Budget Resolutions and Economic Situation

John Baron Excerpts

Tuesday 21st March 2023 Commons Chamber

[Michael Gove]

It is the case that this Government have seen a massive uptick in solar power—I think more than 90% of the increase in solar panels and solar power generation in this country has occurred under this Government. It is also the case that this country is the world’s favourite destination for offshore wind investment. It is also the case that with our investment in carbon capture and storage and in nuclear power, as I have mentioned, we have exactly the diversity of supply required.

Could this Government do more? Could any Government do more? Yes, but it has to be paid for. I am afraid that Labour’s position, with the commitment to spend £28 billion on a green new deal, is unfunded. Not a penny has been allocated by the shadow Chancellor to pay for that. Do not just take it from me. Take it from the former shadow Chancellor, Ed Balls, who pointed out on Channel 4 that we have to make sure, if we are governing the economy well, that debt as a proportion of GDP reduces every year. He pointed out explicitly that the unfunded £28 billion green new deal was only going to be funded, and could only be funded, by borrowing. He explicitly pointed out that if the plan put forward by the right hon. Member for Doncaster North for unfunded, borrowing-financed investment goes ahead, he runs exactly the same risk as others have in the past of tanking the economy, pushing up interest rates and having the bond markets catch fright. It was not a voice of reaction making that point, but the man who the right hon. Gentleman thought should be Chancellor of the Exchequer.

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

We should also remember that no Labour Government have left office without unemployment being higher than when they came to power. Does my right hon. Friend accept that small and medium-sized enterprises employ by far the largest number in the private sector, and that in order to help them we perhaps need to take a fresh look at the amount of regulation they have to abide by? It needs to match the complexity and size of the company in question. Perhaps we should place greater emphasis on, say, a small firms regime that actually addresses this point head-on.

[Michael Gove]

My hon. Friend makes an important point. People will know—particularly readers of the Investors’ Chronicle, in which he writes a regular column—that there are few keener students of exactly how we can make changes to the supply side in the labour market in order to drive growth. The point he makes about SMEs and, indeed, microbusinesses is one that I know the Chancellor of the Exchequer, as a former small businessman and entrepreneur himself, takes very seriously, so I am grateful to my hon. Friend for making that point.

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[Anthony Browne (South Cambridgeshire) (Con)]

Thank you, Madam Deputy Speaker—and thank you, colleagues. So much to say, so little time to say it.

I agreed with the opening comments of the shadow Secretary of State, the right hon. Member for Doncaster North (Edward Miliband): we do have a problem with economic growth in the UK. Economic growth is incredibly important—it creates more jobs, it creates better-paid jobs, it helps with the cost of living crisis, and it helps to raise the taxes that we need to pay for public services—but it has been too slow over the 15 years that have elapsed since the financial crisis. What he failed to point out, however, is that this has been a problem across the developed world, and is not unique to the UK. The global economy has been hit by the triple whammy of the financial crisis, the covid pandemic, and the cost of living crisis that has resulted from the invasion of Ukraine. It has been like being hit by a hurricane, a tornado and an earthquake back to back, and it is not surprising that the entire world economy is feeling battered.

If the right hon. Gentleman wants to pin the blame on the Conservatives, which is what he was trying to do, what matters is how the UK has performed in comparison with the rest of the world. As I have said in the Chamber before, according to the International Monetary Fund, we had the fastest-growing economy in the G7 last year and the year before, but what is our record since 2010, when the Conservatives were elected? According to the IMF, the UK economy has grown by 21% during that period, which, although too low, compares extremely well internationally. In fact, the UK has had the fastest-growing major economy in Europe. Since 2010, we have grown faster than Germany, France, Italy, Spain and almost every other euro area country apart from the fast-growing economies of eastern Europe, and we have grown far faster than Japan. We have a track record that really holds its head up, and criticisms of Conservative Government policy really do not bear examination.

[Mr Baron]

Is that not reflected in our unemployment rates, which are almost half the EU average?

[Anthony Browne]

Absolutely. Our unemployment has gone down dramatically, and has halved since 2010. This has been an astonishing performance. Given the economic troubles that we have experienced since the pandemic, it is amazing that unemployment has not risen more than it has. Our unemployment rates compare very well with those in most other countries. This illustrates dramatically the point that we keep making about the Labour party: every time it has been in power, it has left office with unemployment higher than when it arrived, whereas with us it is the other way round.

So how do we achieve economic growth? That is the key challenge. There are two main steps that we need to take. First, we need to increase the participation rate of workers and, secondly, we need to increase business investment to improve productivity. Many of the measures in the Budget, which I highly commend, will increase the participation rate of workers—notably the childcare reforms, which many others have mentioned, and the abolition of the lifetime allowance for pension contributions, which the Backbench Treasury Committee, which I chair, recommended to the Government. The allowance is clearly a hindrance that prevents a great many people in a great many sectors from continuing to work, given the punitive tax penalty that they incur when their pension pot reaches £1 million. The Labour party has tried to bring the politics of envy into play, saying that it is a tax for the rich, but about half those involved work in the public sector—they are not just doctors, but senior civil servants, senior police officers, senior military personnel, air traffic controllers, Government scientists and so forth. Are all those the unacceptable 1%? It is a very ill-informed attack from Labour. This measure also constitutes a dramatic simplification of the system, which means that many more people can understand it and gauge what is best for their pensions.

As for increased business investment, that too was proposed by our committee, although we never dreamt that the Government would be courageous enough to go the whole way. Full expensing is far the most generous tax relief for business investment in any developed country. There was a tax penalty for business investment, but it is now the other way round. I would prefer not to see corporation tax rise to 25%, but that is still the most competitive rate in the G7, and full expensing goes a long way towards reversing its effect.

Given all these different policies—and I will not go through them all—I think that this is a powerful Budget which should go a long way towards promoting economic growth, and the Office for Budget Responsibility, in its analysis, has raised its economic growth forecast as a result of it. I strongly commend it to the House.

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

I refer Members to my declarations in the Register of Members’ Financial Interests.

I very much support this Budget, which has many commendable aspects: the expansion of free childcare, the extension of the energy price guarantee, the increased expenditure on defence, the continued fuel duty freeze and the extension of the 5p cut are all welcome. But I want to take the opportunity to bend the ear of Ministers on a couple of issues that may have been overlooked and may even threaten the long-term potential growth of the economy. They may not have been adequately addressed in the Budget.

The Chancellor rightly focused on five key growth areas, and one of them is financial services. The City of London generates more than 10% of the UK’s GDP, but I suggest to Ministers that that is under threat, and I am not convinced that the full scope of the Edinburgh reforms go far enough to address the problem. Many people pooh-bah the stock market, but it is only part of the Square Mile and it acts as a gateway to many other financial services, such as derivatives, trading, insurance, legal services and so on. A healthy stock market is therefore essential, but it is ailing. We just have to look at the computer chip designer Arm and the building materials giant CRH shunning the City for US listings. Those two companies in aggregate account for £80 billion of market worth.

A key problem is that the reaction after the financial crisis—and the Government were involved in this—was to encourage pension fund investors, some of the big beasts in the City, to adopt a more risk-averse approach to investment. Over the long term—and pension funds are about long-term investment—a more risk-averse approach means lower returns. Some pension funds have reduced their allocations to UK equities by up to 90%. The Government need to think outside the box to reverse that trend. They should consider tax incentives to encourage longer-term investment to foster investment in our technology companies, and ending tax penalties associated with equity financing. The Hill review, which is now two years old, has still hardly been properly addressed and it should be revisited.

We should ask ourselves why so many rising stars among our SMEs, especially in the technology sector and the green space, are banking with a Californian bank, Silicon Valley Bank, which needed rescuing over the weekend. It points to a wider issue.

My second point, in the minute left, is about investment and productivity. There is a severe risk that we will be squeezed between the US’s Inflation Reduction Act, worth £300 billion, and the EU’s green deal industrial plan, worth £200 billion. Subsidies and investment incentives do work: we need only look at our renewable energy sector. I suggest to Ministers that we need to follow this closely. I welcome the investment proposals in the Budget, and they will go a long way, but we need to monitor this continually, otherwise we risk losing our lead in so many areas in the green technology space. There is simply no room for complacency.