Budget Resolutions and Economic Situation

Nick de Bois Excerpts

Friday 22nd March 2013 Commons Chamber

[Mr Duncan Smith]

Looking at the television was enough to give me the idea. I am glad the hon. Gentleman agrees that the shadow Chancellor more and more resembles angry Mr Potato Head.

By introducing an employment allowance, we will reduce the amount that 1.25 million businesses pay in national insurance contributions each year, and take 450,000 small employers out of national insurance altogether. That is a huge measure, and really important for small businesses, which, as we know, drive most of our employment.

Through tax reliefs both for social investment and for businesses that help employees to return to work after sickness, we are incentivising interventions that prevent long-term social problems. The sickness absence review on which the Government have led is really important. That tax help will drive change on one of the big problems we have had—we have talked with Dame Carol Black and Mr Frost about this—namely, that too many companies leave people who have difficulties to slide through their sickness and fall out eventually into incapacity benefit or, currently, employment and support allowance. We are trying to get companies to work with us on that review to ensure that they do much more to intervene earlier with help and support to try to resolve problems before people crash out of work and fall on to the benefits system. I hope that the sickness absence review will be fully supported on both sides of the House, and that that tax measure starts to get us ahead of the problem, which is where we always want to be. When somebody at work is finding it difficult, we want the companies involved earlier to ensure that something is done to change the situation.

That tax relief is important, as is the tax relief on social investment bonds. Sir Ronald Cohen has said that there is potentially a huge market for investment in social projects, and huge potential for bringing investors and some of the wealthier people in society back into contact with, and helping, areas of society that have damage and difficulty. Such investment can help to get kids off drugs or help with rehabilitating people from prisons. The measure will be a huge incentive, and I am pleased that we are consulting on it.

[Nick de Bois (Enfield North) (Con)]

My right hon. Friend might be aware that the Chancellor responded to representations from me and others and will consider further incentives for social investment tax relief to encourage smaller investors and crowd funding to help to drive local community finance initiatives.

[Mr Duncan Smith]

I congratulate my hon. Friend on being picked out in the Budget—it is not often that people are picked out in a Budget. He should shake hands with the hon. Member for Stoke-on-Trent Central (Tristram Hunt). He was angry before the Budget, but waved his Order Paper to applaud the Chancellor during his speech. I do not blame the hon. Gentleman, because he helped to change opinion—[Interruption.] I apologise. I do not want to talk about that too much because he has a career ahead of him—I hope.

Finally, in a welcome move, we are raising personal tax allowances to £10,000 by the end of the Parliament. That measure, which is a result of a good coalition agreement, means that working families pay £700 less in tax than when the Government took office, and that almost 3 million more of the lowest earners will pay no income tax at all.

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[Mr Duncan Smith]

I seem to recall that, under the previous Government, the then Chancellor had to admit that his changes to VAT were a complete disaster and made no difference to anybody. Most companies ended up spending more money trying to make alterations. The reality is that the previous Government should have increased the personal tax allowance threshold to £10,000, but they never did. I would love to hear the Opposition welcome that measure rather than carp about it.

[Nick de Bois]

I suspect my right hon. Friend will wait in vain for that. Does he recall that the previous Government introduced stealth taxes by refusing to increase tax-free allowances even in line with inflation, so more people paid more?

[Mr Duncan Smith]

We know about the incredible stealth taxing under the previous Government. Their tax on pension funds meant that they were worse off by £100 billion, which sounded the death knell for defined benefit pensions. The previous Prime Minister, who, as I have said, got rid of the 10p starting rate, did more to punish people than we would ever expect from a Labour Government.

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[Nick Smith (Blaenau Gwent) (Lab)]

I am pleased to be called to speak today and to follow the hon. Member for Braintree (Mr Newmark).

I shall concentrate my remarks on the need for infrastructure investment. As the economy continues to flatline, the roads and railways—the arteries of industry—are surely the key to a healthier tomorrow. A strong infrastructure will secure more jobs, hasten the end of austerity and underpin our future competitiveness. Let us listen to the IMF, the CBI, the British Chambers of Commerce, the Government’s own Business Secretary and even the Mayor of London. They are all onside for Labour’s policy of infrastructure investment. Yet Wednesday’s Budget confirmed that the Chancellor still does not have a growth plan that is fit for purpose.

In my constituency unemployment rose again last month and now stands at 3,640, and 1,250 people have been unemployed for more than a year.

[Nick de Bois]

If the hon. Gentleman thinks there is no plan for growth, can he explain why the Federation of Small Businesses

“believes this”—

the employers allowance—

“will give small firms the confidence to create thousands of new jobs in the private sector”?

When the federation was arguing only for a national insurance contributions holiday, it predicted that that would provide 45,000 jobs. It has yet to imagine how many more this measure will create. That is growth in my book.

[Nick Smith]

We want a plan B that will build houses. What the Budget measure favoured by the hon. Gentleman will deliver is a millionaires’ tax break.

In Blaenau Gwent we have 11 people chasing every job vacancy. There is 24% worklessness and 18.2% youth unemployment. That is in spite of the 4,000 jobs created by Jobs Growth Wales, which is part-funded by the European social fund and the Welsh Labour Government. So in Blaenau Gwent we know that life has got much tougher. Unemployment has not fallen there as it has done in southern England. Facing high energy, food and fuel prices, nearly 1,700 local families in Blaenau Gwent will be hit, and hit hard, by the bedroom tax next month. Food and fuel poverty will continue to blight young lives. Cuts to local services, from which the council cannot escape, will also hit us hard.

What these families need is an active Government pulling out all the stops to get our economy moving and create jobs. But in their first three years the Tory-led Government have spent £12.8 billion less in capital investment, compared to the plans inherited from Labour. The Government’s own “infrastructure pipeline” shows that only seven of the 576 projects—just seven—are completed or operational, and just 18% of the projects listed are said to have started or to be “in construction”. In the Budget the Chancellor did announce an extra £3 billion a year for infrastructure from 2015-16. He said this would get growth flowing to every part of Britain, but by now we are all used to the Chancellor’s hyperbole—fine words, but no follow-through.

My constituents want to know why the Government are not funding shovel-ready projects right now, which could get our people back to work. The British Chambers of Commerce asked the same question. It identified road maintenance as something we could do right away. We want homes and schools, too. As the National Audit Office said in its “Planning for Economic Infrastructure” report, investment may shape new patterns of demand. That is what I want for the south Wales valleys. It is an area of great potential, but we need the support to realise our talents. Road and rail investment would provide that support.

The re-opening of the Ebbw Vale to Cardiff line in 2008 is striking proof of that statement. It has been so successful that we now need funds to redouble the line, as the train frequency cannot meet demand. The Department for Transport told the Public Accounts Committee, of which I am a member, that it is looking to invest to support growth. Where? In areas of high demand, where more capacity can be delivered, and where there are schemes that can be implemented. Redoubling of the Ebbw Vale to Cardiff line meets all these criteria. I would also like to see electrification of the London to Swansea line and the complementary electrification of the valleys lines accelerated.

Much work has been done over the past year to secure a major private sector-led infrastructure project in Blaenau Gwent—a world-class motor sport and leisure facility. The developers estimate that it could create significant long-term sustainable employment for over 12,000 people. That would make a massive difference in the valleys in south Wales. The £200 million scheme would be one of the largest capital investment programmes in our region for more than 40 years. But what the developers are looking for now is the right tax-based incentive. I want the Treasury to be bold in its thinking and see how it can create the right framework to attract private investment.

Lord Heseltine was commissioned by the Government to recommend policies that leave no stone unturned in the pursuit of growth. Lord Heseltine understands that economies with a number of vibrant cities and city regions are more successful than those where the capital is dominant. The Chancellor endorses Lord Heseltine’s plan for a single pot of funding for local enterprise, but history will judge this promise—yet another post-election promise—on whether it helped the rich once again get richer.

So will the Chancellor continue to endorse this flatlining two-lane economy, or will he get the whole country in the fast lane to recovery? The Office for Budget Responsibility has said the Budget will

“have no impact on the level of GDP at the end of the forecast horizon”—

in other words, it will not provide the short-term growth that we all desperately need. The sad truth is that my constituents’ hopes for some brave new thinking from the Chancellor have been dashed. Those without jobs want the chance to work and to help the economy grow. George Osborne’s action on infrastructure has failed to meet the scale and urgency of the need. Instead, we get another downgraded Budget from a downgraded Chancellor.

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[Nick de Bois (Enfield North) (Con)]

I am grateful to follow the hon. Member for Houghton and Sunderland South (Bridget Phillipson) and I thank her for a thoughtful contribution to the debate. I will be extremely non-controversial and talk about two technical measures regarding social enterprise investment, which I hope will attract hon. Members’ interests, but it may not attract the interest of all hon. Members.

To pick up briefly on growth, we heard from the Opposition claims that this is not a Budget for growth. Whatever is said in the House, I take comfort from what those outside the House say, such as the Federation of Small Businesses, to which I referred. It said how much it welcomes the Budget and the contribution that it believes it will make to creating jobs, which is fundamentally what this is about. The CBI has welcomed many of its initiatives on a micro-economic level. The main people who are doing the business, not talking about it as we are doing, are broadly supportive of many of the measures and recognise that they will bring growth. I suspect that it is they who can give us a non-partisan, objective look at what will happen. The measures on national insurance, housing, fuel, the business bank—we await further details on that—corporation tax and anti-avoidance are significant moves towards what we all want: more jobs and people being lifted out of difficult times.

I will now turn to the specifics. Over the past few years, particularly the past two and a half years, there has emerged a thirst for social enterprise, the use of local community development finance initiative funds and housing to help drive change in local communities. At present, the tax system does not go far enough to help to encourage that. I and others have lobbied the Chancellor to encourage tax changes so that we help mobilise private capital towards local community development finance initiatives. CDFIs are vital, since the non-bank CDFIs—this is a crucial difference—are running out of money at a time when demand for their funds has never been higher, as a result of the need for alternatives to high-interest lenders for disadvantaged and financially excluded communities.

What does that actually mean in practice? Let me set the scene. Capital funding for CDFIs has more than halved in the past two years. That means that they do not have enough money to support the requests for funding from CDFI initiatives. In fact, the demand for lending from CDFIs rose by two thirds over the same period that their capital was halved. The disbursals remain unchanged, but that poses a threat, because their balance sheets are getting weaker as a result of lending more money. Members might be surprised to learn that barely 20 CDFI houses have less that £500,000 left each for lending, which means that at least half the sector is struggling and we are facing a problem.

Despite some of the tax measures, such as the aptly named “community interest tax relief”, with which I am sure all Members are familiar, private sector support for those CDFI houses is low. Money is going to the banking institutions that run community development finance initiatives—banking CDFIs—which, of course, are not focused entirely on lending to those who are slightly more disadvantaged or to more of the social enterprises. However, under the present tax regulations for CITR, those banks are claiming 70% of virtually all the relief available. The wrong people, who are not lending at community level, have most of the money and are getting most of the tax relief. The Treasury has listened, or so it indicated in the Budget, about the challenge that presents, and I am pleased to draw Members’ attention to page 74 of the Red Book, where the Treasury sets out that it will look at CITR and consider measures to help social investment tax relief from private people.

[Dr Thérèse Coffey]

I support community investment tax relief—Foundation East is my local CDFI. However, I encourage my hon. Friend to go further than simply restricting it to CDFIs and allow direct investment in community interest companies, because CDFIs can often be middlemen. We need to expand the scheme and not keep the focus narrow.

[Nick de Bois]

My hon. Friend raises an interesting and technical point that I will move on to later, because it relates to a model in north London. There is a need to find a CDFI to manage the investment that goes out and its disbursal to local businesses and enterprises, and I will touch on that point briefly.

Essentially, I am arguing that we should tailor tax changes to the non-banking CDFIs that would allow private capital to come in, in very small amounts if necessary, as well as from small businesses that might want to take their corporate social responsibilities to a level at which they just want to fund local activities and be assured that those funds can go into just those activities and that they do not necessarily have to manage the whole programme. If the Treasury, as part of its review, looks at measures that are more flexible and allow multiple different types of vehicles to attract the tax relief, there will be advantages for the investor and it will increase the capital of the CDFIs, some of which are in danger of being unable to function for much longer. A more realistic tax scheme would mobilise private capital towards those institutions, and we could even start mobilising capital from very successful crowd funding exercises.

That brings me to an example that we are putting together in north London, which alerted me to this problem in the first place. I have been ably assisted by the local Member of the European Parliament, Syed Kamall, and by my hon. Friend the Member for Richmond Park (Zac Goldsmith). Essentially, we have been working on a scheme for north London crowd funding so that we can back start-ups, particularly for young entrepreneurs who are looking at it as an alternative to full employment. It is based on the Kiva model— I recommend that Members look at it—which derives capital from small loans from individuals, and even an option for small and medium-sized enterprises and corporations to meet their corporate responsibility ambitions. Kiva is aimed at the third world. An individual can give as little as £25 to the scheme and choose someone to support. They do not make a profit, but they are lending at a reasonably attractive rate to people starting small businesses, such as shops. I want to change that and bring the model to north London so that people can have a stake in investing in their community and roll it out worldwide. All that I am asking the Treasury to do, in its review, is try to introduce attractive tax investment incentives, perhaps as simple as ticking a box, so that the £25 can become £30 or the £10,000 can become £12,000. I think that it is a win-win situation.