Budget Resolutions and Economic Situation

George Freeman Excerpts

Thursday 21st March 2013 Commons Chamber

[Ed Balls]

The OBR document is very interesting. It sets out the unusual underspend Department by Department. I do not think that we have yet heard the full truth about what has been going on in the Treasury: the pressure applied in one year to cut spending or to move it to the next year just to fiddle the borrowing figures. I think that we will discover the truth in the coming weeks. For a Government who attack businesses and make late payments to small business, they are the late payment Government.

Has the Chancellor learned nothing over the past 12 months? He used to say that he was sticking to his plan in order to secure the recovery, but then we had the double-dip recession. He used to say that he was sticking to his plan to get the deficit down, but his spending cuts and tax rises have choked off the recovery. As the OBR revealed yesterday, the deficit was basically unchanged last year and will remain unchanged this year and next. Then all he could say was that he had to stick to his plan in order to keep his treasured triple A credit rating, but he has even lost that. The only reason he will not now change course is to avoid his own political humiliation, and that is no reason to stick to a failing plan.

[George Freeman (Mid Norfolk) (Con)]

The right hon. Gentleman alleges that the Government have increased the deficit. I have checked the figures from the Institute for Fiscal Studies and the OBR. Will he confirm that when the Government came to power the deficit was 11.2% of GDP and that it is now 7.4%? Is that a rise?

[Ed Balls]

The Government inherited a deficit reduction plan from the previous Government, but the Chancellor is wildly off track from our plan, which he used to call irresponsible. He is borrowing pretty much a quarter of a trillion pounds more. He said that he would get the deficit down, but the deficit reduction plan has stalled.

I have urged the Chancellor to change course, as in recent months have the International Monetary Fund, The Economist, the Mayor of London, the Business Secretary and the Home Secretary. They have all cast doubt on his plan. But yesterday we got more of the same. How did he describe the Budget? He described it as a “steady-as-she-goes Budget.” Steady as she goes? What kind of ship does he think he is on: the Titanic; the Mary Celeste?

There were some welcome measures. We have consistently called for a tax break for small firms taking on extra workers. The Government are now set to introduce a similar scheme, three years after the shadow Business Secretary and I urged them to. That is a welcome step forward. The Chancellor has finally joined Twitter, five years after I did. Maybe he will find out that his plan is going to fail five years after I worked it out, although by then he will be on the Opposition side of the House.

Yesterday there was no proper plan to kick-start our economy, no bank bonus tax to fund a youth jobs guarantee, no real action to get lending going to small firms, no proper investment in affordable homes and no return of the 10p starting rate to help millions of people, paid for by a mansions tax. Despite the welcome small change of 1p off a pint of beer—buy 320 pints and get one free, which might even be too much for the Foreign Secretary—and even after the increase in the personal allowance, an important point for the Liberal Democrats, families will still be worse off next year compared with this year because of the Chancellor’s tax and benefit changes.

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[Vince Cable]

I answered the hon. Gentleman’s point in Business, Innovation and Skills questions. Some of the increases in capital spending have already taken place. There was a significant increase in the capital outlay on universities, which my colleague the Minister for Universities and Science is seeing through at the moment in the establishment of R and D centres. After the fiasco of further education college building under the previous Government, the current Government are, in a systematic way, restoring the infrastructure of the FE sector.

[George Freeman]

This week, AstraZeneca announced a global restructuring, in which it committed its advanced manufacturing facility to Macclesfield in Cheshire, and moved its global R and D to Cambridge, with £300 million investment and 2,000 employees. The Government have moved quickly to set up a taskforce to help with the changeover of the old site to an incubator. AstraZeneca has congratulated the Government on their life sciences strategy. May I congratulate the Secretary of State and Lord Heseltine, whose birthday is today, on the leadership that the Conservative and Liberal coalition is giving on a modern industrial policy for new businesses?

[Vince Cable]

I accept the hon. Gentleman’s congratulations. Life sciences are a key area. It is a difficult sector, because the business model of pharmaceutical companies is changing—they are taking much of their R and D to spin-off companies rather than having it at their headquarters. That has been painful, but my colleague the Chancellor of the Exchequer intervened to help to make the process in his constituency less painful than it otherwise would have been. However, the decision of that large company to have its headquarters and R and D centre in the UK in East Anglia is a vote of confidence in Britain.

I want to make one more point on the industrial strategy. Apart from supporting successful sectors, we must reinforce those elements of the economy that drive long-term growth—meaning, basically, innovation and skills. That is why I and the Under-Secretary of State for Skills who is responsible for apprenticeships are driving enormous growth in apprenticeships, particularly in key areas such as advanced manufacturing skills. It is also why we must invest significantly in innovation. We have therefore established the chain of catapults, and we have the excellent proposal that my colleague the Chancellor made yesterday for the small business research initiative for small business innovation.

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[David Rutley (Macclesfield) (Con)]

I am sorry to disappoint the House, but I will not be speaking about beer—[Hon. Members: “Oh!] I said I was sorry. I will not be speaking about spirits either, but I will—

[George Freeman]

Lift our spirits!

[David Rutley]

I will indeed lift our spirits. Given the co-operation of my hon. Friend, I will also say a little about life sciences. Let me begin, however, by joining other Government Members in welcoming a Budget which has delivered a positive response that recognises the needs of hard-working people, and which, as others have pointed out, has clearly demonstrated that the doors of British business are firmly open.

It is sometimes wondered whether “To intervene, or not to intervene” is the question when it comes to industrial policy. I believe that in normal free, competitive markets intervention should be minimal, but that, given the burden of regulation that was imposed on the British economy for 13 years by the Labour Government, the question needs to change from whether there should be intervention to how that intervention can take place effectively. For me, the answer to that question is simple: we need to flatten the barriers to growth, which is exactly what Government Members are determined to do.

We need only consider the recent experience of our northern neighbours to see how that can be achieved. Sweden has enjoyed tremendous success since the mid-1990s with an ethos of deregulation across the economy. Estonia had 2,000 enterprises in 1992; by the end of 1994, the figure had ballooned to 70,000. By 2003, an economic basket case with inflation of 1,000% in 1992 had spawned the invention of Skype. There are clear lessons to be learnt from those northern neighbours, the most fundamental being that if industrial policy is to work, there needs to be a broadly “horizontal” approach. That does not mean being laid back, but it does mean having a more laissez-faire confidence in the ability of businesses to identify and satisfy customer demand—as they are best placed to do—and providing the right foundation for enterprise to flourish across the board, rather than backing policies in the sense of picking winners. That is the course the Government have charted, and I am delighted they are sticking to it.

We have an industrial policy with a foundation that encourages enterprise across the board and, in key sectors, focuses on the removal of the roadblocks that prevent growth, rather than the line-by-line, multi-targeting Brownite plan for daily tactical interventions that we have seen in so many parts of the public sector. We want that foundation to consist of low taxes, a high skills base and deregulated, competitive markets, and those are being put in place.

The Government are making good progress. Before the Budget, we were on track to have the lowest corporation tax in the G7; now, as a result of the Budget, we are on track to have the lowest corporation tax in the G20—20%—by 2015. The new £2,000 employment allowance will help to spur growth and build on the Government’s successful record of creating jobs in the private sector: the private sector, not the public sector. In an enterprising constituency such as Macclesfield, where an unusually high proportion of the population are self-employed, reforms like those can tip the balance for sole traders, encouraging them to incorporate themselves in businesses that can grow, and for the self-employed, encouraging them to become regular employers.

Those are positive steps, and the Red Book goes further. It provides an important update on the progress the Government are making with their industrial policy, and demonstrates that they are breaking down barriers in certain sectors of industry and in certain local areas. I welcome the creation of the single local growth fund, which will be devolved to local level through local growth deals.

Some industrial sectors will always have greater prospects for growth than others. The Government’s industrial strategy, announced last autumn, identified 11 broad sectors that the Government want to support, including advanced manufacturing, creative industries and life sciences. That approach is bearing fruit in the case of life sciences. The Government’s “One Year On” review shows that deregulation is helping to reduce the time taken to set up clinical trials from 600 days to a 70-day benchmark. Those are important steps which need to be mirrored in many other sectors.

This week we were given challenging news in AstraZeneca’s restructuring strategy statement. The good news is that, according to its plans, the Macclesfield manufacturing site will be secure, retaining 1,800 jobs which will be safeguarded for years to come. However, AstraZeneca also announced changes in the research and development plant at Alderley Park. The fact that 700 jobs have been safeguarded there is important, but the R and D facilities will move to Cambridge, which has created uncertainty for the employees. I am working with AstraZeneca to ensure that there are plans to provide them with proper careers advice and the support that they need.

The next priority—a vital priority for Alderley Park, for the sub-region, for the north-west and for the UK economy—is to ensure that the site has a vibrant future. The way in which to do that, and the way in which we are committed to doing it, is to provide a bio-science park where other businesses can go to work. We are working with the Government, and I am delighted to say that we have set up a taskforce. Evidence from other sites where the experience has been similar suggests that there will be spin-out operations.

We need to harness that energy, and ensure that we secure money from the regional growth fund on an emergency basis so that we can support this vital part of the UK’s life sciences sector. I am committed to doing that and to working with the Government, and I will knock on every door to make sure we receive the support that is required.

This Budget has been a huge success for British business, and I am sure that it will lead to further successes if we break down barriers, not just in life sciences but in many other sectors.

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[George Freeman (Mid Norfolk) (Con)]

I congratulate the Chancellor and his Treasury team on the work they have done on the historic and disgraceful debt legacy that this generation, this Parliament and this Government are having to deal with. The lack of any apology from Labour in the nearly three years in which I have had the honour to be a Member of this place is deeply shaming—[Interruption.] For the record, the Opposition’s barracking of my point serves simply to highlight their lack of ability to deal with the truth, difficult though it may be.

We are still trying to deal with a legacy of debt that we and future generations inherited from the Labour party—a legacy that hangs over the economy and this country. The Budget has been warmly and widely welcomed by all serious commentators: the International Monetary Fund, the OECD, the Bank of England, the CBI, the Institute of Directors and the British Chambers of Commerce. I urge the Chancellor to stay the course and not to be lured by the siren voices of Opposition Front Benchers calling for more borrowing, or of those calling for borrowing-funded tax cuts.

[Barbara Keeley (Worsley and Eccles South) (Lab)]

Will the hon. Gentleman give way?

[George Freeman]

I will develop my argument a little further, if I may, as time is limited.

We need a credible programme for deficit reduction, a fair burden of taxation and a long-term vision for the British economy, and that is what the Budget delivered. Simon Walker of the Institute of Directors said yesterday:

“We applaud this Budget. The Chancellor has stuck to his guns and held his nerve—which is exactly what we wanted to see. Deficit reduction is not an optional policy, it is an absolute necessity, and he is right to reject the siren calls to abandon it.”

Plan A is right for three central reasons. First, it tackles the appalling structural debt legacy that we were bequeathed by the Opposition. Secondly, it does so in a way that is fair in allocating the burden of taxation that must be paid. Thirdly, it is bold in setting out the platform at the base of an industrial policy for a sustainable economic recovery in which future generations—particularly the current young generation, who will have to deal with the debt crisis—can have confidence.

Let me remind the House, particularly Opposition Front Benchers, of the nature of the debt legacy we inherited. We started with the worst debt to GDP ratio of any country in the western world, worse than that of Greece and other economies that have been put into special measures by the IMF. The annual deficit when we started was running at 11% of GDP and is now 7%—that, for the benefit of Opposition Front Benchers, is a reduction.

In the situation we inherited, the interest on our debts was set to rise, if we had not acted, to £76 billion a year. We were spending £1 on interest for every £4 the Government were spending on public services. The national debt was just short of £1 trillion—roughly £15,000 for every man, woman and child in this country. As 1 trillion is a big number and people are baffled by big numbers, let me try to break it down. If it took 11 days to pay off £1 million, how long would it take to pay off £1 billion? Thirty-two years—[Interruption.] Opposition Members might think that it is funny, but I can assure them I do not, my constituents do not and the young people who will have to claw their way out of the crisis do not. If it takes 11 days to pay off £1 million and 32 years to pay off £1 billion, it takes 32,000 years to pay off £1 trillion at the same rate.

The truth is that we inherited not just an annual deficit but a structural deficit. For the benefit of Opposition Members who are not aware of the difference, the structural deficit is that bit of the Budget which, even when the economy is growing, continues to haemorrhage money. The biggest drivers of our structural deficit are pensions, benefits and the NHS. The IFS pre-Budget briefing yesterday, which was made available to all parties, makes it clear that the structural deficit continues to put a black hole at the heart of our public finances. The IFS forecasts that between 2011 and 2018 we will be spending an extra £5 billion on pensions, £20 billion on benefits and £15 billion on the NHS. That is after the sensible and pragmatic reforms we have introduced. It is a legacy the Opposition should be ashamed of.

Plan A sets out three key ways of dealing with that—tackling the deficit, a fair burden of tax and a sustainable long-term platform for growth. We have cut the deficit by 30%, from 11% of GDP to 7%, although the shadow Chancellor seemed unable this morning to accept that that is indeed a reduction. The IFS has made it clear that under the Labour party’s plan B we would incur £201 billion more debt by 2016-17. Who on earth could think that borrowing another £200 billion, given that legacy, is the answer?

On the second part of plan A, the fairness of the burden of taxation, the Opposition have been scaremongering about it and need to understand it. First, the Chancellor has decided, rightly, to pay off 80% of the debt through public spending reductions and 20% through taxation. The burden of taxation is powerfully shifted towards those with the broadest shoulders. I remind the House that 1% of taxpayers in this country pay 25% of all tax, and 50% of our income tax is paid by the top 20%. We have taken 2 million people out of tax altogether. The £130 billion funding to help new homeowners is the largest package of support—far larger than anything the Opposition were asking for. The £6 billion relief on fuel duty is a massive support for hard-working families, and coming from a rural constituency I particularly welcome its effect on the rural economy. The beer duty measure, too, is a substantial one for rural communities where pubs are at the very heart of rural life; substantial help is also being provided with child care.

This is a Budget to help the working poor. Taken alongside the universal credit and the welfare reforms, it will have a substantial impact on those who are striving to get on. In the remaining seconds, I want to pay tribute to the Government’s work in laying the foundations for a sustainable economic recovery. We cannot borrow our way out of this crisis. We will have to trade our way out.

[Richard Fuller]

I would be interested to hear what my hon. Friend thinks should be the foundations of that strategy.

[George Freeman]

I thank my hon. Friend for that intervention. I believe that this country has every reason to be optimistic about our ability to trade our way out of the present crisis. Around the world the emerging nations are growing at a phenomenal rate—7% to 8% for the BRIC nations and the 11+ nations following them. They have extraordinary needs, and in the next 30 years they will go through a revolution in medicine, food, energy, professional services, IT and leisure that we took nearly 200 years to go through. In all the areas where we have a strong and mature offering, these countries will drive phenomenal demand in the years ahead.

I applaud the work the Government have done to lay the foundations in science and research funding, skills and the industrial strategy, on which we heard from colleagues earlier. In my own sector—life sciences, food, medicine and energy, three of the largest markets in the world—today, Astra Zeneca has made a major commitment to this country, investing £300 million in Cambridge and making us its global head of research and development. With this vision, people can be confident that we are tackling the debt crisis in a way that is fair and that will allow their children to be optimistic for a better future.