Finance (No. 3) Bill

Lord Harrington of Watford Excerpts

Tuesday 26th April 2011 Commons Chamber

[Richard Harrington (Watford) (Con)]

I came to this Second Reading debate to get an outline of the Government’s case on the Budget and the Finance Bill, as I heard from the Chief Secretary to the Treasury, and because I felt that the Opposition spokesperson, the hon. Member for Wallasey (Ms Eagle), would give us the Opposition’s view. I tried to follow her as best as I could, but we seemed instead to get a lengthy diatribe on any spats that there might have been over the AV referendum, and a repetition of the arguments used after the emergency Budget some several months ago about public spending cuts.

We heard the cliché that the coalition wishes to turn the country back as far as government is concerned into a “small state”, to use her expression. That ignores the fact that the size of the state in public expenditure terms after the five-year programme will be back to that of 2008, which I am sure the then Government would not have described as a “small state”. We heard also great support for the Liberal, Lord John Maynard Keynes, which I found interesting, and the blaming of everything on “a synchronised global recession”.

Those are yesterday’s arguments, however, because we are here to talk about this Budget and this Finance Bill. The debate is about one thing above all others: after the budget deficit is dealt with, the plan for which the Government explained clearly in the emergency Budget, how do we ensure that the economy can expand without the problems of the past? Such problems occur when the economy expands, imports are sucked in without a commensurate export boom and migrants come to work here because we have unemployed people who do not have the necessary skills or, indeed, ability to fill the available jobs. Whether it is because they are unwilling, live in a different part of the country or do not have the necessary skills, that has been a problem. In my constituency, about 2,000 people, including young people aged 18 to 24, are on jobseeker’s allowance, yet companies still have to bring in labour from Poland, because their alternative is to shut the factory and move it abroad. The long-term purpose of the Budget is to deal with such fundamental core problems.

It is not just a question of consumption. The media and, to some extent, the Opposition are obsessed with retail sales numbers, but in the past booming retail sales have led to some of our problems, with imports being sucked in and household debt expanding to fund consumption. Adam Smith, a great hero of Conservative Members who has some support even among Labour Members, said:

“Consumption is the sole end and purpose of all production”.

When he said that, the economy was far less sophisticated than it is today, and he did not mean that retail spending is the be-all and end-all. Indeed, the Office for Budget Responsibility expects British households to account for about a fifth of economic growth this year and about a third next year. There is a lot more to it than just consumption and what is spent in the shops.

The Daily Telegraph said in an editorial just after the Budget:

“The Chancellor bets on business coming to the rescue”.

That is absolutely true. The coalition’s strategy is based entirely on allowing business to produce the necessary jobs, exports and consumption so that the economy can expand, this time on a firm base rather than on the basis of property debt and financial services—although I am pleased to say that financial services, particularly international financial services, are very important for this country. Comments about the banking crisis and bankers’ bonuses tend to push to one side what I would regard as the core argument, which is how we can be competitive as an international financial centre. As the Chief Secretary to the Treasury said, the Government’s strategy is based on allowing us to be one of the best places in the world to do business and to be competitive. That includes the financial sector, but it does not exclude the rebalancing of the economy that is one of the main aspects of the Bill.

The test of the Bill is whether it facilitates real growth given that we have a skills shortage—there is no question about that—and a work force among whom some, particularly in the south of England, where there has been a shortage of labour, regard it as acceptable to be on jobseeker’s allowance for very lengthy periods. Watford is in the south of England, and it has 2,000 unemployed people. Does the Budget bring about a change in this climate to deal with people who lack of skills and those who lack an ability or a desire to get a job? I would argue strongly that it does. Many aspects of the Budget help with that through incentivising people to set up businesses and allowing investors more tax relief through the enterprise investment scheme and other schemes.

The Government’s approach to tax cuts has been the best that they can take in the economic climate that they inherited. The corporation tax reductions are a good start, as is the relief for investment in enterprise. However, tax is a major issue for businesses and individuals. I believe that the 50% tax rate will prove to be a disaster, first, in the money that it brings in—we are waiting for the numbers on that—and, secondly, in providing a disincentive. In one of the first speeches that I heard after the 50% rate was brought in, my right hon. Friend the Member for Wokingham (Mr Redwood) said that he feared that business people will, to use his expression, go on strike—that they will reach a certain age and say, “Why should I work harder if significantly more than half of what I earn is to be paid over to the Government?” My point is not to do with any principles of mine. I am very much in favour of taxation being used as a form of redistribution of wealth and of wealthier people paying a much higher amount than people at the lower end of the income scale, but the unfortunate fact is that it provides a disincentive. It is a free country, and when someone gets to a certain level of income they can decide whether to work a lot harder or to do what the Americans call “going to the beach”. I hope that I am wrong, but I believe that 50% tips the balance in the wrong way.

In the long term, it is in the best interests of this country for us to be able to provide the kind of public services that we all want to provide. Notwithstanding what the hon. Member for Wallasey said, a Conservative-led Government, just as much as a Labour Government, want to provide really good-quality public services. The way to do that in the long run is to reduce the burden of taxation to encourage people to enter new businesses or to work harder in the businesses that they are in. They will not do that in return for progressively higher amounts of tax. I wish it were not the case, but it is human nature and unfortunately we will see it happening.

Business is a bit lumbered, in a way, because there are no direct votes in business. In the past, it has been easy to impose taxes as a burden on business—high business rates, employers’ national insurance and corporation tax are the obvious examples, as well as many other taxes—because there is not the immediate reaction from business that there is from the public. We now have to decide that what is good for business is good for the country, because employees make up businesses. People who demonstrate against companies that pay a small amount of corporation tax forget the billions of pounds paid by the employees in their national insurance and income tax and the VAT on what they spend.

As for skills, the Red Book points out that unfortunately 9.4% of all 16 to 24-year-olds are unemployed and not in education. A few weeks ago, I visited a company in my constituency that makes lenses—Davin Optronics. The business is 100 years old. It has declined a lot in the past 10 years, but it still turns over £4 million and employs 50 people. I was told that its biggest problem is that its skilled work force are getting older. The managing director said, “Young people don’t want to work here. They want to work in Top Shop or TK Maxx, or wherever, but they don’t want to work in a factory.” I am very pleased about the apprenticeship scheme that was introduced in the Chancellor’s Budget. We must somehow make people regard qualifying to do a skilled job as being as important and high-status in society as getting a degree. The 80,000 extra work experience places and the extra apprenticeships are very good news.

Small businesses are different from large businesses, not only in relative size but because many do not have the facilities to set up training schemes to recruit in a systematic manner and to deal with local further education colleges as regards the training side of apprenticeships. I hope that what the Budget and the Bill are doing in relation to finances will be enhanced by the training of people at further education colleges, at Government expense, to find businesses that would never have dreamed of offering apprenticeships and to show them how good such apprenticeships are for those businesses.

Confidence is everything in the economy, and the measures that this Government have taken have done a lot for the confidence of employers. I read in that great oracle The Sunday Telegraph, no less, that according to its City editor business has got £71 billion of cash in reserves; presumably that is worked out by some piece of software that adds up everything on the balance sheets of all the companies at Companies House. That money needs to be invested. In bad times, companies hoard cash because they are frightened of what might happen if sales go down, there are problems with exports, and so on. It is confidence that will make those companies spend that cash in investment. The tax breaks help a lot, but the fundamental benefit of this Finance Bill is that it is employer confidence that will get these jobs provided.

We have to get the economy right, and I think that the Finance Bill passes that test. We have to get the tax regime right, and there have been great improvements on that, although I realise that it has to be done very slowly. We have to get the work force right, which means having skilled workers and incentivising people to work. If we can do all that and incentivise companies that make profits to keep and reinvest them, I think that the economy will enjoy a proper, genuine boom in time, and not one based just on debt or consumer spending. In my view, the Budget and the Bill go a long way towards achieving that.