Budget Resolutions and Economic Situation

Adrian Bailey Excerpts

Wednesday 20th March 2013 Commons Chamber

[Meg Hillier]

I completely agree with my hon. Friend. It is tough being a parent, especially in the early years up to age five, so although any support is welcome—all parties have to welcome any support, however inadequate, for children—this is not the sort of thing Labour should be promising at the next election. It is vital that we get cross-party agreement about the importance of families and of parents getting into work.

There is still no promise on the supply of quality child care, however. Supply is a key issue. The Under-Secretary of State for Education, the hon. Member for Crewe and Nantwich (Mr Timpson), who has responsibility for children, has been tinkering, finger in the wind, hoping for more child minders but not more child care in child care settings. There are important and detailed questions that I hope Ministers will consider and that I will follow up for a proper response. Will the child care tax break only apply to Ofsted-regulated child care? If so, how does that chime with the children’s Minister’s desire for lighter-touch, or no-touch, regulation by that very important body? Does the £2,000 national insurance break for small businesses also apply to anyone employing child care directly, as well as the promised tax break? We could see a double subsidy for the higher income earner, who can afford to employ a child carer in their home, and much less help for those at the lower end of the scale.

When only one parent is working, much more difficult issues arise. Low-income parents have higher marginal costs. I think of two women I met at a recent roundtable I organised in one of my child care centres: one was a chef who, because of her working hours, found it much harder to access the sort of child care that would get the subsidy the Government have waved in front of us today; and the other was herself a child carer working for a private nursery on £15,000 a year who could not afford to pay for child care herself and whose employer, shockingly, would not allow her to work part-time. How will those women be helped by what the Government have offered today? We need more detail and to ensure that we make this work for working parents. In a spirit of co-operation, I want it to work—I am not just carping—but I do not see how the proposals will work as planned.

I turn now to lending for businesses. I am proud to represent Shoreditch. It is a borough of thriving small businesses, but there are issues with lending. Merlin’s magic wand has not delivered loans from local banks. The reduction in loan interest has not helped businesses, which tell me that one of their big worries is banks removing overdrafts at a moment’s notice. I want to see—I am disappointed that the Budget did not touch on this—better support for peer-to-peer lending to help interesting nascent businesses.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

Does my hon. Friend agree that, given the failure of the funding for lending scheme to get money into small businesses via the main clearing banks, which appear to be using it to reinforce their capital position, the Government should consider using the scheme to help other sources of financing for small businesses?

[Meg Hillier]

My hon. Friend, who does good work on the Business, Innovation and Skills Committee, speaks clearly on this issue. It is vital that we do what he suggests. The funding for lending scheme has effectively been supporting more buy-to-let landlords, which was not really what it was intended for, while businesses in Shoreditch—businesses visited regularly by the occupants of No. 10 and No. 11 Downing street—are losing out.

It is interesting that the Labour Front-Bench team, even in opposition, are encouraging local government to consider investing in one of the peer-to-peer lending vehicles, Funding Circle, representing an important part of the difference in ethos between the Government and the Opposition. We want local money invested in local business and creating local jobs—a break from the distant lenders that have no connection to the business models and economies to which they lend. We cannot say that the banks have stood up well to the test. They have let the side down. They overextended themselves with risky lending and brought the world financial system to the brink of collapse, and the rest of us, including local businesses in my area, have been paying the price.

One way to cut the banks out is to have better approaches to peer-to-peer lending. The Government have said that they will channel £100 million to small businesses through alternative mainstream, but we do not have the detail. The key issue about peer-to-peer lending is that, although it is for profit, there is no necessary prior relationship between borrower and lender. The lender, who buys into the model and will believe in the business, can choose the loan recipients, but there is no protection from the Financial Services Compensation Scheme and no full regulation.

The first peer-to-peer lending company, Zopa, was founded in February 2005, but we now have others: RateSetter, the Funding Circle, ThinCats and MarketInvoice. Between them, they expect to provide about £200 million this year alone in funding to businesses with innovative models that are struggling to get money from the banks, which, if they are not familiar with a business model, think it a risk and do not lend, resulting in a vicious circle of not being able to fund a business.

Despite the low level of regulation, there is a good case for peer-to-peer lending organisations receiving more support even as they are. Zopa says that bad debts account for just 0.84% of the £200 million it has loaned over the last seven years, compared with 3% to 5% for traditional banks, so I think the banks are missing a trick and the Government most certainly are. The average increase in employment after a Funding Circle loan was 25%. If we give businesses the tools to get on and build their businesses, we see jobs created. The Chancellor talks the talk on this issue, but he could have done more to help the industry. The problem is that the industry is barely regulated and lenders have to absorb the losses. Where was the discussion today—or even a hint—that the Government might be looking at better regulation? Where were the changes to taxation, for example, to offset losses through bad debtors against tax, which would encourage more people to lend through such models?

My party is strongly supportive of peer-to-peer lending, as it can help small businesses such as those in Shoreditch and Hackney to obtain access to funding that would otherwise not be available—something on which the Government have failed to date. In the current climate there is a lack of access to funding—often to very small pots of funding. Indeed, the owner of Lock 7 cycle shop in Hackney—the first cycle café to open in the country—took out a personal loan to get her business started. She did that because it was quicker and easier than trying to put her innovative business model—a café that sells coffee and fixes bikes—to the banks. Actually, it is not that innovative—I give her credit for being the first, but it is hardly a risky business, given that both sides of the business are likely to do well—but the banks would have been slow, had they even coughed up. To take the chance, she took another route. The Government need to be fleeter of foot if they really mean what they say about supporting businesses.

Finally, I must touch on housing. There is much of promise in what the Chancellor said, but I suspect there will be a lot in the detail, which we have yet to see. The interest-free loan is for all buyers, not just first-time buyers, so it could be a licence to print rent for potential buy-to-let landlords and others looking to invest in second homes. From what the Chancellor said, it is not clear whether this will apply only to first homes.

--- Later in debate ---

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

I think I could summarise the Budget with a slightly nautical metaphor: the message from the bridge to the economic engine room is, “Steady as we sink.” The Budget does not recognise the scale of this country’s problems, and although some of the measures that have been announced may be good in a micro sense, they are totally inadequate to combat the macro problems that we have.

Let me go back to the months immediately after the May 2010 general election and the emergency Budget. Although under the Labour Government we had had economic growth, the budget deficit and inflation were falling and employment was rising, and we were told that that was extremely dangerous. The Chancellor conjured up an apocalyptic vision of an economy that was about to be devastated by a reduction in our triple A rating.

Three years on, we have lost our triple A rating, the economy is at best stagnating and at worst falling, we are having to borrow more and inflation is rising, yet we are told that it is all so good that we must have it for several more years. I feel that the electorate—like me—are beginning to doubt the credibility of that argument. I recognise that the carefully choreographed political narrative that was built up after 2010 had some traction, but that traction is going as a result of the incompetence and lack of vision displayed by the Chancellor since then.

[Andrew Selous]

Does the hon. Gentleman recognise that the Government’s borrowing costs have fallen since we lost our triple A rating, precisely because the international markets believe in the credibility of the Government’s economic policy?

[Mr Bailey]

I think those costs have dropped by 0.15%, which the public might think—well, shall we say that they have had to bear a huge sacrifice for a minimal improvement and drop in interest rates? I am concerned—this point has not been mentioned by anyone in the House, including those on the Front Benches—that the Government’s current predictions are based on December figures from the Office for Budget Responsibility. We might think that that is okay, but since May 2010 the OBR’s predictions have been conspicuously inaccurate and over-optimistic. If its predictions for the next two years are equally inaccurate and over-optimistic, we are in real trouble. That may not be the case, but if we look at the Library research papers, most other independent commentators and assessors of our economic position predict a lower rate of growth than the OBR. That is of concern and underlines the Chancellor’s failure to put in place measures to combat that issue.

On the opportunities available currently in the economy, the emergency Budget, in order to be successful and meet the Chancellor’s targets, was predicated on an assumption of exceptionally high investment and exports. Since then, the eurozone has had problems. It takes 47% of our exports but is the lowest-growing export market.

[Andrew Gwynne]

My hon. Friend is right to mention the May 2010 indicators. One crucial indicator before the emergency Budget showed that investor and consumer confidence were returning to the economy.

[Mr Bailey]

Absolutely—as I have said, the Chancellor’s apocalyptic utterances frightened many people into paying off their debts and not spending, which had an impact on consumer spending and subsequently on business.

If our largest export market is stagnating, we look abroad to Brazil, Russia, India and China. The Government have done good work on expanding our exports to the BRIC countries, but they are less than a tenth of our exports to Europe. Anyone who has the idea that we can transform our economy simply by expanding our exports to BRIC countries is living in cloud cuckoo land. I do not mean to say that expanding our exports to BRIC countries is not necessary, but it will not in itself turn the economy around.

We have heard a lot in the debate about the impact of corporation tax and making this country an attractive place for inward investment, but the reality is that investment is stagnating. Industry tells me that, above all, it wants a coherent, co-ordinated and focused Government response. The Prime Minister went, with his entourage of business men, to China, Brazil, India and so on to bang the drum for Britain—I am glad he did so—and the Chancellor has announced the lowest rate of corporation tax for companies investing in this country. However, those things are no good if, at the same time, the Home Secretary—we recognise that the Prime Minister has his problems with her—implements a visa regime that deters people from those countries who want to invest here. That is totally incoherent and economically illiterate.

I welcome some measures, such as those on construction, but the Government’s current construction programme is only a fraction of the Labour Government’s programme. The Government’s programme will take a long time to materialise in terms of economic growth and consumer expenditure.

I also welcome the Government’s investment in the Technology Strategy Board and the catapult centres, which have enormous potential. That leads me to a debate that the Government should have but are not having on how best to invest our scarce resources. All the evidence I get from industry, and particularly from manufacturing industry, says we need more money to be spent on high-quality research and development and implementation. Catapult centres would do that, and we need more money spent on them.

However, we also need more money to be spent on investment allowances rather than on corporation tax. It bothers me that the Government believe almost as an article of faith that a reduction in corporation tax will stimulate inward investment, but they are not considering whether there is a better way of spending that money on alternative ways of investing in British companies. Manufacturers say that investment in R and D is a much more attractive and economically beneficial way of stimulating the investment we need in this country. A large amount of money will be forgone with the reduction in corporation tax. Would that money not be better spent by providing better investment allowances, which will enable British companies to invest, employ and export more, and generally to contribute to the economy? A lot of companies that invest here do not pay much tax anyway, and those that might come could as equally be attracted by an attractive investment allowance regime as a reduction in corporation tax. So far, the evidence in favour of a reduction in corporation tax is not strong, which is why we are not seeing the level of investment that the Government had hoped for.

Low-carbon vehicles are important to the north-east and to my own area in the west midlands, and the motor industry is investing in them. I welcome the Chancellor’s announcement of a commitment to that. However, previous announcements in previous Budgets, particularly on company car taxation and the write-off threshold, have caused confusion and actually delayed investment in this area. I hope that in the Budget and in the Red Book there are indications that that will change, and that we will have the level of commitment and certainty that will encourage our motor industry to continue its investment in this area and become a world leader in an expanded market.