Budget Resolutions

Kevin Hollinrake Excerpts

Wednesday 27th October 2021 Commons Chamber

[Dame Meg Hillier]

I completely agree with my hon. Friend, and I hope the Chancellor does, too. I hope the Treasury is acknowledging the lessons that have been learned. We were very tolerant on the Public Accounts Committee, as we understood that spending in those early days would be challenging and money might be spent in the wrong way. The ventilator challenge, for example, means we now have ventilators that will not be used, but it was the right thing to do at the time because that is what the Government thought they needed, and any Minister in that position would have considered making such decisions.

Test and trace is one example where money kept following money without clear outcomes, without clear challenge and without a clear approach to spending taxpayers’ money. These are eyewatering sums. When we think of the NHS backlog, there have obviously been pre-announcements on NHS funding, but there is still so much work to be done to make sure that patients get the treatment they need. The money spent on test and trace could have been much better spent on the backlog.

Once again, we have heard very little about the detail of housing policy. The Government have promised to build 1 million homes over this Parliament, a statement that the Chancellor repeated. There had been a promise of 300,000 homes a year, so the figure is shifting. One hopes it means that the homes will be built eventually, but the Red Book confirms that, of the £11.5 billion that has already been allocated, £7 billion or so is owed from the spending review onward. That is enough to deliver 180,000 affordable homes, and we can add the 160,000 homes being built through mayoral combined authority and local authority funding. We are still getting very low figures.

The affordability of affordable housing, of course, depends on a person’s income. In my constituency, people in receipt of housing benefit, including housing benefit through universal credit, cannot rent a three or four-bedroom property because the rents are above the cap. That is just the market in Hackney South and Shoreditch and across the borough. It is impossible to buy. More people rent privately than own their own home, and more people rent social housing than both of those combined. Those in generation rent and those who cannot get on the waiting list for social housing are left in limbo. They are left out in the cold. Where is the levelling-up agenda for them?

The Father of the House mentioned the terrible issue of dangerous cladding on tower blocks, and this Budget only reconfirms the existing £5 billion set aside for remediation. This is the biggest consumer and regulatory failure in a generation, and many of my constituents, like many people across the country, are living in unsaleable homes. I should declare my interest, as I live in one, too, although my developer has shouldered the entire cost. As the Father of the House said, we need more developers to take that on.

The £5 billion is about a third of what is needed to sort it out. I am the Chair of the Public Accounts Committee, so I do not want to see money given out willy-nilly, but if the remediation is not funded now, there will be no confidence in the sector to get started. Even as somebody who lives in a property surrounded by scaffolding right now, and as an early adopter because the developer paid, it will take many years before the remediation is delivered. For those who have not got to that point, we are talking about well over a decade before this problem will be solved. It is about certainty of funding from the Government. As the Father of the House said, there are ways of getting this money back from developers. We need to be more imaginative. I challenge the Chancellor to work with his Cabinet colleagues on that.

There was some mention of street homelessness in the Budget. Getting “Everybody In” was a covid success story; let us not squander that opportunity for the lack of a bit of funding now. The money to make sure that people get into the 6,000 new homes that are supposed to be provided for people who are sleeping rough on the streets needs to be delivered. If it is not and they go back on the streets, it will end up costing the taxpayer and the Exchequer considerably more. The Department for Levelling Up, Housing and Communities—I hope I have got the new title right—has been slow to confirm the figures on progress, so it is right that the Treasury should keep an eye on how the money going into that Department is spent and on whether it will actually deliver those homes, which will, as I say, save the taxpayer money in the end.

I could speak at length about the cost-of-living issue but, given the time, I shall touch only on the main issue. Universal credit has been cut by £20. I welcome the offer to revise the taper, but it will affect only those who are in work and rather plays into a negative narrative that some people are scrounging off the state. People have lost their jobs during the covid pandemic. People have struggled to get back into work, despite the situation not being as bad as some had predicted. On top of that, we see fuel prices increasing, energy bills going through the roof and inflation. That £20 a week is still a real issue for people.

According to the Red Book there will be a 3% real-terms increase in local government funding over the spending review period, but that comes on the back of cuts of up to 40% or more in some boroughs over the past decade. Since 2019, we have seen an increase year-on-year, but 2019 is only two years ago; let us not forget the deep and swingeing cuts to local government, which has proved itself an effective deliverer of vital services during covid but cannot be squeezed further. We are still nowhere near to the previous levels of funding.

On school funding, there is another smoke-and-mirrors promise. Again, increases are talked about, but after years of cuts. Per-pupil funding is still way lower than it was in 2010 and we are only inching back up to that level. A Public Accounts Committee report showed that the per-pupil increase is lower for pupils in the most-deprived areas and much higher for those in the least-deprived areas, thereby widening the gap in funding. The gap in attainment between the least-deprived and the most-deprived was narrowing, but we now see it growing as a result of covid. This is not the time to cut funding, or to reduce funding even if it is not seen as a cut. It is clever how the Government try to present it, but let us be clear that in effect we are talking about a cut to the poorest, with money going to the wealthier pupils.

The Government have also promised a £30,000-a-year salary for teachers; as far as I can see, having read the Red Book quickly, there is not enough in the settlement for schools to pay for that even if, now that the pay freeze has been lifted, the basic pay increase is taken on board—and we do not yet know what that will be.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

The hon. Lady mentions having read the Red Book and says there is no new money for housing, but the Red Book announces

“an additional £1.8 billion for housing supply”

and for the regeneration of brownfield land; is that not new money?

[Dame Meg Hillier]

It is not clear to me that it is new money. I have acknowledged the figures for housing on brownfield sites and other housing, but let us be clear: the Government promised 1 million new homes over the Parliament, and they had said 300,000 a year, so they are already watering down the promise on the number of homes. Crucially, there is no figure for proper affordable housing that is actually affordable, so many of my constituents who are priced out of the private rented market and home ownership have no option. There is a real gap there and, as I have said, it is not levelling up for many of my constituents.

As I was saying, even if the pay review bodies come forward with an increase to the basic pay for teachers, as we expect they might, it will be very hard for schools. In effect, it will mean cuts to the number of teachers and to other school services to pay for that promised salary, because there is not enough money in the pot to be carved up all ways. Even the catch-up money will not cover that issue.

Let us look at the detail over the coming days and weeks. The flourish with which the Chancellor finished at the Dispatch Box will wither away as we see the reality that this Budget does not exactly deliver everything that he has promised.

--- Later in debate ---

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to follow the hon. Member for Feltham and Heston (Seema Malhotra), although I have to say that I did not expect more from the Budget—I came here today fearing the worst. I expected to see some pretty dire public finances, and to be fair we have seen some pretty dire numbers. The deficits for the last financial year and the current year total £500 billion, and we will still be running a deficit this year of about £130 billion.

However, we have managed to forecast to balance the books in the financial year after next. I could not possibly have expected that we could go from the economic storm that we suffered back to a balanced situation less than a couple of years after the end of the pandemic. That is a tremendous achievement and it shows how successful the Government’s measures to save the economy have been over the past 18 months that we can even forecast that position. Even if that forecast is a bit optimistic, I was expecting years and years of deficit, and was wondering how we were going to fill it with spending cuts and tax rises. It looks, thankfully, like we will not need them.

We are forecasting the end of the deficit the year after next despite the Budget increasing the deficit by £25 billion. The measures we see are tax rises of about £12.5 billion and spending increases forecast to be about £38 billion. The spending envelope is actually being relaxed while we are balancing the books—quite a tremendous achievement. It probably shows, however, how key some of the sensitivities are in the forecast that we need to deliver the economic growth to drive tax receipts, otherwise those numbers just will not work.

We need to focus on what more we can do to increase the long-term trend in the rate of growth. What we are seeing by the end of the forecast period, well under 2%, will not be sufficient to deliver the public finances that we all want to see. That is why we need to make sure that the very welcome measures to increase investment, improve skills and boost productivity are driven through and made to work.

There was much good news in the Budget. Most of it was trailed well in advance. More money for the NHS will be hugely welcomed across Amber Valley. The rise in the living wage will be welcomed by people earning low wages. The end of the public sector pay freeze is the right thing to do. We had a year of it. I understand why we needed it in the middle of the crisis, but we cannot leave people worse off in real terms given the rise in bills.

I especially welcome the reduction in the universal credit taper. If I could just gently tick the Government off, that is not a tax rise. It is not a marginal tax rate. If we really wanted to say what the marginal tax rate was and we included that, we would have to add the 55% new taper rate, the 13% national insurance rate and the 20% income tax rate for those earning over £12,000, leaving an 88% marginal tax rate. I suspect that is not what the Government are trying to tell us, and nobody really believes that people can move into work from benefits and not have any reduction in their benefits. It is quite right that there is a reduction, so I am not sure that it was helpful to present this as a tax cut. It is a welcome reduction in the taper rate, which will ensure that work pays, but we should be careful in the presentation of that.

I have been one of those arguing to keep the £20-a-week uplift. We would have had a much better system if the benefit had started in the right place and then tapered off at the right rate. It is clearly welcome that the Chancellor has found £2 billion a year to improve the taper rate and make sure that we can be certain for everyone that work will always pay and that they will be materially better off if they take work, get more hours and get higher pay. That is hugely welcome.

I also welcome the fact that the Government, in our post-Brexit world, are starting to tweak the tax system so that we can use our post-Brexit freedoms. The reduction in the draft beer duty rate is sensible. On the domestic air passenger duty rate, it is absolutely right that people should be able to fly within their own country at a lower tax rate than when they fly overseas. That is what used to be the case until 20 years ago, when we were forced to change.

I even welcome small measures such as the plan to take away the right to offset losses incurred across Europe from UK corporation tax. That is a sensible measure. There is no reason why a loss that someone incurs overseas should reduce their UK tax bill. There are other measures that we had to introduce to be compliant with EU rules, which we could now reform. We had to take away a collection of tax avoidance measures because they did not comply with EU rules; we can now reinstate them and protect our tax. I urge the Government to continue that trend.

I welcome the changes to the research and development rules, the increased investment and the tweaks to the R&D tax incentives. It is right that when we give people a tax incentive, that work is done in the UK. Actually, it is more important that the fruits of that research are owned in the UK, that the intellectual property produced is owned and exploited here, and that the research generates jobs and tax revenues here. I urge the Government to introduce the detail behind those changes and to add a rule that says, “If you are going to claim that tax credit, the IP produced needs to be owned in the UK for you to get it.” That will be more important in the long run than where the research was carried out. If the Minister wants some clues on how to draft such a measure, he should know that I moved an amendment to that effect about 10 years ago during consideration of the Finance Bill. He can check the history.

[Kevin Hollinrake]

On the universal credit taper rate change, my hon. Friend says it is not a tax cut. It will cost the Exchequer £2 billion to do it, so it is a tax cut in that way. On national insurance and personal tax thresholds, for people who are below those figures, the extra taxation he mentioned—the 20% and the 13%—will not apply.

[Nigel Mills]

I am grateful to my hon. Friend for his intervention. I agree with his point, but actually we cannot say that every spending increase is a tax cut. That makes no sense. This is an increase in welfare spend; universal credit is not a tax. By improving the taper rate, we are not changing tax. That is not the case. It is not a factual statement, nor is it helpful for people who need to understand their own financial position to believe that description. I am sure my hon. Friend knows that many people who are entitled to universal credit earn more than £12,000 and therefore pay income tax and national insurance. That is not an unusual situation to be in.

I shall conclude so that I comply with the Chair’s strictures on time. This is a hugely powerful Budget that sets the country in the right direction. It shows a welcome improvement in the public finances and delivers on many of the priorities of my constituents. I wholeheartedly welcome it.

--- Later in debate ---

[Kevin Hollinrake (Thirsk and Malton) (Con)]

It is a pleasure to speak after my hon. Friend the Member for Basildon and Billericay (Mr Baron). I agree with many of his comments, particularly those on the cladding scandal, which I have been involved in considering as a Select Committee member since 14 June 2017. I definitely agree that we need to go further on the issue.

I very much welcome the Budget, as my hon. Friend did, although not just what is in it. I welcome the optimism with which the Budget was presented, and I welcome the way it was contrasted with the pessimism of the Opposition parties. We are a party that believes in the future of this country and the individuals within it, and we believe that we can make a genuine difference to their lives.

We must bear it in mind that the Budget is set against a backdrop of the reduction in the size of the economy that began 18 months ago, which was the sharpest contraction in any of our lifetimes. As a consequence of the Government’s interventions, that contraction has been followed by the fastest growth in the economy we have seen in our lifetimes. That has certainly put us back on a par with countries that people said were doing better than us through the crisis, such as Germany. The effects on GDP and on unemployment have produced far better outcomes for us than many people predicted.

We must put that in context. The huge economic fallout from covid was totally unexpected, although we were ready to deal with the economic fallout caused by leaving the EU. I voted to remain, but never argued that our economy could not succeed outside the EU. There were going to be short-term challenges, as we have seen to some extent, but, rightly, the Government have seen that in moments of crisis there are moments of opportunity. That is exactly the way we should approach this, and the move to a higher wage, higher skilled economy is absolutely right. The key to that is having control over immigration, which we never could have had within the EU.

Owing to that and owing to the covid crisis—principally because of the covid crisis—we have some real pinch points in our economy right now. There are labour shortages across the economy; this is not just about HGV drivers. Almost every sector I speak to is having labour difficulties, not least in Thirsk and Malton. There are difficulties in some of our pig supply chains and our pig farmers are having real problems in getting the pigs off the farms and into the meat processing plants because there are shortages of some workers, who farmers would normally get from further afield. That is due to Brexit to a certain extent but is mainly down to covid.

The other big issue that we must confront and which we will be dealing with for some time yet is inflation. Predictions of inflation topping at 4% seem likely, so that will cause some pressure for people, particularly those on low incomes. Nevertheless, both issues—labour shortages and inflation—are short term and they will be resolved in time.

The longer-term issues we must deal with involve demographics and the ageing population. That is good news as it means we are living longer, but the ageing population will put huge pressure on the taxpayer. The OBR is not always accurate, but its central prediction is that, owing to the cost of healthcare, social care and pensions, our debt to GDP ratio, which is 100% of GDP, will be 400% by 2060 if we do not change our system of taxation. That is a frightening thought for the Treasury, but it is something the Treasury will have to confront and deal with.

Rather than throwing lots of money at everything without expecting to raise taxes, or criticising tax increases to pay for our spending, as the Opposition do, the Treasury has taken a sensible, balanced view. It is balancing day-to-day payments and shifting the burden away from taxpayers’ earnings, so that it is subsidised not through the tax system, but through employers paying more to employ people, while people keep more of the money—hence the universal credit taper, which I absolutely welcome. As co-chair of the all-party parliamentary group on poverty, I think it is a far better use of taxpayers’ money to provide a greater incentive to work, rather than simply paying people through other taxpayers’ contributions to their income. That is absolutely the right way forward.

If we are to head off the prospect of our debt being 400% of our GDP, it is critical that as well as making work pay, we get the economy growing. To do that, we have to make business pay. That has been my life—I started up a business—but there are so many benefits: not just the opportunities for businesspeople, but the fantastic effect on the consumer. The best way to drive down prices and drive up services for consumers is to have more competition. In my experience, having started a small business that we grew into a larger business, the one thing that makes us more competitive is competition. That is the key: a competitive economic environment. That is what we have to try to engender.

Hon. Members have talked about cutting regulation and making it simpler to establish a business. I support all those things, as long as we put sensible protections in place, but the No. 1 thing that we can do to engender a positive business environment is to have a fair and level playing field. It encourages more entrants; it encourages people with all kinds of business model to start up and scale up. Businesses want a fair and level playing field and simple and stable taxation.

I welcome what the Chancellor has done on alcohol duties: a simpler, more stable alcohol taxation system is absolutely right. There has been a massive simplification, and I would like to see the same principle applied to one of the biggest barriers to a competitive environment and to a fair and level playing field in our business world today: business rates. Business rates create a massive distortion between physical and online retailers, which is deeply unhelpful.

The Government have done a lot—I think that they have put about £11.6 billion into easing the burden on lots of business sectors—but that still creates winners and losers. Whenever reliefs, much as I welcome them, are put in place, people will fall on either side. I know that the measures are only short-term, so we need longer-term reform, as many hon. Members have said.

There seems to be a debate about online sales tax, and the Government seem potentially to be heading down that road. The Opposition say that the digital services tax should be increased sixfold, which I have to say I think is a bonkers idea. It will hit very few retailers, or even hit marketplaces only. When the levy was put in place, Amazon added it straight to the cost of goods; the Opposition’s proposed increase would be added straight to the cost to consumers. It is absolutely wrong to do things in that way, but I welcome at least the efforts to solve the problem.

I believe that we should scrap business rates completely. The system is completely archaic; I absolutely believe what the Labour party says about that. In my view, we already have an online sales tax: it is called VAT. A simple solution—not easy, but simple—would be to add the £25 billion cost to VAT while lowering the threshold for VAT registration.

[Alex Cunningham (Stockton North) (Lab)]

indicated dissent.

[Kevin Hollinrake]

Well, I am happy to have a debate. Perhaps the hon. Gentleman should think about what I am saying, rather than simply ruling it out. It would create a fair and level playing field, it would raise the same amount, and it would mean online retailers trading in exactly the same way as physical retailers. It would be a simple solution to a very thorny problem.

I sympathise with the Treasury, because this is not easy. To my mind, the Opposition solution is totally unworkable.