Budget Resolutions and Economic Situation

Bernard Jenkin Excerpts

Wednesday 20th March 2013 Commons Chamber

[Mr David Davis (Haltemprice and Howden) (Con)]

May I give the Government two sets of thanks? First, may I give them unreserved of thanks for the fact that I do not have to discuss VAT on caravans this year? More seriously, may I give them unreserved thanks for the action on Equitable Life pensioners which, while a little overdue, is morally right and exactly the proper thing to do?

With respect to the Government’s economic strategy, a number of Members have pointed out the difficult circumstances surrounding the Budget from various points of view. The Government clearly have a difficult deal to handle regarding the inheritance from the previous Government. Obviously, there is the borrowing, but it is not just that. The structural deficit passed on by the previous Government was much bigger than anyone understood at the time, and that is just economists’ technospeak for a society that has too much welfare dependency throughout, including even the middle classes, and too much inefficient—costly and expensive—delivery of public services, which are properly needed but badly delivered.

The second part, which is extremely important and has been alluded to slightly by a few Members who have spoken so far, is the international backdrop with which the Government have to deal. We are in a circumstance where world growth is probably about 6%, but that divides sharply into two sectors. The far east, the BRICs—Brazil, Russia, India, China—Vietnam, Indonesia, and so on, have growth rates approaching 10% or thereabouts. In the developed world, of which we are obviously a part, the growth rate on average is nearer to 1%. So we are in a 1% world, and the reason for that is pretty straightforward: it is the dramatic change in competitiveness between ourselves and the far east and other developing countries. That does not mean that it is inescapable, but it means that competitiveness has to be at the centre of the strategy that we undertake—competitiveness, pure and simple. Everything else, all the other macro-economic tricks, frankly do not work.

In that respect I am addressing the comments of the hon. Member for East Antrim (Sammy Wilson). If I may say so—and I do not mean to be rude—he talked very much like a classical Labour Member. He talked about stimulus, and about this being a balanced Budget. It is about £100-odd billion off being a balanced Budget. There is a vast amount of deficit finance in there. But my point is that, if we look at the historic examples of countries that have been knocked off the historic growth rates—3% or 4%—down to something lower and at what has been done with them, there are clear examples of success and failure. Let me tell him, just for a second, about the biggest failure in modern times, which was Japan some 20 years or so ago, which went from a 4% growth rate, pretty much for all the post-war years, to a 1% growth rate after a financial crisis not unlike our own. What did it try? It tried Keynesian expansion. It now has pretty much the biggest public debts in the world, with an annual deficit of 10% of GDP in recent years. Did it work? No, it did not. It also tried monetary activism. I hope that those on the Treasury Bench listen to this, because it had effectively zero interest rates for a decade. Did it work? No, it did not. It also went in for infrastructure spending—the fashionable item this week—on a grand scale. It spent 40% of its Government budget on infrastructure investment, more than was spent to build the entire Panama canal—in one year. Did it work? No, it did not. I am afraid that those macro-economic polices that people love because the arithmetic seems to work are a dangerous allure. We must focus first and last on competitiveness, because without that we will not be able to earn our way in the world.

[Mr Bernard Jenkin (Harwich and North Essex) (Con)]

My right hon. Friend is saying something that should be blindingly obvious. When a Government borrow some money and spend it, once it is spent it is gone. It does not create economic growth. Once they have spent that money, it might have a little bit of effect in the economy, but then it is over. What we need to generate is what the right hon. Member for Morley and Outwood (Ed Balls) used to call endogenous growth, because that is what comes from within the economy itself instead of being stimulated by Government spending.

[Mr Davis]

My hon. Friend is right. I shall not give him the response to the endogenous growth of the right hon. Member for Morley and Outwood (Ed Balls) that Michael Heseltine gave at one party conference, which my hon. Friend might remember, but—

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[Sir Tony Baldry (Banbury) (Con)]

I welcome the fact that this Budget is a continuation of this Chancellor’s five-year plan and not a rupture. I welcome the fact that the Chancellor has succeeded in reducing public spending, whereas total state spending under Labour rose by an extraordinary 60%. I welcome the fact that, notwithstanding the broader economic challenges, whatever way one looks at the statistics, they tell us that the private sector under this Government has been steadily creating new jobs as fast—indeed, faster—than the public sector has been shedding them. I welcome the fact that under this Government the deficit is down by a third and businesses have created more than 1.25 million new jobs.

I welcome the proposals in the Budget to enhance competitiveness. There is little point in solving today’s problem if one is not preparing for tomorrow’s future. We all have to recognise that Britain is in a global race with countries such as China, Brazil and India and that we have to become more competitive if we wish to remain ahead and among the leaders in the global race—a point very well made in Lord Heseltine’s report “No Stone Unturned”. I welcome the Government’s response to his proposals and his report, which made far-reaching recommendations for stimulating economic growth and engaging the private sector and the spirit of enterprise in the great cities and regions of our countries. As Lord Heseltine put it in the foreword to his report:

“Huge infrastructure demands and hungry institutional funds—link them. Excellence in industry, commerce, academia—extend it. England’s cities pulsing with energy—unleash it.”

I think we would all support that.

May I point out to the House that Lord Heseltine is 80 today? As he was a long-standing and distinguished Oxfordshire Member of Parliament, I am sure the whole House would want to wish him a very happy birthday. If we all have as much energy at 80 as he does, we will be doing very well indeed.

I welcome the Chancellor’s proposals to bring forward infrastructure spending and to spend substantial amounts on speeding up important infrastructure projects. Targeting infrastructure spending, of course, helps boost economic growth. In my constituency, projects such as the east-west rail link, rail electrification, the upgrading of junction 9 of the M40 have already been announced; importantly, an extra £3 billion a year is being invested in infrastructure projects across the country.

I welcome what the Government and the Budget are doing to give support for house builders, for first-time buyers wanting to get mortgages and also for “second steppers” wanting to move up the housing ladder. The news on building construction is extremely important. Housing is key to growth, and builders are not going to build houses unless they can sell them, so I welcome the fact that the Government are allocating more than £3.5 billion to support those who want to get on, or move up, the housing ladder. The Government will provide up to 20% of the equity to help anyone who wants to buy a new-built home, and for three years from January next year, they will also provide a new guarantee to help lenders offer more people 80% to 90% loan-to-value mortgages. All that is good news for house builders, and will help more people to move on to and up the housing ladder.

As I pointed out on Monday to the Secretary of State for Communities and Local Government, in my constituency we want more houses to be built. We want people to be able to build their own homes, we want more social housing, we want more building on the former Ministry of Defence brownfield land at Bicester, and indeed we want Bicester to become a new garden city.

I welcome the support for small and medium-sized businesses. I am glad to say that my constituency is part of a dynamic economy, but it consists largely of successful small and medium-sized businesses. Small companies want to grow, but they often identify their lack of access to finance and long-term capital as a key barrier to their growth. They will benefit not only from the fact that corporation tax is already due to fall to 21% next year—with the result that Britain is now at the top of the list in surveys of desirable places in which to do business—but from today’s announcement that it will fall to 20% in April 2015, which means that the United Kingdom will have a lower business tax rate than any other major economy in the world. That will help to fulfil the commitment to make Britain the most attractive tax regime for business in the G20.

I welcome the fact that the Government are cutting the jobs tax of every business, and the fact that businesses will be able to hire one extra person on a salary of £22,400 or four people working full time on the minimum wage without paying any national insurance. That means that 450,000 small businesses—a third of all employers—will pay no jobs tax at all.

[Mr Jenkin]

What does my hon. Friend make of the fact that Ireland has a 12% corporation tax rate, although it has had to inflict on itself far more austere economic policies than we have had to inflict on ourselves because it is in the euro? Should we not be emulating Ireland?

[Sir Tony Baldry]

I think that we are making very good progress in reducing the burdens on businesses. I hope that my hon. Friend will applaud that, because I believe that it will enhance the UK’s competitiveness.

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[Mr Bernard Jenkin (Harwich and North Essex) (Con)]

The speech by the hon. Member for Swansea West (Geraint Davies) reminded me of the cartoon in Private Eye called “Great Bores of Today”. He recited a litany of all the clichés that we expect from the Labour party. I would simply say that the Labour party’s determination to oppose the abolition of the extra room subsidy paid by the housing benefit system shows that it is determined to make sure that there should be no reform of the welfare budget whatsoever. It opposes every single measure to try to restrain expenditure on welfare, which takes up over a third of Government spending. [Interruption.] I notice, Mr Deputy Speaker, that it is getting rather noisy on the Opposition Benches; I shall try not to provoke them any further.

I rarely remember, if at all, a Chancellor rising to deliver his Budget statement against a background of such dire and low expectations about what he could achieve. I am pleased to reassure my hon. Friend the Member for Banbury (Sir Tony Baldry), who has just left the Chamber, that I am happy to commend the Chancellor’s Budget statement. He had incredibly little flexibility at his disposal, but the Budget contains a number of really imaginative measures, particularly the supply side reforms that always help to stimulate economic growth. In whatever economy they are tried, such measures prove to be effective. The reduction in corporation tax is another step in the right direction; the abolition of employers’ national insurance for small employers is a huge step in the right direction; and the limitation on capital gains tax for business is a very good step in the right direction.

I also very much welcome the substantial implementation of the Heseltine review. The Select Committee on Public Administration, which I chair, took evidence from Lord Heseltine, who gave a very good account of many of the things that could and should be done to make the use of public money much more effective away from London, as well as championing things like swifter decisions on infrastructure, such as airport capacity. I commend the review, and I hope yet that the Government will speed up the decision about airport capacity, which is so vital for the health of London as a global city.

My right hon. Friend’s statement also reflected an extraordinary determination to follow through and to continue what he started, and not to be diverted by those who somehow think it would be easier and more effective for the Government to start borrowing more money and spending more money, as though that was a painless way of reviving the economy. It is extraordinary that we have to go back to the lessons that we thought the Labour party had learnt in the 1980s—that we cannot spend our way out of trouble. It has forgotten all the lessons that made it electable under Tony Blair, and I suspect that that makes it unelectable now.

The real question at the heart of the Budget was raised not by the Leader of the Opposition but by a number of right hon. and hon. Members, including one or two Members of Her Majesty’s official Opposition, but not from the Front Bench, and that is growth. The real question that hangs over the Budget is whether we believe the growth forecast. Hitherto, we have been disappointed, and that is because energy costs are so high; it is because of excessive banking regulation pouring out of the EU on to the City of London, which happens to be our biggest export earner and our biggest generator of tax revenue; it is because the banks are not lending because the Government have increased the capital ratios for banks when they should perhaps have been reducing them; it is because quantitative easing might make bank lending cheap for the Government, but it does not necessarily make it easier for the banks to rebuild their balances; and it is because of the burden of high taxation.

I commend the Budget for its consistency and determination, but the question is whether the pace of economic reform that my right hon. Friend is introducing is fast enough. It may yet prove beneficial and necessary to accelerate the spending reductions, the reductions in taxation and the supply side measures, and accelerate even further the infrastructure investment that is so necessary to get the economy to grow. If we find ourselves once again set back by economic forecasts that have not been delivered, we will have to begin to ask ourselves not how we just let ourselves off the lead and start spending money that we have not got and borrowing even more money that we cannot afford to borrow, placing the burden on future generations, but how we start taking additional pain now to avoid greater agony in the future and greater agony for our children and our children’s children.

I remind the House that it is not just that the Government inherited a very difficult situation. I commend chart 1.8 on page 21 of the Red Book. At the peak of the economic cycle in 2007, the structural deficit was more than 5%. As soon as the economy went into reverse after the crash, it quickly became apparent that the previous Government had vastly overextended themselves and had vastly increased public expenditure beyond what we could afford, so that public expenditure peaked at over 50% of GDP, the previous Government having inherited public spending at below 40% of GDP. It was that expenditure that was unfunded, even at the peak of the economic cycle, which is why we now face such a dire economic situation. I commend the Chancellor of the Exchequer for taking this as seriously as he has and setting it out to the House so truthfully. I hope that his forecasts will be delivered.