Amendment of the Law

Debate between John Healey and Austin Mitchell

Wednesday 21st March 2012 Commons Chamber

[John Healey]

My hon. Friend is right. This might well become a Budget in which the closer people look, the less they like. That might apply to the granny tax, as he suggests, but it might also apply to the threshold for the 40p top rate of income tax, which many people might find themselves hit by over the next few years, rather than benefiting from the raised threshold for payment in the first place.

The consequences of the Government’s actions at a national level are already becoming clear. The UK economy grew by 3% in the year before the Chancellor stood up and delivered his spending review in 2010. In the 12 months that followed it grew by just 0.5%. That is because he took the decision to cut too far, too fast and choked off growth. Based on the economic projections we heard today, this country is still set for feeble growth in the coming year and the year after. It seems to me that a credible economic plan to deal with the deficit must be supported by a successful plan for jobs and growth alongside it. At present, the Chancellor is condemning Britain to being a one-legged man in a three-legged race. The International Monetary Fund has made a similar point, stating that

“growth is necessary for fiscal credibility.”

We have to look harder at what we earn as a country, not just what we spend. The UK’s GDP last year was still nearly 4% lower than it was before the global financial crisis hit in 2007-08. In other words, our economy was smaller and our national income was lower. If we draw a comparison with the US or with Germany, we find that both countries have a more balanced approach to dealing with their deficit, both countries are growing more strongly than Britain and both countries now have economies that have regained the loss of productive capacity which everybody in the modern, developed world suffered during the global financial downturn of 2008.

[Austin Mitchell]

That is a very important point. My right hon. Friend will know that the Institute for Fiscal Studies Budget forecast makes the point that that 4% now lost is lost for ever: it is 4% lost every year into the future.

[John Healey]

Indeed, and that is one reason why Britain is so far off the economic pace, and why so much more must be done than has been so far to boost jobs and growth in this country.

To use the household income analogy, well loved of the Tory party, I note that if a household looks to pay down its debts at the same time as reducing its earnings, the spending cuts that it must make to do the job have inevitably to be more savage and to last for longer in order to be successful. That is the position this country is in.

If I look at the consequences of the Government’s action locally, I have to say that in south Yorkshire, our area, it is hurting but not working: flat growth, higher unemployment, higher bills, lower confidence. In our area, more than 12 people are now competing for every single job that becomes vacant, and the number of young people without a job for more than six months has more than doubled in the past 12 months alone.

At a time when courts, hospitals, councils, civil service, police and fire service are all cutting public service jobs, any difference that there may be in south Yorkshire between public sector and private sector pay rates is simply not the reason why growth is being held back; it is the loss of jobs, of pay and of support through working tax credits that is sapping demand and confidence.

The Chancellor this afternoon singled out for special treatment those earning more than £150,000 a year, cutting their 50p income tax rate and giving them a tax break that is worth more to those people than many in Rotherham or Barnsley can earn in a year. With more than 800 households and families in Barnsley and more than 1,000 families in Rotherham—working hard, working part-time—faced next month with the total loss of their working tax credit, which could amount to almost £4,000 a year or £70 a week, the Chancellor’s decision to cut the top rate of tax at this point will simply not be accepted or understood.

Let me turn to several of the Budget measures. Any performance report on the Government would be hard put to place the Department for Business, Innovation and Skills anywhere other than close to the bottom, and any judgment on policies would be hard put to say that business support policies have been anything other than close to failure. The Merlin project was supposed to lead to a 15% increase in lending this year; in fact there was a net reduction of £11 billion in net lending to small firms. There was a similar failure of the regional growth fund, of the business growth fund and of the national insurance holiday for small firms.

I look in this Budget with a degree of welcome, however, to the new credit scheme for lending to small firms, and to the new managed funds for lending to mid-sized firms. Those may be small in scale, but they are a start. The margins to make lending more affordable may be modest, but the design and concept, at least, are innovative. Interestingly, the schemes signify that the Government recognise that they were wrong when first elected to say that there was no role for active government and that the private sector would pick up the slack if the public sector stepped back.

The schemes are interesting because they help to reduce risk and cost by using the power of the Government to stand behind them rather than support being funded up front. I say to my hon. Friend the Member for West Bromwich West (Mr Bailey), who chairs the Business, Innovation and Skills Committee, and the hon. Member for Chichester (Mr Tyrie), who chairs the Treasury Committee, that I hope that the Select Committees will make sure that those schemes do not fail as the other business support schemes have and that they provide more lending and lead to more economic activity and support for business in every region of the country.

International experience and all the data underline the fact that, in the long run, high levels of business investment are at the heart of strong economic growth. It seems to me that the case is clear, and has been so since the global financial crash and the requirement for Government to step in and provide big public support to commercial banks, that now must be the time to set up a British investment bank—the sort of industrial investment bank that Germany, Singapore and India have, which can offer strong support to indigenous research and development, domestic manufacturing and regional economies.

The Chancellor told us this afternoon that, taken together, the anti-avoidance measures in this year’s Finance Bill would increase tax revenue over the next five years by about £1 billion. It is interesting that table 2.1 in the Red Book indicates only about a quarter of that over the five years, and that is about half what we did in our first year in government. You, Madam Deputy Speaker, will recognise in the proposal for a general anti-avoidance rule, which I welcome, the same approach that we took and you fought for, against Tory opposition, in respect of the disclosure rules in the Finance Act 2004.

This Chancellor’s Budget was a rich man’s Budget. He chose to cut the top rate of tax and give a kick-back for the rich—and at a time when the deficit is getting bigger, not smaller, when the national minimum wage for young people has been frozen and when the working families tax credit and public services are being cut across the country. This is not a Budget for working people, and the Government are not working for working people. It is not now, and never was, a question, as the Government claimed, of the richest bearing the biggest burden; this Budget proves that the richest are getting the biggest benefit.