency with the highest unemployment rate in London, and it is right that I ask, on behalf of my constituents, whether the Budget does enough to alleviate that tremendous problem. This is only a week after we discovered that 56% of young black men in Britain are unemployed. That is a huge concern which should be shared across the House. All unemployment, among all members of our population, is a disaster, and long-term unemployment leaves serious scars, but we should be particularly concerned about that statistic.
Much has been said about a feral underclass. I do not like the term. The word “underclass” summons up visions of the caste system in India and we ought to reserve the word “feral” for discussion of rodents. However, those in the House who either grew up on working-class housing estates or have significant housing estates in their constituencies will recognise a workless class—those on housing estates turning from being working class to members of a workless class.
I do not want to be completely partisan about that because there was structural unemployment in our system under Labour. We talked about that largely in the context of those not in education, employment or training. NEETs have remained a long-running sore in this country. However, it should be of huge concern to the House that in a constituency such as Tottenham, 6,000 people are unemployed and 21 are chasing every vacancy.
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
Does my right hon. Friend share my concern about the particularly high unemployment rate among young black men? It is a scourge that has existed in our society for far too long. The recent figures fill me with dread not hope, but the Government’s policies do nothing to help them.
Mr Lammy
My hon. Friend, like me, recognises that problem and will know, from the history of Hackney, that this is of such concern because in constituencies across the country, in areas as different as Middlesbrough, Hull, Tottenham and Hackney, we are seeing intergenerational worklessness. I hoped that the Budget would make some attempt to deal with that problem.
In my lifetime, there have been serious levels of unemployment twice before. There was huge unemployment in the 1980s, when it was higher than today, and it was even higher as recently as 1996, when more than 10,000 people in the constituency of Tottenham were unemployed. We are talking about a group of young unemployed people, aged 18 or 19, whose parents were unemployed and sometimes whose parents’ parents were unemployed. That is a disaster for our economy. When I looked at the scenes in August with tremendous and deep concern for what was happening on the streets of London, I realised that often some of the children of those who rioted last time were causing the same the problems this time. That is how scarring unemployment is and why we needed a Budget that got to the heart of growth.
It would be wrong, of course, if I did not welcome what has been said about the film and games industries, but it is right that in London I reflect on whether that will come to the constituencies that need it and matter. Although I of course welcome the decisions on capital allowances in the royal docks area of the east end of London, I want to make what may feel like a parochial point, but which is in fact a serious point. Are we committed to one London—where there are not inner cities, but just one city—or will we continue to show a preference for certain parts of London? Despite the huge problems that exist in the east end, it has Canary Wharf and the Olympics, and it now has a Mayor committed to a new airport in the Thames estuary. In north London, in a concentrated area of poverty in Tottenham and Edmonton, we have seen nothing like it.
With regeneration coming around the Spurs development, I would hope that we, too, might get those allowances. To deal with the jobs problem—I am talking not about highly skilled jobs, but about semi-skilled jobs and some jobs that do not require skills—we will need to attract private investment to give us those jobs. The danger now is that there is an incentive to go to another part of London, concentrating poverty even more deeply in north-east London in particular.
There is another issue in the Budget: not those without employment, but the working poor. We should remind the House that someone working in a constituency such as mine, here in London, might be a dinner lady at lunchtime and likely a cleaner in the evening, or a minicab driver during the day and a security guard at night. Such is the situation for those who are unable to make a living wage in our capital city. Of course, the changes to the personal allowance are desirable for those who are working. However, I might add that these are the very same families who saw their tax credits taken away in the last Budget, so this really is robbing Peter to pay Paul. As we know, those who will benefit from the changes will largely be middle-class families and those who are really well-off.
The decision to give a further tax break to those earning more than £150,000 a year will seem bizarre to my constituents, who have seen their incomes fall. Anyone travelling into central London on the tube from Seven Sisters station, either to look for a job or go to a job, is looking at spending £6.20 a day, whereas someone who decides to come down into central London on the 341 bus will have to pay £4.20 a day. Fares are up by 12% on the bus and 16% on the tube, under the reign of Boris Johnson. Those costs are huge for families with babies, who have already seen their monthly costs go up by £8.20 in just the last 18 months.
The cost of living is going up for the working poor, and there are huge concerns about worklessness, yet we heard nothing about how we are going to deal with that. We still have to wait for the introduction of the youth contract. We have also seen two thirds of apprenticeships in London go to those who are over 25, and it is not at all clear that we have got apprenticeships in the right areas of the economy in our country. What is the growth story? My constituents are still waiting to see what it is. There are huge concerns about equity and fairness in this Budget. I predict there will be further disturbances and concerns until we get a grip and deal with this emerging problem.
Richard Drax (South Dorset) (Con)
Perhaps it is appropriate that I should follow the right hon. Member for Tottenham (Mr Lammy). He certainly made a thought-provoking speech. I would just make the point that what we need to do, surely, is to create the environment for jobs, so that that large percentage of his constituents, the black population, can get a job. Until we create the right environment for jobs to be created, there will not be jobs for anyone in this country, whatever colour they are.
I congratulate the Chancellor on his Budget, which was delivered in quite trying circumstances. It has been pointed out that a lot of it was leaked before his statement in the Chamber. It has been delivered in circumstances in which, due to Labour’s undoubted profligacy and the world banking collapse—which I accept played a part—there is little room for manoeuvre. There is still less room for manoeuvre because we are constrained to a certain degree, whether we like it or not, by our coalition partners.
I therefore warmly welcome the good news. I welcome the reduction in corporation tax and the higher personal tax allowance. I welcome the reduction in the top rate of income tax from 50p to 45p. I particularly welcome the extra investment in our armed forces, and especially in their accommodation. Having served myself, I well recall the abysmal standard of much of the accommodation in the 1980s. I am also mightily relieved that we have left our beleaguered pension system alone. It would have been madness to tread on that particular nest at the moment. The right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) did so, and we all remember the consequences.
The 50p rate has engendered a lot of heat, and I can understand where that heat is coming from. I remind the House, however, that it was introduced in the dying throes of the Labour Government as a political move. It was, in effect, an elephant trap; it was well laid, politically, and it is a nightmare to climb out of. We had hoped to come into power as a Conservative Government, but that did not happen. We need to be bold, and I wish that we had gone further and reduced the top rate in the emergency Budget, but we did not. Yes, everyone should pay their fair share of tax, but the top 1% in this country already pay 28% of all income tax, and the top half pay 90%. Milking them of their rewards for all their hard work and aspiration will hardly encourage endeavour, and spending the money that we take from them on a bloated, runaway welfare state is sheer madness. This is the politics of envy. The Institute for Fiscal Studies estimates that, by the next election, one in four of us will be paying tax at 40%. Not so long ago, that figure was one in 20.
As Tories, we must remember what we stand for: less state, less red tape, less taxation, less government, less public spending, more enterprise, more wealth creation and more support for business. We remain deeply in the red, thanks in large part to Labour. Public sector debt is still at £1 trillion, and borrowing will be £120 billion this year. We need that
“forensic, relentless focus on growth”
promised by our Prime Minister. We must encourage that. We should not only cut taxes but slash them. We must release business from all its constraints. We often proclaim that we are open for business but, as Willie Walsh writes in The Daily Telegraph today, the Chinese laugh when they hear that.
The Federation of Small Businesses in the south-west came to see me recently, and begged for more help from the Government. Small businesses are struggling with high fuel costs, as other hon. Members have mentioned, and I regret that we cannot go much, much further in cutting fuel taxes. Small businesses are also struggling with high business rates, with a lack of infrastructure and with banks that are refusing to lend. We have heard those stories repeatedly in the House. The national loan guarantee scheme for small businesses that was announced yesterday will provide credit at a lower rate of interest, but access to that credit is as difficult as it has always been. Indeed, the FSB said yesterday that the scheme is not a “game changer”, yet that is exactly what we need now. We need really radical policies. We must be brave; we simply cannot go on tinkering at the edges.
Most of all, we need to cut state spending; many inroads into it have been made, but in my view we have not gone far enough. We need to take the state out of people’s lives. This is a Conservative philosophy, and, I believe, a right one. The public sector as it currently stands is unaffordable.
I regret that we have made changes to child benefit. At whatever level the “cliff edge”, as it has been called, is set, many hard-pressed, hard-working families will be worse off. I heard my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley) saying—on “Newsnight”, if I recall correctly—that he looked at that from every angle some years ago, but could not see how to alter it. What I say, however, is that it is disingenuous to suggest that poorer families were or are subsidised by the better-off, because the better-off pay a higher rate of tax. There must be other ways to give families with children some help—without the unintended consequences. Perhaps a system of tax allowances rather than benefits could be examined.
We must also admit that much of the pressure on public expenditure is ultimately due to immigration. Immigration in this country is at an unacceptably high level, putting huge pressures on this country and her services, and we are struggling to keep our roads and rails going and to provide enough housing. In the longer term, it is unsustainable. A sudden increase in birth rates means, I am told, that we will need 540,000 new primary places by 2018.
Finally, I cannot leave the European Union out of my speech, because it is inflicting a high price on business in this country. We can say a lot here and we can have aspirations here to release our business and let it fly, but we will never get what we want or the jobs and wealth we need to generate until we are free of the red tape from Brussels. Only then can we break free from the shackle of deficit that hangs around our neck. When we have, the important thing to do is to spend only what we earn.
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
I congratulate my right hon. Friend the Member for Tottenham (Mr Lammy) on the comments he made. For all the Budget figures that we talk about, real people are at the heart. I echo his comments, but I want to talk about the small businesses in my constituency, which I hope, and we all hope, will help to create some of the jobs that my constituents, like my right hon. Friend’s, so desperately need and want.
Hackney is very much a picture of small businesses, with more than 90% of them across the borough as a whole employing fewer than six people—and many of them even fewer than that. The vast bulk of small businesses are located in Shoreditch, in the southern part of my constituency. It is very much the heart of the creative industries and the tech city hub, with nearly 39,000 people employed there. In the Shoreditch town centre area as a whole, there are more than 4,000 in the tech area and more than 5,000 in the creative industries, with about 15,000 people overall. Shoreditch has 77% of the total town centre employment and 93% of all the technical employment.
The growth and dynamism of that area have been going on for some time—before, I have to say, the Prime Minister got interested in it. Of course I welcome any interest shown by the Government in my constituency, but I have to say that some local businesses worry that the increase in rents is partly a result of the talking up in government of the area. Many of the businesses have been there for a long time, as I shall touch on shortly.
Ms Margaret Ritchie (South Down) (SDLP)
Does my hon. Friend agree that today’s Budget simply imperils working families and particularly small businesses because it has no measures to mitigate the effects of fuel prices, which are already high in urban and rural areas?
Meg Hillier
My hon. Friend makes an important point. The fuel issue is not such a big one in my constituency because of our public transport links, but it is different in areas such as Northern Ireland. I recall having a conversation with a man in Carlisle. He said, “Tell them back in London”—I thought that was illustrative in itself—“that I spend more on fuel in a month than I do on food.” He was just an ordinary working man. It is important for the Government to understand the pressures on household incomes; there are important issues there.
The economy in Hackney South and Shoreditch is dominated by small businesses. It is very creative; we have a big fashion industry, and a digital industry at silicon roundabout. We are seeking to improve and increase that economy all the time. A lot of the small and micro-businesses are struggling. They are not getting the lending that they need from banks, because banks refuse to understand their business models, which are often innovative. They are not even able to get the working capital through overdrafts. That is a real issue. Overdrafts are treated in the same way as loans on the balance sheet. Many of the businesses that I deal with, especially those that are growing and have got to a certain stable point, simply need that facility; they are not seeking a loan. The interest rate cut makes no difference to them. They are seeking an overdraft facility, not a loan.
The interest rate cut announced yesterday makes no difference to those seeking a loan, either, if they have a business model that makes banks nervous about lending to them. One person said to me, “We lend only to vanilla companies”—that is, safe bets with well worn business models. We are talking about an area of bursting creativity, an area that is growing enormously and will and does create jobs, so we need a solution. Merlin was a damp squib; the magic wand did not work. I am not hopeful that the Chancellor’s announcement will make any difference to the small local businesses to which I speak.
There is another key issue for small start-ups. We need 600 desk spaces. For those who do not know the area, if they wander around it, they will see, in cafés, hotels and specially designed work hubs, people sitting with their laptop or iPad; they will be doing business in that fashion. Across the area, a few thousand desk spaces are rented out for about £350 a month. That is how a lot of people do business; they grow that way. In the Trampery, a shared desk space area in my constituency, one business has grown to the point of renting 13 desk spaces. It has decided to stay there because of the creative input, but also because it is a big risk to move from that fluid way of working to permanent premises. That is a type of business that Government and this Budget do not really understand.
As I say, rents have gone up enormously, which is a real challenge. As businesses improve and seek to stay in the area—crucially, they may employ local people if they are in the area for a long time—that causes problems. I do not want my constituency to be the nursery of businesses that move elsewhere simply because they cannot afford to stay. If they move elsewhere for good reasons, that is a different matter, but some of them are being forced out.
I want to give examples of what the Budget really means on the ground. Somethin’ Else is a media production company employing about 70 members of staff in Shoreditch. It has an annual turnover of approximately £8 million. Under Project Merlin, it was not able to get the borrowing facility that it wanted. It simply wanted an overdraft, but that was withdrawn from it overnight during the economic crisis. The company is quite interesting, because it produced a film called “somewhere to”, an Olympic-funded project run by Livity. It featured young people performing in No. 10 Downing street. The Prime Minister was so impressed by the work of the company that, as some Government Members will know, the film was played at the Conservative party conference before his speech in October last year. The very company that was paraded by the Conservative party as a success is struggling precisely because of Government policies.
Not Just a Label is an international business, an online fashion promotion platform. It is the only online fashion design platform in the world. It is present in 93 countries and represents 8,000 fashion businesses, including 1,000 in east London alone. It currently employs 15 people in very small offices tucked away in the back streets of Shoreditch. It is looking to expand and develop: it wants a design showroom to complement its virtual presence. That would involve the company doubling in size within six to 12 months, but traditional banks are not willing to fund that expansion, because they simply do not understand that business model. The “vanilla financing” line was used to that group.
Another business, Image Line, is owned by Sue Terpilowski, who is involved with the Federation of Small Businesses, so she knows a lot about what other businesses are putting up with. She told me that her business rates, for 2,200 square feet, went up by £8,000 this year. Rate increases have a big impact on businesses, and on the face of it, we can see nothing in the Budget on that issue.
There are other pressures on London businesses across the board—I am not talking just about Shoreditch now. London members of the Federation of Small Businesses are taking out loans or overdrafts at interest rates that are very high compared to those available nationally. Some 21% of London members of the FSB have loans or overdrafts at interest rates above 15%, compared with 9% of its members nationally. The 1% in question is merely a drop in the ocean in the context of interest rates that are that high. That issue must be tackled.
Has the Chancellor had any conversations with businesses about more innovative ways of providing working capital, such as the next generation funding models, including funding circles and crowd-funding? Such models might work for the new tech businesses in my constituency, but they need to be regulated. There is a lot of talk of one in and one out, but if we are to have innovative funding models, we need Government support to ensure that they are legitimate forms of funding and that scams do not happen.
The Chancellor has announced his seven short-listed funds. I have my doubts as to whether they will lend to the businesses I am talking about, especially when we consider the much vaunted Green investment bank. We hoped it would support new businesses, but we feel sure that it will be controlled by the Treasury and the available capital will go into some of the bigger known providers.
My constituents want to find work in the job-creating new tech businesses in Hackney, so skills is a key area. We have good support from Hackney community college, which has set up an apprenticeship scheme, working with the tech city hub. Thanks to Government funding, we in Hackney will have a university technical college, under principal Annie Blackmore, opening in September at the HCC. She and Ian Ashman, principal of the HCC, have been working closely to try to ensure that we develop the necessary skills through our schools and colleges so that young people in Hackney can secure these jobs. We must make a link with the people who live just north of Hoxton square and in the rest of my constituency, many of whom do not have access to these jobs because they do not have the necessary skills.
I cautiously support the Sunday trading proposals for the Olympic period, as I recognise that that is a welcome global event coming to my constituency. However, I am also concerned that the move could be a trial run for a permanent change in the law. The leaks about today’s Budget announcements were broadly accurate, and I worry that the leaks about the Sunday trading proposals, suggesting that the Chancellor has a secret mission to take on the low paid and families and to ensure that people will have to work long hours, might also be accurate. My local smaller businesses are also nervous about the proposal. The benefit of longer trading hours is very small for them, but it gives more succour to the big retailers, who are already putting a lot of pressure on such small businesses.
High broadband speeds are much needed, and Hackney council is already seeking to increase speeds, first in Shoreditch and then in Dalston. I do not know the timetable for that scheme. However, although the Chancellor says he is funding it, I want to know whether it is new funding and how quickly it can be drawn down. We certainly need these developments in Hackney.
The Chancellor has, through sleight of hand, suggested that the Government greatly support business. The small and medium-sized businesses in my constituency have yet to benefit, however, so there is a great deal of scepticism about the Budget. I want the businesses in my constituency to grow and the jobs to be created, but I am very worried that this Budget will not deliver.
Chris Heaton-Harris (Daventry) (Con)
It is a pleasure to speak about the Budget on Budget day itself, and, indeed, to have quite some time in which to speak. The last time I tried to speak in a Budget debate, I was curtailed at three minutes and 52 seconds, just as I was building up a full head of steam. I hope to enjoy the nine minutes and 42 seconds remaining to me today.
I welcome the Budget for many reasons, but, in common with any Back Bencher trying to represent their constituency, I also have some questions and there are some areas on which I want to probe and seek commitments from the Government for future Budgets.
I listened carefully to the contributions on their constituencies of the right hon. Member for Tottenham (Mr Lammy) and the hon. Member for Hackney South and Shoreditch (Meg Hillier), who serves with me on the Public Accounts Committee. For the first eight minutes of the right hon. Gentleman’s speech, I did not disagree with a single word he said. It was a fantastic speech. I know his constituency very well. A friend of mine has set up a boxing club on White Hart lane, and he takes in young people from the Broadwater Farm estate. The right hon. Gentleman has led his community in a highly commendable way since last year’s riots.
Let me set out what I think we all want, and what I certainly want as a former small business man. Before going into the European Parliament, I ran my own business wholesaling fruit and veg in New Covent Garden market, working nights for 11 years. My second language at the time was Cockney, and the sort of people I used to work with were keen on trying not to pay any tax. These were cash businesses and people tried to keep it that way. They wanted to generate wealth and then to choose how they spent it. There is a delicate balance to be struck in government between encouraging as many people as possible to create wealth and ensuring the bit that is taken in tax is spent well, so that people feel they are getting value for their money. I would like to think that everyone in this House welcomed elements of this Budget, and certainly those dealing with small businesses.
I know that the threshold is set at only £77,000 of cash passing through someone’s small business, but some of the paperwork associated with their return to Her Majesty’s Revenue and Customs goes overboard—it is way too much. These people are normally one-man bands, although perhaps they have a partner, so reducing and simplifying their paperwork is fantastic for them. We are giving people who want to set up a chance to know that they are not going to be hammered by the taxman, because they will understand the form that they are filling in and will not be fearful of getting it terribly wrong.
The Budget contains lots of other good things. I am sure that the whole House welcomes the £36 billion that is being saved as a result of interest that we are not paying because of the low interest rates engendered by this Government’s economic policy. Some Opposition Front Benchers have been suggesting ways of dismantling this fantastic set-up that enables us to borrow at low interest rates, but, realistically, everyone has to welcome the fact that we are paying less for our debt at the moment.
Neil Carmichael (Stroud) (Con)
I am thoroughly enjoying my hon. Friend’s speech and he is hitting on the important issue of interest rates. Does he agree that smaller businesses, too, are going to benefit enormously from low interest rates, both now and in the future, because they mean long-term investment for those businesses?
Chris Heaton-Harris
I thank my hon. Friend for his intervention, and of course I agree with what he says. The more we can spread lower interest rates, the better it is. As hon. Members from across the House will know, it has been difficult getting the banks to lend to all sorts of small businesses in the past two years. Any measure we take that strengthens lending to small businesses is a thoroughly good thing, because these businesses are the acorns from which big businesses grow. The Labour Government had this fantastic policy of how to manufacture small businesses: they took a big business, taxed it and added loads of regulation, and a few months or years later they had a small business. We are doing exactly the opposite.
Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)
The hon. Gentleman has been extolling the virtues of low interest rates. I would certainly agree with the thrust of his argument, but what has he got to say about, and would he condemn, those financial institutions that have started to raise interest rates for mortgage holders?
Chris Heaton-Harris
I would not necessarily condemn them, but I would very much like them to answer the case on why they are doing that. I understand their business case, and people find it interesting when they start to talk to them. I like to think that the measures we have taken in the Budget, whereby we are trying to allow the flow of low interest rate money through our business sector in bigger and better ways—I think, for example, of the seven partners that the Chancellor is now looking at to do that in the future—are a valid way of proceeding.
I also welcome the broadband investment. My constituency is in the heart of England and could not be more different from that of the hon. Member for Hackney South and Shoreditch. My constituency is largely rural with lots of dynamic businesses, including lots of small businesses, based in it. However, we have awful broadband connection. When hon. Members talk about trying to get regular download speeds of 2 megabits, I look at them in awe, because my area is at the end of a copper exchange and we barely get speeds of 1 megabit. Where I live, I still watch my e-mails download, and plenty of hon. Members from across the country find themselves in exactly the same position. If we want proper inclusion across the whole country, we have to have fast broadband. I would settle for fast broadband, although superfast broadband would be a delight, and I very much welcome the measures we are taking on that.
I welcome—not because I am a Tory, but because I was in business—the fact that corporation tax is being lowered. We want to encourage businesses to invest. One way of doing that is by lowering corporation tax and I welcome the trajectory in which we are travelling.
I welcomed the waving of Order Papers when it was announced that this Government are lifting 2 million people out of paying tax, but—
Meg Hillier
Before the hon. Gentleman moves from the issue of small businesses, may I ask whether he has spoken to business people in his area about the possibility of a cross-Government body looking at small business administration to make sure that different Government policies do not have perverse outcomes, which Governments of all parties ought to consider?
Chris Heaton-Harris
As the hon. Lady knows from the Public Accounts Committee, where we have often talked about such matters, it would be lovely if Government Departments had a holistic approach to any area of policy. If we could start with small business, that would be fantastic, but I do not think we are quite there yet. That is something we would all support across the political spectrum and without political point-scoring.
I was speaking about the waving of Order Papers and the 2 million people being lifted out of paying tax altogether—a thoroughly good thing, which I would like to think is welcomed in all parts of the House. It benefits everyone who is working—people who are trying hard for themselves, have got on the job ladder and are moving forward. I benefit. From what I see on Twitter and other media sources, if people are earning around £60,000, have children and drive a car, they are not in a great place after the Budget. That includes most Members here. We have managed to produce a Budget that penalises MPs, which I am sure our constituents will be relatively happy with. Most people want to see the lowest paid in society not paying tax, and long may that continue.
I have one or two concerns and plenty of suggestions. The Treasury Minister will know of my long-running love affair with onshore wind turbines and what they do to my constituency. Although there was not much about renewables or the subsidy levels, I welcome the words spoken by the Chancellor in his speech. An investment in gas and in nuclear is proposed. If we chose that method to hit our 2020 carbon target, we would save more than £35 billion, compared with the route that we are currently choosing to go down, which involves other types of renewables that cost an awful lot more. The subsidy that is given to landowners and energy companies makes energy cost more, increasing fuel poverty at the other end of the cycle. I suggest wholeheartedly that we look carefully at the policy choices we are making when we talk about energy, green taxes and fuel poverty in the future.
Personally, I do not mind consumption taxes. I know that Labour Members take issue with that, so let me give an example. I would love to see the end of vehicle excise duty. Fuel prices are too high, as we all know because we all regularly fill up our fuel tanks. Getting rid of vehicle excise duty would add, I believe, roughly 1.5p to the cost of a litre of unleaded petrol and diesel. But we would not have to pay vehicle excise duty and we would pay as we drove, so if we drove a gas-guzzler we would pay a lot more. The old lady who drives hardly at all would pay a lot less. There would be a huge simplification of the tax system. That might not work, but I would like us to think outside the box and consider areas where we could simplify taxes.
Andrew Bridgen (North West Leicestershire) (Con)
Is my hon. Friend aware of the millions of vehicles that are not paying vehicle excise duty? Putting the tax on fuel would catch them all and bring them within the scope of taxation.
Chris Heaton-Harris
I am aware of that; it is one of the reasons I moot the idea at this point.
I would like to finish by talking about personal taxation and the general excitement across the House about the reduction in the top rate of tax from 50p to 45p, based on the Laffer curve. I have been reading the document that the Treasury has produced and note that the comparison has been made on the changes to the additional rate of income tax and the money that we might have expected to get in, or not to get in, as a result of increasing taxes. I humbly suggest that that completely underestimates the value of reducing taxes, because reducing taxes means that there is more of an incentive to pay and not to try to divert or put off paying them for a certain amount of time. I would love to see more work done in the Treasury on what those figures would end up like, because we want to encourage the creators of wealth, and one way of doing so is by saying to them, “You can keep more of the income you generate.” We want people to take a chance and a risk and to set up their own businesses, and this is one way of encouraging them to do so.
John Healey (Wentworth and Dearne) (Lab)
It is a pleasure to follow the hon. Member for Daventry (Chris Heaton-Harris), and I think that the whole House is glad that he had more than three minutes and 52 seconds in which to speak today, because that allowed us to hear for the first time about his days as a fruit and veg man in Covent Garden and the speed of his e-mail downloads in Daventry. I have to say that we did not hear much that was new from the Chancellor, who spent an hour telling us what we have been reading in the newspapers for the past week. It makes me think how times have changed since Hugh Dalton was required to resign in 1947 over the leak of a single duty rate change. Nevertheless, in my experience announcements that look clever on Budget day often look less certain and more complex in the days that follow, and what often follows is that the economics behind the politics becomes much clearer. It seems valuable to recall the warning that Winston Churchill gave:
“We shall not be judged by the criticisms of our opponents, but by the consequences of our actions.”
Barry Gardiner
Does my right hon. Friend agree that one of the things that might look a little shakier later is the granny tax and the fact that 4.1 million people will be worse off in real terms, with an average loss of £83, and as a result of which 230,000 people will be brought into income tax?
John Healey
My hon. Friend is right. This might well become a Budget in which the closer people look, the less they like. That might apply to the granny tax, as he suggests, but it might also apply to the threshold for the 40p top rate of income tax, which many people might find themselves hit by over the next few years, rather than benefiting from the raised threshold for payment in the first place.
The consequences of the Government’s actions at a national level are already becoming clear. The UK economy grew by 3% in the year before the Chancellor stood up and delivered his spending review in 2010. In the 12 months that followed it grew by just 0.5%. That is because he took the decision to cut too far, too fast and choked off growth. Based on the economic projections we heard today, this country is still set for feeble growth in the coming year and the year after. It seems to me that a credible economic plan to deal with the deficit must be supported by a successful plan for jobs and growth alongside it. At present, the Chancellor is condemning Britain to being a one-legged man in a three-legged race. The International Monetary Fund has made a similar point, stating that
“growth is necessary for fiscal credibility.”
We have to look harder at what we earn as a country, not just what we spend. The UK’s GDP last year was still nearly 4% lower than it was before the global financial crisis hit in 2007-08. In other words, our economy was smaller and our national income was lower. If we draw a comparison with the US or with Germany, we find that both countries have a more balanced approach to dealing with their deficit, both countries are growing more strongly than Britain and both countries now have economies that have regained the loss of productive capacity which everybody in the modern, developed world suffered during the global financial downturn of 2008.
Austin Mitchell
That is a very important point. My right hon. Friend will know that the Institute for Fiscal Studies Budget forecast makes the point that that 4% now lost is lost for ever: it is 4% lost every year into the future.
John Healey
Indeed, and that is one reason why Britain is so far off the economic pace, and why so much more must be done than has been so far to boost jobs and growth in this country.
To use the household income analogy, well loved of the Tory party, I note that if a household looks to pay down its debts at the same time as reducing its earnings, the spending cuts that it must make to do the job have inevitably to be more savage and to last for longer in order to be successful. That is the position this country is in.
If I look at the consequences of the Government’s action locally, I have to say that in south Yorkshire, our area, it is hurting but not working: flat growth, higher unemployment, higher bills, lower confidence. In our area, more than 12 people are now competing for every single job that becomes vacant, and the number of young people without a job for more than six months has more than doubled in the past 12 months alone.
At a time when courts, hospitals, councils, civil service, police and fire service are all cutting public service jobs, any difference that there may be in south Yorkshire between public sector and private sector pay rates is simply not the reason why growth is being held back; it is the loss of jobs, of pay and of support through working tax credits that is sapping demand and confidence.
The Chancellor this afternoon singled out for special treatment those earning more than £150,000 a year, cutting their 50p income tax rate and giving them a tax break that is worth more to those people than many in Rotherham or Barnsley can earn in a year. With more than 800 households and families in Barnsley and more than 1,000 families in Rotherham—working hard, working part-time—faced next month with the total loss of their working tax credit, which could amount to almost £4,000 a year or £70 a week, the Chancellor’s decision to cut the top rate of tax at this point will simply not be accepted or understood.
Let me turn to several of the Budget measures. Any performance report on the Government would be hard put to place the Department for Business, Innovation and Skills anywhere other than close to the bottom, and any judgment on policies would be hard put to say that business support policies have been anything other than close to failure. The Merlin project was supposed to lead to a 15% increase in lending this year; in fact there was a net reduction of £11 billion in net lending to small firms. There was a similar failure of the regional growth fund, of the business growth fund and of the national insurance holiday for small firms.
I look in this Budget with a degree of welcome, however, to the new credit scheme for lending to small firms, and to the new managed funds for lending to mid-sized firms. Those may be small in scale, but they are a start. The margins to make lending more affordable may be modest, but the design and concept, at least, are innovative. Interestingly, the schemes signify that the Government recognise that they were wrong when first elected to say that there was no role for active government and that the private sector would pick up the slack if the public sector stepped back.
The schemes are interesting because they help to reduce risk and cost by using the power of the Government to stand behind them rather than support being funded up front. I say to my hon. Friend the Member for West Bromwich West (Mr Bailey), who chairs the Business, Innovation and Skills Committee, and the hon. Member for Chichester (Mr Tyrie), who chairs the Treasury Committee, that I hope that the Select Committees will make sure that those schemes do not fail as the other business support schemes have and that they provide more lending and lead to more economic activity and support for business in every region of the country.
International experience and all the data underline the fact that, in the long run, high levels of business investment are at the heart of strong economic growth. It seems to me that the case is clear, and has been so since the global financial crash and the requirement for Government to step in and provide big public support to commercial banks, that now must be the time to set up a British investment bank—the sort of industrial investment bank that Germany, Singapore and India have, which can offer strong support to indigenous research and development, domestic manufacturing and regional economies.
The Chancellor told us this afternoon that, taken together, the anti-avoidance measures in this year’s Finance Bill would increase tax revenue over the next five years by about £1 billion. It is interesting that table 2.1 in the Red Book indicates only about a quarter of that over the five years, and that is about half what we did in our first year in government. You, Madam Deputy Speaker, will recognise in the proposal for a general anti-avoidance rule, which I welcome, the same approach that we took and you fought for, against Tory opposition, in respect of the disclosure rules in the Finance Act 2004.
This Chancellor’s Budget was a rich man’s Budget. He chose to cut the top rate of tax and give a kick-back for the rich—and at a time when the deficit is getting bigger, not smaller, when the national minimum wage for young people has been frozen and when the working families tax credit and public services are being cut across the country. This is not a Budget for working people, and the Government are not working for working people. It is not now, and never was, a question, as the Government claimed, of the richest bearing the biggest burden; this Budget proves that the richest are getting the biggest benefit.
Gavin Williamson (South Staffordshire) (Con)
It is a privilege to speak in today’s Budget debate. There has been an interesting contrast in the two speeches made from the Dispatch Box today. One, made by the Chancellor, set out his vision and ideas about bringing growth to our economy, supporting business and families and making things happen in this country. The other speech, by the Leader of the Opposition, had one interest solely—making sure that he stayed the leader of the Labour party. It was not about the national interest or trying to help the country to go forward, but about remaining leader.
Those on the Government side of the House, Conservatives and Liberal Democrats, are here to try to do what is best for our nation. Those on the Opposition side cannot say the same about themselves. If they can—and I hope that they are of that mind—they will march through the Lobbies with us when the Budget vote comes, supporting us and making sure that the country is growing once more.
The Budget helps two principal areas—business and families. Already, this Government have done more for my constituents in our almost two years in power than the previous Government did in 13 years. This Government are already delivering jobs for South Staffordshire, with the £350 million investment by Jaguar Land Rover on the i54 business park, bringing 750 jobs directly into the constituency. I remember Labour Members deriding enterprise zones and saying that they would not work. Well, I am rather proud to have an enterprise zone in my constituency, because it helped to bring in those 750 jobs. I am sure that many Labour Members will now want enterprise zones right across the country, even in the devolved regions.
Mr Marcus Jones (Nuneaton) (Con)
Does my hon. Friend agree that the current situation, with enterprise zones, the regional growth fund and the support that is being given to industry, particularly motor manufacturers in the west midlands, is a complete contrast with what happened with the failed regional development agencies during the period of the Labour Government, when private sector employment in the west midlands fell?
Gavin Williamson
My hon. Friend makes a pertinent point. Although there has been recovery in the automotive sector, unfortunately the supply chain that supports those manufacturing companies was hollowed out over the course of 13 years. I hope that Members on both sides of the House recognise that that is a serious problem. I pay tribute to the previous Government for taking some action at the tail end of their period in office in setting up Automotive Council UK, which has been carried on and strengthened by this Government. That is a positive move, but we need to be doing so much more to support not only manufacturing companies, which I am most passionate about, but many more service companies and other companies across the length and breadth of the country.
The Budget included an announcement on reducing corporation tax. A lot of people say, “That does not matter; it will not make a difference to business.” If that were the case, one might ask why the Republic of Ireland is so determined always to make sure that it keeps its low corporation taxes, but we know that it does that because it knows that it makes a difference in bringing in inward investment. Companies that want to invest in Europe are trying to make sure that they invest in the right place, which, in my view, is the United Kingdom. The moves to reduce corporation tax will have an enormous effect on bringing jobs to the UK—not only to my constituency or the constituencies of Government Members, but to every single constituency in the country.
We must also welcome the moves to simplify our tax system. We see so many people setting up small businesses, giving it a go, and trying to make a difference and do well for themselves, but then being faced with a barrage of bureaucracy and complex regulations that they have to master. It is a shame that anyone could not welcome the moves to make sure that all businesses with a turnover of under £77,000 will be free of many of those regulations. I hope that Labour Members will join us in the Lobby in support of that measure, because it will have an enormous impact on every business.
Another development that we must welcome is enterprise loans for young people. Far too often, young people with great ideas and great ambition do not have the finance to build their own businesses. I think of a constituent of mine, Louis Barnett, who decided against all the odds to set up a business, to go out there and to make a success of it. Finance is not always easy to find, but despite everything being against him, he did it. He has set up an incredibly successful chocolate company, which exports to Mexico, Ireland, China and Korea. He is making a success of it. We need to encourage many more young people to set up businesses across Britain. That is what the Chancellor has done and we should all support it. We need to give our businesses every possible chance.
Some Opposition Members are pouring scorn on somebody who wants to make a successful business by making and selling chocolate and exporting it around the world. Perhaps that is why the previous Government made such a dreadful mess of our manufacturing base and brought this country to its knees.
Mr Marcus Jones
My hon. Friend’s argument is being given a bit of harsh treatment from Opposition Members, who seem to think that all was rosy in manufacturing under the Labour Government. Is it not the case that 1.7 million jobs were lost in manufacturing during the period of the Labour Government?
Gavin Williamson
My hon. Friend makes a valid point. Manufacturing was destroyed under the Labour Government. When the Conservatives were last in power during the 1990s, there was growth in manufacturing. We saw the same amount of gross value added in manufacturing and the industrial sector in the United Kingdom—
Gavin Williamson
No I will not. In the 1990s, there was the same amount of gross value added in manufacturing and the industrial sector in the UK as in Germany. That has now been halved. That is down to the incompetence and neglect of the last Labour Government. I happily give way to the hon. Gentleman.
Mr Bailey
I thank the hon. Gentleman for giving way belatedly. As a fellow west midlands MP, I am slightly surprised by his comments about the record of the previous Conservative Government on manufacturing in the west midlands. Will he list the major employers—employers of thousands of people—that failed during the period of the previous Conservative Government in the black country and the west midlands?
Gavin Williamson
I will happily talk about what happened under the previous Conservative Government, although it is going a little way back. Between 1992 and 1997, exports from the manufacturing base in this country grew and gross value added grew, because we created an environment in which manufacturers could grow. That did not happen under the last Labour Government, when jobs and businesses were destroyed. The Chancellor is committed to reversing that. I can give many examples of businesses that failed under the Labour Administration. This Government are committed to helping businesses grow, which is to be welcomed.
Geraint Davies (Swansea West) (Lab/Co-op)
The hon. Gentleman is being gracious in giving way. I should say that my background is in multi-national companies and in starting my own businesses successfully. Does he accept that after his Government came to office, the growth forecasts reduced massively between the first and the second year? According to the Office for Budget Responsibility, the size of the economy will be down by £50 billion a year for ever because of his Government’s policies.
Gavin Williamson
I thank the hon. Gentleman for making those comments. It is fascinating that the International Monetary Fund has predicted that Britain will grow faster than Germany and France. It is true that the eurozone has had a negative impact on this country, but people see us as a country that is well run, with a Chancellor who is committed to making business growth happen. That is why we will grow faster than Germany and France. I am sure that the hon. Gentleman will welcome that.
I will move on briefly to families. It is often said that raising the personal allowance is a Liberal Democrat idea. Members will be shocked to hear that the matter was raised with me many times during the general election campaign. I told people that if I was elected as their Member of Parliament, I would do all that I could to ensure that personal allowances increased so that the lowest-paid—
Gavin Williamson
I will make some progress, thank you. I told people that I would try to ensure that we made progress on raising the personal allowances for everyone in this country, including the lowest-paid. I am particularly proud to see that the Chancellor has done that, and I am quite sure that every coalition Member will warmly welcome it.
I wish briefly to touch on one thing I would very much have liked the Chancellor to do, which is to tackle the issue of the beer duty escalator. In the Strangers Bar, one of the finest ales, Enville ale, is currently on sale as one of the guest ales. I encourage everyone to ensure that they have a pint of Enville ale, a fine beer but one from which I am quite sure we would raise just as much duty if we got rid of the beer duty escalator. I put in a plea for that, and it would be very much appreciated.
I welcome the news that we are going to have a national centre for aerodynamics. Again, that will support manufacturing, but let us ensure that it is in South Staffordshire. We have an aerospace industry that is highly dynamic and—
Naomi Long (Belfast East) (Alliance)
I start by confessing that I find the Budget quite disappointing, not because I had huge expectations of it at the beginning but more because some of the more disappointing things that have been widely trailed in recent days are indeed in it.
I start with a partial welcome, however, for the increase in the personal allowance, because I believe that it will lift a significant number of low-income families out of paying tax. I qualify my welcome only because, as a means of tackling in-work poverty, it is a broad-brush measure that will benefit the wealthy as well as the poor.
When I consider the changes to tax credits and other in-work benefits that have been announced in recent weeks, I believe that all may not be as it seems when it comes to who will be most affected. Other Members have highlighted that point by referring to those on the lowest incomes, such as those in part-time, minimum-wage employment.
Beyond that, I look to what will create employment for people in Northern Ireland. Although it is a good thing to lift people in low-income employment out of paying taxes, it is a better thing to lift people into higher-wage, better-paid jobs and give them opportunities to succeed.
A couple of measures that would help the Northern Ireland economy significantly have been talked about for some time, and I want to consider them briefly. My concern is that the Budget lacks what I would call regional sensitivity, for want of a better phrase. One of the significant burdens that businesses in Northern Ireland face, and which has an impact on leisure and tourism as well as on business travel within the UK, is air passenger duty. We have raised that many times with the Government, and to be fair and give credit where it is due, there have been some significant and positive interventions in the case of long-haul flights.
The Minister of State, Northern Ireland Office (Mr Hugo Swire)
indicated assent.
Naomi Long
I see the Minister of State nodding vigorously and looking bemused that I should raise the matter today, but I do so for this reason: although the intervention on long-haul flights was welcome and positive, and although I know the Government have recommitted to the devolution of the matter to the Northern Ireland Assembly, which is welcome, I confess that I hoped the Treasury might take some action on the level of short-haul APD. That has an impact on what we pay for regional flights within the UK and places a premium on our connectivity, particularly with the south-east, which the Government reinforced in today’s Budget as the primary income generator for the UK.
In addition, businesses in Northern Ireland and local consumers are challenged by the double payment of APD on flights to other short-haul destinations. That occurs when people have to pass through one of the hub airports here in London but not on a through connection, owing to limited access to direct flights and through carriers. I hoped that the Government would take the opportunity to attract new tourism and grow business, but it appears that APD is simply to rise as planned in April.
Many Members have highlighted the impact of fuel costs on both families and businesses, and the distortion that it causes in the cost environment for businesses in regions such as the one that I represent. Fuel prices there are high, and transport costs make up a higher proportion of business costs than elsewhere because businesses are more rural and remote. Today, there has been little new for those businesses and families, beyond the reiteration of a promise about the fuel duty stabiliser. I hope that it is possible to implement that as a matter of urgency, but I also hoped for something slightly more on fuel duty.
I want to consider corporation tax, which we have been discussing at length and for some time from a Northern Ireland perspective. That has been mentioned today in the context of the main corporation tax rate. I listened carefully to the Chancellor when he extolled the virtues of the changes he would make. He mentioned all those he foresaw as our significant competitors, but not the nearest competitor—which will still have a significant advantage over us even at the end of the period when the main rate of corporation tax reduces to 22%—of those of us who reside in Northern Ireland: the Irish Republic. It has significantly lower corporation tax and is a direct competitor with businesses in my region, particularly those around the border. The announcement on corporation tax will affect very few businesses in Northern Ireland. Most pay the lower rate of around 20% and I do not believe that they will be affected, although I am prepared to be corrected if my assessment is wrong.
I want briefly to reflect on regionalisation of civil service pay and national agreements, which is more for deliberation in Committee than a formal part of decision making at this point, but it nevertheless causes me some concern. I believe that it could be a slippery slope. It presents risks through a brain drain from the Northern Ireland economy, and that is a significant challenge. It is also contrary to the stated UK Government policy of rebalancing the UK economy and reflecting the importance of the regions. Only three regions contribute positively to the UK economy; the other nine are essentially net recipients from the Treasury. As someone who lives in one of those regions, I would like the economy to be rebalanced so that we no longer rely on subvention but can make our way, and, as the Chancellor described, work our way out of the situation. However, it is difficult to do that if the general direction of travel inhibits wage increases and competition and has a negative impact. It is as though people in Northern Ireland doing the same job as people elsewhere are somehow worth less. That is a very bad place to start.
Although it is true that public sector salaries in some areas can rise above private sector pay, particularly in the current climate during a recession, we must remember that, not so long ago, private sector salaries well outstripped the public sector in the same regions. Indeed, the public sector had to pay a premium to attract talented individuals during the boom. We need to be cautious about making decisions based on current circumstances that could have long-term consequences. The policy could also reduce work incentives. People say that it may create competition and attract people into the private sector, and I understand that, but the difficulty is that, with a contracting public sector, there is no competition for jobs in that sense. We therefore need to be cautious.
I have to say that I see the reduction of the 50p rate of tax as simply a major giveaway to the wealthiest in our society. I understand the points that have made about property tax, but if the Government want to simplify taxation, there are better ways of doing it than through that reduction. It sends out the wrong message to people who are suffering and finding it difficult to make ends meet. Tax avoidance has also in effect been simplified because for someone who earns a lot and does not invest it in property, it has been a good day.
I want to highlight some positive aspects briefly. I welcome the fact that Belfast has been included among the cities that will benefit from ultra-fast broadband and wi-fi connectivity. That electronic connectivity is hugely important for us, particularly in the light of the issues that I raised about APD and transport costs. I hope that, when it comes to other cities bidding to gain from that pot, Northern Ireland will get its fair share. I want to share my pleasure at the notion of support for the creative industries. Film and television, for example, are growth industries in Northern Ireland. I would welcome their expansion, particularly in my constituency—“Game of Thrones” was filmed in the Paint Hall in Belfast.
Finally, I make a plea to the Treasury in respect of creating a UK centre for aerodynamics to open in 2012-13. I hope that it will be a genuinely UK centre. We have a number of aeronautical industries in my constituency, including Bombardier, Thales and others. Based on those and the neighbouring aeronautical engineering department in Queen’s university in Belfast South, I hope that Belfast can be competitively considered as a potential home for that UK centre.
My concern is that the Budget will be viewed by many as a Budget mainly for the rich, and perhaps mainly for the south-east. I urge the Treasury to look at how it can ensure that that is not the outworking for individuals’ lives. The Chancellor needs to be seen as a Chancellor for all of the UK, and not a Chancellor just for those who are wealthy or who live in the south-east.
Neil Carmichael (Stroud) (Con)
It is a great honour to speak in this debate because it is an important one, given that the Budget is of decisive importance in terms of our economic future. It is also a great honour to follow the hon. Member for Belfast East (Naomi Long).
There are several reasons why this Budget is a good Budget, the first of which is that it reaffirms the need to tackle the deficit, and demonstrates that the efforts to do so have been successful. That is critical to this country’s interests, because it is about the price of money—interest—and we must secure a long-term, sustainable rate of interest for small businesses, mortgage payers and so on.
Chris Heaton-Harris
My hon. Friend will be interested to hear the views of John Cridland of the CBI, who said in the reaction to the Budget that
“the best news for businesses is that he”—
the Chancellor—
“stuck to his guns and delivered a fiscally neutral programme…by putting more money in the pockets of ordinary people, the Chancellor has provided a much-needed confidence boost.”
Neil Carmichael
I thank my hon. Friend for that intervention and helpful quotation, because it underlines my point, which all hon. Members should have firmly in their minds, because it is the key issue.
Sensible debt management goes on to secure lending at a reasonable price. We have seen how that has worked in Italy to some extent and it certainly works here. It is the real test of good government, and I am delighted that the Chancellor is pursuing it so determinedly.
The second thing I am pleased to welcome is the actions on tax avoidance. It is important that we demonstrate that we will not stand for people deliberately avoiding tax using inappropriate routes. That the new stamp duty mechanism and the mechanism to prevent tax avoidance in stamp duty are scheduled to recoup some £300 million is absolutely excellent news. That will lead to a total of £600 million, which is well worth having. We are therefore sending the right signal and getting some useful money. It is a good thing that the Chancellor has underlined that. There is annoyance in my constituency at tax avoidance, and I am pleased to be able to say that we are taking robust action. The general anti-abuse rule will be extraordinarily useful and a final threat to anybody who goes down that route in future.
Thirdly, I welcome the lifting of personal allowances, which the Liberal Democrats were right to promote. I am not going to argue about who promoted it first, but it is a useful policy for us to have and we should celebrate it.
The final thing I want to celebrate from the headline announcements is the action taken on child benefits. I received a lot of pressure in my constituency about them, right up until the last moment. One person came to visit me in Stroud tourist office while I was doing a stint to promote tourism week. In fact, he was one of many to talk about child benefit instead of buying tickets for various excellent shows and so forth. The fact remains that we have taken action, and I celebrate that fact. The Government have done a good thing.
In my constituency, I am having a festival for manufacturing and engineering next month. I am doing so to celebrate the successes in Stroud, and there are two key messages I want to get across. First, we need to invest in our small and medium-sized sectors, particularly in manufacturing and engineering, and the Chancellor has signalled that that is the direction of travel for the Budget and the Government. Secondly, I want to signal the importance of young people getting involved in manufacturing and engineering, because they need to think about manufacturing and engineering as a career. Again, he has signalled that that is a key part of the Government’s economic strategy. He has signalled many things, but those are certainly the two that matter most to my constituency.
Chris Heaton-Harris
I appreciate my hon. Friend for giving way a second time. I rise to help him with yet another quote, this time from Paul Everitt of the Society of Motor Manufacturers and Traders, who says that these Budget measures
“will trigger substantial extra business investment in the years ahead.”
That is obviously a solidly good thing.
Neil Carmichael
That is another first-class quote from my hon. Friend. He and I agree about many things, and certainly about this. I thank him very much for underlining my point again.
I want to canter through various critical measures announced in the Budget. One concerns infrastructure. It is absolutely right that we invest in infrastructure. The national infrastructure plan is a first-class document that signals the Government’s commitment to taking these measures. The recent announcement, confirmed in the Budget, about the possibility of private firms taking over roads is absolutely right. I would say, however, that although the Government are rightly reviewing the private finance initiative—it is far too cumbersome, has left us with a lot of debt and has created difficulties with procurement and so forth—we have to enable the private sector to invest more easily in infrastructure. Whatever the outcome of the review—I hope it is a robust review in terms of changing the PFI—we must still encourage the private and public sectors to work together to leverage in the money that we desperately need to improve our infrastructure.
On technology, it is great news that we will have a centre for aviation. I hope that it is in Stroud—it would be very convenient for Airbus just down the road—but wherever it is, it is important that we give that platform for development and technology. Technology matters, so I will throw in a comment about broadband, because it, too, is part of this story of ensuring that we are technologically advanced. I visited a firm called Jatech in my constituency last week. It is producing some excellent products for data management, and lots of different industries and firms are accessing that information. That means good technology in the computer and broadband industry. We need to celebrate those things too.
We had a great debate last week in Westminster Hall on UK Trade & Investment. We need to ensure that this organisation continues to do a lot of good work, so I am pleased that the Government are talking sensibly and robustly about encouraging exports and helping firms find office space and so forth. These measures in the Budget draw our attention to the need to export, because we certainly need to do that. At the end of the day, it is no good looking at Germany and saying, “Well, they’re doing better than us,” and putting our heads in the sand. We have to do as well as Germany and then better still. That is this country’s main mission on economics and growth. Let us ensure that we can promote that.
Energy is a critical issue. Again, the Government are right to talk robustly about investment in energy. The Chancellor is absolutely right to talk about supporting the oil and gas industry. That is great news for firms in my constituency supplying those sectors, notably in Brazil. For example, a firm in Eastington, Arc, is doing extraordinarily well. However, we need to provide a market opportunity for new forms of energy and even new forms of storing electricity. We need to think about that. If we can create market conditions where firms feel comfortable about investing in new technology that has not yet properly taken off, but which can add value to our energy infrastructure and provide that platform, so much the better.
Lord Heseltine will be talking about bringing the private sector and Government together—absolutely, and it is great that he is looking at implementing an industrial strategy, as it were, and how that could best be done. There are some good examples of what can be done in countries such as Germany—I mention Germany again, but it is worth looking at other countries, especially when they are doing so well. I remind the House of Germany’s market penetration in countries where we might not normally expect it, such as China and India, and so forth. We have to understand how the Germans do that and learn a few lessons from them. That is something that the Treasury, the Department for Business, Innovation and Skills and other agencies of Government would do well to consider.
The Chancellor quite properly referred to education and training, which we really have to focus on. I am absolutely delighted that, in the Budget and elsewhere, the Government have made a lot of the importance of skills training and education. The Chancellor said that we could put all the fiscal measures in place, but we really need the people to make it work—he did not use those words exactly, but that is the point he was trying to get at. We therefore have to do it. We have to ensure that the resource we have in this country—our people, all of them—have access to decent education, which will enable them to adapt and develop in their careers. It is no longer the case that people just turn up, do a job and then retire; this is about a process of development.
I want to talk a bit about banking. It is essential that we manage to get more money into the right places. One of the things about monetarism in the ’70s and ’80s is that it was quite a blunt instrument, as is quantitative easing, so we have to ensure that we get money into the right places. The issue of banking constantly recurs. The Government have mentioned a large number of measures that they intend to take, not least the national loan guarantee scheme. That is absolutely brilliant and good news, and I look forward to that. However, we need more banks, with a greater variety of offerings and more specialisms in appropriate sectors, and more competition in the banking sector. We also need to be alert to new ways of financing firms and encourage them to think about new ways of doing that. It is not just about the banks, although they need to improve their lending; it is also about firms themselves and the cultural change we need to bring about to encourage small and medium-sized businesses to think out of the box when it comes to borrowing money.
I finish with a comment about the business finance partnership, which is a great scheme. Indeed, the Chancellor mentioned it today, with £100 million in the Budget for non-traditional lending, which is exactly the sort of thing I am thinking about. It is also important that we continue to recognise, understand and promote the development of supply chains, because they are critical in the SME sector—they really do matter. Interpreting how supply chains will develop, recognising where the blockages are and understanding them as part of the export issue to which I referred will enable growth to take place, because the component parts of the chain will understand that process and be ready to support and buy from each other.
This is a good Budget, but there is a lot still to do.
Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)
The Chancellor opened his statement by promising us that this is a Budget that “rewards work”, “backs business” and “is on the side of aspiration”. Fine words, but I remember the last Budget, which he said would
“put fuel into the tank of the British economy.”—[Official Report, 23 March 2011; Vol. 525, c. 966.]
I have an uncomfortable feeling that in one year’s time, I will be looking back on the Chancellor’s opening words today with the same scepticism and cynicism with which I look back on the words that he used to describe his previous Budget. The fact remains that this Budget is set against a background of increasing unemployment, a squeeze on living standards and flatlining economic growth. It was significant that Government Members were so enthusiastic about the revised Office for Budget Responsibility projection which showed that the economy could grow by an extra 0.1%, given the fact that the economy is performing way below the Chancellor’s original projections. I sensed a hopeless clutching of straws.
Andrew Bridgen
Is the hon. Gentleman aware of recent predictions that the UK economy will grow twice as fast as the German economy and three times as fast as the French economy this year?
Mr Bailey
I am afraid I do not read comics such as The Dandy, and I have not come across any such predictions at all. I do not think that they are in the OBR’s projection, either.
From the moment the Chancellor came into office, he has ruled out any intelligent debate on the right balance of supply-side and demand-side measures that would achieve a level of economic growth that would eliminate the deficit and provide employment. When the Labour Government left office, the economy was growing, unemployment and inflation were falling and our public sector deficit was declining, but the Chancellor seemed to think that that was all wrong, and that the only recipe was austerity. His justification for that was the perceived threat that a credit rating agency would downgrade Britain’s triple A status, with all the horrors that that would entail. I congratulate the Chancellor on one thing: he has transformed credit rating agencies from being the most anonymous part of our financial services infrastructure into bedroom monsters that he conjures out of the wardrobe to frighten anyone who has the temerity to question the underlying philosophy behind the measures that he is taking. We have to suffer job losses, cuts to our public services and pay freezes, because if we do not, Moody’s and Fitch will get us. That is the Chancellor’s underlying approach.
Barry Gardiner
Could they possibly be the same Moody’s and Fitch that gave Lehman Brothers its triple A rating?
Mr Bailey
I think they probably were.
After we have endured two years of pain since the Government came into office, Moody’s and Fitch have rewarded the Chancellor for all his efforts by putting Britain’s triple A rating on negative outlook. The monsters have turned on their master. The pain has been in vain, and the Chancellor should acknowledge that and start genuinely to consider a more balanced approach that would enable us to implement the changes that we need to grow our way out of the deficit.
I remind Members that it was only last August when the Chancellor sneered at the American model and told us that the American economy was growing more slowly than Britain’s. Now, however, America has taken a balanced approach. Its economy grew 3% in the last quarter of 2011, and is predicted to grow further. Its deficit is predicted to drop next year, as is its unemployment. The fact is that the model that the Chancellor sneered at is actually delivering, while his is not. Last week, when I saw the Prime Minister having his cosy discussions with President Obama, I wondered whether he might have taken him aside and said, “Mr President, how is it that you have got your economic strategy so right and my Chancellor has got his so wrong?” But perhaps that was just a fantasy.
Parts of the Budget are good, and they might help, even though they deal with the supply side, when the demand side needs to be addressed. The national loan guarantee scheme is obviously a welcome measure, and some companies will benefit from it. However—this might be a good thing for those companies—some companies that use it would have invested anyway, while companies on the margins will not be able to access it: they will run up against the same problems as before. One cannot help but think that if more were done to inflate the economy and improve the demand side, more companies would become more viable in the future and more companies would be able to access the scheme.
The fact remains that while access to finance is still a barrier for many sound companies, this is not the only issue. Many companies are not going to the banks because their future market projections are such that they do not have enough confidence to invest any more. Although there has been a very modest improvement in business confidence, it is still very fragile overall, and this measure alone is not likely to counteract it.
The Institute for Fiscal Studies projections show that we are only a quarter of the way through the public sector cuts. If future public sector cuts designed to deliver on the Government’s objectives result in further unemployment, I foresee only a further squeeze on the financial situation of individuals and a further decline in the domestic market needed to give those companies the sort of confidence they need.
An earlier speaker mentioned the national insurance holiday that was introduced in a previous Budget. No mention of that whatever was made in this Budget; it has been a colossal flop. However, small businesses are campaigning up and down the country, arguing that if this were reshaped and if the money that has not been used were ploughed into it, all small businesses could qualify, provided that they employ more people. That would be a relatively minor tweaking to the Government’s Budget strategy, yet it could result in a significant increase in employment and a significant increase in demand. I am disappointed that the Government did not look at that.
On construction, much has been said about the national infrastructure plan. Fine, it is a great plan, but it is being projected as if having a plan results in delivery. So far, what has been conspicuously absent is any sort of funding mechanism to achieve this. We have heard about using pension funds, which may be a great idea, and we have heard about private investment, which may also be a great idea—we will see. The key point is that until there is a model for the financing of the delivery of these infrastructure plans, these are really pie-in-the-sky ideas. I have an uncomfortable feeling that these so-called plans are being used as a substitute for doing something.
The construction industry needs action on this level. Having enjoyed a revival in 2010 and early 2011—largely as a result of contracts initiated under the previous Labour Government—it is now shrinking. As of this moment, employment is predicted to drop by 45,000, with a further 3% in output in 2012. If the Government really want an infrastructure-led revival in our economy, they need to move quickly. We have the companies capable of delivering it, and we have the skills within those companies; what we need is Government action. Let me make one qualifying point. About 60% of the projects in the national infrastructure plan are based in London, but the greatest unemployment in the construction industry is outside in the regions, so the plan needs to be revamped to take that into consideration.
The Government are certainly making all the right noises about exports. What the Chancellor did not mention is that if we are to expand our exports to the BRIC countries—Brazil, Russia, India and China—reducing UK Trade & Investment’s budget by 17% is perhaps not the best way of doing it. Also, he did not mention that two of the most significant growing markets that we need to access, India and China—other Members have talked about this—are, as a result of the visa regime, hugely concerned about whether Britain is open to business. There is considerable evidence that that is damaging our economic relations with them.
My last point is very much a personal one. As a long-standing co-operator and as a believer in mutuality and employee share ownership, I believe that measures should be taken to foster and develop employee share ownership in this country. There is a huge body of evidence demonstrating that it leads to greater employee and consumer satisfaction, and greater productivity. The tax allowable savings rate for members who wish to invest in their companies has not been increased for donkey’s years. The Government have said that they will review it. Given the commitment made by both the Prime Minister and the Deputy Prime Minister, I would have wished for something a little more solid than that, and I hope that the review will deliver it.
Madam Deputy Speaker (Dawn Primarolo)
Order. Eight speakers have indicated that they wish to speak, so I am taking the time limit down to eight minutes. I hope that Members will be courteous to everyone else in the Chamber, so that we can ensure that everybody who has applied to speak today gets in this evening.
Mr Edward Leigh (Gainsborough) (Con)
It is a pleasure to follow the hon. Member for West Bromwich West (Mr Bailey), who always makes his arguments well. I apologise for the fact that I cannot stay for the whole of the rest of the debate; I wish to attend the memorial service downstairs for David Atkinson. I will take this opportunity to pay tribute to him on the Floor of the House. He served the House with tremendous distinction for many years, particularly in the Council of Europe. He was particularly hard-working on promoting democracy throughout Europe.
I see my neighbour, the hon. Member for Great Grimsby (Austin Mitchell), on the Opposition Benches. We have been in the House together for a long time, and we have heard many Budgets. I said to my wife this morning, “We have heard so many Budgets. Will this be just another Budget that takes with one hand and gives with the other?” but I think it is a very courageous Budget that is rather different from many that I have heard. I have sat through so many—from Nigel Lawson, John Major and the previous leader of the Labour party.
The Budget is courageous for two reasons. First, my right hon. Friend the Chancellor is persevering with dealing with the deficit, which is the greatest problem that we face. Politically, it is in the interests of the Labour party to claim that we are indulging in a tremendous campaign of cutting everything in sight. One of the problems that it faces is that it knows perfectly well—as do the public—that, if it had remained in power, as it very nearly did, it would have done much the same as us. It is also politically convenient for the Government, of course, to proclaim that they are taking difficult decisions, but we are probably not cutting public expenditure enough to keep interest rates low. We are cutting what would otherwise have been a runaway increase in the deficit, and that is very different indeed.
The decisions that the Chancellor faces are extraordinarily difficult, and he is conducting himself very well. I have watched him ever since he was a freshman Member of Parliament, serving on the Public Accounts Committee. What he is achieving, both on the deficit and on many other things, is important and courageous. The other brave thing that he has done today is deal with the issue of the 50p top rate of tax. I know that that is not necessarily populist. I listened to the speech by the Leader of the Opposition, which was very good, and afterwards I congratulated him on it. It was good politics, and it appealed to his people, but the question that the Labour party has to ask itself is: does it want its leader to give a speech that appeals to his core supporters, or a speech that addresses the real problems of the country? This is the problem in respect of the top rate income tax payers: the top 1% of taxpayers pay about 28% of total taxes and they are highly mobile in the way that they conduct their lives and their businesses, and simply imposing a 50p tax—which Tony Blair and Mandelson resisted year after year—does not actually achieve anything for the economy. It may be good Labour politics, but it does not achieve anything for the economy. As we heard from the Chancellor today, it is only giving us about £100 million. Therefore, although this measure may not be popular, it has to be taken if we are to revive entrepreneurship.
The task facing the Chancellor is very difficult and complex, but he has set about it in the right way. He is trying to close many of the tax loopholes. The difficulty here, however, is that we do not want the very rich just to bury their money in the ground. Instead, we want them to be “white knights”, to set up businesses and to become entrepreneurs. Indeed, many of the so-called tax avoidance schemes were designed by previous Governments to encourage the rich to invest in business.
The Chancellor has also taken a brave decision on child benefit. I was critical of his original proposals, although I understand why he suggested them. There was the overriding need to deal with the deficit, and his child benefit reforms were going to save £2.5 billion. There was also a desire to “detoxify” the Tory brand, and to attack higher income tax payers. There may have been some pressures within the coalition, too. However, we all know that the Chancellor’s original proposal would, as it were, have created a cliff edge and would have been fundamentally unfair, because the situation would have been very different for a family with one higher tax earner than for a family with two taxpayers whose earnings are just below the £41,000 limit.
The Chancellor has taken the courageous and right decision to try to deal with that problem, but we still have a long way to go, and I believe that a better way forward would be to have a tax allowance. That would solve the problem of the higher income tax payer family. In France, instead of getting child benefit, couples are given a family tax allowance, which is spread between themselves and their children, irrespective of their income. An adult counts as one unit of tax allowance, and children count as half units. Therefore, a married couple with two children are given three units-worth of tax allowance. As a result, the level of income at which they start to pay tax is higher than it would be in Britain. That system has the added advantage of addressing the perverse incentives against family life and couples staying together.
I will continue to argue that the Government must fulfil their pledge to recognise marriage in the tax system. Critics of my arguments often say, “Just a little tax break isn’t going to make people get married or stay married.” That is perfectly true, but what we currently have is almost a perverse incentive against family life. A married couple where one parent stays at home to look after the children are hugely more taxed than almost any other taxpayer. We do not want to create a tax break for marriage because we think that that alone will deal with the wider problems; we just want to right an injustice.
The Chancellor has remained true to the overriding need to have a fiscally neutral Budget and to attack the deficit, has demonstrated a determination to promote entrepreneurship even if that means taking unpopular decisions, and has courageously recognised that he may have made a mistake on child benefit and that he should try to reform the system in a more equitable way. Although the Budget may not be popular with everybody, it is certainly a good Budget, and the right Budget for the nation.
Austin Mitchell (Great Grimsby) (Lab)
I cannot agree with my neighbour, the hon. Member for Gainsborough (Mr Leigh), on this Budget, because from both a Labour and an objective point of view it is a pathetic Budget. It is justified by a lot of bravado and bluff, but it does nothing about the major problem of an economy that is nearing recession and needs drastically to boost growth if we are to get out of it. The Budget even fails the five tests for a successful Budget that Anatole Kaletsky proposes in The Times today. The three most important of those are that the Budget should be fair to all—this one is not; that it should be pragmatic, which this one is not, because it is ideological; and that it should be relevant to the problems of the day, which this one is not.
What this Budget does is prolong the failed policies of the past two years of cut, freeze and squeeze, which are not working and need to be ended. The Budget is a disastrous prospect for the Government, because this is the hinge point of power and this Budget means that, instead of strolling to a tax-cutting election victory in 2015, they are faced with flatlining. The huskies pulling the sledge are going to have to pull even harder to get it moving at all. We have already lost 4% of GDP—the economy is that much smaller, according to the Institute for Fiscal Studies—and that will never be made good. We face flatlining, as Japan did in its wasted decade.
The Liberal Democrats have made a desperate attempt to distract attention from that failure. They argue that the rich have been taxed to show that they have got something out of the coalition. They were trying to stop the reduction from 50 to 45%, proposing a mansion tax, a tycoon tax—perhaps it was a Typhoo tax—or something to tax wealth. Well, we have got the cut in the 50% rate, which the HMRC study did not prove brought in big revenues. However, it did not wait for the deferred taxation to come into play—it would do so only with a longer period of running that tax. The public did not want the cut in that tax, which demonstrated that we are all in it together, but it has been cut and the Liberals have got very little in return.
I am not sure what the Liberals were expecting, because what is the Tory party about but helping the rich? After all, this is a Government of millionaires, for millionaires, by millionaires, so we would not expect them, as the Liberals seem to have done, to be giving a tax increase to the rich. What they have given is a couple of symbolic pecks at wealth, but they are more like love bites than serious damage. It does not help that the Government have raised tax allowances in the way that the Liberals wanted. It was a good idea to raise them, but I must point out that that does not really help the poor who do not pay tax, or pensioners—it does not compensate for the VAT increase, for the loss of tax credits and for the child benefit cut. The main benefit goes to the second highest decile of taxpayers, rather than to those at the bottom. So that is the only crumb they have got out of it. The coalition Government are beginning to look like Downton avenue, with the millionaires living upstairs—[Interruption.] Sorry, I meant Downton Abbey. I was thinking about Coronation Street. We have a Government of millionaires living upstairs and the domestic servants are downstairs grumbling, because the only prospect they have now is to go hawking their consciences round television studios to explain why they are getting nothing out of this coalition.
Not only is the Budget not fair—it is certainly not fair to the north and to the area I represent—but it has failed Kaletsky’s second requirement, because it is not pragmatic. It is an ideological Budget because it is obsessed—still crazy over Thatcherism, after all these years—with debt. The problem of this country is not debt. If there is growth, debt can be paid off easily, as the Labour Government did between 1997 and 2000. The problem facing us is a lack of demand. That is why shops are closing in the high street and chains are going bust. Firms are not growing, investing and expanding because they cannot see a demand for their products. As long as that remains the case and as long as there is that uncertainty, we shall not get economic growth. People are being given more hours in which to shop with money that they have not got. Demand is crucial to this economy. It is far too low and it needs to be boosted, but it is not being boosted. There must be a boost to demand.
That brings me to the third failure in the Kaletsky tests. The Budget is not relevant to the economy as it is today. We are an economy verging on recession. We have had a massive loss of growth. We need growth and there are only two ways of getting it. The first is by monetary means. The Bank of England is doing its best with quantitative easing, but that is going into the banks, which are not lending it. It is building up their reserves, rather than going out to the people who spend and generate demand. Secondly, there is the fiscal weapon, which the Chancellor obstinately refuses to use. Only growth will pay off debt. Unless we get growth in the economy, there is no chance of paying off the debt in the way that the Chancellor wants. The only way we will get growth is to borrow, to spend and to let the multiplier work its magic, as Keynes told us it would. That would work, but these policies will not.
Simon Jenkins suggests helicopter money—putting the money in a helicopter and dropping it out on the people, who will spend it. If it drops out on Grimsby, I will be very grateful, but a more sensible way would be to use the money from quantitative easing to sign contracts for a big house building programme to create public housing for rent, which is badly needed in this country, and for big public work contracts. Some of the money should be put in a national investment bank, with an industrial policy to invest in manufacturing and expansion. That is the way to spend the money from quantitative easing.
The Bank of England cannot do that. All it can do is buy debt and give the money to the banks, which stash it away in their reserves. The Chancellor can decide that the money printed by quantitative easing should be used for those benign purposes, and he should, because that would give us growth. Also, there should be municipal bonds for house building, as we used to have, to boost the finance for house building.
The Budget is a failure which foretells three years of bumping along, not on the bottom, but flatlining for an economy which desperately needs to grow to compete with the Americans, whose economy is growing, and to benefit from their growth. The economy should be stimulated by public spending and projects such as house building to get us out of the mess we are in, and I do not see any symptom of that following this Budget.
Andrew Bridgen (North West Leicestershire) (Con)
I draw Members’ attention to my declaration in the Register of Members’ Financial Interests.
The Budget is set in the context of continued uncertainty in the global economy, but it is a Budget that binds many threads of Government policy as we seek to reward work and enterprise and to rebalance our economy. The House would do well to remember that it is only by virtue of the deficit reduction plan set out by my right hon. Friend the Chancellor in June 2010 that the UK has managed to achieve a relative safe haven status and achieve record low interest rates, which will save the taxpayer a projected £36 billion over this Parliament.
The Chancellor today announced measures that will allow companies and individuals further to share in the benefits of these low interest rates, achieved no doubt by international acceptance of the fiscal competence of this Government’s policies. The deficit reduction plan, however, is not just about reducing the size of the increase in Government spending; it is also dependent on achieving growth. Although the eurozone crisis has damaged economic growth rates across the continent and globally, it is a testament to this Chancellor and this Government’s handling of the public finances that the deficit reduction figure was ahead of target this year, while at the same time achieving a growth rate in the economy of 0.8%.
As we have heard during the debate, the Opposition try to argue that deficit reduction is being pursued at the expense of growth, and America has been mentioned. They should look at the International Monetary Fund’s fiscal monitor, which shows that fiscal policy in America was tightened by 0.8% of gross domestic product last year, at the same time as a growth rate of 1.7% was achieved. This fact completely contradicts the inaccurate claims of the Leader of the Opposition in his Budget response and those in the Labour party who still cling to the misguided mantra that the only way to obtain economic growth is through fiscal stimulus. When will they learn that they cannot borrow their way out of a debt crisis?
There is, however, no room for complacency and the economy needs to start growing at a faster rate. I welcome the measures outlined today that will stimulate the economy and see taxes cut for 24 million taxpayers through the increase in the tax threshold. That is another example of the Government’s commitment to the lowest-paid and stands in stark contrast to the actions of the previous Prime Minister, who removed the 10p starting rate of tax in his final Budget, hitting the lowest-paid the hardest. The increase in the personal allowance to £9,205 is very welcome and will lift an additional 66,000 people in the east midlands alone out of income tax and benefit more than 1.7 million individuals nationally. The Government will have lifted a total of 148,000 people in the east midlands out of tax at this rate.
Another damaging legacy of the previous Prime Minister was the 50p rate of tax—a purely political and cynical attempt to lay a bear trap for the Conservative party. As my right hon. Friend the Chancellor explained, it is raising little or no money and damaging the competitiveness of our economy. It was a Trojan horse of a tax. It raised no money and at the same time damaged our economy.
Mr Stewart Jackson (Peterborough) (Con)
Is it not the case that the Opposition have no credibility on this issue, because even though the shadow Chancellor knows that the 50p rate damaged entrepreneurship and collected very little revenue, he still refuses, even this afternoon, to confirm that the Labour party, if in office, would bring it back?
Andrew Bridgen
My hon. Friend is absolutely right; they have no credibility and will not confirm whether they would bring the rate back. I remind the House of the comments of their former leader, Tony Blair, who stated:
“I wanted to preserve, in terms of competitive tax rates, the essential Thatcher/Howe/Lawson legacy. I wanted wealthy people to feel at home and welcomed in the UK so that they could bring more business, create jobs and spread some of that wealth around.”
Whatever happened to new Labour? Even Mr Blair accepted that the top 1% of earners pay almost 30% of the taxes in this country, and many other countries certainly feel the same, but our top rate of tax was the highest in the 10 largest economies in the world.
Mr Marcus Jones
While my hon. Friend is on the subject of tax, will he join me in welcoming the comments of the Birmingham chamber of commerce today that the Chancellor’s tax reforms are a recipe for growth?
Andrew Bridgen
I certainly will. As my constituency is only 22 miles from Birmingham, I always listen to what its chamber of commerce has to say. I am sure that it also welcomes another signal that this country is open for business: the acceleration in the cuts to corporation tax. These changes will encourage business investment, support growth and create jobs. My only regret about the announced cut in corporation tax is that Ken Livingstone stands to gain from the devious arranging of his tax affairs. I also welcome the announcement of loans for young entrepreneurs, which displays a commitment, not always shown by the previous Government, to open up opportunities for young people who choose not to go to university.
We are all well aware of the over-complicated and incomprehensible tax system left by the previous Government. The Chartered Institute of Taxation stated shortly after the election:
“The UK now has the longest primary tax code, and one of the most complicated, in the world.”
We all know that this is stunts growth, and I welcome the tax simplification measures announced today in the Red Book, which abolish 28 reliefs and will make the tax affairs of small businesses, the lifeblood of our economy, much simpler. However, this Budget needs to be the beginning of the work on tax simplification, not the end. We have all become aware of the stamp duty loopholes that have been ruthlessly exploited through schemes such as subsale relief and individuals, through companies, avoiding stamp duty on multi-million pound houses. I welcome the action the Chancellor has taken to close this embarrassing loophole.
I welcome also the announcement on regional pay bargaining. The Opposition will argue that it widens the north-south divide, but I argue that the north-south divide is being perpetuated: areas have become so hooked and reliant on public sector jobs that the private sector, which cannot compete with the pay and conditions agreed nationally by the public sector, is stifled. We need more of our brightest and best to enter the private sector, which in many parts of the country struggles to compete with the pay and conditions on offer in the public sector.
I welcome the measures announced to help military personnel, particularly doubling the rate of council tax rebate and doubling the rate of family welfare grant. That is another example and extension of this Government’s commitment to the armed forces, and, although the announcement of £100 million of investment in military accommodation is long overdue, it will be welcomed by all service families.
We cannot tax our way into prosperity any more than we can borrow our way out of a debt crisis. This is a Budget that is symbolic of this Government’s principles—to promote fairness and to reward work and enterprise so that we can start to earn our way back to prosperity.
Barry Gardiner (Brent North) (Lab)
The trouble with Budgets is that they tend to operate on a five-year cycle that has no relation to the actual cycles of the resources that we profess to manage. The immediacy of the political triumphs over the requirements of the actual.
The focal point of this Budget is 2016-17, when the Government hope that the hole in the public finances will have been filled, but interestingly four fifths—more than £90 billion—of that filler comes from cuts in services and benefits, while only one fifth comes from rises in tax. Yet 73% of the tax rises have already been put in place, and less than 20% of the cuts in services and benefits have happened.
The Government might think it prudent to delay the pain, but Government Back Benchers might care to reflect on what that has done to their electoral prospects.
Mr Robin Walker (Worcester) (Con)
The hon. Gentleman mentions the figure of £90 billion, but will he acknowledge that the £36 billion reduction in interest payments, which we have already seen, makes a substantial contribution to that?
Barry Gardiner
The hon. Gentleman refers to interest payments, but he knows that on that score this Government are paying out £150 billion more than they predicted, so his argument does not hold up.
A Budget is a mechanism for the distribution and allocation of scarce resources, so let us examine what this Budget means for a child born today. A child born in my constituency today brings us this message: “By the time I reach my 18th birthday, the world will require 30% more fresh water, 45% more energy and 50% more food.” This child is part of the generation that will see the global population move from 7 billion to 10 billion people. How do we respond to this child? Do we become the most selfish generation of the most selfish species in our planet’s history? Or do we become the generation that understood that justice and sustainability are essentially the same thing? If you want peace in the world, create justice. If you want justice, live sustainably.
We must get away from both sides of the political divide arguing that they uniquely possess the key to growth. We listen to the stale arguments about whether more spending now will raise growth and reduce the deficit more quickly, or whether less borrowing now will ultimately be a surer path to bring our economy back into GDP growth. But what both sides are talking about is yesterday’s economics: Hayek pitted against Keynes.
The Chancellor wants to set markets free and insists that we cannot spend our way out of debt, but he wilfully ignores Hayek’s equal insistence that the boom gets started with an expansion of credit—the very liquidity that the Chancellor has told the banks they must provide for business. Hayek would have been appalled to find his theories invoked by a Chancellor literally printing money through quantitative easing. In Hayek’s view, that leads only to unrealistically low interest rates and to the cycle of boom and bust starting all over again.
Keynes of course believed in consumption-led growth as an economic stimulus, but he did not live in a world of 7 billion people. He assumed that growth was sustainable and natural resource was, for practical purposes, infinite. We know that it is not. As a result, we have an obligation to make sure that growth is sustainable, not simply to assume that it will be.
Mr Jackson
The hon. Gentleman is making a cogent and interesting argument. We all agree that we should give 0.7% of our GDP to international development. Surely he will concede that unless we grow our GDP, the absolute amount of cash that we have to give to good causes across the world, in supporting sustainability, will not be enough to do the things that he wants to do.
Barry Gardiner
The hon. Gentleman precisely misconstrues my point; the issue is not about the amount of aid given to developing countries, but about understanding the valuation of natural capital and incorporating that into the Government’s accounting framework. That is in the natural environment White Paper, if he cares to read it.
In a world of 7 billion people, growth can be sustainable only if it is predicated on advances that bring increased productivity and greater efficiency in the use of resources. That is what Hayek would have called a sound capital structure and proper allocation of capital. For the world to continue to achieve a 3% per annum growth target, and to maintain a trajectory that keeps carbon emissions below the 2°C threshold of dangerous climate change, we must increase our productivity per tonne of carbon emitted 15 times over.
The Budget simply does not address that technological challenge. It was extraordinary to see the Secretary of State for Energy and Climate Change join forces with the Treasury last Friday evening and issue a press release at 6 pm, embargoed until midnight, to exempt gas-fired power stations from the emissions controls set out in the fourth carbon budget by the Committee on Climate Change. Those emissions reductions were, in the Committee’s view, part of the necessary regulatory framework for achieving our target of at least 80% emissions reductions by 2050.
The press release set out no alternative mechanisms that would be adopted to keep to those targets and no Minister has sought to expand on the issue since last week. It is a measure of the shame that the Government felt on reneging on the fourth carbon budget that they issued their press release in such a furtive manner. What is worse, what happened shows that the new Energy Secretary has no command over his brief and has been fingered by the Treasury as a weak Secretary of State.
Since William Ewart Gladstone instituted the modern accounting and budgetary processes of the House of Commons 150 years ago, modern economics has come a long way in its understanding of capital. In Gladstone’s day, the notion of capital was very simple; it represented money and machinery. Gradually, we have come to realise that capital is not just money and plant. We have developed sophisticated concepts of social and intellectual capital. We know that a well functioning legal system is very much a part of the wealth of a society, inviting commerce and trade to practise where certainty and redress prevail. That is certainly a form of capital different from a bridge, printing press or motorway, but we now measure them all in our assessment of the national wealth of a country.
Resource economists now point out that we have left out of our economic calculations perhaps the most important capital of all: natural capital. We have left it out for a very simple reason—we always took it for granted. We thought that it was a free good. It cost us nothing and we assumed the supply was infinite. In the language of classical economics, natural capital was a mere externality, “as free as the air you breathe”.
What we have now begun to realise is that the air we breathe is not actually free—at least, it is not without a quantifiable value. Any sound cost-benefit analysis of public policy must take that value into account. The Environmental Audit Committee report on air pollution estimated that the costs from air pollution are up to £20.2 billion. That is the cost of respiratory and other diseases associated with poor air quality, both in treatment and lost productivity.
The natural environment provides not just a physical stock of resources—forests and fish, minerals and fresh water that human beings depend on—but a network of services essential for human life. The pollination of our crops by insects, the stabilisation of our soil by trees and the regulation of our watershed by peat bogs are just some of the ecosystem services that a new economic model must begin to incorporate into our Government’s accounting framework. That new accounting renders inadequate the concept of GDP growth because it reveals one of the central conundrums of classical economics: that a country can become poorer while increasing its GDP.
The Chancellor said nothing today that showed that he understood that. Another important consideration is that those wider benefits, although immensely valuable, do not accrue to an individual private property owner; they are experienced by a community at large. They are regarded as free goods by the wider community, and in classical economics as externalities, and because they are not directly captured by a landowner they rarely feature in a landowner’s decision on how or whether to dispose of them. That is why the exercise of private property rights can often be to the public detriment. It is also why the role of the state in regulating the disposal of land is so important. Today we have heard much talk of stamp duty and how to raise revenue from the rich. It therefore seems quaint that no one has commented on the fact that the land registry for England, which was established in 1928, still accounts for only some 64% of the land in England, while in the registry for Scotland the figure drops to a mere 21%.
Of course, there is a reason why almost a century later we have not yet been able properly to map the title of land in the UK—it is that so much of it has never been sold but has been passed down in families, from parent to child, in enormous estates. If the Government genuinely want to raise tax from the very wealthy, they should examine not only houses sold for over £2 million but the vast tracts of our country that have been accumulated in great estates for centuries and are still owned and managed not for the benefit of the population at large but to maximise the income and pleasure of a very few private individuals. I do not claim that all hereditary estates are badly managed in respect of the environment, but I do claim that good management comes not only as a result of inheritance. Land tax reform is long overdue. If we wish to become a more equal society, then we need to consider the taxation of land and land use in different and more imaginative ways, for the benefit of society as a whole.
The Chancellor sought in his Budget to bury another important piece of environmental news. Next Tuesday, the new national planning policy framework is published. That deserves our attention not least because we know that the Chancellor takes the view that the planning system is a blockage to economic growth. The NPPF will cause havoc up and down the country as planning uncertainty and ambiguity filters down to local communities. Fundamental to the new framework is the presumption in favour of sustainable development. In practice, this means—
David Mowat (Warrington South) (Con)
I will talk about four areas: tax avoidance; the effectiveness of the Budget in terms of pension tax relief; regional policy; and some aspects of green policy, which may not be entirely coincidental given the speech by the hon. Member for Brent North (Barry Gardiner).
On tax relief, I am pleased that the Chancellor announced that the Aaronson review is to be taken forward and that we are to have a general anti-abuse rule. Sometimes Government Members express concern about retrospective legislation as though it were all about Magna Carta and attacking the rights of the individual. In this case, however, we are talking about predatory and abusive tax practices. About a week ago, I received an e-mail from a firm of accountants telling me about a tax scheme based around film tax credits—it was presumably perfectly legal—and suggesting that there was a way for me to pay no income tax. If I am getting such e-mails, others are getting them too. It is high time that these schemes were put away for ever. I am pleased that the Government are going to move forward on that, although they may wish to consider some kind of de minimis limit as regards how the measure would work in order to avoid over-zealous tax inspectors getting in the way.
I am particularly pleased about the Government’s announcement on stamp duty. For the past three months, we have known that this measure was coming and that the loophole would be closed on 21 March, and I have been concerned about that, given what often happens in such cases. I assumed, rightly I think, that across London in particular estate agents and solicitors were putting houses into companies in order to avoid the measure. I was therefore delighted when I saw the detail of the proposed legislation, which, as far as I can see, fixes this practice. The Government are going to consult on a proposal that will force people to take their houses out of such companies and, presumably, pay tax at the new higher rate. I commend whichever civil servant thought of that. Tax avoidance matters; it strikes at the heart of the notion that we are all in this together.
Before I leave the subject, I would like to discuss it in the context of the BBC. Members on both sides of the House will remember the “Newsnight” exclusive about the head of the Student Loans Company who was not having tax deducted at source even though he was, to all intents and purposes, a full-time employee. The Government have correctly agreed to fix that and to undertake a review of the rest of the public sector. I sent a freedom of information request to the BBC, asking it how many of its employees did not have tax deducted at source. The answer was that 320 non-talent based employees—in other words, administration employees—earning more than £50,000 a year were not having tax and national insurance deducted at source through pay-as-you-earn. The review that is being conducted across Government to ensure that that is not happening explicitly excludes the BBC. I ask Ministers to reconsider that. I will repeat the statistic: 320 non-talent based BBC employees earning more than £50,000 a year do not have tax or national insurance deducted at source through PAYE. That is not acceptable.
I will talk briefly about pension tax relief. I know that this is a complex area, but I am concerned that the Government are not making the progress on private sector pensions that is needed. In broad terms, the industry is failing. There is market failure in the pension fund management industry and the annuity industry. There is a massive asymmetry of information between the industry and the people it purports to serve. Charges are out of control. I am delighted that the National Employment Savings Trust is coming in. There are limits on who NEST can serve and how it can serve them, which were forced on the Government by the industry.
It is time to look again at the whole area of pensions. In particular, we should look at what the Government spend on tax relief. They spend £8 billion on higher rate tax relief and £30 billion on tax relief in total. If that tax relief was going into people’s pension pots towards their retirement prosperity, that would be one thing. The truth is that 31% of pension pots go on charges. It is possible that that rises to 50% of pension pots when churn costs and the rest of it are taken into account.
I would have liked the Government to remove higher rate tax relief in the Budget, because frankly it is a subsidy for a chunk of the investment management industry in the City. At the same time, I would have liked them to reverse the raid on pensions undertaken by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown). That could have been done easily with the money, and they might have been able to increase the overall rate of old-age pensions with what was left over. Indeed, if we removed all tax relief on pensions from this failing industry, we could increase the old-age pension by 60%. That model would put us much closer to how continental Europe deals with this matter, and we could still encourage savings through individual savings accounts and the like.
My hon. Friend the Member for North West Leicestershire (Andrew Bridgen) said that he was in favour of the regional pay policy. Anything that the Government do in that regard must be evidence-based. Taking money out of the regions is not, on the face of it, the easiest or best way of changing the north-south divide. In the last year of the previous Government, London had double the gross value added per head of the English regions. We must tread carefully. The Government must make fixing that statistic a priority. In no other country in the world—not in Germany, France or Italy—does that sort of discrepancy between the capital city and the regions exist. We must be circumspect about the regional pay policy.
I was pleased with the announcements in the Budget on the northern hub and the Manchester earn-back model. However, I was disappointed that of the £30 billion of infrastructure spending that the Chancellor announced before Christmas, 84% was for London and the south-east. We need to fix that.
Unfortunately, I do not have time to talk about green policies, so the hon. Member for Brent North will not hear my thoughts on his speech. I will at least leave the three areas that I have discussed with Ministers.
Mr David Hanson (Delyn) (Lab)
It is a pleasure to speak on the first day of the Budget debate. I feel a slight sense of déjà vu, because although the debate has been going for about six hours since the Chancellor began his statement, I feel that I have known for a little longer than that about Sunday trading, the regional pay cap, the 50p tax rate, stamp duty and other matters in the Budget. Perhaps it is because I am from the north and we are in a different time zone up there, but those measures seem to have been around since at least Sunday, probably Saturday or before. Hugh Dalton resigned as Labour Chancellor for less, and I hope that Mr Speaker and you, Mr Deputy Speaker, will make a really serious examination of the issue in future.
The Deeside industrial park enterprise zone that the Chancellor announced today was in fact announced by the Labour Welsh Government before Christmas. It was brought to us today as a brand-new initiative, but it is one of a range of issues in the Budget that have been around for much longer than just today.
The devil is in the detail, and the difficulty on day one of the Budget debate is examining that detail and deciding which are the important matters. I know that the devil is in the detail because I shared many a Finance Bill debate with the Exchequer Secretary, who is in his place, until I moved to a different position as a shadow Home Office Minister at the end of last year.
The details of today’s Budget are worth focusing on. We have already seen that among them is the fact that 14,000 people who earn £1 million or more will get a £40,000 tax cut. Whatever the arguments for or against that, at a time when the Government are asking people to tighten their belts, giving a £40,000 tax cut to the richest people in our communities strikes me as the wrong priority. Much has been made of stamp duty compensating for that, but I remind the Exchequer Secretary that a £40,000 tax cut is a year-on-year measure whereas people do not move house every year. If they do, perhaps they deserve to pay the higher level of stamp duty, but mostly it is a one-off payment.
At the same time, families earning £20,000 stand to lose £253 this year, along with the rise in VAT that the Opposition voted against, which will cost them about £450 a year. Whatever pleasures the Liberals have brought to the debate, they have said the rise in the income tax threshold means that there will be a tax cut. However, there will not be a tax cut overall, because there will still be rises in indirect taxation.
The devil is also in the details of a £3 billion tax raid on 4.41 million pensioners, who will lose about £83 in 2013-14 through the changes to the higher allowances. I am sure that will come back and bite the Government in Committee and beyond. Also, 65-year-olds will lose £314 next year, which is another devil in the details.
I have noticed only during the debate—the Chancellor did not mention it in his speech—a major issue for me and my constituents in the details of the tax on holiday caravans. I represent a constituency in north Wales where holiday caravans are part of the local economy. Unbeknown to us from the Chancellor’s speech, he has announced on page A101 of the “Overview of Tax Legislation and Rates” that VAT will be levied on static holiday caravans from 1 October. According to the Treasury’s own figures, that will have an impact on some 50,000 individuals a year and, crucially, reduce demand by about 30% if the VAT change is fully passed on. The document states:
“This change is likely to adversely impact on all businesses that manufacture, buy or sell static caravans, from the very smallest to the very largest.”
Only two weeks ago, I opened a brand-new caravan park extension in my constituency, providing 12 new caravans manufactured by Willerby, near the constituency of my hon. Friend the Member for Kingston upon Hull North (Diana Johnson). It is creating jobs and tourism spending in the community. People who come to north Wales do not just stay in the caravan: they go by car to buy food and drink and go to restaurants. The caravans will now be taxed at 20%, which will have an impact on manufacturers. How will that help to grow the economy, given that the impact assessment shows a 30% fall in manufacturing and selling capacity? How will it help when we have 2.67 million people unemployed; when the number of people unemployed in my constituency rose by 34 last month to a figure 169 higher than last year; when youth unemployment is at its highest ever; when my constituency has its highest level of youth unemployment since 1992; and when 49,000 young people have been unemployed for more than a year?
The priorities are wrong when a 45p tax rate is introduced to benefit 14,000 millionaires, but the Government’s changes to working families tax credit will affect part-time workers to the tune of £3,870 if they cannot increase their hours from 16 to 24. My trade union, USDAW, and the Child Poverty Action Group recently indicated that around 200,000 couples will lose nearly £4,000 a year, and a further 35,000, with 80,000 children, will fall below the poverty line if they cannot find extra work. Again, that is a wrong priority from a Government who are concerned more about giving money back to millionaires than helping people who are working hard, trying to increase their hours and facing unemployment challenges.
On top of that, the Government propose to introduce regional pay in areas such as mine in north Wales, thereby affecting the north-west and north Wales economy. It has already been estimated that £1.25 billion will be lost to the Welsh economy if regional pay is introduced. That strikes me as an invitation to people to do the same job for poorer pay. It will drive down those poorer regions, which, by chance elect Labour Members of Parliament and have lower pay. The changes will have a dramatic impact on Northern Ireland, Wales, Scotland and the north.
There is an alternative. We believe that there should be investment in tax breaks for small firms and a VAT cut, which would have an impact on fuel and goods and services. There should be a guarantee for young people who are out of work for more than a year.
I want to end on a positive note because I like to be positive with the Government and the Treasury. I welcome the tax break in the Budget for the video games industry. I particularly welcome it because it mirrors exactly an amendment that we tabled to last year’s Finance Bill. It was discussed on the Floor of the House and the Government voted against it. They argued that it was not practical then. I am pleased that they have seen sense and followed the Labour party’s lead. I now hope that they will look again at the National Insurance Contributions Act 2011. The Exchequer Secretary and I sat through the proceedings, and the Opposition argued that the measure would fail. The 97% failure of take-up vindicates what we said at the time. I hope that he will consider changing the regime for the future.
As a Member of Parliament representing the north, I will oppose the Budget because it is unfair, helps the rich and does nothing for working families in this country.
Andrew Selous (South West Bedfordshire) (Con)
The Budget continues policies to deal with massive issues of intergenerational fairness so that we do not leave this generation’s collective credit card bill to our children and grandchildren. The OBR’s prediction of 1 million extra jobs in the next five years is one of the aspects of the Budget about which I am most pleased. We must also remember what the Prime Minister said in the Chamber today: fewer people are on out-of-work benefits now than at the time of the general election.
The Budget has put a significant tax cut for 24 million lower and middle-income earners at centre stage. Many are women and many work part time. That is a significant move by the Government and shows that our values are to help those at the lowest end of the income scale. It is a huge move in the right direction.
Opposition Members do not seem to realise that the 50p tax rate was doing real damage to our economy. Like it or not, there are some very rich entrepreneurs around the world who can choose the economy in which they set up their businesses. Given that that rate of tax was higher than it was in every other country in the G20, it is surely right to try to attract those people back to the United Kingdom to create the jobs to get our constituents out of poverty. Cutting that rate was therefore the right thing to do. Of course, the Chancellor also told the House that other increases on rich people mean that they will end up paying five times more tax than they would have done if we kept the 50p tax rate. I hope that Ken Livingstone will start paying the income tax that he should pay now, instead of doing it only if he becomes Mayor of London.
The Budget is pro-business, as it should be. It introduces the above-the-line R and D tax credit that all the business groups have been calling for, and a reduction in corporation tax this year, heading down to the 22% rate to make the UK an extremely competitive place to do business.
I was particularly pleased to see the pro-gas strategy, which will help us to create cleaner energy in future, which is vital given that we neglected to build the infrastructure that we need in this country.
There are lots of other practical measures in the Budget, including the Government’s wish to introduce duty stamps for alcohol. That is important, because there is a battle with the smugglers and a massive loss of income to the Exchequer, because the tax that should be paid is not paid on a lot of alcohol. It is absolutely correct that the Government are moving to capture that source of income for the Exchequer.
I welcome the extra focus on enterprise zones around the country. It is absolutely right. It simply cannot be acceptable that an area such as the west midlands experienced jobs shrinkage during the boom years.
We quite properly help young people to go to university in this country through the loans system, which we introduced, and is it not incredibly welcome that we will now help young people to set up their own businesses through the enterprise loan scheme introduced in the Budget?
I very much welcome the national loan guarantee scheme. The £20 billion-worth of guarantees that the Government will give to businesses will mean that they can borrow at a lower rate of interest—it will sometimes be 1% lower. That will be rolled out over the next few months and it is extremely welcome for businesses in all constituencies.
The announcements on the single-tier pension are excellent news for pensioners. Moving to a single-tier £140 a week pension is fantastic news for them. We should remember that very many of the poorest pensioners fail to receive the extra income to which they are entitled in pension credit because of the complicated means-testing system introduced by the previous Government. Single-tier is fairer and more just, it will deal with pensioner poverty much more effectively, and it is hugely to be welcomed.
I like the Government’s vision for addressing our infrastructure needs on a massive scale. This Government are committed to building the new roads that this country needs, as I have seen in my constituency, where an innovative public-private partnership deal will get a new bypass built. I waited in vain for the previous Government to build that, but it will be built under this Government. It is not only roads: we have a vision comparable with that of the Victorians for railways, and we are doing something about our water infrastructure and our energy infrastructure, which is incredibly important if we do not want the lights to go out in a few years.
What we are doing to improve the accommodation for our servicemen and women—increasing the families welfare grant and doubling council tax relief—is vital given the considerable burdens that they continue to bear on our behalf.
I am proud to be a member of a governing party that aims to double our exports in the next decade. It is shameful that this country has in the past exported more to Ireland than to Brazil, Russia, India and China combined. At a time when Germany is increasing its exports, we can, must and will—under this Government—do better.
It is right that we will tell taxpayers what their tax is going on. All our constituents will become much more engaged with tax issues when they see how much they are paying in total and where it goes. I welcome that further move for transparency by this Government.
The Chancellor summed up the Budget very well when he concluded his speech and said that we borrowed our way into trouble, and we are going to earn our way out of it.
Geraint Davies (Swansea West) (Lab/Co-op)
Unemployment is at a 17-year high, more people than ever are being forced into part-time work, there are cuts in tax credits to the low-paid, 170,000 children will be forced into poverty in the coming year, growth is down, the deficit is up, 700,000 public sector workers are being sacked, services are being slashed and the Office for Budget Responsibility says that the Budget measures will have no impact on growth forecasts. What better time to reduce the 50p tax rate to 45p? There are 4,000 people in Wales who pay the 50p tax rate compared with 94,000 in London. Again, then, we have a Budget where the rich get richer and the poor get poorer. There are hidden measures, too, such as the £3 billion being taken from pensioners in their allowances and family tax credits going down for the poorest.
Of course, we need growth to clear the deficit. Labour had a good record on growth—1997 to 2008 saw record post-war growth levels. Then we had the financial tsunami, and obviously the current Government inherited a deficit, but two thirds of it was due to the bankers and a third due to the Labour Government spending and investing above its earnings. That was the right thing to do to sustain growth and not fall into a depression. The Conservatives arrived and immediately focused not on growth but on cuts and announced 500,000 job cuts in the public sector—and Bob’s your uncle, people stopped spending money, consumption fell, growth flatlined and the deficit rose by £150 billion. That is complete incompetence.
The Tory plan is to shrink the public sector, to squeeze the poorest and to move too far, too fast. Owing to these changes, the OBR has made a one-off change in its predictions of £50 billion—3.5% to 4%, as mentioned earlier, of the whole economy. The focus is 20% on tax and 80% on cuts. Perhaps that is the wrong balance for managing the budget. The focus is on getting rid of the budget deficit in four years instead of halving it in four years. Perhaps that is the wrong focus. Furthermore, the cuts themselves are not targeted fairly.
Most recently, we have heard about regional pay. In Swansea, 40% of workers are in the public sector, and 60% of them are women. Already many people are facing job cuts—part of the 700,000 job cuts. They already face zero pay increases for two years, followed by 1% increases for two years, and with inflation at about 5%, that is nearly a 20% real-terms cut in their pay. The last thing they want to hear is that there will be further cuts to regional pay. We need to stimulate private sector investment through, for example, investment in electrification of the railway to Swansea. Wales’s share of High Speed 2 would be £1.9 billion, but instead Wales can look forward to a Trojan horse of cuts to the Welsh Assembly Government, as this idea of regional pay is geared towards health, education and the like. There is a real danger that a general practitioner in Swansea will say, “Hold on, I want to live in Bristol.” There is a concern about the migration of quality workers.
My father—and, indeed, the father of the hon. Member for Worcester (Mr Walker)—was involved in the Driver and Vehicle Licensing Agency and the Mint moving to Wales. These are important resource that help to support the Welsh economy, but now there is a move to reduce that by cutting people’s wages.
What should we do? My view is that a temporary, targeted fiscal stimulus in the autumn, on VAT, national insurance and investment in infrastructure—such a stimulus has been commended by the Institute for Fiscal Studies—would be a sensible idea. In the case of Swansea, if VAT was reduced for one year to 17.5%, it would mean £450 per household. There are about 103,000 households in Swansea, so that makes £46 million in the local economy. That equates to about 3,000 jobs at £15,000 a job. That would have a big impact on confidence, on getting consumer demand going and on getting growth on to a better trajectory.
Similarly, reducing VAT on home improvements would stimulate private sector building, which is important because at the moment it is on its knees; and of course we need to invest in a range of infrastructure projects to support the economy for the future. I have already mentioned rail but investing in our ports, again in Swansea, is also important.
I, too, support doing more to get what we can out of emerging markets and hooking up small businesses in this country to those markets. In Britain we have one of the biggest digital economies in the world—£120 billion—and we have an opportunity for growth in that economy. I support some of the focus on entrepreneurial support, in terms of loans and skills. The problem is that people are now coming out of university with excessive debt.