Budget Resolutions and Economic Situation

Martin Horwood Excerpts

Tuesday 22nd June 2010 Commons Chamber

[Chris Leslie]

I could not agree more with my hon. Friend, who knows a great deal about these matters. These are stealth cuts from the Government. When they were in opposition, they liked to talk about stealthy measures. Well, these are the stealth cuts. The change from retail price index to the consumer price index is not something that many of our constituents would necessarily notice in the small print, but there are vast reductions affecting them.

There are all sorts of tricks in the Budget, such as linking pensions to earnings—at a time when the Government are going to freeze public sector pay and they know that earnings will be deliberately depressed. With supposed generosity, they can of course link the two at that point in the cycle.

The change to the personal tax allowance was another part of the Liberal Democrat manifesto. It seems that they were not able to fulfil that manifesto pledge, so they have managed to change it a little, but they do not recognise that the people who earn an amount that is below the existing threshold will benefit not at all from the change. We have to think about the very poorest in society, and I urge hon. Members to do that.

[Martin Horwood (Cheltenham) (LD)]

The hon. Gentleman must admit, however, that taking almost 1 million out of income tax altogether must be a good thing for some of the poorest in our society. If he is keen on looking at the small print and for stealth impacts on the poor, he need look no further than the Budgets that we used to get from the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), which included the supposed abolition of the 10p tax rate. That was cheered by Labour Members, because everyone thought that it meant reducing the rate to zero, but it was in fact being doubled.

[Chris Leslie]

This Budget makes the 10p tax rate issue look like a drop in the ocean. Some Members want to look at one particular measure on income, and nobody objects to a personal tax allowance change, but we cannot just look at income tax on its own. The Chancellor has shunted revenue generation from income tax to VAT, and that is a Liberal Democrat strategy. The Liberal Democrats prefer VAT now, we can see that, despite the posters.

[Martin Horwood]

Will the hon. Gentleman give way?

[Chris Leslie]

If the hon. Gentleman is going to apologise for the VAT increase.

--- Later in debate ---

[Martin Horwood]

Let us not look at income tax alone. Why do we not look at the comparison between increasing VAT and increasing duties, which the previous Labour Government always used to do? That hits people across the income bands, whereas VAT, although no one likes it to increase, is less regressive because it is not imposed on necessities.

[Chris Leslie]

If the hon. Gentleman feels that every single item of expenditure that has VAT imposed upon it is not a necessity, I must disagree. It is not simply a tax on luxury items, nor is it akin to duties. The VAT yield is astronomical: £12 billion annually, some of which comes from his constituents. We will see what their reaction is to the increase, and I urge them to write to the hon. Gentleman, because they need to convince him on that issue.

A couple of items in the Budget statement were definitely very confusing. Now that the Under-Secretary of State for Communities and Local Government is present, I must say that I am still at a loss to understand quite how the Government’s council tax freeze will work. It sounds superficially plausible to say that the Government will give an amount equivalent to 2.5%—I think that that was the figure when it was last in the Conservative manifesto—to councils that keep their council tax increase below that level in order to reach a zero increase. That guarantee has been reduced from two years to one year, but with one hand they give a little and then, with the other, yank away a great chunk of the grant that local authorities receive.

Local authorities throughout the country will have to pull those two elements together, but how on earth that supposed council tax guarantee is going to work will be a mystery to them. They will delay their budget setting and budget planning until the spending review is clear, because until they know the departmental expenditure limit for the Department for Communities and Local Government, and until they know their grant settlement arrangements, they will be none the wiser about the Government’s plans either on council tax or on how they should set their budgets. I urge hon. Members to speak to their local authority leaders and elected members about that point, because whether or not we agree with the strategy, if we are to believe in local democracy, the technicalities—the operational details of those matters—count a great deal.

--- Later in debate ---

[Austin Mitchell (Great Grimsby) (Lab)]

In rising to make what must be my 13th maiden speech, I congratulate the hon. Member for Bedford (Richard Fuller) on his graceful maiden speech. He ensured that what can be an ordeal for new Members was not an ordeal for the rest of the House. I am afraid that my one association with Bedford is an unhappy one. I was carted there in an ambulance after a car crash on the A1 and was in concussion for some time. When I woke up, the surgeon came to see me and congratulated himself on having stitched my right hand together, before telling me that I should be very grateful to him. When I explained that I am left handed, he just said, “Damn!” and went away. It was interesting to hear of the famous people from Bedford—better John Le Mesurier than Eddie Waring, I suppose—and of the attractions of the town. I am sure it has produced almost as many interesting people and has almost as many attractions to visit as Grimsby.

I am less congratulatory to the Chancellor on his Budget. I congratulate him on the provision to protect low-paid civil servants, of whom there are many, from the rigours of a pay freeze, but I am not sure that such measures will be sufficient to outweigh what my hon. Friend the Member for Nottingham East (Chris Leslie) called, in his very effective speech, stealth cuts, or the general depressive impact of not only the Budget, but the £6 billion of cuts that went before it and the massive cuts still to come. Those are not part of the Budget package, but they must be viewed as part of the approach. I am sure those measures will have such a depressing effect on the economy that the poor cannot be protected by the simple measures the Chancellor introduced.

In fact, collectively, the package of cuts and the Budget lead me to lament the economic ignorance and social arrogance behind them. The Budget is a dangerous assault on the economy when growth is just beginning—it is not fully entrenched or powerful yet—and there is a glimmer of light ahead. It also represents a transformation in the attitude of the Conservative party. Its leader tried to win the election—he did not actually do so—by charm and by presenting the face of compassionate conservatism. He undertook to protect spending on aid, defence, the NHS and education, to protect front-line services, and to preserve free bus travel and winter fuel payments for pensioners. He also told us that he had no plans to increase VAT. Those must have been the same non-plans that the Conservatives had in 1979, when they increased VAT from 8% to 15%—their non-plans then were equally fulfilled.

That charm offensive—compassionate conservatism—has been replaced by the Chancellor, who was clearly kept in the attic, like Mrs Rochester, during the election campaign, so that he did not go out and frighten people with the extent of the cuts that he wanted to make. He has now been released from the attic to impose his Mrs Rochester economics on the system, with a few pathetic crumbs and benefits, such as the abolition of the cider duty, which we had already in fact abolished before the election. That has now been dropped from the Tory table to the Liberal Democrats to give them and their leader something, however small, to compensate them for having betrayed those who voted for them, thinking them an independent-minded, compassionate middle party.

[Martin Horwood]

Does the hon. Gentleman really think that taking nearly 1 million people out of income tax, which was a key pledge in the Liberal Democrat manifesto on which we insisted in the coalition agreement, is a small matter?

[Austin Mitchell]

No, it is of great benefit. I congratulated the Chancellor on it, and I am glad the Liberals won it. However, it is still not sufficient to compensate those 1 million people for the increase in VAT, which is a regressive tax, and for the general depressing effects on the economy and employment of the other measures in the package of cuts in the Budget. That policy on income tax is a gain for the Liberals—and, indeed, the country—and it was right. I congratulated the Liberals at the time on including it in their manifesto.

The transformation of the Liberals is like that of the pigs in “Nineteen Eighty-Four”—I am not calling the Liberals pigs, but they were pigs in “Nineteen Eighty-Four”—into human beings, if not Tories. The Liberals have been transmuted not into Tories, but into European liberals—I am thinking, in particular, of the Free Democratic party, which is an economic liberal party that, I am pleased to note, is now disrupting the coalition in Germany by demanding stringent cuts from Angela Merkel and the Christian Democrats. I am sorry to see my friends in that situation. There are difficulties in the coalition between the Liberals and the Conservatives, because it is like merging a Brownie pack with the Brigade of Guards. I feel sorry for Liberal Ministers who have to sit there and join in the chorus of nodding dogs on the Front Bench at every Tory policy announcement. I am sorry to see that habit spreading to the Liberals.

--- Later in debate ---

[Austin Mitchell]

Yes, certainly. Sovereign debt is never mentioned. Indeed, this is one of the weaknesses of the Liberal party approach of supposedly involving the whole community in deciding on the cuts. First, it assumes that the cuts are necessary, but, secondly, we have to remember that one person’s cut is another person’s Trident missile.

[Martin Horwood]

In advancing this rather extraordinary proposition that we have nothing to worry about with the level of borrowing in this economy, is the hon. Gentleman saying that he would have opposed the Labour Government’s plans to reduce departmental budgets by more than £40 billion over the next four years?

[Austin Mitchell]

Look, I am not an apologist for everything that happened under the Labour Government. I thought that that was an unnecessary commitment, particularly as it was made in order to safeguard our position and not frighten people in response to the Tory clamour about cuts. The Liberal party made the same concessions, actually, so it is no use the hon. Gentleman coming back to me on that. Even if we attempted to cut the deficit by half in four years, it is all a question of timing. There is a time for cuts—“Lord, make us cut borrowing, but not now” would have been my approach, and I believe that that is the only sensible approach. These cuts are premature. The economy is teetering on the brink of recovery, but it is not recovering, unemployment is still rising, the difficulties are still there, and credit is still tight. The banks are not providing credit on a sufficient scale; they need to expand credit and their lending. In that situation, cuts compound the problem. Thanks to these cuts and thanks to this Budget, we now face the danger of the economy slipping back into a recession.

[Martin Horwood]

Will the hon. Gentleman clarify his position, as it seems to have changed within the space of one speech? Five minutes ago, he was saying that only through growth would these issues be tackled and that we need not worry about borrowing. Now he is saying that it is only a matter of timing and that the Labour Government would have done exactly the same thing in due course.

[Austin Mitchell]

I was not responsible for the decision to try to cut borrowing within four years, but I assumed that it would be a question of “Let us do it as time allows”. I am sorry that the hon. Gentleman is so strenuous in defending Tory positions—for his is essentially a Tory argument.

The answer is to expand the economy. Growth was beginning, and, as the report from the Office for Budget Responsibility shows, it is now threatened by the cuts and the Budget. Is that what the Liberal Democrats want? Do they want to reverse the improvement that is taking place? If the improvement continues and becomes more substantial, we shall be able to begin to cut borrowing, but that can only be done once the economy is growing strongly and effectively; and it will only need to be done then. We must keep spending high if we are to achieve that economic growth. The Liberal Democrats can make a lot of sacrifices to support the Conservatives, but prostituting their intellects is not one of them.