Finance (No. 4) Bill

Michael Connarty Excerpts

Wednesday 18th April 2012 Commons Chamber

[Stewart Hosie]

That is absolutely right, but I want to be careful in answering. It is not good enough to say that people in the north or Wales or Northern Ireland or Scotland will lose, because unemployment and poverty in London is enormous. The geographical areas are not the ones traditionally described in lazy journalism—it is not that the north is poor and the south is rich—because pockets of poverty and of wealth exist in every single constituency in the country. The hon. Lady is right, however, that there are such pockets.

Even with all the pain and austerity, and the social and economic problems that the Government’s plans will cause, the Chancellor has been able to find a tax cut for millionaires. How does he justify it? Whatever his justification, the measure does not make sense economically, to answer the points made by the hon. Member for Vale of Glamorgan (Alun Cairns), who seemed to think that the measure is economically robust.

The Government’s fiscal rules—that the structural current deficit should be in balance and that debt is falling as a share of GDP in the final year of the forecast—are under enormous pressure. The problem—this is the evidence we ought to look at—is that the deficit in this Budget was forecast in the 2011 Red Book for 2011-12 to be £90 billion, but it is now forecast to be £98 billion. That is £8 billion worse than planned. The net borrowing requirement in the 2011 Red Book was forecast for 2011-12 to be £122 billion; it is now £126 billion. That is £4 billion worse than planned. The national debt or the treaty ratio that was due to peak at 87.2% of GDP—£1.25 trillion—in 2013-14 is now expected to rise, on the same count, to 92.7% of GDP in 2014-15. That is up again; it is worse than the Government’s forecasts. Everything is going in the wrong direction, so this is the wrong time to forgo revenue yield.

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

The hon. Gentleman has set out the figures for the overarching macro-economic situation very well, but is it not clear from the OBR that the effect on business investment will be minus 6.8%? The Budget incentivises no one in terms of the real growth that we require.

[Stewart Hosie]

The points on business investment are incredibly well made. The Government’s targets were based on heroic rates of growth over four and five-year periods, but the 2011 Budget forecast for 2011 business investment growth was 6.7%. By the time of the 2012 Red Book, the forecast was 0.2%. The 2011 Budget forecast for 2012 was 8.9%, but as the hon. Gentleman says, that has been marked down to only 0.7%. Of course, that makes it even more extraordinary that there is a net fall year on year of central Government consumption and investment, which in normal circumstances in normal countries would be called an automatic stabiliser and would compensate. Of course, this country does not have that.

That means that for the Government to stay on their course, they almost certainly need the revenue yield that the 50p rate would have delivered. There is a debate on precisely how much that yield is. It could be the £360 million over four years forecast in the Red Book, or it could be the higher £3 billion a year static forecast we have heard cited. Whatever the actual figure, given that all those other metrics are going in the wrong direction, it is extraordinary that the Chancellor is prepared to forgo any revenue yields, whether they are in the hundreds of millions of the £1 billion range.

--- Later in debate ---

[Charlie Elphicke]

I completely disagree. The Government are doing a great job. We have had the most difficult year, in which recovery was effectively postponed because the European and eurozone crisis caused massive uncertainty. I will not shirk from the point: that uncertainty has caused businesses to delay the business investment that was expected by about a year. The OBR, in the blue book that the hon. Gentleman says I am waving around, makes that perfectly clear. I will happily take him on on the issue of business investment. The situation has come to pass basically because of the eurozone. Also, the OBR says that business investment for the fourth quarter can be a bit lower than expected but that it often, statistically, bounces. It also says that the Government’s pioneering reduction of business taxes will have a positive effect in helping the country to grow.

The bottom line of economics is that we need to ensure more jobs and money as quickly as possible to help the country to grow faster despite the chaos and financial mismanagement in the eurozone. Let us not forget that Labour, if it had had its way, would have taken us into that chaos and into the euro. If Labour had won the election, it would also have carried on spending at an unsustainable rate and rapidly taken us the way of Greece, Spain, Italy, Portugal and Ireland, which would have put us in an extraordinarily difficult position.

On the revenue numbers, Labour’s central argument is that we should not cut the 50p rate because, first, we need to hit the rich and squeeze them until the pips squeak and, secondly, we are letting money go that would otherwise be brought into the Exchequer and are looking after our rich friends. That is its analysis. However, the summary in paragraph 4.7 on page 84 of the OBR report states:

“The Chancellor’s decision to cut the”

50p rate

“has an estimated direct cost to the Exchequer of £0.1 billion, excluding the impact of ‘reverse forestalling’ as people shift…income from”

one year to another

“to take advantage of the lower rate. The figure is small because the additional rate is now assumed to be close to its revenue-maximising level.”

In other words, it does not make much difference—£100 million here, £100 million there, out of a total budget that I believe is getting on for £700 billion, is a small amount, particularly given that it sends a positive message to aspirants, entrepreneurs and the people who work hard to deliver so much value-added for our country.

[Michael Connarty]

We can all pick selectively from the OBR report—I have referred to it quite a few times—but this is a comment based on the Government’s own estimate that there will be an inflow of £2.9 billion from increased activity by those who pay the 45% rate. There is absolutely no fact behind that yet. It is basically a comment based on a prediction by the Government. In other areas, again and again since they took office, they have been very wrong. It is a hope, not a statement of fact. The actual cost will be £3 billion until the money comes in that the OBR has accepted from the Chancellor’s estimates.

[Charlie Elphicke]

I thank the hon. Gentleman for bringing me on to my next point. The hon. Member for Pontypridd is fond of saying, “Ah, look at the HMRC impact report. It brought in £1.1 billion but the estimate was that it would then have brought in much more.” [Interruption.] Some £3 billion, he says. That was the estimate in the March 2010 Budget, which mentioned an additional £2.6 billion. In the June 2010 Budget forecast, that increased to £2.7 billion. However, when we look in detail at what happened and how much was brought in, it appears that the OBR and HMRC now estimate the figure to be £0.6 billion in 2012-13.

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[Owen Smith]

Will the hon. Lady explain which anti-avoidance measure Labour Members voted against? I tell her very straightforwardly that all Chancellors ought to tackle tax avoidance in all Budgets. The current Chancellor has risked far too much credibility on his belief in his ability to tackle tax avoidance and his belief that he is doing more than previous Governments did so. The facts bear out my claim—the IFS, not the Labour party, has done the analysis—that Labour Chancellors, in seven out of last 10 Labour Budgets, raised more money for the Exchequer through tackling tax avoidance than the current Chancellor will do with this Budget.

[Michael Connarty]

Is my hon. Friend aware that since they came to power the Government have had the ability to forbid the Cayman Islands to refinance its sovereign debt unless it revealed all the transactions taking place in the Cayman Islands? I understood that to be one of the things they aspired to do to stop people putting money into tax havens to avoid paying tax in this country. They have failed to do so and allowed the Cayman Islands to refinance its sovereign debt without any conditions whatsoever.

--- Later in debate ---

[Owen Smith]

By and large I would agree with the hon. Gentleman. Tax policy ought to be predictable. Indeed, the current Government deserve some credit for continuing with the trajectory set by the previous Government on tax policy planning and tax making, by seeking to consult significantly and publish things well in advance. [Laughter.] For some reason the Minister is chuckling. I would point to the introduction of the 50p rate, which was first mooted in 2009 and introduced in 2010, which was probably what led to all the forestalling. However, that approach is a good idea, by and large. We ought to consult carefully on tax policy, because as this Government are learning to their cost, so often there are unintended consequences of tax policy. I might highlight, for example, the simplification introduced so blithely by the Chancellor in his Budget speech, when in just one sentence he waved away Churchill’s special personal allowance for the elderly and introduced the granny tax. That was a simplification that seemed sensible at the time, but in hindsight it has had unintended consequences.

[Michael Connarty]

We would all agree—hopefully one day Governments and Chancellors will also agree—that we should not do unpredictable things in tax policy. The thing that has damaged the economy tremendously and harmed all our constituents is the production tax on oil and gas in the North sea, which has disincentivised people massively and sent the price of fuel through the roof for people who cannot afford it, damaging their employment prospects and the economy of the country.

[Owen Smith]

At the risk of stepping off-piste again and incurring your wrath, Sir Roger, all I would say is that that is another example of this Government’s incompetence. A year ago they were trying to squeeze the oil and gas companies by introducing new taxes on them. Then the Government were lobbied like billy-o for a year, and what have they done? They have effectively reversed the position. They have introduced a slightly different measure, but bluntly, they have taken money from one pocket and put it back in the other. If the Government had been a little more competent, if they had shown a little more foresight and if they had thought things through a little, as they so clearly have not done with this desperate Budget, they might not have made those mistakes.