Amendment of the Law

Austin Mitchell Excerpts

Wednesday 21st March 2012 Commons Chamber

[Brandon Lewis]

I congratulate my hon. Friend on securing that debate and I look forward to joining him on Tuesday to discuss the issue in more detail.

No Budget stands alone, and what is important about this one is how it builds on what has been done in the past couple of years, particularly for business. When we consider how we want to move forward in having an economy that grows, with more jobs and more prosperity for all, it is important to remember that we need to rebalance our economy and have growth in the private sector. So the moves that have been taken for business are hugely important, and the further lowering of corporation tax and the speeding up of that process is very welcome. It makes it very clear that our door is open for business. When private sector businesses grow, they need more staff and more money. Less is then spent through the welfare state and our whole economy benefits.

The change in the top rate of tax, which gets rid of the 50% rate, is also important. Apart from the economic arguments that have already been rehearsed today, that has a psychological impact. A message goes out to high earners—the people who are business leaders and business owners—that we value the work they do. People who aspire to get to that position see that they can work hard, develop and grow their business, and benefit as well.

[Austin Mitchell (Great Grimsby) (Lab)]

Does the hon. Gentleman accept that as well as giving those people that possible incentive, the change also gives them an incentive to spend more time on the golf course?

[Brandon Lewis]

That shows a lack of understanding of how the business world and business leaders work.

--- Later in debate ---

[John Healey]

My hon. Friend is right. This might well become a Budget in which the closer people look, the less they like. That might apply to the granny tax, as he suggests, but it might also apply to the threshold for the 40p top rate of income tax, which many people might find themselves hit by over the next few years, rather than benefiting from the raised threshold for payment in the first place.

The consequences of the Government’s actions at a national level are already becoming clear. The UK economy grew by 3% in the year before the Chancellor stood up and delivered his spending review in 2010. In the 12 months that followed it grew by just 0.5%. That is because he took the decision to cut too far, too fast and choked off growth. Based on the economic projections we heard today, this country is still set for feeble growth in the coming year and the year after. It seems to me that a credible economic plan to deal with the deficit must be supported by a successful plan for jobs and growth alongside it. At present, the Chancellor is condemning Britain to being a one-legged man in a three-legged race. The International Monetary Fund has made a similar point, stating that

“growth is necessary for fiscal credibility.”

We have to look harder at what we earn as a country, not just what we spend. The UK’s GDP last year was still nearly 4% lower than it was before the global financial crisis hit in 2007-08. In other words, our economy was smaller and our national income was lower. If we draw a comparison with the US or with Germany, we find that both countries have a more balanced approach to dealing with their deficit, both countries are growing more strongly than Britain and both countries now have economies that have regained the loss of productive capacity which everybody in the modern, developed world suffered during the global financial downturn of 2008.

[Austin Mitchell]

That is a very important point. My right hon. Friend will know that the Institute for Fiscal Studies Budget forecast makes the point that that 4% now lost is lost for ever: it is 4% lost every year into the future.

[John Healey]

Indeed, and that is one reason why Britain is so far off the economic pace, and why so much more must be done than has been so far to boost jobs and growth in this country.

To use the household income analogy, well loved of the Tory party, I note that if a household looks to pay down its debts at the same time as reducing its earnings, the spending cuts that it must make to do the job have inevitably to be more savage and to last for longer in order to be successful. That is the position this country is in.

If I look at the consequences of the Government’s action locally, I have to say that in south Yorkshire, our area, it is hurting but not working: flat growth, higher unemployment, higher bills, lower confidence. In our area, more than 12 people are now competing for every single job that becomes vacant, and the number of young people without a job for more than six months has more than doubled in the past 12 months alone.

At a time when courts, hospitals, councils, civil service, police and fire service are all cutting public service jobs, any difference that there may be in south Yorkshire between public sector and private sector pay rates is simply not the reason why growth is being held back; it is the loss of jobs, of pay and of support through working tax credits that is sapping demand and confidence.

The Chancellor this afternoon singled out for special treatment those earning more than £150,000 a year, cutting their 50p income tax rate and giving them a tax break that is worth more to those people than many in Rotherham or Barnsley can earn in a year. With more than 800 households and families in Barnsley and more than 1,000 families in Rotherham—working hard, working part-time—faced next month with the total loss of their working tax credit, which could amount to almost £4,000 a year or £70 a week, the Chancellor’s decision to cut the top rate of tax at this point will simply not be accepted or understood.

Let me turn to several of the Budget measures. Any performance report on the Government would be hard put to place the Department for Business, Innovation and Skills anywhere other than close to the bottom, and any judgment on policies would be hard put to say that business support policies have been anything other than close to failure. The Merlin project was supposed to lead to a 15% increase in lending this year; in fact there was a net reduction of £11 billion in net lending to small firms. There was a similar failure of the regional growth fund, of the business growth fund and of the national insurance holiday for small firms.

I look in this Budget with a degree of welcome, however, to the new credit scheme for lending to small firms, and to the new managed funds for lending to mid-sized firms. Those may be small in scale, but they are a start. The margins to make lending more affordable may be modest, but the design and concept, at least, are innovative. Interestingly, the schemes signify that the Government recognise that they were wrong when first elected to say that there was no role for active government and that the private sector would pick up the slack if the public sector stepped back.

The schemes are interesting because they help to reduce risk and cost by using the power of the Government to stand behind them rather than support being funded up front. I say to my hon. Friend the Member for West Bromwich West (Mr Bailey), who chairs the Business, Innovation and Skills Committee, and the hon. Member for Chichester (Mr Tyrie), who chairs the Treasury Committee, that I hope that the Select Committees will make sure that those schemes do not fail as the other business support schemes have and that they provide more lending and lead to more economic activity and support for business in every region of the country.

International experience and all the data underline the fact that, in the long run, high levels of business investment are at the heart of strong economic growth. It seems to me that the case is clear, and has been so since the global financial crash and the requirement for Government to step in and provide big public support to commercial banks, that now must be the time to set up a British investment bank—the sort of industrial investment bank that Germany, Singapore and India have, which can offer strong support to indigenous research and development, domestic manufacturing and regional economies.

The Chancellor told us this afternoon that, taken together, the anti-avoidance measures in this year’s Finance Bill would increase tax revenue over the next five years by about £1 billion. It is interesting that table 2.1 in the Red Book indicates only about a quarter of that over the five years, and that is about half what we did in our first year in government. You, Madam Deputy Speaker, will recognise in the proposal for a general anti-avoidance rule, which I welcome, the same approach that we took and you fought for, against Tory opposition, in respect of the disclosure rules in the Finance Act 2004.

This Chancellor’s Budget was a rich man’s Budget. He chose to cut the top rate of tax and give a kick-back for the rich—and at a time when the deficit is getting bigger, not smaller, when the national minimum wage for young people has been frozen and when the working families tax credit and public services are being cut across the country. This is not a Budget for working people, and the Government are not working for working people. It is not now, and never was, a question, as the Government claimed, of the richest bearing the biggest burden; this Budget proves that the richest are getting the biggest benefit.

--- Later in debate ---

[Austin Mitchell (Great Grimsby) (Lab)]

I cannot agree with my neighbour, the hon. Member for Gainsborough (Mr Leigh), on this Budget, because from both a Labour and an objective point of view it is a pathetic Budget. It is justified by a lot of bravado and bluff, but it does nothing about the major problem of an economy that is nearing recession and needs drastically to boost growth if we are to get out of it. The Budget even fails the five tests for a successful Budget that Anatole Kaletsky proposes in The Times today. The three most important of those are that the Budget should be fair to all—this one is not; that it should be pragmatic, which this one is not, because it is ideological; and that it should be relevant to the problems of the day, which this one is not.

What this Budget does is prolong the failed policies of the past two years of cut, freeze and squeeze, which are not working and need to be ended. The Budget is a disastrous prospect for the Government, because this is the hinge point of power and this Budget means that, instead of strolling to a tax-cutting election victory in 2015, they are faced with flatlining. The huskies pulling the sledge are going to have to pull even harder to get it moving at all. We have already lost 4% of GDP—the economy is that much smaller, according to the Institute for Fiscal Studies—and that will never be made good. We face flatlining, as Japan did in its wasted decade.

The Liberal Democrats have made a desperate attempt to distract attention from that failure. They argue that the rich have been taxed to show that they have got something out of the coalition. They were trying to stop the reduction from 50 to 45%, proposing a mansion tax, a tycoon tax—perhaps it was a Typhoo tax—or something to tax wealth. Well, we have got the cut in the 50% rate, which the HMRC study did not prove brought in big revenues. However, it did not wait for the deferred taxation to come into play—it would do so only with a longer period of running that tax. The public did not want the cut in that tax, which demonstrated that we are all in it together, but it has been cut and the Liberals have got very little in return.

I am not sure what the Liberals were expecting, because what is the Tory party about but helping the rich? After all, this is a Government of millionaires, for millionaires, by millionaires, so we would not expect them, as the Liberals seem to have done, to be giving a tax increase to the rich. What they have given is a couple of symbolic pecks at wealth, but they are more like love bites than serious damage. It does not help that the Government have raised tax allowances in the way that the Liberals wanted. It was a good idea to raise them, but I must point out that that does not really help the poor who do not pay tax, or pensioners—it does not compensate for the VAT increase, for the loss of tax credits and for the child benefit cut. The main benefit goes to the second highest decile of taxpayers, rather than to those at the bottom. So that is the only crumb they have got out of it. The coalition Government are beginning to look like Downton avenue, with the millionaires living upstairs—[Interruption.] Sorry, I meant Downton Abbey. I was thinking about Coronation Street. We have a Government of millionaires living upstairs and the domestic servants are downstairs grumbling, because the only prospect they have now is to go hawking their consciences round television studios to explain why they are getting nothing out of this coalition.

Not only is the Budget not fair—it is certainly not fair to the north and to the area I represent—but it has failed Kaletsky’s second requirement, because it is not pragmatic. It is an ideological Budget because it is obsessed—still crazy over Thatcherism, after all these years—with debt. The problem of this country is not debt. If there is growth, debt can be paid off easily, as the Labour Government did between 1997 and 2000. The problem facing us is a lack of demand. That is why shops are closing in the high street and chains are going bust. Firms are not growing, investing and expanding because they cannot see a demand for their products. As long as that remains the case and as long as there is that uncertainty, we shall not get economic growth. People are being given more hours in which to shop with money that they have not got. Demand is crucial to this economy. It is far too low and it needs to be boosted, but it is not being boosted. There must be a boost to demand.

That brings me to the third failure in the Kaletsky tests. The Budget is not relevant to the economy as it is today. We are an economy verging on recession. We have had a massive loss of growth. We need growth and there are only two ways of getting it. The first is by monetary means. The Bank of England is doing its best with quantitative easing, but that is going into the banks, which are not lending it. It is building up their reserves, rather than going out to the people who spend and generate demand. Secondly, there is the fiscal weapon, which the Chancellor obstinately refuses to use. Only growth will pay off debt. Unless we get growth in the economy, there is no chance of paying off the debt in the way that the Chancellor wants. The only way we will get growth is to borrow, to spend and to let the multiplier work its magic, as Keynes told us it would. That would work, but these policies will not.

Simon Jenkins suggests helicopter money—putting the money in a helicopter and dropping it out on the people, who will spend it. If it drops out on Grimsby, I will be very grateful, but a more sensible way would be to use the money from quantitative easing to sign contracts for a big house building programme to create public housing for rent, which is badly needed in this country, and for big public work contracts. Some of the money should be put in a national investment bank, with an industrial policy to invest in manufacturing and expansion. That is the way to spend the money from quantitative easing.

The Bank of England cannot do that. All it can do is buy debt and give the money to the banks, which stash it away in their reserves. The Chancellor can decide that the money printed by quantitative easing should be used for those benign purposes, and he should, because that would give us growth. Also, there should be municipal bonds for house building, as we used to have, to boost the finance for house building.

The Budget is a failure which foretells three years of bumping along, not on the bottom, but flatlining for an economy which desperately needs to grow to compete with the Americans, whose economy is growing, and to benefit from their growth. The economy should be stimulated by public spending and projects such as house building to get us out of the mess we are in, and I do not see any symptom of that following this Budget.