Amendment of the Law

Kwasi Kwarteng Excerpts

Thursday 22nd March 2012 Commons Chamber

[Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)]

The Chancellor’s Budget speech painted a positive picture, in some ways, of what his policies are doing for the UK economy. However, although some businesses in my constituency are doing well, at the grass roots, among small businesses, I find a lot of people who are very worried about the future of their businesses, and that many of those who have been struggling to survive over the past year are now on the brink. I am sure that my constituency experience is typical of that of many Members in constituencies up and down the country.

That is why the Chancellor has made a dramatic mistake by rejecting Labour Members’ call for a temporary cut in VAT, which could have provided an immediate boost to businesses, created jobs and provided real relief for those on the lowest incomes. On the main street in my constituency, there are all sorts of shops, offices and other types of businesses, and I am genuinely worried that many of them are in great danger of going over the cliff edge if there is not an immediate boost to the economy such as a reduction in VAT. The temporary VAT reduction that Labour introduced at the end of its period in government certainly had that effect, and another temporary reduction would be an important boost for all types of businesses, but particularly small businesses, in my constituency and up and down the country.

[Kwasi Kwarteng (Spelthorne) (Con)]

The hon. Gentleman talks enthusiastically about businesses. Do not the measures in the Budget to cut corporation tax support business?

[Mark Lazarowicz]

The measures on corporation tax will have a beneficial effect on some businesses, but not so much for the smallest businesses. I am particularly concerned about the small businesses in a fragile situation in many parts of my constituency, which does not, relatively speaking, have very high unemployment overall, although some areas do have high unemployment.

First, we need a general 2.5% reduction in VAT that would benefit all types of businesses, as well as relieving people on low incomes, in particular, from the difficulties in which they find themselves as a result of the general economic situation and the policies of this Government. We also need targeted cuts in VAT. It is extremely disappointing that yet again the Government have rejected the call, not only from Labour Members but from organisations such as the Cut the VAT Coalition, which has called for VAT on home maintenance, repair and improvement work to be cut to 5%. That would not only be a boost for the depressed construction sector but would create work for joiners, plumbers, electricians and painters, and opportunities for young unemployed people looking for their first job.

Of course, one has ask how one would pay for a temporary cut in VAT. If the argument is that the top rate of tax is being cut because it will bring in more income by encouraging economic activity—a fairly dubious argument in my view—surely temporary cuts in VAT of the kind that I and my party have argued for are much more likely to lead to an immediate increase in economic activity than the cut to the top rate that is proposed in the Budget.

--- Later in debate ---

[Kwasi Kwarteng (Spelthorne) (Con)]

I am pleased to have the opportunity to speak in the Budget debate, because we had a significant Budget yesterday.

We have to consider what the Chancellor said in the Budget in the context of 10 years of Labour profligacy in public spending and in the context of the international economy. The Office for Budget Responsibility has been clear about the problems that face the British economy. There are structural problems caused by too much debt, which in turn was caused by too much spending. It is clear to everyone that spending more money or running a greater deficit would not help to get us out of this situation. The Government are doing what they set out to do and they are reducing the deficit. The Budget yesterday was a step in the right direction. We are trying to cut regulation and to encourage enterprise and aspiration. All that was clear in the Budget.

I would like to talk about tax cuts. The most significant tax cuts in yesterday’s Budget were not at the top end of the income scale, but at the lower end. It was an historic step to take hundreds of thousands of people out of taxation. It is striking that in this debate, the Labour party has made no comment about that. It has not given us the courtesy of saying that it agrees with the proposal, nor has it opposed it, yet it was the most significant move in the Budget.

There were other, perhaps more controversial moves, such as cutting taxes for wealthier citizens and subjects, which have created some debate. It is received wisdom, I think, that high taxes did not stimulate economic growth. Some Members will remember that there was a 98% super-tax in the 1970s, and we were a very highly taxed nation. Other Members were here when Nigel Lawson cut the top rate of tax from 60% to 40%. That was so successful that in 12 years, Labour did not touch it. It always accepted that 40% was a reasonable and good tax rate, not because it was friendly to the rich but because Labour’s leadership realised that there needed to be incentives to make the economy grow.

[Mr Speaker]

Order. I think the hon. Gentleman was referring to his noble Friend the Lord Lawson of Blaby. It would be good to preserve some of the courtesies of the House.

[Kwasi Kwarteng]

Indeed. I am very grateful to you, Mr Speaker, for putting me in my place. I will refer to him with proper courtesy with his title. The Budget in which he cut the top rate—the 1987 one, I believe—was the most significant in recent years, and only latterly have a series of political games been played and has the top rate been increased. Other Members have referred to that, and it is an elephant trap that the Government have mercifully dodged.

We have to consider the Budget in its national context, but also in an international context. It is no good our having worthy debates here without referring to what is going on in the rest of the world. I was very pleased to see that the Chancellor had finally realised that aviation capacity in the south-east is a massively important issue. The fastest-growing cities in the world need to have more connections. We will not be able to make money or trade with them without connections, and the Chancellor’s step of recognising the problem is mature and bold.

While we are focusing on spending and regulation, we have to realise that other parts of the world such as China, India, Brazil and places in the middle east such as Dubai have favourable regimes for business. If we are to compete seriously with those countries and their regimes, we will have to do an awful lot more even than we are doing to make ourselves competitive.

The Budget was excellent and a step in the right direction, although we need to do more to meet the targets that we have set ourselves. The Office for Budget Responsibility has said that it is looking for 3% growth in 2015 and, to meet that, we will have work an awful lot harder.