Budget Resolutions and Economic Situation

Lord Tyrie Excerpts

Wednesday 18th March 2015 Commons Chamber

[Mr Andrew Tyrie (Chichester) (Con)]

Thank you very much, Mr Deputy Speaker.

The Leader of the Opposition has to make the most difficult speech of anyone’s in Parliament: he has to respond to a Budget that he has not even seen. I congratulate him on his effort, and I can assure him that those bits of the Budget that he argued should be scrutinised carefully we will scrutinise on the Treasury Committee. It is a tall order to make that speech when the economy is weak, but when it is strong, it really is an impossible task—and the economy is strong, with the best growth in the G7 last year.

Chancellors should be judged on the performance of the economy during their tenure. We should all now accept that this current Chancellor deserves a good deal of credit for the improved performance of the British economy. Five years ago, Britain’s prospects were pretty bleak. The UK was saddled with a deficit of over 11% of GDP, and the developing euro crisis was shrinking the UK’s export markets and creating a massive risk of financial contagion. Above all, the UK was afflicted with a crisis of confidence. Five years later, as the Chancellor has announced, the deficit will be 4% of GDP next year—only a little over a third of what was inherited. The banking system, which he did not discuss at great length, is much better equipped to handle a euro crisis if it comes, particularly the risk of a disorderly exit by Greece. Confidence is returning. The evidence for the returning confidence is overwhelming from survey data.

A great deal of that success—

[Michael Connarty (Linlithgow and East Falkirk) (Lab)]

The hon. Gentleman makes an assertion that every analyst I have read denies. The lack of investment—the amount of money held in corporate bank accounts that is not being invested—is a major problem for this economy, so where does he get the evidence of this rising confidence in investment?

[Mr Tyrie]

I have not brought all the survey data along with me, but I can supply it to the hon. Gentleman if he is interested. He makes a valid point, which is that there is a lot more work to be done fully to restore confidence to the point that is needed to unlock cash piles on the balance sheets of some of Britain’s larger businesses. For smaller businesses, investment is often not taking place at the level we would like, although it is much better, because the small and medium-sized enterprise lending market is still relatively weak. The banks are not supplying them with the resources they need. We desperately need to break down what still amounts to a banking cartel on lending. We need to get to the point where these small firms—the new firms that create so much wealth in Britain—can get access to the lending they need.

[Mark Garnier (Wyre Forest) (Con)]

Does my hon. Friend agree that a very good indication of confidence is the extra 2 million-plus jobs and 450,000 new businesses created in the past five years?

[Mr Tyrie]

I agree entirely, but I will not linger on the point, because I am sure that my hon. Friend will be making his own speech in his own way very shortly.

What has also happened is that many people have found ways of improving quality and value for money in the goods and services they provide, whether in the public or the private sector. That has generated a good deal of force for the recovery—something that is not fully captured in productivity statistics. Governments do not create wealth; they either get in the way of it or create the conditions for it.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

Will the hon. Gentleman give way on that point?

[Mr Tyrie]

If the hon. Gentleman will forgive me, I would like to make a bit of progress now.

This Government have helped to create those conditions for growth in at least three important ways. First, in the early part of the Parliament, they authorised £175 billion of extra quantitative easing. That was crucial. Secondly, they allowed the so-called automatic stabilisers to kick in—that is, allowing the deficit to widen as eurozone demand collapsed. It is important to recall that the Chancellor was faced, right at the start, with a weakening of demand for our exports in European markets. That caused a great deal of difficulty for British industry. Thirdly, in my view, the Chancellor showed a good deal of tenacity. The coalition has contributed a great deal to restoring confidence. Few predicted that it would last five years. To be frank, I did not think that the Liberal Democrats had it in them to stay the course, but to their credit they have stuck with it, and for that they deserve a good deal of praise.

[Sir Robert Smith]

I thank the hon. Gentleman for his recognition of the coalition, which the broadcasters have lost sight of in reporting what happens in the House. The Budget specifically talked about how Government can get in the way of business, but has it not shown how the Government can, with the right engagement, take positive action, as they have with the North sea oil and gas industry? Entering into dialogue and bringing in incentives will see the industry through the downturn and enable it to reach maturity so that we get a long-term benefit; without the industry, the oil would be left in the ground, and we would get no tax.

[Mr Tyrie]

I wonder where the hon. Gentleman represents.

Broadly speaking, the hon. Gentleman is right, although I wonder whether we needed quite as many changes to the North sea oil tax regime during this Parliament, particularly since we began it by announcing there would be stability for the medium term in the overall fiscal regime. It can be argued, however, that North sea oil is a special case, and not like the rest of the tax system. Frequent changes in the tax system nearly always have an economic cost in the bottom line for growth.

My colleagues on the Treasury Committee and I will collect as much evidence as possible on the Budget before Prorogation. We will hear from the Office for Budget Responsibility, the Institute for Fiscal Studies and the Chancellor. One measure that was effectively announced before the Budget is the extension of pension freedoms to those who already possess an annuity, and we will take evidence on that major change. Likewise, we will look at the savings measures that have just been announced, not least the savings allowance and the change to the structure of individual savings accounts. Both of those measures sound extremely significant, given that we must revive the savings culture. The Committee will ask about other measures that the Chancellor announced today, including making sure we can be confident that £3 billion will be made available by the tax avoidance measures, the North sea tax regime to which the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) referred, and of course the increase in the personal allowance. There is a great deal for the Committee to do in a short space of time before the election, and we will get on with it as best we can.

We will hear a lot more argument about who is better off. A key recommendation of the Committee in 2010 was that the Treasury and the Chancellor should be required to provide much more information about the distributional impact of tax and benefit changes—who wins and who loses—and, to their credit, they now provide much more detailed analysis at each Budget and autumn statement. For decades, successive Chancellors—my right hon. Friend’s predecessors—were very reluctant to provide that analysis, but they now do so. We will consider the published distributional analysis in the light of the debate, about which we have already heard, about who is better off and who is worse off. It is already clear from the data that almost everybody has borne some of the burden of austerity one way or another, but also that everybody has now almost certainly gained overall, and I will come on to that if I get the chance.

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

In relation to the distributional analysis, is the hon. Gentleman concerned that the Institute for Fiscal Studies has quite clearly shown that the situation for families on the lowest incomes has worsened, and that the Equality Trust has said that £39 billion has been taken out of the economy as a result of such inequalities?

[Mr Tyrie]

An answer to that would need to be quite long and involved, but I invite the hon. Lady to come to our hearing with the IFS because that is a central issue. I am not at all sure that the IFS got it quite right on the basis of the published data. In any case, if I may say so, it did not quite say what she purports it to say.

[Helen Goodman (Bishop Auckland) (Lab)]

Will the hon. Gentleman give way?

[Mr Tyrie]

I will give way one more time, and then attempt to wind up.

[Helen Goodman]

The Chairman of the Select Committee is trying to make the case that there have not been distributional problems, but as I am sure he knows, the truth is that according to the Government’s own statistics, there are 2 million more households living in absolute poverty in this country.

[Mr Tyrie]

We will be looking at such issues. I was not trying to make that case, or if I was, I was also pointing out that, in the early stages of the recession created by the financial crisis, almost every sector of society had borne some of the burden. I think that the Hansard record will show that I made that point.

We have to rely on conflicting survey data from the Office for National Statistics. The Bank of England has complained about the quality of data, and a heap of other people have said that the data need to be improved. The Treasury Committee ought to look at that in the next Parliament. Some data suggest that the man in the middle is not much better off even in nominal terms—the point was made by the Leader of the Opposition—which is based on the annual survey of hours and earnings. However, another ONS annual survey shows that the man or woman in the middle who has been in continuous employment has done well since 2010, both in nominal and real terms. Those data need to be considered very carefully, because the overwhelming majority of people in work have been in continuous or near continuous employment for the past five years. The data look quite persuasive as an overall picture of living standards. In answer to the hon. Lady’s intervention, the Treasury Committee will certainly consider that matter.

Whoever wins the next election—I hope the whole House will understand that I am very biased about who I think will win—all these tricky issues will need to be considered carefully. The Committee will need to set to work on further research into some of the points and policies covered in this Budget and over this Parliament. Competition in lending and banking has already been mentioned, and we must find a way of getting much greater competition in the banking sector. In relation to doing more to encourage long-term savings, the measures announced today are only a start, because something has been seriously wrong with the savings culture in this country for a long time. The Committee has already said a good deal about reforming and simplifying the tax system, and more needs to be done. The fact that some parts of the tax system are still hopelessly complex provides an opportunity for tax avoidance and evasion, reduces the yield and is bad for overall economic performance. There are also the economic effects—by no means all good—of current energy policy, among many other important energy issues, its reliefs, allowances and public spending subsidies.

What matters most are the measures that will succeed in releasing the energies of the British people. That used to travel under the name of supply-side reform. The next Parliament, with the next Government inheriting a more stable economy, will be an opportunity to get more supply-side reforms under way. I have a clear view, as do many other Members, about how to accomplish that, but it is absolutely essential to move on from the deficit reduction task to that of ensuring we improve the overall economic performance of the British economy in the long run.