Capital Gains Tax (Rates)

Iain Wright Excerpts

Monday 28th June 2010 Commons Chamber

[Mr Iain Wright (Hartlepool) (Lab)]

It has been a pleasure to participate in a debate that has included so many excellent maiden speeches—from the hon. Members for East Surrey (Mr Gyimah), for Thurrock (Jackie Doyle-Price) and for Maidstone and The Weald (Mrs Grant)—and an astonishingly powerful maiden speech from my hon. Friend the Member for Airdrie and Shotts (Pamela Nash). I often used to think that parliamentary democracy needed a regular infusion of youth, talent and drive to keep it going, but given how much great talent there now is on both sides of the House, I am not sure that that is the case; I do not think that we should see so much great talent, because it certainly does not do my career chances any good whatsoever.

The best way to secure a sustained recovery is to put in place the conditions for growth, but the Budget fails to do so. Indeed, from reading the Red Book, it is very unclear where growth will come from at all. Paragraph 1.48, backed up by comments from the Office for Budget Responsibility, states that the economic forecast is for a gradual recovery, with

“net exports and business investment making a greater contribution to growth than in the recent past, and government spending making a negative contribution to growth as fiscal consolidation is implemented.”

The notion of an export-led recovery is very welcome—it would help some of the firms in my constituency—but how on earth is this going to happen? The eurozone economy is in grave danger, and the notion that we can rely on growing opportunities for exports into Europe in the next few years seems very ill-judged. The policy stance adopted by some of the G20 at the weekend seems to indicate that, where there was once global co-operation for stimulus, there now seems to be broad agreement for austerity. If that is the case and the world’s major economies are collectively going to reduce demand, where does that leave the prospect for an export-led growth plan?

In similar vein, the Red Book states that business investment will also be a catalyst for recovery, but how will that happen when the Chancellor is cutting the capital allowances rate that would incentivise businesses to invest in new plant? How will that happen if the OBR’s own forecasts envisage companies having to absorb some of the rise in VAT through lower profit margins? How will that happen if, as the OBR states in paragraph C.29, business investment has a relatively high import content? How will businesses be encouraged to invest more when they face in the next few years higher import costs and lower profit margins. Admittedly, they will have lower corporation tax rates, but disproportionately higher cuts in capital allowance.

My region of the north-east and my constituency suffer more than their fair share during economic downturns. We in Hartlepool are still suffering from the social and economic consequences of deindustrialisation and the Thatcher Government’s response. I would be the first to applaud the Government if they genuinely helped communities such as mine to stimulate their sense of enterprise and entrepreneurialism. I, too, want an economy led by the private sector and for the north-east to achieve its potential, but nothing in the Budget will allow that to happen.

Nothing in the Budget gives us any clue about the future industries that would help our country to prosper in the 21st century. We lead the world in creative industries and are second only to the US in digital industries, but how could the Chancellor state that he wanted to see Britain open for business when he scraps video games tax relief? There was frighteningly little on how this country could lead the world in green jobs and green industries, and how the Government could encourage and facilitate such a move to a leading low-carbon economy. The north-east could be leading the world in energy infrastructure, incorporating nuclear, oil and gas and renewable technology that could help this country to prosper, but there was nothing at all in the Budget to encourage that.

The regional growth fund that was announced in the Budget is very welcome, as is the proposed White Paper on regional economic performance, but the proposals in the Budget were so bland and ambiguous as to be almost meaningless and gave the impression of being put in the Red Book at the last minute, as an afterthought. I am particularly concerned that the regional growth fund will be set up only in 2011-12 and 2012-13, so the job losses that take place now, as a result of the Government’s cuts set to take place in this financial year, will not be helped.

Scrapping the future jobs fund, which has been successful in Hartlepool, combined with the deep cuts to working neighbourhoods funding, will stop hundreds of young people from embarking upon a career. Potential growth of the economy in my constituency is therefore being hit now, in this financial year, with no clear assistance from the Government at all.

Within a few days of the new Government taking over, the largest private sector company in my constituency went into administration, which led to the loss of 650 jobs in Hartlepool. I am not blaming the Government for the company’s fall, but the coalition’s response was incredibly telling and deeply depressing. The response that I received from a Minister at the Department for Business, Innovation and Skills following my request for assistance was offensively complacent—basically washing his hands of the matter and stating that the local authority and regional development agency should be expected to bear the load. Indeed, the local authority’s economic development team—the best in the country—and One NorthEast are working closely together for the workers who lost their jobs, but how can they work to the best of their abilities when the local authority has been asked to find £1.7 million of cuts this year? How can One NorthEast be expected to operate as effectively as it could when it has heard conflicting, contradictory and confusing reports about its future? How can help for a private sector-led recovery be given—for example, retraining opportunities for the workers who have lost their jobs—when the Department in Whitehall charged with helping business is facing some of the biggest cuts?

Many hon. Members in the Budget debate have mentioned the 1980s, when the Thatcher Government doubled VAT, and it was clear then, as it is clear now, that the priorities were to shift the burden from income taxation to taxation on consumption. That is not only regressive and impacts upon the poorest in society, but deflationary, taking demand and consumption out of the economy, so it will take us longer to climb on to sustained recovery. That deflationary stance always increases unemployment, and I fear that we will once again see unemployment rise to levels that are socially unacceptable and economically wasteful.

The coalition Government’s tired policies are devastating in any era. The policies did not work in the 1980s, and they will not work now. I ask the Government to think again and not rush headlong into an ideological zest for cuts that will increase unemployment.