Capital Gains Tax (Rates)

Debate between Viscount Thurso and Huw Irranca-Davies

Wednesday 23rd June 2010 Commons Chamber

[John Thurso]

As a matter of fact, given my experience on the Treasury Committee, I was extremely careful about what I said. I stated my preferences, but I also stated the principles underlying them; I shall come on to that in a moment. First, however, let me answer my second rhetorical question, which requires a little more consideration. The first thing that I would look at—this pertains to what the hon. Lady was asking—would be whether the deficit needs to be dealt with now in depth. I shall draw guidance from my experience as a member of the Treasury Committee and from my own experience of rescuing nearly bankrupt companies in the past.

In past three years or so on the Select Committee, I observed how often Members in all parts of the House were behind the curve in estimating the scale of the problem. When we looked at Northern Rock in our report “The run on the Rock”, it took time to perceive not only the scale of what happened at that institution but the fact that it was a precursor or early symptom of what was to come later in 2008. I remember the Governor telling us quite late in 2008 how this was a financial crisis that he hoped would not get into the real economy. Looking back, one has to say that that was a false hope.

[Huw Irranca-Davies]

I share the hon. Gentleman’s frustration, as many people were behind the curve, but one person who was not is “Danny” Blanchflower, the economist, who spotted it coming, identified it and sent out the warning signals. We, collectively, were not listening. He is now warning, “Cut hard and deep and you’ll send the recession backwards.” Should we listen to him?

[John Thurso]

We should certainly listen to “Danny” Blanchflower, for whom I have great respect. He gave evidence to the Select Committee on several occasions, and he is one of a number of voices that we should—[Interruption.] Absolutely—it was David Blanchflower’s nickname at the time. We should certainly listen to him, but we should also listen to all the evidence. He was, on that occasion, more right. I am not persuaded, having heard other voices, that he is entirely right now—but he does highlight a danger, and we should certainly not disregard that. Across the piece, as the hon. Gentleman acknowledged, we did not appreciate the scale of what was coming.

When I look at what was happening in the early part of this year, my instinct would be to cut the least possible, and to stimulate growth as much as possible. However, there comes a point at which we have to deal with what is before us, rather than what we hoped might be before us. It became clear during the election—and I remember making this point at an all-party hustings—that throughout Europe it was a very different ball game from the one with which we had all been dealing just three, four, or five weeks before, and that we needed to take that into account.

I am therefore predisposed to assume the worst, and to look hard at the core problem. The next piece of guidance derives from my experience of running companies in the hospitality industry. I am not for a moment saying that the relatively small companies that I ran bear comparison to a country, but some of the principles do. I remember taking over two companies that were essentially bankrupt. If the owning shareholders had not guaranteed the finance, they would have gone into administration. In both cases, my job was to turn them round, and I heard arguments about how I should get hold of money and invest it on the one hand, or how I should redress the costs of the company on the other.

When people do not have money—the piggybank is empty, and it is difficult to get money from the banks—they have no choice but to live within their means. I learned that by stabilising company expenditure, and forgoing some investment for the future, I could produce a more stable enterprise. It is the same with this country and the balance of risk. The risk, on the one hand, of failing to take action is that we seriously run out of money, our credit rating is reduced, our borrowing costs go up, and we end up spending far more on debt interest than on health, education or defence. Something would then be imposed on us, as happened with the Labour Government in the 1970s. The risk on the other side is that if we cut too quickly, growth will be stifled and we will take longer to come out of our current situation. Balancing those two risks, I believe that the risk is greater if we do not deal with the deficit, so it needs to be dealt with.

Secondly, is the Budget fair? My right hon. Friend the Secretary of State for Business, Innovation and Skills made an extremely good case for demonstrating that it is—in as much as any pain can be fair. I would far rather be standing here supporting a Budget that gave people lots of money. That would be lovely, but, as the Labour Chief Secretary to the Treasury said, there is no money. So we have to be prudent, and that means that we have to share the pain. The whole point is that everybody will suffer, but we have to ensure that the suffering falls least on the most vulnerable, and most on those who can afford it. Charts A1, A2 and A3 in the Red Book set out exactly how the suffering will fall, and it is perfectly clear from them that those at the bottom will bear the least pain and those at the top bear most.

In my constituency average earnings are £21,000, and table A1 on page 64 shows that after the Budget somebody on £20,000 will be £170 better off, given the amount of income tax and national insurance that they pay. They will pay £170 less than they would have done. Table A2 shows that they will receive £145 less in family tax credit, but when we put the two amounts together we see that they will still be £25 better off. That is not a large amount of money, but it makes the point that if we take the Budget in the round, including VAT, which nobody can deny is regressive on its own, we clearly find that the pain is shared, and felt less by those at the bottom than by those at the top. So I conclude that the Budget is fair.

I welcome the Budget. It is not one that I would have liked to have to support. I would have liked to see the coffers full, and to be able to be nice to people—but in the circumstance this is the right Budget, and it is fair.