Capital Gains Tax (Rates)

Debate between Jon Trickett and John Pugh

Wednesday 23rd June 2010 Commons Chamber

[Jon Trickett]

I wonder whether the Business Secretary and some of his colleagues came into politics to restrict welfare benefits for the disabled.

People in our areas have reason to fear other elements of the Budget, apart from the VAT hike. Public sector pensions are going to be cut, and the Government will accelerate the rise in the pension age. We know that they are going to cut 25% of departmental expenditure, that there is to be a freeze on child benefit, and that there will effectively be cuts in housing benefit. All those proposals will affect the communities we represent.

I remind the House that it was Mrs Thatcher who stole milk from schoolchildren; now, it is this Government who will take money from poorer mothers. Let me list the effects the Budget will have on mothers, especially those in poorer communities, as it seems they are to be targeted.

According to the TUC, the announcements made yesterday show that poorer mothers will lose about £1,200 a year. From April next year, the Sure Start maternity grant will be available for the first child only. The £500 maternity grant available for poorer mothers having their second child is to be withdrawn, and that is a disgrace. The health in pregnancy grant—a universal grant worth £190 that was available to all mothers to promote child and maternal health and engagement with health services—is being abolished.

The baby element of tax credits is also being cut. That was an additional payment of up to £545 a year for families with a child aged less than one who were in receipt of tax credits. The previous Government’s introduction of a new toddler tax credit would have provided an extra £200 a year for children aged one or two, but that has been cut too.

As we know, child benefit has been frozen for three years, and that obviously amounts to a cut in real terms. Finally, the child trust fund worth £250 has also gone. That may not affect members of the Cabinet much, given that there are 22 millionaires sitting around that table, but I assure the House that £250 can make a difference to children and families in my area.

Whatever my differences with them, I do not believe that people who joined the Liberal Democrat party went into politics to attack poorer mothers, but that is what this Budget does. That is what they will be faced with voting for in a few days, and I ask them to consult their consciences—never mind their party members—to determine whether that is the right thing to do.

Earlier, I said that it would not be my priority at this time to go for further fiscal tightening, given the fragility of the economy and the lack of demand elsewhere in the world. However, that is not simply my view; it has also been expressed by people who are very significant indeed.

The House will be aware of President Obama’s letter to the G20, but hon. Members may not know that KPMG chief economist Andrew Smith has described yesterday’s Budget as a “kill or cure” Budget. I note that the same phrase was used in today’s Financial Times headline, and there is at least a risk that we might kill the recovery. It is quite extraordinary to see KPMG make such a statement, and Andrew Smith, its chief economist, went on to say:

“The aim is to eliminate the structural deficit over this Parliament, but it risks choking off the recovery. There is no guarantee that private demand will rebound just because the government retrenches.”

John Philpott, of the Chartered Institute of Personnel and Development, said that we would see unemployment rise to 3 million for the rest of this Parliament.

[Dr John Pugh (Southport) (LD)]

Can the hon. Gentleman refresh my memory? In the last Parliament, did he vote for £40 billion of unspecified cuts?

[Jon Trickett]

I am talking about yesterday’s Budget and I shall continue to do so. If the hon. Gentleman does not like it, he should think about whether he will vote for it next Monday and Tuesday.

Paul Krugman, the Nobel prize-winning economist, asked how hard it could be to understand that Governments can save economies rather than destroy them. It is not too hard at all, yet as he said:

“All around the world…politicians seem determined…to short-change the economy”.

A consensus has emerged in the media about the need for cuts, which is infuriating sometimes, because there is a counter-consensus that has not been properly heard, represented by many people on the Opposition Benches and by leading economists, President Obama and others: we are taking a huge risk with the future of our economy.

Two million private sector employees work for companies that are dependent on Government contracts—Sheffield Forgemasters has already been mentioned. Further damage will inevitably be done to the private sector by cuts aimed at the public sector. When we look at the performance of the private sector we see that it, rather than the public sector, has brought about the reduction in gross domestic product, especially in investment. People may not like to use the word, but if there is a strike going on at the moment, it is not the BA strike but the investment strike in the private sector. We can understand why it happened, but none the less, £6 of every £10 of the reduction in GDP is down to one factor alone—the decline in private sector investment. It is not clear to me how cuts now will suddenly lead to growth in private sector investment, nor have the Government explained how that might happen. Furthermore, the Red Book shows a decline in public sector investment from £47 billion in 2008-09 to £21 billion, which is less than half that amount, by 2014.

I am troubled both by the assault on poorer communities, which is what the Budget really amounts to, and by the underlying economic philosophy that by reducing the state the private sector will flourish. The reverse is true, as we know from the great economist Keynes and from what happened in the great depression of the 1930s. Recovery in the United States was not brought about by slashing public expenditure, but above all by the new deal. Roosevelt’s great adventure rebuilt the American infrastructure and economy. The private sector was able to revive through expenditure, not cuts.

With those reflections, I turn to the politics of the Budget. The election gave no legitimacy for the course the Government have set. The vast majority of people who voted for the Liberal Democrat party did so on the basis that there would be no further cuts in this financial year, and no increase in VAT. The Conservative party did not achieve a majority and did not significantly increase its vote, in terms of the total numbers of people who voted. On the other hand, it is also clear—I would not claim otherwise—that Labour did not win the election either, but looking at the combined votes for Labour and the Liberal Democrats, for a policy of careful financial management, we see that a vast majority voted for that objective.

My conclusion is that there is no democratic legitimacy for the Budget. When the Secretary of State for Business, Innovation and Skills described his conversion on the road to Damascus on the day after the election, his argument was much less than convincing. It feels as though there has been an attack on middle-class and working-class families and on those dependent on welfare. Inevitably, there will be resistance both in the House and outside. When people reflect on the fact that an extreme Thatcherite Budget has been agreed and will be forced through the House without the legitimacy of an elected parliamentary majority, there will be outrage.

It is for the Labour party, particularly our leadership, to reflect carefully on how we respond to a Budget from a Government who were not elected with a majority, and who propose to impose savage cuts on the living standards of poorer people. Resistance will emerge. The Labour party will want to react responsibly, but we will—at least we should—place ourselves alongside people and communities who are resisting the cuts. I very much hope we shall be doing that in the coming weeks and months.