Budget Resolutions and Economic Situation

Charlie Elphicke Excerpts

Wednesday 20th March 2013 Commons Chamber

[Mr John Redwood (Wokingham) (Con)]

It is important first to understand what the Government strategy is, because there have been a number of misleading interpretations of it. Some have said that the reason the economy did not grow last year and is still growing very slowly is that there have been massive public spending cuts that have reduced national output. There is a helpful table on page 53 of the Office for Budget Responsibility report which shows that growth was indeed only 0.2% in real terms last year. However, it shows that the Government sector made a positive contribution of 0.6%, which is far more than overall growth, and that growth was reduced by disappointment in private sector housing investment, changes in stocks in private sector companies, reflecting an absence of confidence, and a poor performance on trade. A similar position is reported in forecasts for the current year, in which it is assumed that the Government sector will still make a positive real contribution to a rather low rate of growth, while it is hoped that the private sector will not have as disappointing a performance this year as it did last year.

The strategy was never about massive cuts in public spending overall; it was about modest growth in public spending. The idea was to get the deficit down through some very large tax rises. Unfortunately, as the latest documents reveal, the 50p and the other income tax changes were especially damaging to revenue. A loss of more than £7 billion has been recorded by those on the Front Bench. The overall figures imply that it was probably even more than that. In the most recent year, tax revenues from income tax overall are down on the previous year, not up. The strategy has not miscarried because it cut too much or because the Government overspent compared with what was planned—they have done a rather better job this year of controlling spending. Rather, the strategy miscarried because the big increase in tax revenue that had been forecast did not come through. That was partly because tax rates were set that did not work, such as the high rate of income tax. Also, the capital gains tax rate is too high, so we will get less in capital gains tax receipts this year than in the previous year. The reason is also partly that growth in the economy was very disappointing.

[Charlie Elphicke (Dover) (Con)]

Does my right hon. Friend agree that it is important to have capital gains tax rates that are lower and more competitive, particularly for business assets?

[Mr Redwood]

I entirely agree. There would be much more activity if people could free some of those assets by taking profits and moving them on to people who could use them better and build on land, for example. I hope my right hon. Friend the Chancellor will think about that in due course, because it would make him revenue and help to grow the economy.

Nor has there been any lacking in flexibility by my right hon. Friend the Chancellor in applying his strategy. He has been flexible over the deficit; indeed, we see in the latest figures that he plans to borrow £48 billion more in 2013-14, £60 billion more in 2014-15 and £67 billion more in the following year than in the original plans. He has reflected the fact that the economy has not performed well in the way that the independent forecasters assumed and the fact that tax revenues had a big wobble because of wrong rates and low growth, and he is allowing the state to borrow more to try to pick up the slack. I therefore welcome the fact that in this Budget he is concentrating on things that he can do to promote growth in the areas that subtracted from our growth in the most recent year.

The Chancellor is right to look at ways of trying to promote more housing activity. Many of us represent constituents who would love the opportunity to buy their first flat or house. They have been priced out of the market by the boom and now they are kept out of the market by an inadequate supply of mortgage finance and tough conditions. We need to be careful, because we do not want to fuel another housing bubble, but we also need to recognise that the banking system is not delivering finance for many of our constituents at the moment, and there are people who could borrow prudently and sensibly to buy their first home. I do not want to live in a society where people have to be in their late 30s before they can own their first home. I think we need to do better than that.

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[Luciana Berger]

I have spoken on a number of occasions on the issue of youth apprenticeships, particularly those for people under the age of 19. We have seen a decrease in the number of such apprenticeships. As my hon. Friend says, there is also the issue of the rebadging of different types of jobs. The House will have heard many a representation from the Labour Benches about the Government’s consistent claim to have created 1 million jobs in the private sector, but we know that many of those jobs are simply public sector jobs that have been rebadged.

There has also been a shift in the kind of jobs available. The number of people working in full-time jobs fell in the last quarter. It is now down 378,000 since the beginning of the 2008 recession, while the number of people in part-time work has risen by 572,000 in that period. Since the general election, people have taken an average £1,200 pay cut because jobs are so hard to come by.

[Charlie Elphicke]

If jobs are so hard to come by, why does the hon. Lady think that the Office for Budget Responsibility is predicting that 600,000 more jobs will be created next year, and why have we seen 1 million more private sector jobs since the election?

[Luciana Berger]

I thank the hon. Gentleman for his intervention, but I refer him to the comments that I have just made about the rebadging of public sector jobs. Many fact checks have been done to determine what those jobs actually are, as the intervention from my hon. Friend the Member for Wirral South (Alison McGovern) highlighted. Many of them are now apprenticeships. We also know that many of the assessments by the OBR have had to be downgraded because its estimates have often been too optimistic.

It is in the context of this maelstrom of frozen wages, rising prices and reduced opportunity that the Government are making some of the most draconian cuts to our public services and welfare, despite the fact that the OBR has said that those cuts are reducing growth in our economy. The cumulative impact of the cuts has been to widen the gap between the richest and the poorest, and to ask the most vulnerable and disadvantaged in our society to pick up the bill for the Chancellor’s mismanagement of the economy.

Today should not have been about more of the same; it should have been about changing course. If this had been a Labour Budget, we would have acted to boost confidence, create jobs and support struggling businesses. We need to bring forward long-term infrastructure investment in schools and transport, and we need to use the money raised from the 4G mobile spectrum auction to build thousands of affordable homes—getting builders back to work, creating the homes we need and strengthening our economy for the future. Alongside that, we would have cut VAT temporarily, including to 5% on home repairs, maintenance and improvement, which would have helped the energy efficiency side of our economy. The result would have been a plan for a steadier and more balanced pace of deficit reduction with measures that support our economy and create jobs now.

Government Members say that we cannot do that because it would mean more borrowing. They neglect to mention that it is their policies that are already leading to much higher borrowing. The Government and this Chancellor are already borrowing £212 billion more than they said they would to plug the holes in our public finances caused by a flatlining economy and a higher unemployment bill. The Government argument seems to be, “We will not borrow to grow the economy, but we will borrow to shrink it”. Instead, the real question is not whether we should borrow or not, but what we are borrowing for. Are we going to continue to borrow to pay the cost of the Tory Government’s economic failure and to keep people at home out of work or are we going to act to support those small businesses that want to invest in new equipment, to kick-start house building, to support research and development and investment in low-carbon energy and high-tech manufacturing with a proper plan to get people into work? In other words, we need a real plan for jobs and growth, which would be fairer, more successful in getting the deficit down and make Britain better off for the future.

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[Gavin Williamson (South Staffordshire) (Con)]

It is always a great pleasure to follow the hon. Member for Great Grimsby (Austin Mitchell) with his candour and honesty in saying that Labour would always want to spend more. Many of my constituents and most of the country recognise that Labour always wants to spend more. I always found it most unusual when, before entering the House, I used to listen to the Budget statements of the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) who professed his devotion to prudence. On the Floor of the House he would constantly hammer home the importance of prudence, and how it was central to everything that he did. If he loved prudence that much, he must have been cheating on prudence with someone who was very reckless, as all the money was spent. The destruction that he has wrought on the economy has been vast.

The Chancellor has aimed to set out a plan to continue to support British business and British families. It is not possible to create an economy overnight that has business confidence. It is not possible to build an economy overnight where there is a massive investment in technology and engineering—it has to be done over time. That is why we should all welcome the Chancellor’s continued moves to bring down corporation tax, from 28% to 21% last year, and 20% going forward.

The constant drive to lower corporation tax will build confidence across the globe that Britain is a place in which to invest. Page 41 of the Red Book shows the dramatic change in business confidence in the UK. In 2007 it was rated at just under 30%, and as recently as 2009, it was rated at under 20%, whereas if we look at comparator countries, such as Ireland, the Netherlands and Switzerland, we see that the percentage ratings were between the mid-80s and the mid-70s. That confidence has totally changed how people view the United Kingdom’s tax competitiveness. Indeed, we have seen the growth of confidence that Britain is a good place to invest as a tax competitive area: it moved from below 20% in 2009 to above 70% in 2012.

Only the other day I met representatives of Caterpillar, a major investor and employer in the United Kingdom. They said that what international businesses need is certainty. They need confidence that the tax regime will not constantly change and that if they invest in this country, their investment will be safe. They reported that that confidence is starting to return, because it is quite clear that the Government want to deliver a low rate of corporate taxation, and it is not going to go down one year and then up the next; the trend is to reduce it continuously. That is what international business wants and that is what will benefit Britain.

Another measure that I do not think has been commented on so far, but which will be of great value to all businesses, especially those in engineering and manufacturing, is the increase in R and D tax credits by up to 10%. Members in all parts of the House talk passionately about the need to promote and encourage engineering and manufacturing. If we want to do that, we must promote and encourage the R and D that is so vital for their success. We in the Chamber—on both sides, I believe—recognise that technology and the people going into those industries are absolutely vital to rebalancing our economy, and so too are the changes to R and D tax credits, both in the way they are accounted for and the amount of money that companies can get back.

In South Staffordshire, we are fortunate enough to have had a great amount of economic success, with rapidly falling unemployment, and major investment coming into the area. Over the past three years we have had announcements of £550 million of investment in the constituency, half a billion of which is coming from Jaguar Land Rover. We see that manufacturing success not only in South Staffordshire but right across the west midlands, and it is being driven and supported not only by R and D tax credits but by the Government’s approach to apprenticeships, taxation and the regional growth fund, which is creating key incentives not only for businesses currently domiciled in the UK but for those that want to invest in Britain or in the European area.

I firmly believe that the measures that have been taken on R and D tax credits are to be welcomed. I also think that the work that is being done on the Technology Strategy Board is making a solid difference by helping businesses of varying sizes, whether they employ a few hundred people or many thousands, to access universities and different areas of funding in order to take the risk and develop the ideas and products that will make Britain more competitive in future.

The issue of financing has been touched on. The hon. Member for Hackney South and Shoreditch (Meg Hillier) talked about lending, particularly to small businesses. I have to say that she and I are, to a certain extent, in agreement on one thing she mentioned. She touched on the Government’s strategy of funding for lending. Currently, that is available to banks, but we should be looking at how we can make it much more widely available, because it would be easy to expand it to all financial institutions.

In my constituency, many businesses are served by the Black Country Reinvestment Society, a mutual that helps many small and medium-sized businesses to get the funding that they would not otherwise get from banks. I think that by changing the funding for lending scheme we would be able to help many similar organisations right across the country.

[Charlie Elphicke]

Does my hon. Friend think that in this country we do not make enough of mutual finance providers and that we should make more of them?

[Gavin Williamson]

My hon. Friend is absolutely right. We need to be more imaginative in how we get finance to the small businesses that want to grow.

A little less than a year ago, I had an Adjournment debate on the need to get rid of the beer duty escalator. I am incredibly pleased that the Chancellor has reduced beer duty by 1p. It might not sound much, but it will make a real difference to the 83 pubs in my constituency and to the three small breweries in Kinver, Enville and Essington that are employing people in my constituency. I hope that this will act as a stimulus not only to the brewing industry but to the pub industry right across South Staffordshire, across the west midlands, and across the country. It is my firm belief that this Budget has not only been good for brewers, manufacturers and business, but good for Britain.

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[Charlie Elphicke (Dover) (Con)]

I welcome the Budget, which is a continued step in the right direction. To understand the road that has been travelled, we need to understand where we have come from. There seems to be more than a whiff of denial from the Opposition regarding the difficulties facing the country.

I should start by saying that at first, the Labour Government ran the economy along broadly sensible lines and stuck to the previous Conservative Government’s spending plans. Until about 2001, everything was going well and the economy was being run responsibly. Overspending and excessive borrowing began from that time onwards, and that is where the rot set in. The former Chancellor—and later Prime Minister—the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), had the opportunity to have his way and pursue his economic policies, and that is where things went wrong. There was too much debt. Too much growth was illusory and too much borrowing took place. When the music finally stopped in 2008, it hit this country very hard.

[Mr Kevan Jones]

The hon. Gentleman was not in the House at the time, but if he stops listening to central office party propaganda and remembers the history, he will know that the former Chancellor actually paid down debt, for example, through 3G licences. At no time in opposition did the hon. Gentleman’s party argue for less public expenditure in a single area.

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[Charlie Elphicke]

The hon. Gentleman is right about the 3G licences, but the taps were then turned on and public spending rose. We had a structural deficit and we were seriously exposed when the crisis struck in 2008. We can see that from the statistics relating to the previous Parliament. We inherited a structural deficit of 11.2%—an enormous level of borrowing. We inherited a massive rise in unemployment, as measured by the claimant count—it went up by 80%. Youth unemployment went up by 78% under the jobseeker’s allowance claimant count. Those were staggering rises and real concerns. It is all very well for the Labour party to say that there is a continual problem with unemployment. It is, of course, a concern to us all in our constituencies, but youth unemployment has been coming down. Unemployment has stabilised and we have not seen the rise that we saw under the previous Government.

Let us look at what this Government have achieved: 1.25 million new private sector jobs and 1 million new apprenticeships. The deficit is now down by a third. Rather than the structural deficit of 11.2% that we inherited, it is down to 7.4% of GDP today and moving in the right direction. We have had record low borrowing costs. The Opposition’s idea that we should borrow more to borrow less will take us one way and one way only—to higher interest rates. The hard-won fiscal credibility that this Chancellor and this Government have achieved is greatly valued by every mortgage holder in this country.

[Luciana Berger]

Will the hon. Gentleman remind the House how many more billions the Chancellor is borrowing on top of what he said he would?

[Charlie Elphicke]

I thank the hon. Lady for reminding me to point out that the Institute for Fiscal Studies said that the Labour party, under its plans, would be spending £200 billion more, so she should be careful before indulging in fantasy economics.

We also need to look at the Government’s welfare reforms, which will do more to make work pay, and education reforms, which will help Britons get the skills they need to compete in the global race. The Government are right to help those who want to work hard, get on and do really well. We hear from Labour Members about the difficulties faced by, and the squeeze on, many hard-working families, but they forget to say that this is nothing new. According to the Office for National Statistics’ family spending survey, disposable income in real terms was £600 in 2000-01 and was £600 at the last general election—it has not moved in real terms for about a decade. The challenge is that families have been squeezed for quite some time. The Labour party forgets that the economy was shielded by the boom of borrowing and debt and that, as a result, those difficulties were glossed over for too long.

It is right that the Government are now getting the house in order and doing more to help hard-pressed families and households. For example, council tax in Kent has been frozen for three years, whereas under Labour it doubled; fuel duty is now 13p lower than Labour planned; and as a result of the £10,000 personal allowance to be introduced next year, many will pay £700 less tax than under Labour’s plan, which will help average families and take 2.7 million out of tax altogether. I also welcome the axing of the beer duty escalator and the 1% outright cut in beer duty. The Government have got the right priorities and are moving in the right direction. Their plans for child care will help families up and down the country who, with the rise of joint working over many years, have found things very difficult.

On business, we need to get the country growing as quickly as possible, but we get growth and jobs not from Government, but from the private sector, enterprise and businesses. The Government have done the right thing in giving an awful lot of help to small businesses, but I want us to go a bit further. We have had the new employment allowance and the seed investment allowance, but I would like us to consider a “get set and grow” scheme, under which somebody could set up a new business and have a two-year holiday from all company filings, corporation tax and employers’ national insurance, light or no employment law and other measures. That way, somebody setting up a business could focus on running it, rather than on ticking boxes, filling in forms and dealing with paperwork. That kind of change would provide real assistance to people who want to get going and do really well.

Studies by the OECD, particularly the “Fostering Entrepreneurship and Firm Creation as a Driver of Growth in a Global Economy” in 2004, show that enterprise formation, growth and entrepreneurship are strongly linked. I hope that the Chancellor and the Government will look more closely at measures to make it easier to set up a business to a certain turnover threshold or certain period of time. As I said, the new employment allowance and the massive national insurance reduction for many businesses are a big step in the right direction, but I would like us to go further.

I also welcome the measures to deal with tax avoidance. Too much corporation tax avoidance has gone on for too long. It grew up over many years. Tax law was not kept fit for purpose in the internet age, and the Government have taken the right action through their general anti-avoidance provisions and their work on the international tax system.

Personally, I would like us to go further and see whether we can reduce corporation tax still more by restricting tax reliefs, which would put our home businesses and multinational businesses from overseas on a much clearer, more level playing field. We should look at minimising deductions for interest and royalties, along with other deductions that are available in the tax system, and restricting transfer pricing. We should also look at the rules on tax presence and whether there is a branch or establishment in the UK, and say to companies such as Amazon, “You’re not really abroad; you’re trading in the UK and you should be taxed as such,” and the international rules should be changed accordingly. That would be the right direction of travel, because we would have an even lower rate of corporation tax than we do today or than we plan to have, and a level playing field for businesses at home and those from overseas.

The last thing I want to say—this will surprise Opposition Members—is how much I agreed with capital gains tax being at 10% for businesses. That was a real spur to entrepreneurs and perhaps the only policy of the former Prime Minister that I agreed with. I regret that the rate has become 28%. We ought to look at how we can foster entrepreneurship, so that entrepreneurs can not only set up businesses and get them going, but sell them and get new businesses going. It is the serial entrepreneurs who are the real wealth creators in this country—the people who drive small businesses, job creation and enterprise creation. The more we can get the tax system to be their friend—to be on their side and support them in what they do—the more we will drive the economy forward and create more jobs for the future.