Amendment of the Law

Lindsay Hoyle Excerpts

Tuesday 29th March 2011 Commons Chamber

[Geraint Davies (Swansea West) (Lab/Co-op)]

I am pleased to say that this morning we had a coalition ground force moving into Swansea in a dawn raid at 8.30 am, with the Business Secretary alongside the Secretary of State for Wales talking in the chamber of commerce, and they had a great deal of local resistance from people with placards and the like. In Swansea, 40% of people in public services are facing cuts and unemployment, and we have been denied electrification by the Government, which would have meant inward investment in Swansea. In addition, Tata Steel has just had a bomb dropped on it about the new carbon tax, which will focus only on its facility in the UK and not on those in any of the other 20 countries in which it makes quality steel. Obviously, it is a very valuable employer in the area.

The people resisting the Secretaries of State this morning were similar to the hundreds of thousands who marched in London on Saturday. Who were those people? They were nurses, doctors and teachers—people who keep our work force healthy and educated. They were tax collectors who face losing their jobs—people who are supposed to be collecting tax more efficiently. They were police officers, who are meant to patrol and police, as well as look after the riots and protests being incited by the cuts. They were small business people who are clearly concerned that the Government’s attitude to small business is, “If you make a loss, sell your tools,” as opposed to achieving growth through increased sales. They were service users—people who face cuts in libraries, leisure centres, pools, centres for the elderly, Sure Start and so on. The people on the march had one common cause—that there should be an alternative mix of growth, tax, cuts and timing that is optimal to confront the deficit before us.

It is worth reminding ourselves that the deficit did not come out of some sort of Labour inadequacy. It was the price paid to avoid a depression caused by the banks. Two thirds of the deficit—£84 billion—has been evaluated by the Institute for Fiscal Studies and others as being the impact of the financial disaster that we imported from sub-prime debt. The fiscal squeeze on which the Government have embarked is about £98 billion, more than the overall financial crisis. That is to take place over four years. The question is whether, if there is a massive outside impact on the country’s financial deficit, we can hope to get rid of that and more within four years without disrupting our economic capacity and social fabric. Should it be the case that three quarters of that is cuts and only one quarter is tax?

The OBR has reached its verdict. It has had to change the growth forecast from 2.6% to 1.7%, which shows that less revenue will come in from people working, and the Government will have to rely more and more on savage cuts. There is an alternative, the Labour alternative—to halve the deficit in four years rather than get rid of it completely, and to use three methods instead of just one, cuts. The three methods are to focus on growth, make the bankers pay their fair share and make savings over time. Germany, for example, is clearing its deficit through export-driven growth, rather than focusing on cuts.

I was over in Germany. I went to UK Trade & Investment, which markets Britain for inward investment. There are lots of German companies queuing up to invest in Britain. Those offers were put on a computer platform for regional development agencies to draw down, but because the RDAs have been abolished, those inward investments are not being taken up and are going to other countries. German regions, let alone the whole country, have offices in Seoul and other emerging markets and are trading and getting inward investment there, and we are not. We are undermining our ability to grow. Instead of a budget for growth, we have cuts.

Growth went negative in the last quarter of last year. Why? Because consumer confidence, the inclination to spend, and investment confidence were washed away by the talk of austerity and the reckless, breakneck speed at which the cuts were made. In addition to the 300,000 people who are to be sacked from public services, PricewaterhouseCoopers says that another million jobs will be lost in the private sector, costing around £7 billion in lost tax and benefit costs per year. Add to that the £4 billion that we have to spend on restructuring the NHS to help privatise it, and the other costs of unnecessary structural change at a time of shrinking budgets, and we can see that this is economic incompetence at its worst. It is not necessary in its current contortion, it is not fair and it is not sensible.

The key issue on banks is that they need to provide liquidity to small business as the engine for growth. We all heard about Merlin, but the question is whether that will be delivered. Sadly, a person in my constituency is on hunger strike over the issue. Finally, people may not have noticed the 3p reduction in inheritance tax given to bankers, who are now paying a smaller proportion. If they give money, for example through works of art, we can see from the fine detail—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order.

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[Mr Michael Meacher (Oldham West and Royton) (Lab)]

The Government’s main jibe at the Opposition throughout this debate has been, “What is the alternative to the cuts?” I will spell out what I think that alternative should be. Of course the deficit has to be brought down —we all agree on that—but slashing public expenditure by £80 billion in four years is probably the most risky and counter-productive way of doing that. The Chancellor has largely ignored the other three ways.

First, there are the proceeds of economic growth. The estimate of the independent Office for Budget Responsibility for growth over the next five years, albeit recently scaled down, has growth at 1.7% this year, 2.5% next year, then 2.9%, 2.9%, and 2.8%. That means that, on the Government’s own estimates, there will be an increase in the national income of £185 billion. Governments always take about 40%. That means that there will be extra Government revenues over the next five years of £74 billion. That is half the current Government deficit of £146 billion, and nearly three quarters of the Government’s estimated structural deficit of £109 billion. Therefore—on their own estimates, I repeat—the Government would halve the budget deficit in five years without making a single public expenditure cut. I am not against such cuts, and I think there should be some, but I am simply pointing out that there are alternative and far better ways of dealing with the problem.

The reason why the Government have chosen to focus obsessively on benefit and public expenditure cuts is not because they are economically necessary on the scale that they say, but because of their overriding ideological objective of chopping back the welfare system and shrinking the state. That is what it is really about.

The second way to reduce the deficit is obviously through tax increases, but the Government have chosen to minimise that option and maximise the cuts option—the balance between the two is 77% and 23%. Thatcher never went beyond 50:50. The Chancellor has ostentatiously avoided any tax rises that might disturb the rich. The non-dom loophole has not been closed; it would bring in an extra £3 billion. The promised £2 billion to be saved in tax avoidance is really pretty small beer, given that even Her Majesty’s Revenue and Customs admits that avoidance will cost £16 billion this year and most independent experts think that the figure will be £50 billion. The tripling of the Government’s bank levy, which was recommended by the International Monetary Fund and would bring in another £6 billion, has simply been passed over.

Moreover, the Chancellor has simply turned his eyes away from any fiscal innovation that might produce a fairer Britain where all of us are in it together. A financial transaction tax at a modest rate of 0.05% would raise about £30 billion. An empty property tax would raise £5 billion, and a land value tax, which would be a great deal fairer than the council tax, which it could replace, would raise more than £30 billion. A minimum tax levy on high earners would put a cap on avoidance and raise more than £10 billion.

The Chancellor really ought to be less timid. The public want taxes that will hurt the rich, and particularly bankers. I do not think the Government realise that. Any permutation of the taxes that I have mentioned could raise at least £30 billion a year—probably rather more if the Chancellor chose, but of course he will not, because the Tory party gets half its funding from the bankers.

Then there is the third option for reducing the deficit, which is a jobs and growth strategy. The cost of putting a million people on the dole, which is what the Government are planning to do, is probably about £6 billion depending on the level of benefits involved. Instead of throwing a million people on the scrapheap, which will substantially worsen the deficit, the Government could invest in a million jobs to provide the social housing and transport infrastructure that are so desperately needed; to develop the green technologies that the green investment bank was supposed to fund if only the Government had not shrivelled its powers; to deal with the rising child protection case load; to train a more skilled work force; and to care for a growing ageing population, to mention just some of the service jobs that could be provided. There would be a significant net gain in deficit reduction for many reasons, not least because of instead of a million people being a drain on the Exchequer, they would contribute to it.

The real cause of the financial crash has not been addressed at all. It is astonishing that three years on, nothing has been done to address the massive flaws in the banking system’s structure and its use of derivatives, bonuses, lending practices, offshoring and speculation. The Budget sets out £80 billion-worth of spending cuts that are not economically necessary on such a scale, will do lasting damage to the social fabric and do not deal with the real—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order.

--- Later in debate ---

[Stephen Lloyd]

rose—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

One more Member wishes to speak, but unfortunately I cannot call him. I apologise for that. The Chancellor has also sent an apology, as he has been called away to the G20.