Amendment of the Law

Graham Stuart Excerpts

Wednesday 23rd March 2011 Commons Chamber

[Mr Redwood]

It is a good point. We have heard figures from the Government indicating that we export less to the BRIC countries combined than we do to Ireland, but we have a close relationship with Ireland and we are close neighbours. It is understandable that we export a lot to Ireland and it to us. That figure conceals one important point, which is that British business has probably been a little more active than it suggests, but for various reasons the larger British companies tend to go into India, Brazil and China and set up joint ventures or factories of their own there to service the local market. It is easier to service those markets in that way, for reasons that we need not go into in detail today, but I agree that it would be good if we exported more, and it would be good if we helped small and medium-sized enterprises that do not have the capability to set up factories on the other side of the world to export in their turn.

The devaluation that happened more than a year ago has given us one nasty result, which is a much higher inflation rate than comparable economies, but it has given us one pleasant result, which is that it is very easy to export out of a British base now because British industry is so much more competitive at the current level of the pound. We should have that on our side. Paradoxically, quite a bit of British business in the manufacturing sector is close to capacity, and those businesses are tending to put the prices up a bit to collect a little more revenue and improve their balance sheets because it is not that easy to expand turnover. That is where the things that the Chancellor is talking about are vital and need to be done speedily.

Britain needs to be able to put up factories more quickly and get them into use more quickly. It needs to define the skilled engineers and the other skilled individuals who want to work in an industrial setting rather than in an advisory or City setting, and then expand the capability of their companies as a result. Modern manufacturing requires a very high degree of skills input, talented people and good management. It does not require so many people to operate machines because really good manufacturing now is highly automated. It needs the precision of expensive machinery. Indeed, the easiest way to compete out of a German or a British base is to have highly automated plant, so labour costs are a rather unimportant part of the total cost. The intellectual property content, the skill content and the plant and equipment content are much higher, but they are affordable with a quality product.

[Mr Graham Stuart (Beverley and Holderness) (Con)]

Further to my right hon. Friend’s points, a director from JCB gave evidence to the Select Committee on Education yesterday and said that he had 57 vacancies for engineers that he cannot fill order to ensure that JCB’s products remain globally competitive, reduce energy usage and so on. That, unfortunately, is a legacy of too many years in which we have not delivered the technical, vocational, practical education that is required. Is my right hon. Friend, like me, enthusiastic about the Government taking forward the programme from the Wolf review and supporting Lord Baker with his university technical colleges?

[Mr Redwood]

I am happy with those proposals. The Government are clearly on the right lines and I hope there will be cross-party agreement that we need to raise our game at skills, training and education, particularly in engineering, pharmaceuticals, chemistry and so forth, where we have an advantage and can have a much bigger advantage if we do more. Yes, we need to review how easy it is to buy or build a factory and how easy it is to equip it. Anything that can be done to lower the effect of tax rate on business will make Britain a much more attractive place to be.

As hon. Members know, I take the view that if we set lower rates, we normally collect a lot more revenue. If we want that kind of growth rate, the lower the realistic rate that we can set, the more revenue growth and the more overall growth we will have. It would be a great tragedy to abort the recovery in certain sectors because the tax rate was too high. I am pleased to see the progress on corporation tax. We need to see the details of some of the individual tax schemes and how the carbon tax rebate would work. If we went ahead as trailblazers in Britain and set a high carbon price, we would price our energy-intensive business out of Britain into a less clean or less acceptable venue. It is important that the rebates and discounts are properly thought through, so that at a time when the Government are trying to promote more industry, they are not taxing it too heavily.

--- Later in debate ---

[Sammy Wilson]

I am a bit miffed, because I wanted to use that point later in my speech, so I will have to scribble it out. When we look at some of the issues, whether they are the delays, the amount of money being put in, the offsetting of increases in taxation when some tax cuts have been made, the regulations or the consultation that has still to take place with Europe to see whether we can reduce red tape, we have to ask whether the predictions for future growth based on the supply-side measures in the Budget are as fragile as the autumn predictions that were wiped out by a fall of snow. If that is how fragile the predictions are, then I have concerns.

There is another side to the coin, because not only do we have to increase the productive potential of the economy, but people must be willing to purchase the goods that can be produced, and aggregate demand can be made up of several different factors. The Government have already ruled out one for very good reasons, and I accept that the deficit has to be reduced. I may have some issues about how quickly it is being reduced, but the one thing we do know is that Government spending is not going to take up the slack that already exists in the economy.

Consumer spending is not going to take up the slack, either, because the Chancellor made it quite clear that he would not make any tax giveaways. Indeed, if one looks at what he said about the indexation of direct taxes, one finds that he has now built automatic increases into the tax system for the next four years. There will not be discretion on a year-to-year basis; inflationary increases are now built into the tax system.

That leaves investment demand and exports, and it seems that the Chancellor is emphasising the role of exports. Given that over the past year and a half the exchange rate has fallen by 20%, our export growth is still one of the weakest among the OECD countries. Investment might improve competitiveness, but the only direct measure that the Chancellor has produced today is the export credit guarantee. I have quickly looked through the Red Book to see how much the guarantee involves, and I cannot get a figure, but that is the only measure to increase the one component of aggregate demand on which the Chancellor is relying to improve growth in the economy.

If we look at the supply-side measures and the lack of demand-side measures, we have to ask, “Can we really be confident that this is a Budget for growth?” The conclusion that I come to—not because I want to take a pot-shot at the Government, but because I want to get in behind the figures to see whether the hope being held out is genuine—is that I am left with some concerns.

[Mr Graham Stuart]

The hon. Gentleman is right to be sombre because of the situation the country is in. The Chancellor mentioned what is happening in other countries, and we are in a fragile position because of the appalling inheritance. The growth predictions, however, are no longer the predictions of a politician; they are the predictions of the OBR. We are in a very fragile state, and it is no wonder that predictions change, but the prediction is that over this Parliament this country’s growth will be higher than the EU average. That, considering where we started, would not mean golden times, but it would be a solid achievement.

[Sammy Wilson]

Of course, the earlier growth figures were also OBR-ified, if one wants to use that term, yet they did not prove to be realisable over a six-month period. We cannot simply rely on the assurances that the OBR has looked at the figures and thinks they are okay, as there could well be a revision. I am merely pointing to some aspects within the Budget document that give me cause for concern as to whether these growth figures can be achieved. If they cannot, there are implications for the deficit, for employment, for living standards, and for the ability to provide public services in future.

Let me turn to some of the measures that apply to Northern Ireland. As we heard in an earlier intervention, tomorrow morning an announcement will be made about the corporation tax proposals for Northern Ireland. I am waiting to see that. I have no doubt that the ability of the Northern Ireland Administration to reduce corporation tax could be a useful lever. As a Unionist—I know that the hon. Member for Dundee East (Stewart Hosie) will probably be totally appalled that anyone from a devolved Administration should say this—I do not want to see huge fiscal powers devolved to Northern Ireland. I am part of the United Kingdom, I want to remain part of the United Kingdom, and I wish fiscal powers to stay part of the United Kingdom.

There has been a groundswell of opinion for some variation in corporation tax; indeed, the Secretary of State for Northern Ireland has been very enthusiastic about it. However, there is no point in devolving corporation tax if the price tag attached is such that it savages public expenditure, which has already suffered a huge cut as a result of the Budget decisions made last October. There would be a gestation period between a reduction in corporation tax and the impact on jobs on the ground, whereas any cut in public spending or in the block grant would take immediate effect. There would be no increase in private sector employment, together with an immediate decrease in public sector employment, and that cannot be good for economic recovery.

I fear that the figures in the document that we have tomorrow will be neither a fair reflection of the cost of devolving corporation tax to Northern Ireland nor the kind of opportunity and offer that would be attractive to the Northern Ireland Administration. We will want to see that the Treasury and the Government have not made a savage reduction in the block grant even though it bears no relation to what the real cost of devolving corporation tax might be.