Budget Resolutions and Economic Situation

David Rutley Excerpts

Tuesday 22nd March 2016 Commons Chamber

[George Kerevan]

I could not agree more with all three points, so I will just accept them.

The Red Book also shows that public sector net investment—capital investment in the public sector—is set to fall for the next four years. I have to ask Conservative Members this question. With industry in trouble and manufacturing contracting, as it has done in the past quarter, how will it help productivity if we have to cut public sector net investment in the capital side of the economy in order for the Chancellor to meet his rendezvous with destiny in 2020 and have his budget surplus? We need investment in capital in order to have productivity—that is where it comes from.

It is interesting to see what the OBR thinks we will have to do in order to get the books to balance. It believes that UK private sector business investment will have to make up the difference. It believes that private business investment will come to the rescue and contribute a quarter of the expenditure contribution to GDP growth in the period to 2020 in order to achieve the Chancellor’s fabled budget surplus. So, to make all the sums work, there has to be growth. Where is the growth coming from? According to the OBR, a quarter of all the potential expenditure in the economy between now and 2020 has to come from business investment. [Interruption.] Bear with me as I go through the numbers, because they are important. According to the OBR, business will have to contribute 0.6 percentage points each year to GDP in order for the economy to grow sufficiently to deliver the taxes to enable the Chancellor’s budget to come into balance.

There is only one problem. Historically, from 1990 to 2008—that is, throughout the boom period—the level of investment that British business managed to achieve as a percentage of GDP annually was 0.3, which is precisely half what the OBR thinks that business will have to invest between now and 2020 if the Chancellor’s numbers are to work. That is not going to happen.

[David Rutley (Macclesfield) (Con)]

The hon. Gentleman says that the Chancellor lacks strategy, but that is clearly not the case. He was clearly not listening to the same Budget speech that I was listening to. That speech included supply-side measures, with business taxes going down and infrastructure being improved. We are seeing massive Government investment in the northern powerhouse to tackle the challenges, and private sector investment is coming in on the back of it, including £1 billion of investment in Manchester airport over the next 10 years. Is not that the sort of leverage that the Government should be seeking?

[George Kerevan]

If the hon. Gentleman had been listening carefully instead of following his script, he would understand that I am in favour of all the supply-side measures that we can get, because that is how we get growth. I am simply pointing out that the Budget figures that we have been presented with in the Red Book, alongside the OBR’s independent analysis, suggest that business investment will have to be double the level of its historical average, at a time when the global economy is slowing, in order for the Budget numbers to work. That is not going to happen.

The hon. Member for Macclesfield (David Rutley) made a reasonable point, however, and I shall follow on from it by asking: how do we boost business investment? The Budget includes a cut in corporation tax, yet our rate is already the lowest in the G20. How can a further cut produce any more inward investment? The incentive is already the biggest it is going to be, so cutting it even more at the margins will not increase incentive. That will just waste funds. Even with that—I have raised this in the House before—because there is so little outlet for investment at the moment, much of companies’ profits from reduced corporation tax is going into share buy-backs, which is a complete waste of time because it does not add to productivity.

The other tax issue in the Budget is the cut in capital gains tax. There is an argument for cutting capital gains tax, but here’s the point: which Chancellor raised capital gains tax in 2010? It was the Chancellor who is sitting there. Where is the long-term plan in raising it and then lowering it? The confusion of signals is exactly why businesses are not investing. They do not know what taxes will be from one Budget to another, which, at the moment, is every three months. [Interruption.]

[David Rutley]

I thank the hon. Gentleman for giving way. I was not seeking to make a point, but I will now. The Chancellor has clearly demonstrated that he has his public finances under control—[Interruption.] The deficit is massively down and he is now in a position to take forward the changes to which the hon. Member for East Lothian (George Kerevan) refers.

[Madam Deputy Speaker (Natascha Engel)]

Order. The hon. Member for East Lothian (George Kerevan) has been on his feet for 15 minutes and is taking an awful lot of interventions—he is very generous like that —but over 40 Members want to speak and I do not think that I am going to get everybody in. If he limits the number of interventions he takes, I will be very grateful.