Finance (No. 3) Bill

Debate between Julian Knight and Alex Chalk

2nd reading: House of Commons & Programme motion: House of Commons
Monday 12th November 2018 Commons Chamber

[Julian Knight (Solihull) (Con)]

Thank you, Mr Deputy Speaker, for letting me speak a bit earlier than I expected. It is a great pleasure to be called so early and I will not abuse that generosity by speaking for too long, because I know that many colleagues want to speak in the debate. I just wish to cover a few areas that have come up in the debate and the Budget more generally: first, the higher rate tax thresholds, which have been mentioned by many hon. Members; secondly, corporation tax and small businesses; thirdly, debt, which my right hon. Friend the Member for Wokingham (John Redwood) spoke about so interestingly; and, finally, fuel duty and car taxes more generally, which is pertinent to my constituency, with its 9,500 car workers.

On the higher rate tax, I was interested in what was said by the right hon. Member for Twickenham (Sir Vince Cable), who is no longer in his place. There is an amendment in the name of all the Liberal Democrats and it is good to see them here this evening in such numbers. The amendment mentioned the

“provision for a £1.3 billion tax cut for higher earners”.

I pressed the right hon. Gentleman to explain what that would actually mean for productivity and for what we term fiscal drag, a term first used when Gordon Brown was Chancellor of the Exchequer. It happened in the early part of the Labour Government, which came to office in 1997, and was eased over time. In 2010, it was decided, as an issue of morality, that we would also freeze the higher rate of income tax at the threshold. The reality is, however, that in the long term that has quite a damaging effect on the economy. It means that people are being brought into the higher rate of tax who really should not be there. I know that in my constituency there will be, for example, deputy headteachers, locum GPs and middle managers in local government who are paying the higher rate of tax. They would not have done so within the last generation, but they do now.

When people—this applies in the private sector as well—who pay the higher rate of tax are offered any extra work or overtime, they make a calculation: “Do I take that or do I trade that off against what my tax will be as a result of this?” If people are being charged too much tax at this marginal rate, that reduces productivity, and that, in itself, has a damaging effect on the economy. As my hon. Friend the Member for Dover (Charlie Elphicke) mentioned, in 1987, the then Chancellor, Nigel Lawson, lowered the rate of tax from 60p in the pound to 40p in the pound—and guess what? We actually took more tax in as a result.

This is a fundamental point that also applies to corporation tax. Labour Members have made their views very clear in that they would like a restitution of the rate of 26% for large businesses and 21% for small businesses. However, with regard to corporation tax, the proof of the pudding is in the eating—that is, employment. As my hon. Friend the Member for Cheltenham (Alex Chalk) said, the unemployment rate in the UK is 4%. I grew up in a town in the north of England in the 1980s, when the unemployment rate was about 25%. We went through a horrendous recession in our light industrial town. We could not even dream of a rate of 4% at that time. In the EU, unemployment is 8%, on average, and it is 9% in France. My hon. Friend also mentioned Italy and Spain. Think about all those lost opportunities and lost lives through high unemployment. This beds down in communities—I have seen it for myself. The way in which we bring about a culture of work and of higher employment is fundamental to the development not just of productivity but of our society itself.

[Alex Chalk]

Does my hon. Friend agree that unemployment has such a crushing effect on self-esteem and self-worth, and that that is one of the key reasons we should celebrate increased employment—not just for the sake of statistics but because of the individuals whose life chances lie behind them?

[Julian Knight]

I thank my hon. Friend for his intervention—that is absolutely true. If someone is unemployed for 18 months, they are often unemployed for the very long term—for the rest of their life, in some instances. It ruins lives, shortens lives and makes those lives more miserable.

The way in which we have approached corporation tax is absolutely correct. On small business rate relief, my hon. Friend, again—I do not wish to just copy his speech—talked about how that had been very well received in his business community and on his high street. It is a blessed relief that will bring a much-needed boost to our small businesses and to our high streets, which we have to nurture. We cannot have the high street of just the bookmaker, the pub next door, and the charity shop—although charity shops do very valuable work. We need diversity in the high street, not just in terms of retail but living space, opportunity, health and social services.

On debt, as I said in the Budget debate, with a ratio of 82% to GDP, we really should not give ourselves a pat on the back. It is not a good place to be at all. It makes us less likely and less able to effectively withstand the winds of global recession that happen on a cyclical basis. However, we have chosen a path by which, over time, we bring that under control. There are two ways to reduce the GDP-to-debt ratio: through productivity or inflation. The choice of British Governments, for years and years, was inflation. Inflation is a fool’s errand: it destroys living standards and destroys savings. The second approach is productivity. I am really pleased to see in the Red Book that many elements of this Budget really focus and home in on productivity, but we need to keep that going. We need a step change in our economy in this respect.

I turn to what I call car taxes. As the vice-chair of the APPG on fair fuel, and the former chair of said august APPG, I am absolutely delighted to see the freeze in fuel duty. However, I want to make a point about diesel cars in this respect. That is not, obviously, just because my constituency has 9,500 workers in this sector and 93% of the engines that come off the track are diesel cars. We have seen a 45% fall in diesel sales, and that hurts the Exchequer.

This problem originated in Wolfsburg. The irony is that the Germans are now changing their approach with regard to diesel, so the originators of the difficulty within the diesel market are now looking at the market and saying, “Hold on a minute—we need to ensure that clean, modern diesels are supported.” We have a higher excise duty on modern, clean diesels. According to the AA, 270 of the diesel cars currently tested are now within tolerance in that respect. If we have this disincentive, people will hold on to their older cars for longer. These cars can run for a quarter of a million miles—I know; I have one. That means that the older EU5 and EU4 engines will stay on the road longer and pollute more. We need to get really smart about this and construct the tax system to support all modern petrol and diesel engines while, at the same time, aiding the transition towards new technologies.

On the Budget as a whole, it is quite remarkable to note, as a former personal finance journalist, how we used to have a merry time pulling Budgets apart. We could almost guarantee that, by the end of the first day, we would have something to go at the Government on. With this one, that is not the case. That is a testament to the Chancellor and the team. I will be absolutely delighted to vote for this Bill tonight.