Budget Resolutions and Economic Situation

David Davis Excerpts

Wednesday 3rd March 2021 Commons Chamber

[Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)]

I welcome parts of this Budget because if it works, it will prop up the system for a bit longer, but I am worried that we have seen announcements about the extension of furlough, for example, at a point at which many workers will have already been hit by decisions taken by employers who were worried that such an announcement would not be made today.

The country is crying out for change. It is in debt and there is an uncertain future for many individuals and businesses. Brexit, which I do not think I heard mentioned in the Chancellor’s speech, is hitting businesses and individual consumers very hard and proving costly to the economy, certainly in the short term. The bit that was missing from the Budget is the vision for a country that should be supporting people into decent, affordable homes; that should be properly tackling net zero, on which I will touch in more detail; and that should have a plan for social care, the sector that was abandoned in the early stages of covid.

We should also be tackling the challenging issues in respect of different employment statuses that have caused so much difficulty for so many. In my constituency is represented everything from zero-hours contracts to IR35, self-employment, people employed for tax purposes and people on short-term contracts. Covid has had different impacts on different groups of people.

The Chancellor said he will do whatever it takes but, structurally, the inequalities remain. The poorest get a welcome prop-up with the extension of the uplift to universal credit, but only to September. I am not sure that I can see—I am sure the Chancellor would agree that he does not have a crystal ball—what will suddenly change in September that will mean that people do not need the extra £20 a week.

Structurally, there are real issues. A few figures have been announced today on green initiatives—I have not had a chance to go through the detail in the Red Book—but there is no clear plan. We have targets on net zero and other environmental targets, including on things such as electric or net zero cars, yet there are not enough milestones along the way to the targets, which are coming upon us really fast. I will look in detail at the little bits of money announced today, as my Committee, the Public Accounts Committee, is examining issues relating to the green economy in a series of inquiries.

I welcome the fact that there is finally a bit more support for some of the self-employed people in my constituency—we need to see the detail on that—but it is a whole year late. Like many Members, I have constituents who have lived for a year without a penny of income and did not qualify for universal credit, and sometimes they were in exactly the same position as somebody else who lost their job only a day later. Lives have been put on hold and future plans shredded, and there is no prospect of work for many people in many sectors for many months.

I welcome investment in Her Majesty’s Revenue and Customs and the Department for Work and Pensions to look at fraud and error. These are small amounts. But it was this very Government who pushed bounce back loans through, as the National Audit Office has said, with very little regard to risk. A slight delay of 24 or 48 hours would have put less risk on the taxpayer for the guarantee on those loans. With regard to some of the furlough schemes, at the early stages it was right to get this out the door, as my Committee has acknowledged, but later, more safety mechanisms could have been put in place. That money is good money chasing bad, in many respects. The risk appetite was high.

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

The hon. Lady mentions the risk in bounce back loans. Her Committee—our Committee—has done sterling service over the years on the whole question of tax evasion and the investigation of that. Does she have anything to say to the Chancellor about that, because it is a very large, lucrative area that the Government could pay attention to?

[Meg Hillier]

I have hopes for some of the £100 million that HMRC has been given. In fact, having scanned the Red Book, I see that other money is being added to HMRC. As a Committee—as the right hon. Gentleman, a former Chair of the Committee, will know—we are very keen for HMRC to get money because with every £1 it gets for compliance it brings back a lot more to the Exchequer. We need to look closely at this because there is a challenge in the tax system—for example, as regards high street businesses versus online businesses. It is a complex matter and no one should imagine that there is a simple solution; I know he does not think it is simple. It is something we need to continue to engage with.

On housing, once again we have seen a focus on fuelling demand, not increasing supply. The Chancellor seems to have got off the hook on leasehold issues for constituents of mine, and those around the country, who had dangerous cladding by taking the announcement from the Ministry of Housing, Communities and Local Government last week as though that is the matter closed.

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

May I start by associating myself with the comments of the Father of the House, my hon. Friend the Member for Worthing West (Sir Peter Bottomley), on ExcludedUK and helping them, and on the leaseholder issue, which also requires help? I also associate myself with those on both sides of the House who have called for the uplift in universal credit to be rendered permanent, which I think in due course will prove sensible.

When I applied to speak in this debate a few days ago, given the headlines in the press I thought that I might be challenging head-on the Chancellor’s strategy, in view of my concern that sudden tax increases would crush any recovery. It is therefore a pleasure today to find that that is not the case, and that I can be much more supportive of my right hon. Friend.

Obviously covid-19 has led to incredibly difficult economic circumstances. The country has suffered the worst peacetime economic shock ever. Indeed, we have the worst outcome in the G7, and the deficit is the worst since 1944—a date that I will come back to—which, in and of itself, is extraordinary. The Chancellor faces quite remarkable economic problems that are worse than any Chancellor has faced in peacetime history, and he has handled it with remarkable sensitivity in the way he has put his policies together. I have a question about one or two, but broadly speaking, he has met this economic challenge of enormous magnitude with great skill.

What do these numbers mean? These billions and trillions that are casually thrown about by supposedly expert commentators are incredibly difficult for ordinary people to understand. In my view, they are best understood when looked at in terms of the impact by household or by wage earner, because that gives a better idea of what they mean. For example, the latest deficit figures published before today were £394 billion a year. That is £14,000 per household—that is the size of the black hole we have to fill. Just looking at the size of the number tells us that no tax policy can solve it. The idea of imposing £14,000 per household of taxes is nonsense; it would be designed to destroy any economic recovery. Only a recovery policy designed to restore the tax base and remove the need for subsidies will close that gap, and I am pleased to see that the Chancellor has essentially adopted that strategy.

The most recent estimate of the debt is well over £2 trillion and may be £3 trillion. Some £2 trillion or thereabouts amounts to £77,000 per household. I remember only a few days ago a BBC commentator talking about paying off the overdraft. I do not have an overdraft of £77,000. This is a big mortgage that is not paid off in one year. To pay off such a debt rapidly would be crippling. Again, the size says it all. It has to be paid off in the very long term—as the Chancellor said, over decades.

Since this is the worst debt and deficit combination since 1944, we should treat it in the same way as they did then: with a 50-year time horizon on the loan—a war loan, if you like. Both the world war one and world war two debts were paid off this century, within the last 20 years, so that gives us an indication of what needs to be done. I have heard a number of people say, “The interest rates might go up.” To a large extent, two things are happening here. Every single country in the world has this issue, and therefore every single Government in the world has an incentive to hold interest rates down, and they now have the mechanisms to do it—they have done it time and again with quantitative easing, even before today.

To close that £14,000 per household deficit, we need to increase growth, increase employment and increase wages. All those things will increase the tax base. The Chancellor said—and I am glad to hear him say it—that his first priority is employment. That is the centre of those aims, and that is exactly right. That requires higher domestic investment to achieve it. It requires higher foreign inward investment to achieve it. It requires higher new company formation and higher research and development, and it will, in turn, generate higher aggregate demand. Tax increases help none of those things.

The issue of tax increases is not a Tory ideological issue; it is about what delivers the recovery. Income tax increases, whether direct or stealthy, reduce aggregate demand; they reduce the amount of money people can spend. Corporation tax increases suppress investment. Capital gains tax increases deter both domestic investment and foreign investment. The one thing I am worried about in this Budget is the proposal to go to 25% corporation tax in a couple of years. That will have precisely the deterrent effect I worry about with respect to inward investment. I am looking at my Northern Irish friend the right hon. Member for East Antrim (Sammy Wilson), who is nodding at me, because of course in the Province that is absolutely a central issue for us all. We have to worry about tax increases from that point of view.

I was very pleased to hear the Chancellor’s emphasis on what he called the science superpower strategy, and, as he said, it is not hubristic; we are the country with the highest number of Nobel prizes per capita in the world and should be able to marshal something out of that. We have already had an announcement on setting up our equivalent of the Defense Advanced Research Projects Agency—the Advanced Research and Invention Agency; we have new strategies and new funding for science, and new tech visas. All those things will help as all—the whole kingdom—in improving our growth rate.

What is a growth strategy worth? It is very difficult sometimes, particularly dealing with the Treasury, which is very difficult about dynamic taxation and indeed does not seem to understand it, despite the fact that the British Treasury under Nigel Lawson created the best dynamic tax demonstrator in history.

--- Later in debate ---

[Sammy Wilson (East Antrim) (DUP)]

First, may I welcome the Budget, and welcome the reminder that the Chancellor gave at the very end of his speech that this Budget, and indeed the actions taken by the Government over the past year, demonstrate the value of the Union? We can look at the details in the Budget paper: in Northern Ireland, over a quarter of a million people are having their wages paid through the furlough scheme; 200,000 self-employed people are having their income supported as a result of the scheme; £1.5 billion in loans has been made available to businesses in Northern Ireland; and the Northern Ireland Executive have benefited by over £3 billion in Barnett consequentials, which has enabled them to put in place bespoke schemes in Northern Ireland. For anyone listening, this debate serves as a good reminder that being part of the fifth largest economy in the world has economic benefits, and they are economic benefits which cannot be replaced through any other arrangement.

The second thing I want to say is that I welcome many of the measures in the Budget. It is a difficult time for the Chancellor to present a Budget, but I am glad that many of the measures that we as a party had written and spoken to him about have been reflected in the Budget. The hospitality industry, which is very important in Northern Ireland, lobbied heavily for the 5% VAT rate to be maintained, and I am glad to see that it is being maintained, albeit not for the whole year. I represent a rural constituency, and many of my constituents were concerned about the impact that an increase in fuel duty would have on the cost of living, so I am glad to see that duty has again been frozen. Many businesses looking at their overheads wanted to ensure that they would not be subjected to rates again; the business rates relief is important for them.

However, there are many challenges as to how we pay off the debt, and the Chancellor was upfront about that. He made it clear that some painful choices would have to be made. The Budget papers illustrate how painful some of those choices will be. For example, by freezing the thresholds for income tax, over the next five years the amount of money taken from people across the United Kingdom in income tax will go up by 25%. Some of that will be as a result of the 3% increase in employment, but much of it will be through a stealth increase. As thresholds are not moved up, there are inflationary increases on wages, and people pay more.

Like the last speaker, the right hon. Member for Haltemprice and Howden (Mr Davis), I am worried about the impact of the corporation tax increases. While the Chancellor has indicated that they will not come in immediately, over the period for which we have figures the corporation tax take will increase by 112%. That will have an impact on investment, although we hope that the allowances that have been granted will ensure that some of the profits will be ploughed back.

[Mr David Davis]

Is it not a fact that when you put up corporation tax like that, it does not deliver the arithmetic outcome: you actually get less back and it suppresses your business as well?