Amendment of the Law

Lord Darling of Roulanish Excerpts

Monday 26th March 2012 Commons Chamber

[Mr Alistair Darling (Edinburgh South West) (Lab)]

I want to return to the “nascent recovery” in just a moment, but first I should say that I was particularly pleased to hear the Minister refer to a number of successful growth industries including publishing, and in that connection I should draw the House’s attention to the Register of Members’ Financial Interests.

Before turning to the question of growth—or, more accurately, my concern about the lack of it—I want to say a word about the 50p rate of tax, since I introduced it. At the time, I said it was a temporary measure. I did not particularly want to introduce it, but I took the view that, at a time when we were asking many people in this country to share the burden of meeting the increased cost of the downturn, it was right that those who had done well over the previous 10 years or so should bear their fair share of it. I do not have a philosophic attachment to that rate at all, therefore, but this is not a Budget in which I would have returned to the topic, simply because the incomes of many other people in this country are currently being squeezed and they are going to lose out this year. I would have tried to do something about their position first.

The documentation that the Treasury has produced on the measure reminds me of the stuff that was produced for the five tests in respect of the euro, in that so much evidence has been adduced in support of the Government position. Why did they not just say that they philosophically did not want the 50p rate so they were going to cut it? As the OBR says that its calculations are highly uncertain and it is very difficult to estimate behavioural effects, especially after only a year, and given that there are so many uncertainties and there will be so much forestalling, it is difficult for the Government to say, “Look, this wasn’t actually raising anything.” At a time like this, I think the fact that the rate brought in £1 billion and that we are talking about smaller sums in relation to some of the welfare reforms means that the Government cannot simply write it off. If they want to bring the rate down to 45p, that is fine, although I am bound to say that I have never understood the argument that someone will still work harder if the rate comes down to 45%, yet they will also work harder if they are told at the same time that they will be paying five times as much tax in the future. That seems a very odd argument to run.

[Harriett Baldwin (West Worcestershire) (Con)]

I thank the right hon. Gentleman for making these interesting points. Was he as shocked as I was to see that, as a result of the measures that he introduced as Chancellor, there was £16 billion to £18 billion-worth of forestalling in 2009-10?

[Mr Darling]

Inevitably, there is some forestalling and there will be an awful lot more of it this year when people realise that they will pay a lesser tax rate next year. The hon. Lady makes a point, but perhaps not the one she intended.

The real problem we face as a country is the lack of future growth. I am concerned about that, because our borrowing levels are still high. The Chancellor is still having to borrow £150 billion more than he set out to borrow in his first Budget, in 2010, and his room for manoeuvre is very slight. He has given away about £2 billion this year. He says that he is going to get that back in two years’ time, but £1.5 billion of it is coming out of the reserve. That is not normally what we would expect a Chancellor to be doing if he is saying that he is conducting his finances in a prudent manner.

Of course, a lot of what the Chancellor is saying is dependent on cuts still to be specified—he used to criticise us when we did not specify these things. An awful lot more cuts are yet to be implemented and yet to be specified. When the Budget figures show that borrowing will be only £1 billion less than the Government thought, it is easy to see that we are right on the margins at the moment and that, unless we get growth going, the chances are that that borrowing will increase, not decrease. The need to get growth going is paramount.

We are already on plan B, in that what the Chancellor announced in his autumn statement last year was rather different from the course he set out on 12 months earlier. We are also relying heavily now on monetary policy—on quantitative easing and the Bank of England continuing low interest rates—to try to bring about a recovery. I welcome some of the things that the Government have done, but it is sobering to read the OBR analysis that the Budget will have a limited effect on growth. The best it can say is that the cutting of corporation tax will get us 0.1% of growth, which shows how much more the Government have to do.

I do welcome some of the measures the Government announced. Of course we are in favour of the patent box, which we introduced. It is very impressive that GlaxoSmithKline was, within hours, suddenly able to decide that it would open new factories and new production. It is just a pity that some of the new investment will take three or four years, if not longer, to be put in place. I also certainly welcome what was done for the creative industries. The deputy leader of the Labour party, who spoke for us earlier, made the point that I introduced a number of these proposals in 2010. They were rubbished by the coalition in 2011, but they are back again in 2012, and I wholeheartedly support them. I am also glad that the Green investment bank is coming to Edinburgh, and I hope that it will be up and running fairly quickly.

Turning to the other end of the country, the Government’s recognition that they have to look again at airport capacity in the south-east of England is welcome. It is a difficult issue, it is 10 years since we looked at it and we need to get a move on with it. However, a lot of the measures that have been announced are small or will not be implemented for a long time. Public investment is set to drop. I hope that the private sector comes in on infrastructure and so on, but unless we do more we are simply not going to get the investment we need.

Lastly, I wish to discuss the cloud hanging over us all—Europe. At the moment, we have something of a lull, as it has gone out of the headlines, but the problems have not gone away. We should all be grateful for what the European Central Bank has done, as it almost certainly prevented at least one, if not two, banks in continental Europe from getting into trouble earlier this year. However, the deep-seated problems that Spain has, that Italy has and that Greece has have not gone away. I hope that we will use whatever influence we have to try to engage with the eurozone, so that, for once, they get ahead of the game, because until that happens, that situation will hold back our prospects of growth even more.