Capital Gains Tax (Rates)

Jim Cunningham Excerpts

Monday 28th June 2010 Commons Chamber

[Mr Robinson]

The hon. Member for Colchester (Bob Russell)—I am so sorry—and other very distinguished honourable dissidents opposite, who are clearly being silenced for some reason or other; I cannot comment on why. I thought the amendment very apropos and exactly to the point in all respects. I am sure that it has not been withdrawn, so quite why it has not been chosen for debate I cannot think. It is a pity, because we could have probed even further the support of the hon. Member for Bermondsey and Old Southwark (Simon Hughes) for it and for the package as a whole, which he was trying to defend last Wednesday with as much discomfort as is evident amongst the Liberals who have not yet entirely been bought by, or who have not bought into, the so-called coalition policies.

It is very sad. There has been nothing sadder, in my opinion, than the right hon. Member for Twickenham (Vince Cable), who is now the Business Secretary, coming around to explain why he supports the Budget. One of the two reasons that he gave was essentially that he had been, belatedly—I think his leader got there first—to see the Governor of the Bank of the England, who had assured him that a crisis was imminent, that we were going to be downgraded and that we would be in the same position as Greece, all of which would happen in a matter of days or hours, if he and the Liberal party did not agree to every measure that the coalition subsequently put forward. All of that should have been entirely predictable at any point before or during the election, even as the bond market strengthened and the UK position strengthened during the election, and even as we learned afterwards that the funding requirement is going to be £20 billion to £30 billion less than expected. Apparently, the leadership of the Liberal party fell for the oldest trick in the book, the bankers’ scare, which has gone on for centuries—classically, of course, with Montagu Norman and all the rest in the 1930s taking that party and this country to the brink of collapse.

[Mr Jim Cunningham (Coventry South) (Lab)]

Has my hon. Friend noticed that the same Governor of the Bank of England who backed the stimulus under the previous Government is now backing the present Government’s policies—to the detriment of the public?

[Mr Robinson]

I note also that when the Governor was still an economist, before he converted to being a banker, he signed the famous letter of 364 economists, which he has now, in a piece of classic recantation, given up on.

All those considerations point to the fact that events could have been predicted and should have been accommodated. We should not have reached the situation in which we had the Business Secretary proudly telling the House—I still cannot believe this every time I read it:

“Those factors drove the economy in terms of demand”—

the factors being monetary policy and devaluation of the pound—

“and they will continue to do so.”

So, we are to have monetary easing and a continued devaluation of the pound. I do not think that either is remotely likely. He went on:

“There is a reason for believing that that is what will happen: the Governor of the Bank of England called for this Budget and has now got it, and he has every reason to understand the need for monetary policy to support recovery.”—[Official Report, 23 June 2010; Vol. 512, c. 316.]

Well, over to you, Mervyn, and good luck!

It really is absurd. It is one thing to hand over control of the money supply and monetary policy to the Governor. We did that back in 1997, and I think that was a good move. My right hon. Friend the Member for Croydon North (Malcolm Wicks) nods, and I know that he was in agreement with that move. However, it is quite another thing to say, “Look, we are giving up on fiscal policy too; you can have the whole of the economy.” When we did what we did, we joked amongst ourselves that we had got rid of one half of economic policy—notably the monetary side—to the Governor and that it would only be a matter of time before he laid claim to and was given the whole of it. Joke though that was, it has come to pass under this Government. That is sad and regrettable. The Work and Pensions Secretary is sincere in what he wants to do, but he has had to absorb many cuts, which will make his job much more difficult, as was brilliantly exposed by my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper), who spoke for the Opposition.

However, it is not just that. The only two sure things about the Budget is that it will increase unemployment and reduce growth. That we can predict, because the Office for Budget Responsibility has told us. Beyond that, the Government refuse to give any distributional analysis. Beyond the second year, we do not know what will happen, except that the OBR has pencilled in some figures for growth that it says are hazardous in the extreme.

The Budget is an enormous gamble at the great cost of the working people in this country. It is a gamble based on the assumption that the Governor will increase quantitative easing when he said he would not. Perhaps in some magical way he will take other powers to deal with the fiscal constraints imposed by the Budget, because he can do nothing else. He cannot reduce interest rates much more, unless he wants to reduce them from 0.5% to 0%, or unless he starts shelling money out, which is hardly credible. He said he would not do any of those things, so the truth is that we face a situation in which the future of the country is being gambled.

Apart from the good intentions of, and the megalomania that seems to be developing in, the Bank, that gamble rests on three factors: an increase in inventories, meaning an increase in output; an increase in investment; and an increase in private sector activity. Who really believes in their heart that any of those factors can be counted on, especially given that the Government have made the investment route highly unlikely by reducing capital allowances? They are served at the moment by a Financial Secretary who told the Committee that considered the previous Finance Bill that they would reduce such allowances—on nearly all counts, and they have been as good as if not better than their word. He could see no reason why investment should not be reduced to the cost of amortisation in manufacturing or industrial enterprises. If that is the negative, neutral view of the need for increased investment and output that infuses the Budget, and in particular the crucial elements highlighted by the OBR—it says that there is a need for greater investment and output, and to rebalance exports—we are in for a big let down on that gamble.

Let us take one other example—Sheffield Forgemasters. Anybody who has dealt with the Government knows that it is virtually impossible to get money out of a shareholder executive. It is like getting money out of a stone, but the firm reached a conditional agreement. That would have made an enormous contribution to the rebalancing of the economy, including in respect of import substitution, and now those products will come in from Japan, because the arrangement was cancelled. I am afraid that in their tone and their measures, the Government are making recovery immensely more difficult and, far from recovery, we face a further period of prolonged deflation.