Budget Resolutions and Economic Situation

Debate between Andrew Gwynne and Adrian Bailey

Wednesday 20th March 2013 Commons Chamber

[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.