Amendment of the Law
Debate between Lord Johnson of Marylebone and Lord Beamish(13 years, 9 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Joseph Johnson (Orpington) (Con)
It is an honour to follow in the slipstream of the new Member for Barnsley Central (Dan Jarvis), who has executed an elegant parachute jump into the Chamber. His forceful and powerful speech was a reminder of how important it is, at a time when the country is making ever greater demands on its armed forces, that we hear the voices of our servicemen and women from all parts of the Chamber.
Thus far we have touched several times on the critical role that the bond markets are playing in framing the budgetary policy of this coalition Government. The hon. Member for Middlesbrough (Sir Stuart Bell), who is no longer in the Chamber, asked when it was that bond markets acquired this pivotal role in our national economic policy making. If I may venture an answer, I think that the views of rating agencies became impossible to ignore when towards the middle of the previous decade—before the onset of the financial crisis—the British Government
“lost control of public spending”
in three key Government Departments: Health, Education and Defence. Those are not my words or views but those of Sir Nicholas Macpherson, the permanent secretary of Her Majesty’s Treasury, as expressed in a hearing of the Public Accounts Committee not so long ago; they are available in the Committee report if people wish to have a look.
It is also important for the hon. Member for Middlesbrough to realise that we live in a globalised financial market, and if one cannot fund one’s borrowing requirements from captive domestic sources, inevitably one is forced upon the mercies of the international capital markets, and that is exactly where we find ourselves today.
Mr Kevan Jones
I know that the Conservatives are peddling the line that we are in hock to foreign banks, but does the hon. Gentleman not realise that only about 35% of our gilts and debts are held abroad? Greece is always held up as the big pariah, and its figure is nearly 70%. The hon. Gentleman’s argument is frankly complete nonsense.
Joseph Johnson
I thank the hon. Gentleman for that elegantly expressed critique. It is a significant proportion of our borrowing. It is not the totality, and I never said that it was. However, if our marginal investor, whom we need to supply that additional pound of borrowing, is setting the price for our borrowing, that determines the rate at which we finance ourselves. It is as simple as that. That is straightforward marginal pricing through supply and demand.
Joseph Johnson
No, I will carry on for a little.
In my view, it is only thanks to the resolve and determination of this Government that we have sufficient credibility with the bond markets to have delivered a Budget for growth. The Budget includes an acceleration of the plans to cut corporation tax, which will give a much-needed boost to Britain’s international competitiveness. I am particularly pleased by that because at a time when countries need to compete ever more aggressively to attract highly skilled labour, the UK is increasingly being seen not just as a high-tax economy, but as one with a highly complex and unwieldy tax system. The World Economic Forum’s global competitiveness report for 2011 ranked the UK tax regime the 95th most competitive out of 135 countries—almost at the bottom of the world rankings. That sends out a terrible signal to global business.
The UK tax regime was once viewed as an asset and I am glad that the Government are proceeding with plans to make it an asset once again. I fully support the Chancellor’s plans to give Britain the most competitive business tax regime of any major western economy, and to reverse our slide down the global competitiveness rankings. Already, the coalition Government have reversed planned increases in payroll taxes and lowered small business rates. As we heard from the Chancellor this afternoon, they will accelerate reductions in corporation tax so that by 2014, the rate falls to 23%—the lowest ever rate in this country and the lowest in the G7. That is something that we should celebrate if we are serious about enterprise and entrepreneurialism in this country.
I also welcome the Chancellor’s decision to analyse closely whether the top rate of tax is yield positive or negative for the British economy. It is worth considering whether it is deterring investment, thereby losing us more revenue than it is bringing in. A more competitive, simpler and more stable tax regime is an essential precondition for growth and will ultimately be better for everybody in this country, rich and poor alike.
When countries that had public finances in a comparable state to ours last May are still fighting off the terrible spectre of sovereign debt default, it would be terrible folly to slow the pace of what is widely regarded as a necessary fiscal consolidation. Our policies are under intense scrutiny by the international bond markets, to which we are paying £120 million in interest daily. We cannot afford for our borrowing costs to rise, as they have elsewhere. We are paying 3.6% in the gilt markets on our staggering public debt. Other countries are paying rates closer to 8% or 9%, and Greece is paying a staggering 12.6%. We simply cannot afford to be complacent, as the Governor of the Bank of England made clear in a recent hearing of the Treasury Committee, at which he stated firmly that UK gilt rates would rise by three percentage points if we backtracked from the course of fiscal consolidation that we have outlined.
Mr Jones
I wish the hon. Gentleman would do some homework before he makes accusations, and not just swallow the central office lines on such things. He does not tell the House that less than 20% of our debt needs to be repaid in the next three years, whereas Greece and other countries need to repay 36% or 37% of their debt in the next three years. The idea that we have an instant crisis is wrong. Can he tell me when a UK Government have ever defaulted on a gilt payment?
Joseph Johnson
There are problems when a country has a stock of debt as massive as ours. Even with the Government’s plans for fiscal consolidation, it will not start declining for some years to come. Under the Labour Government our stock of debt would have peaked at about 80% of gross domestic product, but under the current Government’s plans it will peak somewhere below 70%—69%, I think I recall. [Hon. Members: “71%.”] Either 69% or 71%. Such a massive stock of debt means that every year, we have to refinance several hundred billion pounds of Government debt. Even if it is not all the debt, that is still a very substantial amount of money.
Joseph Johnson
That is an excellent point.
As my right hon. Friend the Member for Wokingham (Mr Redwood) said earlier, Portugal’s position is particularly precarious at the moment because opposition parties there, much like here, have refused to back the austerity measures needed to help the country avoid a bail-out. That could force Portugal further down the international bail-out route that was first trodden by Greece last spring and then by Ireland at the end of last year. Portugal’s 10-year Government bond yields rose comfortably above 8% yesterday, for the first time since the start of the crisis, reflecting plunging market confidence in the resolve of that country’s political class. That cannot be said of the occupants of Nos. 10 and 11 Downing street.
Mr Kevan Jones
The hon. Gentleman uses Greece, but my hon. Friend the Member for Rhondda (Chris Bryant) makes a very good point: we must look at countries individually. Our economy is larger than Portugal’s or Greece’s and completely different in other ways. In addition, countries such as those have a tradition of being unable to implement fiscal reductions, unlike ours. The basic, simple point is this: £5,000 is a lot to owe for someone earning £10,000, but it is a completely different thing for the hon. Member for Richmond Park (Zac Goldsmith) or other such people to owe that much.