Budget Resolutions

John Baron Excerpts

Wednesday 27th October 2021 Commons Chamber

[Mel Stride]

My right hon. Friend is absolutely correct about skills. He, of course, through his Committee, has done so much to promote that agenda, which I will come to momentarily, but the background is extremely tough.

While the Chancellor is right to point out that the deficit is falling, it is none the less very highly elevated compared with historical measures. The debt, in financial terms at least, is at a record level of £2.2 billion, and the economy has the headwinds of supply chain bottlenecks and the mismatch between demand and supply that we are seeing in parts of the labour force.

However, there are reasons to be cheerful, which my right hon. Friend outlined. Those are the OBR’s revised forecast showing that growth is much stronger this year—I think the Chancellor suggested 6.5%, compared with the March forecast of just 4%—and the scarring downgrade from 3% to 2%. By my calculation, that is probably worth about £10 billion or thereabouts per year; it is a significant achievement. All that has been achieved through the hard work of the last 18 months to two years. I do not think we should take that away from my right hon. Friend.

That has left my right hon. Friend with some breathing space, and he recognises that there are many challenges facing the economy and uncertainties going forward. A big test as we unpack the Budget is what he has done with that additional headroom. Not surprisingly, he has spent quite a lot of it. It appears to me that, with his fiscal rule of keeping day to day expenditure without borrowing and debt coming down as a percentage of GDP, he has headroom of about £25 billion in 2024-25 on the net debt target, which is about 0.9% of GDP, with the OBR economic and fiscal outlook suggesting he has a 55% to 60% chance of hitting that particular metric. The Committee will want to look very closely at how prudent an approach my right hon. Friend has taken to the Budget.

I see my hon. Friend the Member for Basildon and Billericay (Mr Baron) itching to intervene, so I give way to him.

[Mr John Baron (Basildon and Billericay) (Con)]

I am listening intently. I do believe that the Government have done extraordinarily well in raising the national living wage as part of that headroom. That is a major step towards a high-wage, high-tech economy, and it bolsters our one nation agenda, which is to be applauded.

[Mel Stride]

My hon. Friend is absolutely right. I will come to the matter of wages and wage growth momentarily, but let me dwell on the challenges facing the economy.

Another thing that the OBR points out is the increased sensitivity to interest rate rises—the Chancellor made this point—and the damage that they can do to the public finances. I think my right hon. Friend gave the example of a 1% rise leading to a £23 billion increase in debt servicing costs. To put that in perspective, it would wipe out the value of the corporation tax increases and income tax threshold freezes that my right hon. Friend announced in the last Budget. That would be gone in one enormous gulp, so we must be careful about the vulnerability we have. Though we have low interest rates, and interest rates might move up in baby steps, that applies to a very large debt indeed.

Let me touch on inflation—I am pleased that my right hon. Friend spent quite a lot of time on it during his speech—and its impact on interest rates. We have already seen the Monetary Policy Committee beginning to divide on whether rates should go up, and there is an expectation, certainly in the markets, that rates will start to increase. We have seen 10-year gilts going up in more recent times, and it is possible that quantitative easing will start to unwind —perhaps passively initially—when we reach a certain trigger level of interest rates, so it is important that this credible plan is there to deliver on those fiscal targets.

The history, however, is not good in that respect. We have had Chancellor after Chancellor failing to meet their fiscal targets; they have either abandoned them completely or delayed or modified them in some form. Depending on what happens to demand in the economy relative to supply, there may be a case for fiscal stimulus even further down the line. One thinks of the removal of the universal credit uplift, the energy price increases, the labour market demand-supply mismatches and the rise in taxes, often taking demand out of the economy. None the less, and setting that to one side, the Chancellor’s default position must be to stick to those fiscal targets and resist the huge cacophony of demands for more and more expenditure, particularly the day-to-day expenditure that he is rightly targeting in his fiscal rules.

Some of those demands might end up being necessary. If we do not get back to the pattern of demand for public transport that we had before we locked down, it is conceivable that further subsidy will need to go to the public transport sector. Other areas, such as the health service, might have additional demands, but I point out to my right hon. Friend—he knows this more than most —that the NHS public expenditure take has risen in the last 10 years from 32% to 42%. He must get very good at saying no to Ministers when it is necessary to do so, and telling them to go back to their Departments, work harder and get more out of what they are given. That is a lesson for us all, incidentally, particularly those of us on this side of the House.

If we fail in that endeavour and inflation takes off, interest rates go through the roof, the cost of servicing our debt becomes ruinous and international markets lose faith in our economy, we will be back broadly where we were in 1992 when we had Black Wednesday. Conservative Members will remember the long, hard lesson of that: it took us a generation to re-establish our ability to look the electorate in the eye and say, “We can offer a fiscally responsible Government.”

There were some announcements on tax today. May I say first that the drop in the bank surcharge is absolutely the right thing to do? We are putting corporation tax rates up to 25% from 19%, so it would be absurd to cripple our financial institutions with uncompetitive international tax rates.

I was particularly delighted by the shift in the universal credit taper rate from 63% to 55%. That will help countless low-paid families to earn more and keep more of their money, and encourage more people into work. When I was a Treasury Minister, we looked endlessly at this and I pushed really hard on it. I know how expensive it is to do that—my right hon. Friend the Chancellor suggested £2 billion a year—so I take my hat off to him for having grasped that particular nettle.

My right hon. Friend is also right to set out an aspiration to get taxes down before the end of this Parliament. The same pattern occurred under Lady Thatcher, who is much referred to when we talk about tax. In the early years of the Thatcher Government, the tax burden rose quite strongly, and it was my right hon. Friend’s hero Lord Lawson who was able to bring tax rates down. Let us hope that my right hon. Friend is in a position to emulate that in due course.

I turn briefly to inflation, which is right at the core of what is happening in the economy. The threat to the public finances from inflation cannot be overstated. The big debate now is whether price surges and increases in inflationary expectations will be transitory or more persistent. My right hon. Friend referred to the surge in demand relative to supply, which of course will lead to price increases; all else being equal, one might imagine that it will pass relatively quickly.

We have seen the commodity, transport and energy price increases that my right hon. Friend referred to, but there are other price increases that we might expect to be stickier. There are bottlenecks that are often outside our control—a south-east Asian chip manufacturer can have a bottleneck that results in our being unable to produce cars in the United Kingdom. Structurally, the labour market has changed: as a consequence of the pandemic, there is now greater demand for goods relative to services. It will take time to mop that up.

The Bank of England MPC has expressed increasing concerns, in different ways, about inflation and has been constantly deferring the moment at which it believes inflation will peak. There is a debate as to when deferred “transitory” becomes “persistent”, but the huge danger is that we will go into a wage price spiral. One way in which that might happen is if we talk up wages by inducing companies to put them up without a coincident increase in productivity. That will simply feed the inflationary tiger. We have to be very careful on that point.

--- Later in debate ---

[Mr John Baron (Basildon and Billericay) (Con)]

I refer the House to my business interests in the Register of Members’ Financial Interests.

May I start by saying what a pleasure it is to follow my hon. Friend the Member for East Worthing and Shoreham (Tim Loughton)? I think I agree with everything he said, particularly his point about the importance of early years. All I would perhaps say is that, like him, I have been drinking English wine since the 1970s, and we had to grimace at the time. It has got a lot better, and I commend it not just to the House but to the world. It is first class.

This has been said a few times, but may I say well done to the Treasury Ministers? When a colleague says that, there is usually a “but” at the end of it, but I do mean it. The Chancellor has done a phenomenal job. He has been very sure-footed during the last 18 months, and that is what we have needed. He and the Treasury team have been absolutely right in ensuring that we minimise the economic impact of the pandemic, with the furlough scheme and all the rest of it. I think the success that we are seeing with the economy now is a testament to that period when tough decisions were required, and taken, for the good of all.

I thought the Budget overall was very good. There was lots of optimism in it, quite rightly; that was quite justified. I liked the measures to help the lower paid, including the reduction in tapering on universal credit; I liked the green jobs emphasis; I liked the science and technology emphasis, and I liked the reform of how we levy duties on alcohol. I particularly liked the introduction of a £9.50-an-hour national living wage, as a result of which those working full time will be something like £1,000 better off per year. That will particularly support younger and lower-paid workers and help the UK transition to the high-wage, high-skill economy that we need.

I suggest that the Government should not be pushed off course by big business. For too long—perhaps 20 years —because of unlimited immigration while we were a member of the EU, it has relied perhaps too frequently on lower wages as a substitute for investment in R&D, the skilling up of the labour force and increased automation, all things that will now lead to the emergence of new and better-paid jobs. That in turn will serve to increase productivity. That is excellent news, and higher wages and controlled immigration will also bolster our one nation agenda, the aim of which is to encourage economic prosperity in order to better help the less fortunate in society.

Having said all that, in the few minutes I have left, I would like to share a few concerns with Treasury Ministers. I do not think that I am alone in being concerned that the level of spending increases forecast over the next four or five years is nearly double the growth rate of the economy. If we think it through, that is unsustainable. It can only result in financial pinch points—perhaps the raising of taxes and the taking on of more debt. It cannot be sustained indefinitely.

I am not someone who attaches much credence to forecasts, but even the Treasury forecast suggests that, as this five-year spending review period unfolds, the growth rate, if anything, will fall off. We have to look at this very seriously. We have to try to reboot growth, in many respects, and at the same time keep an eye on inflation. We are at a tipping point as to whether inflation is indeed transitory or whether it will become embedded. We have to be very careful about that, because it will have serious consequences for living standards generally if we let inflation out of the bag. We have to look at rebooting growth and do everything we can, because at the end of the day, growth is where it’s at. It is growth that is the engine room when it comes to a prosperous economy, a prosperous society and helping to raise living standards.

I make no apologies in opposing the increase in national insurance. We used to believe in the Conservative party that it was a tax on jobs. We seem to have drifted away from that. I urge Treasury Ministers to think about that, because in the end an increase in national insurance is reflected in lower pay and higher prices, which are bad for workers, businesses, customers and the economy as a whole.

We need to take another look at corporation tax. We need to reduce corporation tax over time. All the evidence suggests that if we reduce corporation tax or taxes generally, in the medium to long term, we increase revenues. It is not a zero-sum game. Low taxes equals greater prosperity. I also encourage the Government to consider bringing back a lower rate of corporation tax for small and medium-sized enterprises, which we all know employ a disproportionate number of people.

It is not just about lower taxes, however. We need to deregulate more if we are to reboot growth. There is too much regulation out there, including in financial services and in industry generally. I specialise in something called investment trusts, a hangover from our EU membership. Key information documents—KIDs—are still far too complex. They should be pushed to one side, with better and simpler regulation brought in.

We should also, now that we are out of the EU, consider scrapping more tariffs. Why do we still have tariffs on imported goods? I do wonder. The trade deal with New Zealand, announced last week, is a step in the right direction. A lot of tariffs were reduced or removed altogether. I did not know, for example, that we charged an 8% tariff on New Zealand onions, but that has now been scrapped and rightly so. We need to look again at reducing taxes, deregulating and scrapping tariffs.

In the minute or so I have left, let me touch briefly on one or two other items that perhaps were not touched on enough in the Budget. The cladding issue was mentioned. The Government have to look at that again. The problem is not the fault of leaseholders. It has been an extraordinary consumer regulation failure. I made my opposition known. The Government have moved a long way on this, but I still think it is wrong that we should ask leaseholders to pay anything when it has not been their fault. So I ask Treasury Ministers to look at that again.

On soft power, as chair of the British Council all-party parliamentary group, we recently fought a campaign to get the Government to think again. For the sake of an extra £10 million, the Government opted to compel the British Council to close 20 of its overseas offices, as defined by removing a country director and staff. That will damage our soft power. It has been the largest set of closures in the proud history of the British Council. Some people forget that it was established in the 1930s to help to counter the rise of Nazism. It is too much to ask. If we want to give meaning to our concept of global Britain and engaging with the world, we cannot be closing 20 offices. The British Council does an inordinate amount of work when it comes to our soft power.

I would suggest this, if money needs to be raised. I opposed HS2. I think it is the biggest white elephant this Government or any Government have spent money on for a long time. Yes, some forecasts suggest we would lose £10 billion, but we would save £90 billion. A fair bit of money could be saved if we scrapped it even at this stage. I would also take a close look at quangos. We have far too many quangos. The TaxPayers’ Alliance reckons that billions of pounds would be saved if we consolidated them or brought them under more control.

I reiterate what a good number of other hon. Members mentioned, which is getting value for money for the expenditure we are asking the taxpayer to incur. I was chair of the all-party parliamentary group on cancer for 10 years, so I can testify to the fact that Governments of all parties have, for good reasons, bombarded the NHS with process targets, such as two-week and four-week waiting times, but not focused enough on outcome measures—in other words, one-year cancer survival rates. That is why, despite all the money that has gone into the NHS, we are still not catching up with international averages when it comes to cancer survival rates.

Half those who work in the NHS are not medically trained, but just a tweaking of that figure—say, 60:40—would make a phenomenal difference on the frontline. We must re-examine how money is spent. Overall, however, this is an excellent Budget and I commend it to the House.