Budget Resolutions

George Kerevan Excerpts

1st reading: House of Commons
Tuesday 14th March 2017 Commons Chamber

[Justine Greening]

Absolutely. Women’s economic empowerment is one of the most powerful levers we have to help drive growth in our economy and, more broadly, around the world over the years ahead.

Looking at how we are going to plug the skills gap, only 10% of adults in our country hold a technical qualification as their highest educational achievement. Germany currently produces twice as many science, engineering and technology technicians. Driving these skills will power innovation and growth and, in turn, our economy. That benefits everyone, so we cannot afford to wait. Other economies have been ahead of us in developing the skills of the future, and this Government are clear that we will not fall further behind. We should recognise that globalisation and automation are changing the modern workplace. Thirty-five per cent. of our existing jobs are at a high risk of being replaced in the next 10 to 20 years, not through competition but by technology.

[George Kerevan (East Lothian) (SNP)]

The Secretary of State mentions Germany’s lead in training in technical positions. Does she link that in any way with the fact that Germany consistently has a much higher level of corporation tax in order to fund that?

[Justine Greening]

Germany has its own approach to corporation tax. Ours has been steadily, and dramatically, to reduce it in order to make sure that companies can retain the profits they are making to be able to reinvest in growing their companies. The proof of the pudding is in the substantial and significant job creation that we have seen in our economy, by comparison with many other countries, over recent years. That is why we are able to put money into our public services.

As we prepare to leave the European Union, we will need to be more self-sufficient in our workforces, in our skills and in the training of our young people to set ourselves up for success. We will need new ideas, new jobs and new investment to confidently meet every challenge and grasp the opportunities ahead of us. We want a global Britain strong at home and strong abroad. It is now time for Britain to step up a gear to begin the shift up to the high-skill, high-productivity economy that we can be. This Government are ready to act.

--- Later in debate ---

[Chris Philp]

My hon. Friend raises an important point. Grammar schools can and should be an engine for social mobility. The Government’s White Paper and the Education Secretary’s proposals include new measures to ensure that grammar schools take on a higher proportion of pupils on free school meals. There is a very successful case study: the King Edward VI grammar schools in Birmingham. They have taken a number of steps, including offering outreach to local primary schools in deprived areas, free tuition for their tests, and bursaries to fund school uniforms and travel. Together, they have increased the grammar schools’ free school meal intake from 3%, which is a very low figure, to about 22%. This shows that the Education Secretary’s proposals work in practice, and I strongly welcome them.

[George Kerevan]

In the interests of joined-up thinking, may I ask what proportion of qualifications the new grammar schools will give over to T-levels?

[Chris Philp]

It is up to individual schools to set their own individual curriculums, and to offer their pupils and parents a choice. That is what localism means. Of course grammar schools, by their nature, tend to be more academic in flavour—[Hon. Members: “Ah!”] Well, that is what a grammar school is—that should hardly be a surprise to Opposition Members. Other kinds of school have a more technical specialisation. Diversity of provision, choice for parents and variety in our system are signs of success, which Conservative Members celebrate.

Let me turn to other measures in the Budget, starting with business rates. Like several hon. Members, I was concerned about the effect of the business rates revaluation on smaller businesses. The town of Purley in my constituency was particularly affected by some quite significant upward revaluations. In that context, it is welcome that the Budget announced £435 million of discretionary relief to help small businesses in towns such as Purley. I would suggest, particularly to the Chief Secretary to the Treasury, that it might be worth reconsidering the profiling of that £435 million over time. The lion’s share of that money comes in the first two years: £180 million in 2017-18; and £85 million in 2018-19. That is welcome, but the transitional relief—the upward caps on rates increases—for small businesses is 5% in 2017-18, and 7.5% in 2018-19, so most small businesses will not feel too much of an effect in the next two years. It is really in three, four and five years’ time that increases will be most powerfully felt. Would the Chief Secretary consider changing the profile of that money so that, instead of being front-loaded in the next one or two years, it can be back-loaded into years 3 and 4, when the effects of the business rate increases will be felt most heavily? The total amount of money would remain the same—£435 million—but the profile would be shifted over time better to match the effect of the business rates increases.

I offer a second thought on transitional relief for the future, which again relates to the upward and downward caps. Bills have been sent out for 2017-18. There is an upward cap of 5% for small businesses, so no small business will face an increase of more than 5%, and there is a downward cap for large businesses of 4.1%, so no large business gets a decrease greater than 4.1%. I accept that that is now fixed.

Looking into the future, however, and particularly to 2019-20 and 2020-21, I wonder whether the autumn statement might consider fine tuning those upward and downward caps so that the largest businesses, such as the big four supermarkets, have a lower or even a zero further downward cap, so that they get no further decreases beyond next year’s decrease. That could fund a more generous upward cap for the smallest businesses, meaning that the upward cap of 10% to 15% in 2019-20 and 2020-21 could be reduced. This approach would be fiscally neutral. It would not affect arrangements for the coming financial year, which I accept are fully set in stone, but it would help small businesses in three or four years’ time, including businesses in Purley. I have noticed that the cumulative upward cap for such small businesses over the five-year period accumulates to 64.2%, which represents quite a high cap. If we could find a way of softening the blow, it would be very welcome indeed.

The Chancellor’s Budget statement also touched on pollution, particularly due to diesel cars. My constituency, like all London constituencies, is profoundly affected by this problem. The Chancellor mentioned that a plan would be delivered over the summer, in response to the European Union court case, and that fiscal measures would be introduced in the autumn Budget.

I have significant reservations about Sadiq Khan’s proposed diesel scrappage scheme, which would cost £515 million over two years in London. The cost of such a scheme nationally would be £3.5 billion a year over two years, which would be unaffordable and would, in fact, simply cause one set of diesel cars to be replaced by another. I do not support the diesel scrappage scheme proposed by the Mayor of London, but one fiscal measure that the Government might consider, bearing in mind that diesel cars now burn 10 million tonnes of fuel a year—a three times increase over the last 10 years —is introducing a significantly increased registration tax for new diesel cars. I am talking about cars, not vans and lorries, because I accept that including them would have an impact on business. That approach would help to deter people from buying new diesel cars, which now make up about half of all new car purchases in this country. Such a measure would have no retrospective effect on people who have already bought a diesel car, but it would encourage people to switch away from diesel cars, which would do a great deal to help to ease pollution problems in cities such as London in the months and years ahead.

I see that I am rapidly approaching the time limit, so let me conclude—[Interruption.] I am glad I have said something that is popular among Opposition Members. I welcome the Budget, which continues the Government’s record of job creation and growth. I congratulate the Education Secretary and the Chief Secretary again on protecting and growing education funding, and on committing to fund more excellent schools in our country.

[George Kerevan (East Lothian) (SNP)]

This was a dull Budget, although I do not necessarily say that as a criticism, because it was meant to be dull. The Chancellor did most of his heavy lifting in the autumn statement, in which he amassed a war chest by borrowing more than £120 billion. The criticism of the Budget is that rather than using that war chest now to raise productivity and improve education, he has put it aside because he does not know what will happen after the Brexit deal is done.

The Secretary of State for Education made a reasonable fist of trying to explain the new T-levels. If her explanation had lasted for two or three minutes, I would have believed her, but after half an hour, I began to think that she was arguing a little bit too hard, as if she did not really believe it herself. The T-levels were one of the more innovative parts of the Budget—I do not demur from that—but if we want a technical education of the standard that exists in Germany or the Netherlands, we must have the schools, and the workshops, computers and machinery in those schools, to do the teaching. In fact, the equipment in the schools has to be better than what people will find in the factory after they have graduated. The way to raise productivity is by training in schools at the highest and most advanced technological level.

If the money that the Budget gave to increasing selective education had been put into technical schools in line with the investment that takes place in Germany and the Netherlands, I might just have believed what the Government said. However, the T-levels are yet another blind by a Government who want to pursue selective academic education for a very narrow stream of people, which will not solve the problem of productivity.

The one significant change in the Budget that had the biggest impact was the rise in national insurance for the self-employed, so let us try to connect that to the whole question of educational productivity. Rather than Members listening to me, let us take the evidence of two companies: a construction and investment company called Chiswell; and a building company called Castlemead. Does anyone know who these companies are? They are both owned by the Chancellor of the Exchequer. To give him his due, he put those companies into a blind trust in 2010. He is an honourable man, so there is no question of him influencing these companies at the moment, unlike certain Presidents of the United States who we might mention.

It is interesting to see what these companies are thinking about the economy, productivity and skills. The 2016 accounts of Castlemead say that the building industry is

“suffering from supply bottlenecks, particularly of skilled tradespeople, driving up costs.”

What does the building company Chiswell say? It states:

“The scarcity of good quality and committed subcontractors is still an issue”.

The company is considering going back into house building. Of course, this skills and supply bottleneck is largely seen among the self-employed. To sum up, the Federation of Master Builders says that 60% of SME construction firms are struggling to hire bricklayers and carpenters.

The Secretary of State claims that the increase in technical training will help to supply some of this much-needed skill demanded by Chiswell and Castlemead. At the same time, however, the Chancellor is removing the incentive to work and to take up training because he is raising the taxes of the very workers whom his companies say they need. In other words, the Chancellor is so short-sighted that he is hurting not only his own businesses but, sadly, everybody else’s.

This is not just a dull Budget because, at its heart, there is a ticking timebomb. The OBR forecast about what happens next is interesting, as it relates to whether the money will be there to provide the training about which the Secretary of State has spoken. The Chancellor was concerned to tell us that, under his chancellorship, growth has been very strong in the past 12 months. Growth in this country has been powered by consumer borrowing. If we drill into this, we find that the OBR says that in 2016 the savings ratio in the UK hit a historical low—it has gone to zero and below. People are dissaving. If people are not saving, ultimately the funds are not there to finance the investment that will raise productivity. Moreover, because saving has collapsed, the OBR does not think that there is a potential for consumer borrowing and consumer expenditure to continue to carry the economy. The OBR predicts a downturn in the availability of consumer funds over the next 12 months, so the dissaving cannot continue.

Most of the boost to consumer spending last year was a hangover from 2015, when inflation was fairly low. As real incomes were rising—a rare occurrence in the previous 10 years—people felt that they were a bit better off. However, now that inflation is rising, because the pound has tanked, we can expect consumer borrowing to disappear, so how will the economy meet its growth targets? The OBR says that the borrowing will be replaced by a rise in business investment. When I asked the OBR officials who appeared before the Treasury Committee yesterday why they thought that—where was the evidence that business investment would rise?—they had a wonderful answer, which quite took my breath away: “Business investment has been so low for so long that it is bound to go up some time.” [Laughter.] That was what they said; Members can go and read the transcript.

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

Things can only get better.

[George Kerevan]

Indeed, but I will believe that when I see it, and I will believe that pigs can fly.

[Ian Blackford]

May I amplify the point that my hon. Friend is making? On page 7 of its book, the OBR states that investment intentions have been put on hold, but when we turn the page, we find that business investment is forecast to grow by between 3.7% and 4.2% between 2018 and 2021. It simply does not add up, does it?

[George Kerevan]

Not only does it not add up, but it means that we will not have the investment in plant and machinery that will raise productivity. We will miss our productivity targets yet again. Since the Chancellor has amassed his war chest, he should be using it. He should not wait for two or three years to see what happens after Brexit—no general does that. What is needed is investment now. Let us get on with the T-levels. Let us invest in English schools. I think that that would be a good thing to do, but it is not what the Budget says.

[Richard Drax (South Dorset) (Con)]

I am listening carefully to the hon. Gentleman’s speech. As I understand it—a Minister may be able to confirm this—the Government have invested £300 million. Colleges can apply for technical status, and the money will help to provide all the equipment, which I entirely agree is needed.

[George Kerevan]

I accept that proposition but, having spent 25 years of my life teaching in further education, I know that £300 million for the whole of England and Wales becomes a tiny amount when we drill down to all the individual institutions. Can the Government not confront reality? If we want the productivity levels of Germany, we should not be talking about £300 million; we should be talking about £30 billion. If the Government do not want to spend £30 billion, that is fine, but they should not pretend that small amounts of money somehow solve the problem.

[Ian Blackford]

I learned a lot from my hon. Friend because about 35 years ago he was my economics lecturer.

We have delegated responsibility to the Bank of England through the quantitative easing programme, and that has led to a lack of balance. We have seen £435 billion of QE that simply has not worked, but we have not seen enough fiscal responsibility from the Government to create the circumstances that will deliver sustainable growth.

[George Kerevan]

My hon. Friend is right. However, it is important to pin the blame where it is deserved, because perhaps the Chancellor gets too much of it. The blame actually lies in Downing Street with the Prime Minister. When she launched her bid for leadership of the Conservative party on 30 June 2016, she said:

“If before 2020 there is a choice between further spending cuts, more borrowing and tax rises, the priority must be to avoid tax increases since they would disrupt consumption, employment and investment.”

Yet now we have a Budget that will raise the taxes of the self-employed and entrepreneurs—the people whose motivation is required for growth in the economy and an increase in productivity. It is the Prime Minister who has reneged on her leadership promise; the Chancellor is only doing her bidding.

This Budget claims to address the questions of education and productivity, but it is actually about selectivity and privilege for the narrow few. Let me tell the House what it has not done. For the first time in 100 years, the millennial generation is earning less than its parents. The Budget does not deal with that, because the Chancellor has sat on his war chest. Home ownership among middle earners is falling for the first time in 50 years. Mrs Thatcher would be turning in her grave if she heard that that was happening under a Conservative Government. By 2020-21—the end of the forecast period—average incomes will be a fifth less than they would have been if growth had continued at pre-crisis levels. There will be £5,000 less for every household.

The Conservative Government have not delivered a return to wealth for the ordinary person. The Chancellor’s freeze on universal credit and housing benefits means that one person in seven will have a lower real income in five years’ time. This is a Budget that does not address the real issues of inequality in this country. It is a Budget for inertia and complacency, and I will vote against it.