Budget Resolutions and Economic Situation
Debate between Barry Gardiner and George Kerevan
Barry Gardiner (Brent North) (Lab)
I start by welcoming the announcement about the living wage. I would feel a good deal happier about doing that if I had not noticed the guilty, sideways glance that the Chancellor gave immediately after he had made his announcement. It reminded me too much of Draco Malfoy. It set me thinking: what is the living wage in London at the moment? It is £9.15. The Chancellor said that it would be £9.35 by 2020. I thought, “Hang on. Is it really going to increase by only 20p in the next five years?” Then I realised what is really going on: one calls the thing by the same name, but changes what it is.
We have been there before. We know very well that the practice exists. We remember the Chancellor’s colleague used it when we were given academies. Of course, those academies were not academies. What we called academies were those schools in difficulty, which were not doing well by the children that they were serving, and we put extra money into those schools and allowed them the freedom to try to do better. What the Conservatives called academies were excellent schools doing tremendously well, which were allowed to have that freedom and leave the system, taking with them money that was in the pot for those needing special educational assistance or free school meals. It is the opposite of rebadging: something different is called by the same name as something else. It does not fool people for long.
The Chancellor hit the wrong people, and he did so because of a genuine political problem that faces all modern Chancellors. Public demand for better services requires increased revenue, but international market competition for capital and labour drives down the ability of any country to raise either corporate or personal income tax. For any political leader, the issue of tax rates has become a straitjacket. The obvious answer has to be to raise revenue some other way. What is needed is a commodity that cannot be concealed or moved offshore. If it could help to establish a political narrative around fairness and equality, so much the better. Instead of hitting the working poor by removing working tax credits, perhaps the Chancellor should have considered taking a leaf out of the SNP’s book and taxing land, the possession of which is one of the defining indicators in our country of the divide between rich and poor, and between powerful and powerless.
Land is a very odd commodity. Take an unattractive piece of agricultural land worth about £5,000 an acre and give it planning permission. Suddenly one has an asset that is worth more than a hundred times that amount. An acre of development land can fetch between £500,000 and £l million. Of course, we all know that land is scarce on this crowded little island of ours—only we are wrong, and it is not. In fact, of the UK’s 60 million acres, only about 4 million are actually used to house our 61 million-strong population. It is true that about 15 million acres could not be used—not everybody wants to live on top of Cadair Idris—so we have to exclude the forests, lakes, rivers and mountains, but that still leaves 41 million acres of good land.
Most people are surprised to find out that the myth of the crowded little island is just that—a myth—but not as surprised as when they find out that the people who currently pay land tax, some £35 billion of council tax and stamp duty, are the 99.4% of us crowded on to the 4 million acres, while the 160,000 families who own the remaining 41 million acres receive from the public purse a subsidy of about £3.5 billion every year. That is about £83 an acre every year from us, their fellow citizens. Yet these fellow citizens are the very ones that my hon. Friend the Member for Eltham (Clive Efford) was talking about, who cannot afford to buy a home of their own because land is released slowly and selectively on to the market precisely to restrict supply and artificially inflate prices. The landowner benefits twice over. The current system subsidises a tiny elite, precisely encouraging them not to make their land available for housing until public demand has ramped up its price. Breaking that perverse cycle is a key way of resolving the problems of “generation rent”—the housing problems my hon. Friend was speaking about—but it is also a way of raising significant revenue.
A land valuation tax is a levy on the value of the land unimproved by buildings or other enhancements. The principle is simple: that because the value of the land has been created by its proximity to the infrastructure paid for by the community—the schools and hospitals, the roads and railway stations—that value should be captured by the community to be reinvested in public good, rather than appropriated for private profit. And if that sounds like a Labour policy, then so much the better!
George Kerevan (East Lothian) (SNP)
The hon. Gentleman may know that, under the original planning Acts introduced by the Labour Government in the 1940s, the uplift in land value did accrue to the public sector and the taxpayer. That changed when the incoming Conservative Government under Winston Churchill changed the law.
Barry Gardiner
I am so glad I took that intervention, because the hon. Gentleman makes an extremely important point—one that I totally agree with.
The amount of tax raised could be substantial: an annual tax of just £200 per acre could raise £9 billion—more than by putting an extra penny on income tax. The unpopularity of raising corporate or personal income tax has been a straitjacket. If the Chancellor feels comfortable wearing it, he may be madder than I think.
For 10 years, I ran my own business in the City of London. I focused on two things: first, manage your assets; secondly, manage your risks. The same is true for Government. One would not—should not—have any confidence in a management team that did not know the value of its asset base, and one would not have any confidence in a management team that either failed to properly quantify its strategic risks, or that, having quantified them, failed to take appropriate action to mitigate them. Yet we have a Government who have no proper account of their natural capital asset base, and although they have identified the risk of climate change and the linear economy as a real threat to growth, they are failing to take the necessary steps to mitigate those risks adequately.
Dr Richard Spencer of the Institute of Chartered Accountants in England and Wales has put the case for valuing our natural asset base most succinctly:
“The argument for natural capital accounting is that measuring nature makes its contribution to the economy and our wellbeing visible and allows for effective decision making.”
Global businesses extract an estimated $7 trillion from the environment each year. That $7 trillion does not appear on balance sheets; it consists of free goods—externalities as classical economics prefers to call them. No Government account exists that charts their contribution to the national wealth. Globally, they represent the annual income from a gigantic asset base that is, quite simply, the precondition of all other economic activity. What sort of economic managers do we have who fail to quantify an asset base of such magnitude and such importance?
The IMF has calculated the cost of the financial crisis at $11.9 trillion. Each year, the degradation of natural capital around the globe erodes our natural asset base by more than that. Our natural environment as represented in our natural capital stocks and flows faces a bigger crisis every single year than the world faced in the 2008 global financial crisis, yet the crisis of the environment is invisible. We were prepared almost to bankrupt ourselves to save our economic system. Our natural capital debt is, arguably, a much more urgent issue than our financial debt, yet this Budget does nothing—nothing—to reverse the decline of that asset base. Natural capital valuation is a powerful tool for policy making and policy delivery, and it is entirely absent from this Budget. So much for managing the assets.
But what about managing the risks? This Government have identified the risk of climate change. With considerably less clarity they have identified the risk of a linear economy. However, as Peter Young, the chair of the Aldersgate Group, said only a few weeks ago:
“The UK is a world leader in environmental science and in writing policy; it is not a world leader in taking subsequent action.”
Just over a week ago the Government’s independent advisers on these matters, the Committee on Climate Change, set out the key actions that Government needed to take if they were to respond appropriately in managing and mitigating the risks. The committee criticised the fact that many low-carbon policies have no investment certainty beyond the next few years. That, it says, is preventing efficient investment in low-carbon technologies and their supply chains, which often have long lead times. To bring those investments on stream the Government should give policy certainty and clarify ongoing funding commitments beyond the cliff edge that is currently 2020.
What did the Chancellor announce? He removed the exemption for renewables from having to pay the climate change levy. Instead of incentivising investment and stabilising the low-carbon industries, the Chancellor put a £3.9 billion tax on renewables. It was very softly spoken in the Budget, but at a stroke he killed off our chances of developing this growing green economy. The jobs, the growth and the international exports that could have come from it have just been thrown away to raise £3.9 billion for the Exchequer. It is a dereliction of duty as a manager of risk.
The Committee on Climate Change says that the Government must do much more to support private innovation to develop the future technologies that still need research, development and demonstration. These are technologies such as electric vehicles, carbon capture and storage, and offshore wind turbine technology, that can help us meet our 2050 targets. They are also the new green industries that can bring growth and high-skilled jobs.
Specifically, the committee’s report called upon the Government to
“ensure the power sector can invest with a 10-year lead time”.
To do this, they need to set a clear carbon target for the power sector by the end of the next decade, and extend the funding under the levy control framework to match project timelines out to 2025 with annual rolling updates. In his Budget speech today the Chancellor steadfastly refused to do so, against his own independent advisers.
In the built environment the report calls on the Government to
“develop plans and policies that deliver low-carbon heat and energy efficiency”.
Nothing! A strong Budget would have strengthened and implemented a zero carbon homes standard. It would have driven investment in low-carbon heating. A strong Budget would have provided increased support for electric vehicles, as well as pushing for stronger 2030 EU CO2 targets for cars and vans. The Economic Affairs Cabinet Committee, which the Chancellor chairs, received a report over a year ago saying that the cost to our economy of air pollution from existing vehicles from the 29,000 premature deaths it causes, was between £9 billion and £20 billion lost to our economy each year. A strong Budget would have mitigated those costs by tackling the problem at source.
The Chancellor talks about hypothecating vehicle excise duty to a road building programme, but he does nothing to put any money behind the electrification of those same vehicles to deal with particulate matter and nitrogen dioxide, which the committee says is costing so much every year. In this Budget the Chancellor failed to manage the natural asset base and failed to manage the environmental risks.