amendment of the law

David Ruffley Excerpts

Tuesday 25th March 2014 Commons Chamber

[Mr David Ruffley (Bury St Edmunds) (Con)]

The Chancellor of the Exchequer is to be congratulated on an intellectually bold and intellectually coherent Budget that will do much to bolster the growing confidence in the British economy. We are already seeing a recovery that is not, contrary to ill-informed observers, a credit-fuelled recovery. The growth we are seeing is to do with higher employment levels. The amount of unsecured lending—credit card borrowing—is remarkably modest and small; it does not account for the recovery we are seeing. Furthermore, the gross household debt to income ratio was 170% in the credit-fuelled days of the previous Parliament. It has fallen to 140% this year.

What the Chancellor reminded us of is that there are no final victories when it comes to economic management, and he reminded us of five things that have to happen if this recovery is to be sustainable. First, the measures to improve exports—so that we have the most competitive export finance regime in western Europe—will help our net trade position. Our net trade position is frankly not good enough: 5% of GDP is the level of the deficit on our current account.

Secondly, the Chancellor reminded us that as a country we have in recent years not been saving enough, so I particularly welcome the boldness in abolishing the 10p savings rate and the 55% punitive rate of tax on draw-downs from pension pots. It will now only be at an individual’s marginal rate. He has also abolished the compulsory need to annuitise. All those things will improve the incentives to save.

Thirdly, the Chancellor said that we have not been investing enough as a nation. I think that the single most important change in the Budget for manufacturers and exporters—those in the real economy—will be the increase in capital allowance from £150,000 a year to £500,000 a year. I have only one gripe about that for Government Front Benchers: it is another temporary increase. Over the years, under successive Chancellors, capital allowances have been chopped and changed, abolished, taken down to very low levels and then whacked up again. What we have in this Budget is an extension of the capital allowance until the end of 2015. Many of us would like to ask, on behalf of those in the real economy, for a little more consistency when such measures are announced.

Fourthly, we all know that our productivity is 20% lower than the G7 average, as measured by total output hours, and we have seen lots of work over the past three years on apprenticeships, skills and training.

The fifth issue dwarfs all the others, and without it British families will have no security whatever in their economic lives. It is deficit reduction. The key failure of this country and its people, and especially its Government, over many years has been the failure to live within our means. The cyclically adjusted primary deficit is going to be cut by 10 percentage points of GDP, which is a colossal fiscal contraction. Half of that is happening in this Parliament, and the other half will happen in the next Parliament. Four fifths of the 5% tightening in this Parliament occurred in the first two years, so we are now in conditions of relatively less tightening. But, my word, it will really pick up. We will have to find another 5% between 2015-16 and 2018-19.

I will point to two charts in the Office for Budget Responsibility’s report that accompanied the Budget. Chart 3.39 shows that general Government consumption, excluding welfare, will fall from 21.8% of nominal GDP this year to 16.1% in 2018-19. That statistic is significant because it is the lowest figure for Government general consumption since 1948. It is a fiscal squeeze on steroids. It is serious. It will have to be delivered if we are to return to surplus at the end of the next Parliament, as the Chancellor so rightly points out.

Chart 4.4 shows us that if we keep the protected budgets, particularly that of health, we will see massive further squeezes in departmental spending, much tougher than those we have already experienced. The departmental expenditure limit figures show that health alone will account for 45% of departmental spending in the next Parliament, with massive cuts elsewhere. Only the Conservatives can guarantee that fiscal austerity.