Capital Gains Tax (Rates)

Chris Leslie Excerpts

Wednesday 23rd June 2010 Commons Chamber

[Mr Darling]

Our policy, as the hon. Gentleman will know, was to restore the earnings link from 2012. I can see that bringing that forward to a year in which earnings are likely to be very low had a political attraction. I think that was the subject of exchanges at Prime Minister’s Question Time, and it will not have the cash effect that is thought. As for personal allowances, I am in favour of taking people out of tax if at all possible, but the same people who are being taken out of tax will be paying increased VAT.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Further to the intervention of the hon. Member for Crewe and Nantwich (Mr Timpson), will my right hon. Friend expose the nonsense of the supposed council tax freeze announced by the Government and the small amount of money given to local authorities at the 2.5% level? Is not the rug being pulled from under local government through swingeing cuts to grants? How on earth are local authorities supposed to plan ahead and make their budgets? Surely they will not be able to do that until they see the spending review.

[Mr Darling]

I noticed that the spin on Tuesday morning was that council tax was to be frozen in England next year. By the time of the speech, however, the Chancellor was saying that if local authorities did certain things, he would see what he could do to help them, which is not quite the same.

Let me put some questions to the Secretary of State for Business, Innovation and Skills. On the Chancellor’s proposed levy on the banks, will the Secretary of State tell us precisely what the French and German Governments propose to do? I, too, had discussions with my French and German counterparts, but it was not always clear that they were proposing to do precisely what we might have done. Things have clearly developed, and I would like to know what those developments are.

The Chancellor announced measures to help development outside London and the south-east. He mentioned regional funds and other help, so will the Business Secretary give us further details? The Chancellor also mentioned that he wanted to change the approach to pensions tax relief. He made the point that the Labour Government had had a number of discussions; legislation went through on the nod, I think, just before Dissolution. Does the Chancellor’s alternative mean reduced annual allowances? My recollection is that that would affect far more people than we proposed to affect, and is therefore less progressive?

People are right to be concerned about the overall thrust of the Budget in relation to the effect on growth and jobs. Yes, we need to get borrowing down—we all know that—but we must do it in a way that is sensible and will result in us coming through all the problems and being able to grow and secure jobs in the future. The Budget also fails the fairness test. Over the next few weeks and months, we will consider yesterday’s announcement and, equally importantly, the cuts to departmental spending. The Business Secretary’s Department is not protected. Perhaps he will say what the effect of a reduction of a quarter in his budget would be, given that he is responsible for science, universities and business support.

We will return to those big questions. Like all Budgets, this one will be judged in the fullness of time. We are coming through a difficult period, and the action taken by the Labour Government was totally justified. We must be careful not to derail that effort and end up undoing all the work done over the past few years.

--- Later in debate ---

[Vince Cable]

I have answered the question; I do not want to pursue it.

Were the private promoters able to take the project forward, we would be delighted, because as a commercial project it has many attractions. However, the Government could not commit large amounts of money to such a project.

The shadow Chancellor made a series of challenges, which I will take systematically. He asked why we, and I personally, have endorsed austerity policies and especially quick cuts; he asked about the issues around fairness and value added tax, with which I will deal; and he asked about the important economic question of how we get growth emerging from a period of austerity, and I will try to answer that. First, however, let me explain why I changed my mind—for I did change my mind—about the necessity for early action on the budget deficit. Let me describe the sequence of events, because I think that it is quite important.

As the shadow Chancellor knows, because he was still Chancellor then, when the election took place there was, in the background, a major sovereign debt crisis in Europe. The day after the election, when there was a hung Parliament, the then Prime Minister suggested to me, I think for reasons for courtesy, that I talk to some senior officials in the Government and the governor of the central bank about the existing situation, in order to obtain their assessments of what was going on. I did so. The leader of my party talked to the governor, and I have talked to him since.

The advice that I received, uncompromising and unequivocal, was that the incoming Government, whoever they were—we did not know who they would be at the time—would have to act immediately and decisively on the budget deficit, because there was a serious threat to this country. I took that advice, but was left with a nagging question. The former Chancellor was presumably receiving the same advice. What would he have done? Was he proposing to disregard it? The line of policy that he is developing now suggests that he would have liked to disregard it, but was he going to do so, or was he going to be responsible, accept the advice and act on it? Because he is a responsible and serious man, I think he would have accepted it.

We now know, because the figures are becoming clear, that in the current financial year, when, as the shadow Chancellor said, the economy was fragile, he was introducing a fiscal tightening of £23 billion. The new Government have introduced a tightening of £6 billion. The last Government did not announce that fiscal tightening—it emerged in the small print from the Institute for Fiscal Studies—but the shadow Chancellor did it, and he clearly did it with good reason. The problem was that it was never clear what the Government were doing, it was done in a very chaotic way, and some Ministers—including Lord Mandelson, my predecessor—plainly wanted to support the Chancellor and to act in the public interest, and got on with those cuts. When I entered the Department, people such as further education lecturers and scientists were being made redundant as a result of the measures that had already been initiated by the Government in response to the crisis that they knew existed.

[Chris Leslie]

The right hon. Gentleman may well have had his damascene conversion, for who knows what reasons, but does he not owe an apology to the millions of people who thought when they voted Liberal Democrat that they were voting for a pro-growth strategy and against these massive cuts? Should he not apologise to his own electors?

[Vince Cable]

No; we are trying to deal with the problem that the hon. Gentleman and his colleagues left behind.

[Vince Cable]

I know that we were not in the same position as Greece. I was not talking about what the Greeks and the eurozone needed to do; I was talking about what we needed to do, and the advice that we received.

There is an evidence base to look at. It is true that, as the shadow Chancellor said in his speech, the cost of borrowing in terms of bond yields was starting to fall under the last Government. That is because markets are driven by expectations, and they expected a change of Government. Since the election, however, and since this action was taken and announced, the cost to the United Kingdom of borrowing, in terms of bond yields, has fallen by 20 basis points. In Greece it has risen by 170 basis points, or 2% in ordinary language. It has risen by 94 points in Ireland, by 95 in Portugal, and by 65 in Spain. Spain is a serious, big country: we are not talking about tiny, peripheral economies. It is a serious country, which was caught up in the financial firestorm that we have had to head off from here. That was the basis on which we made decisions.

Let me now develop that immediate question into the broader issue of the Chancellor’s Budget and the magnitude of the task that we had to undertake. There is, of course, a difference between the problem of the deficit and the problem of the debt. There is a public debt problem, which is growing rapidly, but as the Chancellor has pointed out and as I have often pointed out myself, it is not greatly out of line with what is happening in many other countries, or with what has happened historically. The real problem for the United Kingdom is the massive level of public borrowing. That is why markets are important. The deficit in the last financial year was 11% of GDP; in the current financial year, it is 10.5% of GDP. That money—£155 billion—must be borrowed. My views on that, on how it should be dealt with, and on the kind of radicalism that is needed had nothing to do with the formation of the coalition. My views were set out a year ago, when I wrote a pamphlet which did, indeed, bear a strong resemblance to what the Chancellor produced yesterday in terms of scale, scope and speed.

Let me tell the shadow Chancellor why I feel strongly about the need to act in such a decisive way in terms of fiscal policy. There are two reasons. First, I saw the disaster unfolding under the last Government, when they were overtaken by a major financial crisis for which they were not prepared and to which they had massively contributed. Of course there is a global problem—we know that—but its impact has been much more serious in this country than elsewhere. That is because the Government allowed household debt, in relation to income, to rise to the highest level in the developed world; because they acted and planned on the assumption that house prices rise for ever, although we know from the evidence that they go up and down roughly every 17 or 18 years, as they have done for the last 300 years; and because they created, encouraged and fostered an almost Icelandic dependence on major international banks, the combined magnitude of whose balance sheets represented 400% of our economy.

The Government allowed that to happen. Some of us warned about the dangers, and they took no notice: they said that we were scaremongering. But the crisis hit them, and, having experienced it once, we on this side of the House are determined that such a financial crisis should not happen again as a result of sovereign risk. That is why we are decisive, and why we feel that we need to act.

[Chris Leslie]

If what the right hon. Gentleman says about the banks is true, why has the Budget been quite so lenient with them? Why has it taken only £1 billion from them, when the rest of the country is having to pay £14 billion as a result of the measures in the Red Book? What will his Department do to prevent the banks from passing even that £1 billion on to their customers?

[Vince Cable]

That was a very strange intervention. It may reflect the fact that the hon. Gentleman—whom I respect a great deal—has rejoined the House following the election, and may not be familiar with the arguments that led up to it. He will know, however, that the last Government were going to phase out their bonus tax. We have reintroduced a stable system of taxation on banks, the incidence of which will increase over time. Of course, many things need to happen to the banking system. We will discuss, as colleagues, how we should deal with such matters as bank lending, on which there is an outrageous record of bank dysfunctionality.