Budget Resolutions and Economic Situation
Debate between Lord Tyrie and Steve Baker
Mr Tyrie
Responding to that would require me to do a bit of calculation on my feet, but I would guess that if it is part of the reason, it is only a very small part. Far more important has been the much higher level of overall labour participation. Millions of jobs are being created in the economy, which is a remarkable achievement.
Mr Baker
I am most grateful to my right hon. Friend. He may not have had a chance to look at the financing arithmetic, but I am happy to tell him that since April, the forecast for the total financing is down by £14 billion. Will he join me in welcoming that, and in congratulating the Government on their progress on precisely the issue that was raised by the hon. Member for Swansea West (Geraint Davies)?
Mr Tyrie
One of the advantages of not having to make a speech immediately after the Leader of the Opposition is that one does at least have a chance to read the Red Book beforehand. I am operating under something of a handicap. However, I look forward very much to reading it.
I shall make only a couple more points, in order not to detain the House for too long. One of them relates to the deficit. During the last Parliament, all economic and financial policy was overshadowed by the need to address that colossal deficit, but the economic and financial policy of this Parliament can and should be about much more, and we heard some of that from the Chancellor. It needs to be about nothing less than the economic revival of Britain in the 21st century. Taken together, this Budget, the forthcoming autumn statement, the spending review, and the Chancellor’s second Budget in eight months’ time will present the biggest opportunity for a generation to achieve that.
The Government have not made their job any easier by tying their hands on tax—as the Budget made clear—and on spending. Moreover, we have just been through an electoral bidding war, and a good deal of ground has been conceded—probably too much, in my view. Almost half of public expenditure is now ring-fenced by pledges to protect or increase spending on health, schools, foreign aid, pensions and child benefit, and that, of course, excludes the defence announcement that we have just heard. While it is understandable on political grounds, it could make economic management considerably more difficult in the years ahead. However, as I mentioned earlier, all sides now agree on the need for deficit reduction, although they disagree to some extent on how it can be accomplished. We heard a little about that from the right hon. and learned Member for Camberwell and Peckham.
Let me say a few words about taxable capacity. Some have suggested that taxes should be higher, rather than spending being cut, in order to keep the deficit reductions at broadly the same rate. It is important to realise, however, that it is not at all clear that by raising tax rates we necessarily get any more money; we might get less. It is salient that over the past 30 years, despite the best efforts of some Governments at times to collect a good deal more revenue, the UK’s tax take has remained stubbornly between 32% and 35% of GDP.
There is a ceiling to how much can in practice be collected in tax, and my guess is that the UK is quite close to that ceiling now. That derives not only from the fact that it is difficult to get taxes from very wealthy individuals—something to which the Chancellor alluded. The fuel protests in 2000 were a timely reminder for the political classes and the bureaucrats who advise them of how difficult it can be to raise taxes. In any case, we live in an age of global tax arbitrage: countries are competing for a slice of an increasingly footloose tax base, particularly in corporate taxation. Along with a number of other countries, we have launched an initiative to try to ensure that multinationals pay tax where their profits are earned, and that is a worthy ambition, but I wonder how much extra tax yield can be protected in this way. I note that the attempt to get the increase in yield from Swiss tax avoidance raised much less than was forecast at the time the Chancellor announced it.