Budget Resolutions and Economic Situation
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Gavin Shuker (Luton South) (Lab/Co-op)
I am extremely grateful to you for calling me to speak on this auspicious day, a Friday sitting, to discuss the Budget, Mr Deputy Speaker. I am also grateful to follow the right hon. Gentleman—[Interruption.] Sorry, the hon. Member for West Suffolk (Matthew Hancock)—
The Lord Commissioner of Her Majesty's Treasury (James Duddridge)
It is only a matter of time.
Gavin Shuker
It is only a matter of time, as the Whip says, so there is a top tip.
The reason I am pleased to follow the hon. Member for West Suffolk is that he promised to talk about some of the long-term reforms required in the economy. If we are to talk about the Budget, we need to talk not only about the long term, but about the capacity in the economy right now, and that is where I will briefly focus my remarks.
Labour Members have examined the Budget in detail and we see a wasted opportunity. We required a Budget for jobs and for growth in the short term that would lead to our prosperity in the long term. Instead, we got a Budget that has fought over the spoils. Two years into this Tory-led Government, we can see the effect that the coalition Government are having on our economic policy. Various Ministers and, indeed, Back Benchers, are fighting over, and leaking in the press, the measures in the Budget. They are fighting not over the scale of the fiscal challenge we face, but over what measures could be assigned to each individual party. It is almost as though, having slashed and burned, they are fighting over who wants to win the spoils for having scorched the earth.
The OBR has said:
“We have made no…material adjustments to the economy forecast as a result Budget 2012 policy announcements.”
The independent OBR accepts that growth will not be changed by this Budget. We all remember last year’s so-called “Budget for growth”, but we have still yet to see a strategy for getting growth in the economy, as the numbers clearly show: over this coming period, borrowing is to be more than £150 billion more than the Government announced just a year ago; the deficit reduction plan has gone from four years to seven; and the Government are trying conveniently to lay by the wayside promises that unemployment numbers would decrease in each and every year of this Parliament. What about the lie that the private sector will pick up where the public sector is being slashed away? We are being given a full body of evidence to prove that that is untrue. It is clear that in both policy and ideology the Government are struggling to get growth going because they are ignoring the lessons of history, particularly the lesson that when the public sector is cut back too far and too fast, fiscal policy has a deflationary effect on the economy. There is a real problem, but unfortunately we have been trapped in a paradigm by this coalition Administration which they cannot get out of.
What are we seeing? A number of tiny interventions, programmes and schemes. Let me go through some of the most eye-catching ones. I was on the Public Bill Committee that considered the legislation introducing the national insurance holiday regime, but only 3.3% of the businesses that the Government said would be helped have been helped under that scheme, so it clearly is not working. We have a much better plan to recycle that money to make sure there is a proper cut in national insurance across the country. Credit easing has yet to help a single business. The business growth fund has six regional offices, with 50 jobs having been created, but there have been just six investments in businesses to get business moving. The export enterprise finance guarantee has helped just six exporters since it was introduced.
In the absence of a clear ideology to get growth growing in our economy what we see are hundreds of tiny measures, none of which is actually giving confidence to business to invest. Roosevelt talked about the alphabet laws when he came to power and about the scale of the challenge that he faced in the States in the 1930s. What we have from this Government is alphabet soup: a series of initiatives, all with long and good-sounding titles, but no actual significant movement in the economy to get growth going. What we are left with are just words, and now they take money out of the pockets of those who are most likely to spend and instead choose to put it in the pockets of millionaires and of people who are already very good at avoiding paying tax in the first place—people who are likely to save it, spend it abroad or spend it in areas that are not going to stimulate the economy. Even those people are calling for action in the economy to get growth growing and not necessarily to reward themselves when growth is not there currently.
Let us consider the situation in the US, where its leader has explicitly talked about the dangers of the austerity narrative and has specifically said that to cut too far, too fast would be detrimental to the US economy over time. And what do we see there? Unemployment falling month by month and significant growth in the economy, just as, funnily enough, there was in this country in this Government’s first few months because they inherited that from the previous Government. Most crucially, capacity in the US economy is being protected. Look at its auto business: many Republicans said it should be let go to the wall but the Democrats stepped up and said, “We will protect it.” Why? Because if capacity is protected in the economy, the ability to keep growth going is retained throughout. We have seen a big turnaround there.
When we go into periods of recession or depression, businesses try to hold on to their ability to manufacture or to keep going for as long as possible—perhaps for six, 12 or 18 months—without laying people off. After a while, however, when it is clear that no lifebelt is coming from the Government, businesses start to lay people off, so a 2,000-employee business becomes a 1,500-employee business. That means that when the growth comes back, it is much harder to manufacture to the previous level. That is the legacy that the Government will leave us to pick up the pieces of—an economy with much less capacity to manufacture and grow to meet the long-term challenges we face. For all the talk of clearing up or picking up the pieces from the global financial crisis and the reforms that are required, we must remember that if our economy does not survive this period, we will not have the foundations for growth in the future.
Owen Smith
It is interesting that the hon. Gentleman says that; I am going to explain why it is not wrong and why we are right. At first glance, it looks very simple. Page 51 of the HMRC report shows the cost of cutting the 50p rate—the money that will be forgone by the Exchequer—as £3 billion, not £100 million. The next line covers the behavioural impact to which the hon. Gentleman has referred—the one based on the Laffer curve and a bit of undergraduate economic text in the previous 50 pages—and says that the Exchequer will get back £2.9 billion rising to £3.9 billion over the spending period. The key point is that all that is entirely based on a taxable income elasticity measure of 0.45. If we plug that into the equation we get this £100 million gap. Of course, the previous Treasury figures were predicated on a 0.35 number—a more conservative estimate— and that would have given £2.7 billion in revenues each year.
Owen Smith
I would be intrigued to get the Secretary of State to explain why it was wrong. If she looks at page 50 of the document she will see that it says simply that the Government decided that 0.45 was a better estimate. That was predicated on a single academic study produced in the Mirrlees report and there is no other evidence for drawing that conclusion. That is why the Government are guessing at the £100 million. Sensible economists would think a different sort of sensitivity range would have given them a far better estimate.
Justine Greening
The OBR is very clear that the £100 million represents a reasonable and central estimate. In fact, I would suggest that the previous Government’s assessment of elasticity in one of their final Budgets was designed entirely to manufacture tax receipts that were never going to materialise. If it was such a good idea, why did it take them 13 years to think of it?
Owen Smith
The principal reason why we did not introduce it was because the economy was growing through most of our period in government, unlike the economy under her Government.
Let us return to the taxable income elasticity measure. The OBR says that it might be reasonable, but it also says on no fewer than seven occasions throughout the document that there is “huge uncertainty” around the assumptions—not small uncertainty, but huge uncertainty. The Treasury itself, in its document—albeit buried on page 68 of 69—says:
“The results of this evaluation are highly uncertain.”
The reality is that, based on the Laffer curve, the Government have made up that £100 million number, but over the last year we got £1 billion from the 50p rate.
The Economic Secretary to the Treasury (Miss Chloe Smith)
I am grateful for the opportunity to respond to the debate and to reinforce, at the end of the first few days of Budget discussions, the Government’s determination to restore the UK to prosperity.
I regret that you have not been here for the whole debate, Mr Deputy Speaker. During the day, we have heard from the Opposition, in general terms, vacuousness, hypocrisy and a lack of ideas. Specifically, the efforts from the Front Bench of the hon. Member for Pontypridd (Owen Smith) show no grasp of the situation. I note he continued to put forward the view that child benefit should continue for millionaires. That is not something that the Government support.
As the House is already aware, it is because of decisive action that this Government have taken since the June Budget of 2010 that we have secured and maintained the stability of the UK economy. This year’s Budget builds on that strong foundation; it safeguards our economic stability; it creates a fairer, more efficient and simpler tax system; and it drives through reforms to unleash the private sector enterprise and ambition that is critical to our recovery.
Mr Stewart Jackson
Does my hon. Friend share my concern that the hon. Member for Barrow and Furness (John Woodcock) is being rather shy about sharing the good news this week? Because of this Government’s decisions on the tax and regulatory reform and regime, GlaxoSmithKline is going to provide £0.5 billion and 1,000 jobs to his constituency.
Miss Smith
That is right, and the word I would use is “churlish.” Perhaps the hon. Member for Barrow and Furness (John Woodcock) will justify now why he does not welcome that type of investment.
John Woodcock
I am delighted to get the chance to address the Minister on this, as I was delighted to welcome the Prime Minister to our patch. But will the Minister agree with Opposition Members, and in fact with GlaxoSmithKline, that it was the patent box legislation that Labour put forward that, as Andrew Witty said before the last election, would transform the life sciences sector? Will the Minister say thank you to us for putting that forward? We are glad that she has taken it on.
Miss Smith
If only they had been so full of good ideas in the last 13 years. It is absolutely clear from the timing of GSK’s announcement, the day after the Budget, that it is responding to the actions that we took to put this economy back on track. We will not return to growth through unsustainable debt, irresponsible spending and over-reliance on any one sector or any one region. Nor will we jeopardise the progress that we have made in tackling our debts. That is why, as the Chancellor said, this Budget will have a neutral impact on public finances and implements fiscal consolidation as planned. I could refer here to the CBI, for example, which says that there were many calls on the Chancellor to spend money he did not have.
Opposition Members have made interesting contributions to today’s debate. The hon. Member for City of Durham (Roberta Blackman-Woods) suggests that the coalition is unaware of the global crisis around us. I think the IMF knows that Britain is no longer in the fantasy land of Europe, and I think householders also know that we are in the very real land of securing the future for our children—of spending what we have and of taking this country away from the turmoil in the euro area and back to a strong foundation for private sector growth.
This Budget is
“one of the best ever for UK GDP growth”,
says the Centre for Economics and Business Research, but perhaps the hon. Lady disagrees.
Roberta Blackman-Woods
I wonder whether the Minister will answer my question about why, given the need for economic growth in the north-east, there is no mention whatsoever of County Durham in the Red Book.
Miss Smith
Mr Deputy Speaker, it may take more time than I have to list all the counties of the UK, although I would be happy to try if you were to be charitable with me. I think the point about the Budget is that it lays out what the Government are doing across the country, and it lays out what the reality is. I will explain the reality, and that is that 226,000 new jobs were created in the private sector last year. That makes over 600,000 since we came into government. The Office for Budget Responsibility forecasts that from the start of 2011 to 2017, a total of 1.7 million jobs will be created in the market sector. That is private sector growth built on a foundation of economic stability.
I will explain how we have gone even further to encourage greater growth—unless the hon. Member for Luton South (Gavin Shuker) would like to do that job for me.
Gavin Shuker
I am delighted to raise a very important point, and I hope a non-combative one. What is the Government’s position on the child poverty targets, enshrined in law, by 2020?
Miss Smith
This Government take child poverty extremely seriously, and this Government of course— [Interruption.] I beg your pardon. Is the hon. Gentleman still chuntering? Would he like to clarify his question?
Gavin Shuker
I will help the Minister. There is a legal framework in place, under laws passed by the previous Government, to hit child poverty targets by 2020. Will she give Her Majesty’s Government’s position on that target?
Miss Smith
I certainly join the hon. Gentleman in seeking to combat and take out child poverty, but it is this Government who will do that on the basis of our work through the Budget to put private sector growth at the heart of the recovery. The Government will consider all the matters that feed into poverty and not simply transfer income from one side of a line to another.
Let me outline the other key things that we are doing in the Budget. We are overhauling the planning rules, cutting corporation tax, restoring our international competitiveness and creating an invitation for investment in the UK’s economic future. As the House knows, the Government have already set out plans for some £250 billion of infrastructure investment in the next decade and beyond. That is critical to renewing our infrastructure network, which enables Britain to compete with emerging giants in the global market.
The Chancellor provided further details on those ambitions. They include taking forward a feasibility study into ownership and financing models for the road network; supporting Network Rail to invest a further £130 million in the northern hub rail scheme, and providing up to £150 million to projects in core cities, as well as Growing Places funding to empower communities and businesses to lead development in their areas.
Various hon. Members asked questions. I single out those of the hon. Member for Liverpool, Riverside (Mrs Ellman), the Chairman of the Select Committee on Transport, to whom my right hon. Friends will be happy to write to answer her specific questions. I thank other colleagues for their contributions. They will appreciate that I am now rather short of time owing to the pressing matters that Opposition Members raised.
As we invest in our physical infrastructure, it is also important that we invest in our digital infrastructure. That covers matters such as mobile coverage and broadband. It also means pushing such investment into cities; some cities will come forward for the super-connected cities initiative.
We want to help build on our long and very rich history of scientific and technological leadership. It is essential to sustain that and capitalise on our strength. It is also essential that we make the UK manufacturing supply chain more competitive. That sort of investment provides a springboard for entrepreneurs and manufacturers to lead a private sector recovery across all sectors and all parts of the country.
Just as we encourage businesses to expand at home, we must also focus on helping British businesses to expand overseas in ways in which my right hon. Friend the Chancellor set out last week. We can go further on exports—we aim to double our nation’s exports to £1 trillion by the end of the decade. We will not sit idly by while China, India and Brazil forge ahead.
Of course, if we want our businesses to take those risks to invest and hire new workers, we must ensure that they have access to finance. That is why the Budget contains the national loan guarantee scheme, on top of our deficit reduction strategy, which has earned market credibility and low interest rates. We are ensuring that the full benefits of those low interest rates are passed on to businesses throughout the UK.
It is this Government who are taking the decisive action needed to make Britain the best place to start, grow and finance a business; who are putting ingenuity, innovation and the enterprise of people in businesses at the heart of our recovery, and who are restoring our competitiveness and putting the UK at the heart of the global market. We are unashamedly backing business in the Budget by creating the most competitive tax system in the world, removing the bureaucratic burdens on businesses and investing in infrastructure.
My hon. Friends have already mentioned GlaxoSmithKline. I could add Nissan, Jaguar Land Rover and Tesco, which have announced that they are creating thousands of new jobs in the UK.
The Government are building a sustainable and prosperous economy in a recovery that builds on our strengths across all regions of the country and all the creativity and productivity of our private sector. We are also putting money in the pockets of low-paid workers. As the Chancellor said in his Budget speech, the Opposition borrowed us into trouble, we will earn our way out.
Ordered, That the debate be now adjourned.— (Mr Dunne.)
Debate to be resumed on Monday 26 March.