Oral Answers to Questions
Chris McDonald Excerpts(3 months, 2 weeks ago)
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Rachel Reeves
Before I became a Member of Parliament I was an economist at the Bank of England and I respect the independence of the Bank of England. The previous Government undermined that independence. That contributed to the economic chaos that we saw under the last Conservative Government. This Government will never go down that route.
Chris McDonald (Stockton North) (Lab)
The Parliamentary Secretary, His Majesty’s Treasury (Emma Reynolds)
I welcome my hon. Friend to this House, because he brings a great deal of expertise on green steel from his previous career. This Government’s plan to launch the national wealth fund is precisely to create investment across the country in some very important strategic industries, and that includes decarbonisation of steel and the steel industry.
Economy, Welfare and Public Services
Chris McDonald Excerpts(4 months, 3 weeks ago)
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Jeremy Hunt
I am grateful to the hon. Gentleman for that intervention, because it allows me to explain why he is completely mistaken in what he is saying. We offered a set of carefully and fully funded tax cuts—unlike the £38.5 billion of unfunded spending commitments that came from the Labour party—but we always said that they would be brought in over time over the next Parliament. We did not make a commitment that they would come in immediately, and indeed they would not have. We would have done it in a responsible way.
When it comes to dubious claims, the new Chancellor herself has been making some that do not withstand scrutiny. She said, for example, that the economy would have been £140 billion bigger if we had matched the average OECD growth rate, but she knows that the OECD is a diverse group of 38 countries, including many with economies very different from our own, such as Turkey, Mexico or Luxembourg. A much more meaningful comparison is with other similar G7 economies, which shows that since 2010 we have grown faster than France, Italy, Germany and Japan. Indeed, the International Monetary Fund says that thanks to difficult measures taken by the last Conservative Government, we will grow faster than any of those four countries, not just in the short term but over the next six years. One reason for that is our record on attracting investment.
Since 2010, greenfield foreign direct investment has been higher in the UK than anywhere in the world except the United States and China. In the last year alone, Nissan, Jaguar Land Rover, Tata, BMW Mini, Google and Microsoft have all voted for the UK with their dollars, not least because of cuts in business taxation, such as full expensing, introduced by the last Government. If the Chancellor now looks for back-door ways to increase business taxation, as many fear, she will risk the UK’s attractiveness to foreign investors, of which she is now the beneficiary.
Chris McDonald (Stockton North) (Lab)
That investment is very important to my constituents in Stockton North, where many companies are poised to make billions of pounds of industrial investment. They tell me that they prize economic stability above all else, so will the right hon. Gentleman now commit to supporting the Budget Responsibility Bill to give those investors the security they need?
Jeremy Hunt
Yes, we are minded to support the Bill, subject to having had a close look at it, because we think it is perfectly sensible. Whether it is completely necessary is a different question, but it is perfectly sensible.
We have grave concerns about some elements of the King’s Speech, with a Times editorial this week describing some of its Bills as
“a dose of traditional socialist dogma”.
Tony Blair came to office having removed the old clause IV of the Labour party constitution, because he knew that state-run businesses are rarely successful and usually end up being bailed out by the taxpayer. Last week, with their railway and energy plans, the Government brought forward more nationalisation than Blair ever did—indeed, more than any Government in modern times.
If the Chancellor really cares about fiscal responsibility, she should beware. The reason why unions like publicly owned utilities is that they give them more leverage on pay and more ability to demand bail-outs. Unlearning the lessons of history will mean more strikes and bigger bills for the taxpayer.
An even bigger concern for business is the impact on jobs of Labour’s new deal for workers. We have seen the creation of almost 4 million jobs since 2010, which is nearly 800 jobs for every single day that Conservative Governments were in office. The president of the Confederation of British Industry described the UK as a “job-creation factory” but, like many others, he expressed concern that the Deputy Prime Minister’s new labour laws could put that at risk.
Day one rights sound attractive, but employers fear they will mean a flood of tribunal claims, meaning it is safer not to offer a job at all. That is why the Federation of Small Businesses responded to the King’s Speech by saying that companies are worried about increased costs and risks. In the end, French-style labour laws will lead to French levels of unemployment, which are nearly double our own—indeed, they are close to what they were when the last Labour Government were in office. By contrast, the Conservatives nearly halved unemployment over the last 14 years, and it would be a tragedy for working families up and down the country if the new Government turned the clock back.
Finally, the most dubious claim of all is this nonsense about the Government having the worst economic inheritance since the second world war, which everybody knows is just a pretext for long-planned tax rises. People can see what nonsense this is by simply comparing it with the last time we had a change of Government in 2010. Inflation was 3.4%, compared with 2% today. Unemployment was 8%, compared with 4.4% today. Growth was forecast then to be among the slowest in the G7, compared with the fastest today. Instead of an economy in which markets and the pound were facing meltdown, the Chancellor has inherited an economy in which the Office for National Statistics has said that growth is “going gangbusters.”
That has been backed up by even more data since the election. May’s GDP figures show that Britain’s growth was double the rate predicted by economists, and the fastest in more than two years. New figures from S&P show that, in February, British businesses were among the most optimistic in the world—top of the league again, according to the ONS. Inflation has remained at its 2% target level.
In her BBC interview yesterday, the Chancellor glossed over those figures, putting on the most shocked expression she could muster, to pretend that public finances are worse than she expected. But the root cause of the pressure on public finances—£400 billion in pandemic support and £94 billion in cost of living support—was never a secret. Indeed, the Labour party supported those measures and, in some cases, called for us to go further. Nor were the difficult decisions we had to take to pay for them a secret either. When we had to increase borrowing, increase tax and reduce spending plans in the autumn statement of 2022, Labour did not oppose us.
Like all Chancellors, she faces fiscal challenges: welcome to the job. But that job is a whole lot easier because, faced with an economic crisis two years ago, Conservatives took decisions that her predecessor Labour Government ducked completely after the financial crisis. That is why she has a deficit of 4.4% this year compared with 10.3% left behind for the Conservatives in 2010. She did not just compare her inheritance to 2010; she claimed to have the worst inheritance since the second world war. Is she really saying that she faces conditions worse than Geoffrey Howe in 1979, with a winter of discontent, stagflation, an 83% top rate of tax and a Labour Government who went with a begging bowl to be bailed out by the IMF? The Chancellor knows perfectly well that that claim is nonsense, otherwise why, in her first week, would she announce £7.3 billion of spending on her national wealth fund, without a spending review, a budget or any external validation from the OBR? As Paul Johnson of the Institute for Fiscal Studies says, thanks to the OBR the nation’s books are “wide open” and “fully transparent”, so pretending things are worse than expected “really won’t wash.” As she establishes her reputation, it is surely unwise to base her big central argument on a claim so patently ridiculous.
But we all know exactly why the Chancellor is doing it. She wants to lay the ground for tax rises she has been planning all along, which leads to two major concerns. First, she says her No. 1 mission is growth, but all around the world, evidence suggests countries with higher taxes tend to grow more slowly. Lower taxes, when funded properly, boost growth, as we saw with full expensing and the national insurance cuts last year, both of which the OBR confirmed add to our GDP. However, keeping taxes down is hard work.
I saw the numbers the Chancellor has seen just a few weeks ago, and the official advice was clear: with public sector pay restraint, productivity plans such as those we announced in the Budget, and welfare reform, it is perfectly possible to balance the books without tax rises. It is not easy—government never is—but not impossible. Yet all those three things—pay restraint, productivity improvements and welfare reform—were glaringly omitted from the King’s Speech. Instead, she has chosen an easier path: what Labour party sources told The Guardian was a “doctor’s mandate” to raise taxes.
The Chancellor has ruled out raising income tax, national insurance and VAT, but she should not think for one second that other tax rises will not impact working people. Capital gains tax destroys the pensions people build up over their lifetimes; business tax rises are passed on to customers, leading to higher bills; and taxes on banks and energy companies lead to fewer companies operating in the UK, a lower tax take and less money for public services such as the NHS.
That is the biggest contradiction in the new programme —a Government who say they want the fastest growth in the G7 but, in the very same breath, plan tax rises that will make that growth harder, if not impossible, to achieve. Even if such an approach were misconceived, it is none the less a legitimate choice for a governing party. What is not acceptable is, just 18 days after the election, to be laying the ground for tax rises after the Chancellor promised us 50 times in the election campaign that she had no plans to raise them. Every Labour Government in history have raised taxes and raised spending. If she wanted to do the same, she should have had the courage to make the case for that before the election. Instead, she is softening us up for a colossal U-turn that will lead to lower growth, less money for public services and massive public anger, which is why I commend to the House the amendment in the Opposition’s name.