Budget Resolutions and Economic Situation

Mel Stride Excerpts

Wednesday 3rd March 2021 Commons Chamber

[Mel Stride (Central Devon) (Con) [V]]

I broadly welcome this Budget, although I say that being aware that the devil is always in the detail of Budgets. We very much look forward to welcoming my right hon. Friend the Chancellor to the Treasury Committee on Thursday next week to look at that detail in more detail.

I totally applaud the measures that the Chancellor has taken in extending the bridge of support—the bridge between the crisis and the recovery. I think the measures he has taken around furlough, support for the self-employed and the extension of the VAT reduction, business rate relief and so on are all most welcome. I also very much welcome, as I and the Treasury Select Committee have been pressing for them for some time, the targeted elements that he has introduced.

As we come through this recovery, there is no doubt that certain parts of the economy will pick up quicker than others. Some businesses will do better than others, so I welcome the 30% turnover threshold that my right hon. Friend has introduced, so that he can more accurately target the relief where it is needed. That goes also for what I understand of his announcements on grants, and of course the VAT reduction extension that will help particularly hard-pressed sectors. I also welcome the investment that he has announced in areas of the country, many of which will have suffered particularly during the crisis. I think that is also welcome targeting.

        If I could turn briefly to the so-called excluded—those who have fallen through the gaps of support hitherto—I am a little disappointed not to have heard something by way of support for those directors working through their own limited companies, paying themselves by way of dividend, yet not having those dividends counted towards their entitlement for furlough. There have been new ideas explored by the Committee, and I would hope, even at this late stage, that the Chancellor will consider some of those ideas with the Committee next week. I was, however, extremely pleased to see that the new self-assessment tax information that has been taken on board—right up until, I think the Chancellor said, last night—will be taken into account in helping many of those who would otherwise have fallen through the gaps in support, some 600,000 in total.

I want to focus on three important areas for business and jobs, and comment on what the Chancellor had to say in that respect. The first is corporate debt. The situation is that the data shows that larger businesses have a great deal of cash in the bank, and it is perhaps not surprising that they have been cautious, that they have received quite a lot of support from Government and, of course, that a lot of them have not been investing. However, among small and medium-sized enterprises the picture is less clear. I have a concern that many of those businesses will struggle with the level of the debt that they have, that they will not be growing when we want them to be creating the jobs of the future and that they will be focusing on de-leveraging their balance sheets. I would like to see something from the Chancellor as to how that particular problem might be addressed. If it is not, the risk is that many of these SMEs will go out of business and markets will become more concentrated and less competitive as a consequence.

Secondly, on investment, I was hugely encouraged by what my right hon. Friend said about the super deduction. My own view was that there should be an increase in the annual investment allowance. It seems to me that this goes significantly beyond that. The devil will be in the detail, but certainly, if the kind of projections for investment that he has just outlined by way of the OBR’s figures are correct, as I understood them, this will be a huge shot in the arm for corporate UK and very welcome. I welcome the three-year loss carry-back arrangements—also something the Committee has pressed for.

My third point is around skills. I have been very impressed with all the announcements that have been made around encouraging apprenticeships, and there was more in the Budget statement just now. On the kickstart scheme, it is imperative that we get this right and that we maximise the efficiency of the transfer of parts of the labour force from those parts of the economy and businesses that are contracting to those that are expanding. I think the Treasury needs to play a very proactive role in making sure that those schemes are successful.

One of the big tests I set in my mind for my right hon. Friend’s Budget was to what degree he navigated successfully the requirement not to put up taxes too early and choke off growth, but at the same time making it very clear to the markets that he and the Government are serious about dealing with the deficit and debt in the more medium term. I have to say that, once again, I have been pretty impressed with what I have heard. I want to see the detail. However, it seems to me that the tax increases and the threshold freezes that my right hon. Friend has announced do not kick in straightaway but he has charted a clear road map for how those taxes and thresholds will be dealt with between now and the end of this Parliament.

If I could just say, on the issue of corporation tax, that it is quite a hike from 19% to 25%. However, we still will remain internationally competitive, and I believe that President Biden, during his campaign for the presidency, suggested US rates might rise from 21% to 28%. So I think, on balance, this is a reasonable move, given that none of the possibilities is particularly palatable, and I welcome the carve-out for small businesses through the small profit rate.

It was pleasing to hear from my right hon. Friend that the OBR’s current projections have improved, and that we are hopefully going to get back to pre-pandemic levels of economic output six months earlier than was thought in November. But of course we still, as he has identified, face a huge challenge going forward, not just around covid, but with the issue that we will have a smaller economy and less taxes that will be able to be raised. Of course, we have demographic pressures going way into the future, with an increasingly elderly population and the pressures that will put on our finances. My right hon. Friend knows that it is critical that we deal with these pressures in a timely manner, or interest rates will rise—and, as he has stated, a 1% rise would mean an eye-watering £25 billion increase in the cost of servicing our debt.

That brings me to the principles that my right hon. Friend has set out today: not borrowing to fund day-to-day expenditure at some point in the future; and having an eye to seeing the level of debt as a percentage of GDP decreasing over time. Those are welcome signals from my right hon. Friend.

I want to turn briefly to an issue that I think is an underestimated threat that has not been discussed enough in an economic context: a return of inflation. Andy Haldane, the Bank of England’s chief economist, has pointed to this risk recently. We know that if inflation increases and spikes, the Bank of England would need to tighten monetary policy to try to keep inflation under control. We would have bond markets in which the Government and the Bank of England were potentially both sellers, with increased upward pressure on interest rates and all that would follow.

Inflation might come through increased friction in global trade, and we have seen increased friction in trade with the EU27 as a consequence of Brexit. It could come through the exchange rate, although recent movements have been in a positive direction, as the virus is being clamped down on and our prospects have improved relative to other economies. Inflation could also come through increases in energy costs and the price of oil, or indeed the unwinding of some of the tax cuts, for example those relating to VAT.

But inflation could also come through the interplay between the supply and demand sides of the economy as we recover. On the supply side, it remains uncertain how quickly companies will bounce back. We know that many of them have been severely damaged. On the demand side, it is also the case that we will not know at this stage the extent to which consumers will re-engage with the economy in the way they did before the pandemic, even though the virus is diminishing. We also do not know what will happen to the huge amount of effectively enforced savings as people have been unable to engage in the economy in the usual fashion—perhaps up to £200 billion or £300 billion by the summer, the Bank of England has suggested. If a lot of that goes back into the economy quickly, it will have a huge stimulus effect. If very little does, clearly the opposite will be the case.

It is therefore absolutely right that my right hon. Friend is ready and prepared to use the fiscal levers as appropriate over the coming months. If he comes back to the House of Commons many times to do so, I think that should be seen as a position of strength, rather than weakness. I wish him well. The Treasury Committee will continue to be critical of him where appropriate, but also supportive in our common endeavour of putting the economy back on track.

In conclusion, I broadly welcome this Budget. It comes against the backdrop of one of the worst economic crises outside of wartime. Yet there is hope that springs from the past, and the strength that we held going into this crisis, of strong and stable financial institutions, record levels of employment, and hard-won improvements in our public finances. But now hope springs also, it seems to me, from the future: from the thousands of men and women—our scientists, health workers and volunteers—who appear to be on the brink of little short of a miracle, the wholesale turnaround in our country’s fortunes due to vaccination. Therefore, in broad terms I welcome my right hon. Friend’s Budget today, but I conclude by supporting each and every one of them.

[Madam Deputy Speaker (Dame Eleanor Laing)]

Before I call the leader of the Scottish National party, I should give a slight warning that there will be an initial time limit on Back-Bench speeches of seven minutes, but that will quite soon be reduced to five minutes, and quite soon after that to three minutes, if we are to have a chance of allowing everyone to speak. For the moment, it will be seven minutes.