18:27 - The House divided: - Ayes: 213 / Noes: 283 - Question accordingly negatived.
The Chief Secretary to the Treasury (Mr David Gauke)
This Government have been clear that we will not waver in our determination to take every opportunity to stabilise and strengthen the British economy. Ever since we were elected in 2010, we have been resolute in carrying out our plan to build a more resilient economy—one where we invest in our future growth; one where we return the public finances to a sustainable position; and, therefore, one where we are ready for whatever comes our way.
It has not always been an easy course to follow. The Government and the British people have worked hard to fix the public finances. We have had to make tough choices and difficult decisions.
We can be proud of what we have all achieved over the past six years. We have brought down the deficit by almost two thirds from its post-war peak in 2009-10. We have the highest employment on record and the lowest rate of unemployment in more than a decade. There are almost 1 million new businesses in our country since 2010 and, working with the Bank of England, we have strengthened the financial system. That is a long way to have come.
The second thing that we can all be proud of are the strengths that we still have in this country. We are still one of the best places in the world to do business, one of the best places in the world to invest, and one of the most innovative, forward facing and outward-facing countries in the world.
It is because of that hard-won recovery, and because of our hard-working families and businesses and the enduring strengths that we still have here in the UK, that we are all now in a position, and are as ready as we could possibly be, to see out whatever challenges come our way next.
Jeremy Quin
On the question of the UK being a great place to do business, does my right hon. Friend agree that cutting corporation tax, which was referred to by the proposer of the motion, is a very positive sign and a way of attracting businesses to locate and invest in this country?
Mr Gauke
I completely agree with my hon. Friend. Our record on corporation tax—we cut it from 28% in 2010, it is now 20%, and we have legislated to reduce it to 17%—has made the UK much more attractive. The likes of the OECD have made it clear that corporation tax is one of the most distorting and, therefore, least growth-friendly taxes. The fact that we have moved so dramatically in this era—during which we have also put the public finances on a sounder footing—to make our business taxes much stronger puts us in a much stronger position than we would otherwise be. It is striking that, in survey after survey of international businesses, the position of the UK has improved in terms of our reputation as a place to do business. In particular, our tax reforms have helped attract investment here. I know from the meetings that I have had with international businesses when they are choosing where to locate activity that the fact that our corporation tax regime is more competitive is a factor that helps to drive investment to the UK.
Alongside that, we have taken significant steps to ensure that the international tax system is such that businesses pay the taxes that are due, but it is absolutely right that the UK positions itself as a more competitive place, and that is what we have done.
John McDonnell
For clarification—I raised this in my speech—is it still Government policy and in their plans to move towards 15%?
Mr Gauke
The Chancellor has made it clear that he will look at all the options when it comes to the autumn statement. It is the case that we have legislated to move to 17%, and it continues to be the case that we want to send out a signal that the UK is open for business and that we will still have a competitive tax system. My hon. Friend the Member for Horsham (Jeremy Quin) has already raised that important point. The precise policies we will follow at the autumn statement are a matter for the Chancellor to announce then, but Government Members are united in our belief that the steps we have taken on corporation tax have made us much better prepared for the uncertainties of the future.
Alex Cunningham
I welcome the right hon. Gentleman to his position. I also welcome the Financial Secretary to her position, and I believe that the Exchequer’s gain is the Department of Health’s loss. The Chief Secretary talks about this country being the place to do business. He heard me talk about carbon capture and storage in an earlier intervention. Will the Government now commit to doing more to help energy-intensive industries—with energy costs, but also by dealing with some of the carbon taxes they face—and commit to greater support for carbon capture and storage?
Mr Gauke
I entirely agree, in relation to my hon. Friend the Financial Secretary, that the Treasury’s gain is the Department of Health’s loss. I will not pre-empt any autumn statement announcements on energy-intensive industries or any other area. I would point to the steps we have taken as a Government to help energy-intensive industries. We have responded to the points made to us by that sector with support for energy costs and so on. No doubt, the hon. Gentleman will continue to make his case on behalf of those industries.
James Cartlidge
I want to follow up the point made by my hon. Friend the Member for Horsham (Jeremy Quin). On cutting corporation tax, does the Chief Secretary not agree that the key point is that, although many people are calling for huge investment programmes by the Government, the investment we need must come from the private sector, and that if the private sector pays less tax, it will invest more?
Mr Gauke
My hon. Friend makes a very important point. In particular, in the context of corporation tax—after all, it is a tax on profits and on the return on investment—if we lower the rate and increase the return on investment, we would expect, all other things being equal, to see an increase in investment by such companies. In recent years, we have seen increases in business investment and in foreign direct investment. I would argue that we face some immediate challenges as a consequence of the Brexit vote, but I remain convinced—the evidence is very strong—that the steps we have taken on corporation tax will ensure that we are better prepared than we would otherwise have been.
In the context of the challenges we face, whatever one’s views—remain or leave—I think everyone predicted that a vote to leave would result in some short-term turbulence in our economy. As the Prime Minister has rightly said, Brexit means Brexit, but we have to get through this immediate period, in which some of the risks that exist will crystallise. Since the referendum, the value of our currency has dropped by a tenth compared with the dollar, and independent commentators expect to see a general slowing of investment, exports and business decisions. However, if we do all we can to stabilise our economy and set it back on a clear path, I believe we can prosper in the new circumstances.
Andrew Gwynne
Are we not missing a trick here? The Chief Secretary will know that bond yields are at an all-time low. Private sector growth is not as strong as it perhaps ought to be. There are really good projects that are ready to be invested in and there are companies that are desperate for investment. Is it not now time for the Government to redouble their efforts to refocus their economic policy on a proper programme of investment in growth?
Mr Gauke
I do not think the hon. Gentleman gives the Government the credit we are due for what we are doing on infrastructure. I understand the argument that we need to do more to improve our infrastructure, but let us remember what we have done: more than a quarter of a trillion pounds has been invested in infrastructure since 2010, the average annual investment in the last Parliament was 17% higher than in the preceding one and we have set out plans to invest more than £100 billion in infrastructure by the end of this Parliament.
We are taking measures on infrastructure, but we must put those in context. We also have to ensure that we have sound public finances. The immediate response to the shock of leaving the European Union has to be to work closely with the Bank of England as it carries out its role of providing stability and confidence in our economy. Monetary policy should be the first means of response to an economic shock such as this. We will use the summer period ahead to assess the situation, based on the economic data, and come the autumn we will report back to the House, setting out how we will respond on spending and taxation.
Let me be clear with the House: we continue to believe in fiscal responsibility. This country should not, as it did in the earlier part of this century, make itself vulnerable to economic shocks by letting public spending get out of control. As the Chancellor has made clear—and, indeed, as the previous Chancellor, my right hon. Friend the Member for Tatton (Mr Osborne), made clear—our target to reach a surplus by 2019-20 should not be sought in the economic circumstances we now face.
As hon. Members know, our fiscal plans to reach a surplus always came with a clear caveat: if our economic circumstances were to alter significantly and the independent Office for Budget Responsibility were to forecast less than 1% real growth on a rolling four quarter on four quarter basis, that target would be reviewed. With expert forecasters suggesting that we are highly likely to see that risk to our growth crystallise in the time ahead, we have announced that we will no longer seek to bring the budget into balance by 2019-20. As the Chancellor has said to the House, that does not mean that we can go forward without a clear framework for achieving fiscal balance over an appropriate timeframe. We will address that issue in the autumn statement.
I hear the argument that we should go for growth, but fiscal responsibility does not preclude our achieving economic growth. As has been pointed out in this debate, the UK has grown pretty well as strongly as any other major western economy over the past six years, even though we have undertaken a period of getting the public finances under control. The idea that there is a straightforward tension between economic growth and fiscal responsibility simply is not true. Indeed, it is by pursuing a policy of fiscal stability that we have maintained the confidence not just of the markets, as a consequence of which our gilt rates are lower than they would otherwise be, but of the general public, who know that in the end, if we keep borrowing and keep borrowing and keep borrowing, they will have to pick up the tab.
Stewart Hosie (Dundee East) (SNP)
For the sake of completeness, the Chief Secretary will probably want to thank the central Bank for its quantitative easing programme—flooding the market with money by buying Government gilts—because that is a substantial reason for the very low yields the market is seeing.
Mr Gauke
I understand the point that the hon. Gentleman is making about gilt yields, but none the less the Government’s credibility because of our determination to address the public finances—with a degree of pragmatism on timing that I fully acknowledge—has helped to ensure that the UK has not been drawn into a sovereign debt crisis or indeed anything like one. That is a significant achievement for this country.
Rob Marris (Wolverhampton South West) (Lab)
I congratulate the right hon. Gentleman on his well-deserved promotion. The employment figures are fantastic and what the Government have done on tax avoidance is very laudable, but before he gets too self-congratulatory I caution him to bear in mind that we have had six years of falling living standards, with a bubble of household debt and a house price bubble; and in those six years the national debt has gone up by 60%. As my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) said, we need capital stimulation through the state spending money, on house building in particular. That is politically acceptable to the vast majority of the population of the United Kingdom, because we would have council houses owned by the state—the state would be borrowing money to invest in bricks and mortar, just as everyone else in this country does if they can buy their own house. The national debt is up 60% and we do not have a lot to show for that; let us put it up a bit higher while interest rates are low and have some houses to show for it.
Mr Gauke
There are those who will argue, in the light of Brexit, that we should not worry about borrowing and debt. They are usually—not always, and I certainly exclude the hon. Gentleman from this—the same people who have argued consistently for the past 10 years that we should not worry about borrowing and debt; it is the reasons that have tended to change. First, they argued that we need not worry about borrowing because the business cycle had been abolished and there would be no downturn, so that was all right. Then their argument was that we should borrow because we needed a fiscal stimulus, and then because gilt rates were so low. But with debt last year at almost 84% of our GDP, maintaining fiscal credibility must absolutely remain our priority. If we had not taken the measures we have on public finance over the past few years, we would be in a far worse position still. Analysis shows that from 2010 to 2020, if the structural deficit had remained the same we would have borrowed an additional £930 billion. That is a huge sum to add to our current debt total.
We have already set out our plans for finding departmental savings and in my new role I will be working closely with my fellow Ministers to make sure we stick to those plans. We have a strong record on delivering such commitments—we have done so every single year we have been in government, and we are not going to let up in our efforts now.
I am also determined to look at what further scope there is for delivering the value for money that the taxpayer deserves. I have spent the past six years working hard to make sure we get the tax revenues in, so am not about to see those revenues spent without delivering as much for our money as possible. I will therefore also take forward our work on finding further efficiencies across the public sector. That work was announced at the last Budget and I will be taking it forward straightaway, to explore all avenues for making innovations, finding reforms and saving time and money across the public sector.
This is without doubt a time of considerable uncertainty. That has its own implications for the current stability of our economy. We anticipated short-term turbulence in the event of a decision to leave the European Union, and that has been reflected in the economic developments that have unfolded. It is clear that we must pursue policies that help us grow in the future. That means pursuing pro-business tax policies, improving our skills and our infrastructure, and looking out to the world, enabling us to trade and benefit from globalisation, as there are real signs of opportunities ahead from such an outward-facing approach.
Mr Mak
I congratulate the Chief Secretary to the Treasury and the Financial Secretary on their promotions. Does my right hon. Friend join me in welcoming the Prime Minister’s proposals for infrastructure bonds, which will boost economic growth and give the country vital infrastructure?
Mr Gauke
My hon. Friend raises an important point about how the Government are doing all they can to support infrastructure in this country. As I said, we have a proud record on that, and an infrastructure pipeline worth, I think, £480 billion. We have taken steps to reform our planning system to help infrastructure, and established the National Infrastructure Commission. My hon. Friend is right to highlight the proposals set out by the Prime Minister in that area.
We can take measures to help improve infrastructure in this country, but all measures to help growth—whether our outward-looking approach to trade, our pro-business tax policies, or improving infrastructure or skills—can and must go hand in hand with the need to take our public finances seriously, and the Government will pursue that balanced approach.
What we hear from the Labour party continues to be unbalanced, and there is a failure to take into account the need for credibility with the public finances. Labour may have changed a lot of its personnel, but I fear that there is a degree of continuity in the failure to face up to challenges in the public finances, and the motion reflects that. I therefore urge the House to oppose the case for fiscal indiscipline that we have heard today, and to oppose the motion before us.
The Financial Secretary to the Treasury (Jane Ellison)
I thank those Members who have been kind enough to welcome me to my new position on the Front Bench, including the Opposition spokesman. I was going to spend some time thanking those Opposition Members who contributed to today’s debate, but there is an obvious problem with that—none of them did! It is unusual to call an Opposition day debate and then not muster any Opposition Back-Bench speeches. I fear that the Scottish National party will be renewing its bid to become the official Opposition before too long. Nevertheless, we have had a good and thoughtful debate, and a number of serious points have been made. I therefore thank the Opposition for giving us the chance to debate this important topic, for allowing the House to reflect on the changes in the economic situation that the UK now faces, and for allowing Members to make contributions on how we move forward to rise to those challenges.
I must say at the outset that I do not recognise the picture of our country and of our economy that was painted in the speech we just heard. The phrase “dire economic situation” is simply not borne out by the facts, particularly on a day when we had excellent employment statistics. Turning to the situation in hand, the Government have made it clear that we will not hesitate to work with the Bank of England, wherever required, to stabilise our economy in the immediate term after the referendum decision, and we of course continue to monitor the position extremely closely. We will take any action that we can to prevent risks from crystallising, as we have made clear on numerous occasions, and we will look at all avenues to strengthen our economy. Although I hear this disputed from across the House, we must be clear that the UK economy starts from a fundamentally strong position; we totally reject some of the alternative views of history that were presented in this debate. Again, today’s employment figures are just one example of this, with unemployment falling to 4.9%, its lowest for more than a decade. That does not emanate from a dire economic situation, as was just suggested to us.
Any revision of our responsible fiscal framework would be set out following a thorough assessment of the economic data. We have heard the urging from those opposite to respond immediately, but it is important to examine what the economic data are actually saying, and that is what we are doing very carefully. That is why we have no plans to withdraw the autumn 2015 update of the charter for budget responsibility As the Chancellor and Prime Minister have made clear, we will update the House with further details in the usual way, through an autumn statement later this year.
Stewart Hosie
I welcome the Minister to her place and thank her for what she just said, which was that the Government are prepared to take whatever steps are necessary to stop potential risks crystallising. That is an important thing for her to say on the record. Notwithstanding the fact that she is saying there will be a delay until the autumn and they will look at the numbers properly, may we have an assurance that if those numbers are as bad as they might be, she will not rule out any fiscal measures to stimulate the economy if that is what is required?
Jane Ellison
As we have said—the Chief Secretary was clear about this, and I think the point was conceded by the hon. Gentleman—we have already heard from the Governor on monetary policy, and that is really important. Conservative Members have spent the past six years making the strength of the British economy the nation’s No. 1 priority. We will look at what is happening, and it remains our priority to make sure that we continue to chart a course that recognises some of the risks that exist in the current situation, makes sure we can manage them, and looks at the opportunities that are there to be seized. We have heard so little of that in this debate. We have heard a lot of talk from both the Scottish National party and Her Majesty’s Opposition about austerity. As the Prime Minister said at Prime Minister’s questions, the other way of talking about that is to say that it is living within our means. By being prepared to address that really difficult issue of a country living within its means, this Government and the coalition have secured hard-won credibility from which we can now move forward. That credibility is not held in every part of the House. It is not an accident that we are now able to move forward from a position of strength, or that people are prepared to invest in this country; it is because of the difficult decisions that have been taken over many years, the vast majority of which were opposed by those on the Opposition Benches.
Let me take this opportunity to make it very clear that any revisions to our plans will not alter the Government’s clear commitment to this country that we would restore balance to our economy. As the Chancellor has said, we will no longer pursue the target to reach a surplus in 2019-20. Our plans to do so were based on the assumption of a different-looking economic climate. As is regarded internationally as good practice and as we see in fiscal frameworks right across the globe, our fiscal plans had a flexibility built into them, so that we could make revisions in the case of significant alterations to our economic situation. Here in the UK, that means that, if the independent OBR were to forecast four consecutive quarters of less than 1% growth a year, that target would be suspended. Admittedly that risk is perhaps more prevalent now than it once was, but it remains the conviction of this Government that any responsible plan for the long-term good of this country must be centred on a determination to tackle the deficit and reduce our debt.
In the good speech of my hon. Friend the Member for South Suffolk (James Cartlidge), he made a point about intergenerational fairness. There is no greater intergenerational unfairness than bequeathing massive amounts of debt and deficit to those generations yet to come. That remains at the heart of our plans to ensure that the British economy is healthy and able to respond to unexpected shocks.
Dr Philippa Whitford
We often talk about bequeathing the public debt to future generations, but is not what is actually happening private debt—huge mortgages, study loans and so on?
Jane Ellison
The hon. Lady makes her point. Fundamentally, if we look at the debt the nation is carrying forward, the point remains that it is totally unrealistic of the Opposition to imagine that we can borrow massive amounts of money after they have spent the past six years voting down any spending cuts that were proposed by the Government. They just do not have the credibility to make that point.
We have seen, as a result of the referendum, how important it is that we have an approach that ensures that we are ready for any surprises that come our way. The Prime Minister told the House earlier that we have not abandoned the ambition to move to a surplus. As we have made clear, we will be setting out further details in the autumn statement.
Making savings, living within our means, and spending money efficiently are just one side of the task ahead. We cannot afford to take our foot off the pedal when it comes to creating the right conditions for growth, and there are many ways in which we can do that. In all fairness, speeches in this debate addressed that. For a start, we know that if we want to help our economy grow, we need to invest wisely in the right infrastructure. There has been much discussion about infrastructure spending, but some of that discussion has suggested that it is rather a binary choice between living within our means on the one hand and investing in infrastructure on the other, but, as the Chief Secretary said at the beginning of the debate, that is simply not true. We are putting more than £100 billion into infrastructure over the course of this Parliament alone, and that will go to funding some essential improvements and new developments right across our country. We will keep working to make sure that this country keeps improving the skills in our workforce so that our businesses have what they need to stay on top.
It is important that we remain resolutely outward-facing. Now is not the time to pull up the drawbridge. Now is more than ever the time to open the door and to hear the message of young people that they want us to be an outward-facing nation. We want to seek all those international opportunities. We heard not a single word in the debate about today’s employment figures, which reveal that youth unemployment is at its lowest since 2005. That is surely something that we should celebrate, for the sake of our young people.
It is vital that the UK remains one of the best places in the world to do business. We are sending out that message loud and clear. That involves making sure that our tax system remains fiercely competitive. It also means that we have to continue to take difficult decisions elsewhere to balance the books, because we have made major cuts in corporation tax to create that extremely competitive environment to attract business. Only this week we saw a great example of inward investment in our country.
Without doubt there are a range of challenges ahead, but there are also a range of ways in which we can continue to bolster our economy as we open a new chapter for the UK outside the EU. We are determined to do everything we need to do as a Government to restore confidence, stabilise the economy and navigate our way through the times ahead. As we start our negotiations to leave the EU, we will tackle those new challenges head-on and we will take on board any new risks that start to emerge.
It is vital that we send out a message of confidence, and not just from the Government. It is important that we as a nation and we as a House send out a message of confidence, and some of the speeches today, I am afraid, bore no relation to the reality of life beyond this Chamber. It is important that we send out a unified signal that Britain is open for business, that we remain outward-facing and open to inward investment, and that we have confidence in ourselves as a country and in all the things that we can achieve in the years ahead. The hard-won reputation that we have as a good place to do business cannot and will not be squandered as we look for those new opportunities. For all those reasons and many more, the Government reject the motion and urge the House to do the same.
Question put.