Amendment of the Law

Nicholas Brown Excerpts

Thursday 22nd March 2012 Commons Chamber

[Mr Nicholas Brown (Newcastle upon Tyne East) (Lab)]

It is a pleasure to follow the Secretary of State, if only because he has confirmed me in my long-held prejudices about Liberal Democrat politicians. I think he redeemed himself in the last part of his speech about the financial services sector, which is where I would like to begin my remarks.

In his BBC business lecture, Bob Diamond observed:

“We stand today at the end of a long cycle of excess borrowing: borrowing by financial institutions, by governments, by consumers and by businesses.”

The Chancellor made a similar point yesterday when he referred to the

“days of large deficits and the illusion of cheap finance.”—[Official Report, 21 March 2012; Vol. 542, c. 797.]

As we all move in the opposite direction, there are obvious dangers in the cumulative impact of collective repositioning. We should focus our attention on the significant differences between the output forecasts and the actual outcomes. The differences are striking. Corporate tax cuts, for example, marginally help corporate profitability; they do not of themselves stimulate growth or create jobs.

The second feature to focus on is the public expenditure cuts that have not yet taken place. In the autumn statement, a further £8 billion in cuts was announced for 2015-16 and a further £15 billion in cuts for 2016-17 —that £15 billion alone is equivalent to a 3p rise in VAT—and yesterday the Chancellor announced a further £10 billion in public expenditure cuts. This represents an unprecedented challenge.

In referring to external uncertainties, both the Chancellor yesterday and the Business Secretary today mentioned the eurozone and a spike in oil prices. I would add that the secrecy and complexity of the unregulated financial services sector in the United States is a further cause for concern, not least because of its size.

The overall Budget stance is fiscally neutral, but, of course, the impact of the Budget changes is cumulative. VAT is still at 20%. A combination of wage freezes and inflation will reduce real earnings—again, the effect is cumulative. A cut in the top rate of tax is useless for those who do not earn £150,000 a year—and most of us do not. Similarly, a change in lower income tax thresholds is useless for the one third of households that do not have anyone resident who pays income tax because they are too poor. The regressive impact of all this is even greater if the citizen’s housing costs are being driven up by 7% or more a year, which is what has happened to social housing rents. Again, the effect is cumulative.

Pensioners may appreciate the simplification of the age-related personal allowances, but not their collective loss of about £1 billion per year resulting from the freezing of those personal allowances. That does not hit the poorest; instead, it is a nasty assault on people who, in the main, are not particularly wealthy, but have tried to look after themselves in their retirement years. It is a sneaky and disreputable measure. Even the Government seem ashamed of it, since they coyly describe it as a “simplification” and, significantly, it is one of the few bits of the Budget that was not briefed beforehand.

The Chancellor said a lot about the money he is spending, but less about the public expenditure cuts that are going to pay for the fiscally neutral Budget stance. Given the times, it would be reasonable for the Government to look again at whether big-ticket items should be dropped as unaffordable. I urge them to think again about the Trident renewal programme. Why do we need to duplicate a strategic weapon that is already in NATO’s armoury? Nor am I convinced that the high-speed rail link between London and Birmingham is worth the expenditure in the current circumstances. I urge the Government to look at whether valuable tasks carried out in the public sector can be discharged in less ponderous and more proportionate and cost-effective ways, rather than to look at abolition as the only way of making the savings.

In a significant move, the Chancellor announced a general anti-avoidance measure in the context of the move to the 45p top rate and the widespread avoidance of stamp duty on expensive houses. He announced other tax avoidance legislation as well. The obvious danger is that, having gone to the expense of setting up an anti-avoidance device, the avoider gets a taste for it. The lower rate at 45p is a certainty, but the effectiveness of the anti-avoidance devices is less certain. There are further dangers in a general anti-avoidance measure. If it is necessary, it should be focused on the rich and powerful, and not be used in a disproportionate way against small and medium-sized businesses.

My final point is about the impact of all this on the north-east of England. Our region is a net exporter. Whatever might be the case for the country more generally, a broadening and deepening of the private sector employment base of our region is the right way forward for us. The Government do not disagree with this point in principle, but the economic development structures they have put in place are the wrong ones for delivering the stated policy, and I urge the Government—and in particular the Business Secretary, whose responsibility this is—to consider the alternative Minister-led approach to regional economic development that I and other Members set out in our regional debate last year.

I also urge the Government not to go ahead with the regionalisation of public sector pay. This is a “blue herring.” As well as being manifestly unjust, it will cost more than it saves and will throw up a range of unintended and unwelcome consequences. It is a myth that high public sector pay is undermining the creation of less well-paid private sector jobs. I challenge anybody, both in this House and outside, to point out a job vacancy in the north-east of England for which no candidate can be found at the going rate. Why should public sector workers suffer austerity measures longer because of where they live? They are already on the receiving end of wage freezes, job losses, rent rises, general inflation and long-term reductions in their pensions—and are hit even harder if they are trying to help their children through university, and harder still if they have lost their tax credits. Between 2011 and 2015, the average public sector worker will see their wages increase by 2% while the consumer prices index increases by 14%. Now is not the time to depress demand in the most vulnerable regions of the United Kingdom. As well as both the uncertainties to which the Chancellor referred in his address and those to do with the transnational unregulated financial services sector, he has left us with a further set of uncertainties all of his own: the substantial public service cuts that are yet to come. Of course the poor are hurt by this Budget, but it is middle-income Britain that is disproportionately the loser.

[Several hon. Members]

rose—