Budget Resolutions and Economic Situation

Dominic Raab Excerpts

Tuesday 22nd June 2010 Commons Chamber

[Mr Dominic Raab (Esher and Walton) (Con)]

This is a crossroads Budget; it sets not just the terms of the next fiscal year, but the policy direction that will determine Britain’s economic competitiveness in the years that lie ahead.

The debt crisis was exacerbated, not created, by the banking crisis. The epic challenge we face today is the result of reckless state spending from 1997. In 1999, the OECD calculated that the British state was spending 38% of the nation’s wealth measured by gross domestic product. By 2008, before the crisis and the banking bail-out, it was 48%—an unprecedented rise of 10%. By 2009, as we all know, the state was eating up over 51% of national income. On these OECD figures, the British state spends more than Portugal, Spain and Greece, let alone Germany, and 10% more of our nation’s wealth than in the United States, Canada or Australia.

We have witnessed a seismic shift in the balance of our economy, which has blunted our economic competitiveness. On the World Economic Forum international rankings for economic competitiveness, Britain was fourth in 1998; today we are 13th. UK tax competitiveness has dropped from 11th lowest in the world to 23rd. According to The Economist rankings, the business environment in Britain has plummeted on its international rankings from seventh to 19th place.

For 13 long years, we were told that all that state spending was really investment, so amidst the shrill cry and synthetic outrage from the Opposition, let us remember precisely what their so-called investments really delivered. Britain has fallen on The Economist innovation rankings, we issue fewer patents, and the productivity gap still haunts the British economy, mainly because of the grotesque underlying inefficiencies in the public sector. In 2002, our roads were the 23rd most crowded in the world; today, they are the 17th most crowded, and our car-to-road ratio is up by 23%. Rail usage is up 17% since 2006, but we have almost 1,000 km less track.

Perhaps the greatest failure has been on Labour’s own terms. Despite unprecedented spending on schools, UK students, measured at 15, have tumbled down the OECD PISA—programme for international student assessment—rankings: from eighth to 24th in maths, from seventh to 17th in literacy, and by a similar measure in science. If social mobility remains an issue in Britain today, as Alan Milburn’s report stated last year, that reflects those basic failings in policy, not spending.

The nail in the coffin of the previous Government’s legacy must be this year’s finding by the National Equality Panel that, after their 13 years in power, inequality has just become worse. Their experiment failed, the spending spree is over, and now, in this Budget, Britain must face up to the reality of the mess that the previous Government left behind.

The OECD has predicted that this will be the last year in which developed countries account for more than half global output. The international competition has well and truly arrived, yet Europe lags well behind the United States in terms of levels of economic growth, and is ill equipped to rise to the challenge presented by new competition from Asia and Latin America.

[David Wright (Telford) (Lab)]

The hon. Gentleman mentioned the expansion of public spending over the past 13 years. One of the things that public spending does during a recession is blunt—a word that he used—the worst impacts of that recession. Can he cite three projects that he would have cut to provide an economic stimulus at the worst point of the recession?

--- Later in debate ---

[Mr Raab]

I will not mention three specific projects now, although it would be very easy to do a trawl and find far more than three. The previous Government spent billions on quangos, public relations, management and marketing. The basic point, however, is that for far too long the nation has failed to cut its coat according to its cloth, and that must end.

Unless we tackle the legacy of debt that we have been bequeathed by the Labour party, we shall be threatened with high interest rates and even higher taxes, which will mean fewer jobs and fewer opportunities for the next generation. Nor will we reach our economic potential, or keep up with our competitors during the mid-term, unless the weight of taxation and regulation comes down. We must never forget that the economic engine that drives wealth also generates the revenue to pay for our vital public services. This is not a zero-sum game.

While we must act out of necessity, we must also act out of fairness. We should bear in mind that 100% of the contraction in GDP during the recession fell on the private sector. None fell on the public sector, which continued to expand. That is unfair. Median salaries in the public sector are 12% higher than those in the private sector, yet private sector employees work 23% longer hours. That is unfair. In the 11 years up to 2008, the proportion of pensionless employees in the public sector dropped to 16%, while in the private sector it rose to 63%. That too is unfair, and it must change.

This Budget marks the first opportunity for us to change the reckless course of the past 13 years. I commend the Chancellor on his structural reforms, the creation of the Office for Budget Responsibility and the strengthened mandate for the Bank of England, and I welcome his resolve in tackling the deficit. Of course, he is right to cut out the reckless waste in the forthcoming spending review: the billions spent on Government PR and marketing, and the bloated quangocracy. However, I also welcome his resolve in making the tougher decisions today which no one relishes, but the necessity of which must now be beyond doubt. He is right to freeze pay in the public sector and review the structure of pensions. He is right to scale down welfare entitlements that we cannot afford, and which have fuelled a dependency culture that traps too many in a rut that leads nowhere.

Cutting the deficit, however, is only half the answer; we also need a pro-growth Budget. I therefore welcome the cuts in corporation tax and small business rates, and the abolition of national insurance for new jobs created by start-up companies. At last small businesses in this country have a Government who are on their side, not on their backs.

I regret that the legacy of the previous Government has forced us into certain unpalatable choices such as increasing VAT and capital gains tax, and I hope that those measures can be short-lived. Given the global competition, when we protect spending it must be to strengthen our infrastructure or to boost productivity, so I accept that it is right to spare capital spending from further cuts. We must also protect those who are in the greatest need—the most vulnerable. It is absolutely right to lift the lowest paid out of income tax altogether, and to protect public sector workers on salaries of £21,000 or less. The days of tax and spend for the sake of social engineering are, however, well and truly over. The economic costs are too high, the social gains a mirage. So I commend the Chancellor and his team on their first Budget. They must steel themselves with resolve for the long road ahead. Our future economic competitiveness depends upon that.