Budget Resolutions and Economic Situation

Nick Gibb Excerpts

Thursday 21st March 2013 Commons Chamber

[Ed Balls]

The economy has flatlined and the national debt is rising year on year, and the hon. Gentleman does not want to know the truth.

Not only is the Chancellor pressing ahead with a tax cut for millionaires; it now seems that his mortgage scheme announced yesterday will help people, no matter how high their income, to buy a subsidised second home worth up to £600,000. From what I have seen so far, the Government are basically saying, “If you’ve got a spare room in a social home you’ll pay the bedroom tax, but if you want a spare home and you can afford it, we’ll help you to buy one.” Are the Government really going to allow millionaires, who will get a tax cut averaging £100,000 in two weeks’ time, to get a taxpayer guarantee if they use that money as a deposit on a house, a second home, or even a buy-to-let house? That is not just tax cuts for millionaires; it is subsidised mortgages for millionaires—or should I say a spare homes subsidy? I will take an intervention if the Chancellor wants to clear up the absolute confusion and chaos over this policy. Surely people struggling to get a mortgage—those who want to get their first home—should be the priority for help, not the small number who can potentially afford to buy a second home or a buy-to-let home. We will solve the housing crisis and help first-time buyers only if we finally build the new affordable homes that we said should be built but which he ignored in this Budget.

This is more of the same from a Chancellor who does not even understand the Budget he has announced, as we saw a year ago. I ask him again—is the taxpayer subsidy available for second homes to people with incomes over £100,000 or for buy-to-let properties? Yes or no? If he does not clear it up, the confusion and chaos will continue. Does he want clarify it? Pasties, caravans, churches, skips—and now subsidised second homes for millionaires. It is not “Who Wants To Be A Millionaire?”; it is “Who Wants To Help A Millionaire?” It is not “phone a friend”; it is “cut taxes for your friends.” As for “ask the audience”, he must be hoping that he does not have to ask the electorate any time soon—certainly not after the past 12 months.

What a 12 months it has been for this Chancellor! The omnishambles Budget, the double-dip recession, booed at the Paralympics, forced to upgrade on the train, downgraded by Moody’s, his fascinating biography—and now his colleagues are even speculating that he might have to be replaced by the Foreign Secretary, the Defence Secretary, or even the right hon. Member for Wokingham (Mr Redwood). A year ago they feted him as the next leader of the Tory party; now, according to the Tories, they are touting him as our next man in Brussels. It used to be Calamity Clegg they were sending off to the Commission; now it is Calamity George. Well, we do know he likes a bit of “Whip crack-away, whip crack-away, whip crack-away.” [Interruption.] Are you suggesting that I do not sing it, Mr Deputy Speaker?

A few weeks ago, the Chancellor reportedly told his colleagues at a Cabinet meeting that if they did not make a decision that day they would have to do so after 2015, sitting round the shadow Cabinet table. That is going to be the one forecast that he actually gets right.

[Mr Nick Gibb (Bognor Regis and Littlehampton) (Con)]

This is all very amusing, but not very serious. Is the right hon. Gentleman aware that in his own constituency over the past 12 months unemployment has fallen by 2.5% and youth unemployment has fallen by 12.5%? Why is he complaining about higher borrowing and at the same time advocating higher borrowing? Is it not right that the Chancellor is letting the automatic stabilisers kick in?

[Ed Balls]

The problem with what the Chancellor is doing this year—cutting in-year spending—is that it is the opposite of the automatic stabilisers. He is cutting spending and the OBR says that it is having a direct impact on economic growth. I sympathise with everybody who loses their job, including the hon. Member for Bognor Regis and Littlehampton (Mr Gibb). In my constituency unemployment has come down, but working families are worse off because of cuts to tax credits, the bedroom tax and cuts to child care. The £700 million-a-year tax break for new child care is no compensation for the £7 billion a year cut in support for families.

--- Later in debate ---

[Mr Nick Gibb (Bognor Regis and Littlehampton) (Con)]

It is a pleasure to follow the hon. Member for Airdrie and Shotts (Pamela Nash), but I should point out to her that unemployment in her constituency has fallen by 3.8% over the last 12 months and youth unemployment by 9.3%.

I welcome this Budget, in particular the cut in corporation tax to 20% from April 2015; the rise in the personal allowance to £10,000; the cancellation of the planned fuel duty rise; the new measures to counter tax avoidance, particularly the information-sharing agreements that have been reached with the Isle of Man, Guernsey and Jersey; and the abolition of stamp duty on share transactions on small company growth markets, which will help to reverse the bias in the tax system towards debt financing and improve the tax position of equity financing. I also welcome the new remit for the Monetary Policy Committee, which means it can issue guidance about future interest rate expectations. Monetary policy is key to reviving growth, and the fact that the monthly 12-month growth rate of M4—the broad money supply—has been negative since October 2010 demonstrates the need for continued low interest rates.

Above all, I welcome the Government’s continued commitment to fiscal consolidation and restraint in public spending—policies that in my view have been remarkably successful over the last three years in reducing the budget deficit from a staggering £159 billion in 2009-10, or some 11.2% of GDP, to £121 billion in 2011-12, or some 7.9% of GDP. There have been two guiding principles to the Government’s fiscal policy—the fiscal mandate—which says that the structural deficit shall be eliminated within the five-year forecasting horizon. As table B.6 on page 105 of the Red Book makes clear, the cyclically adjusted surplus on current account—that is, the structural deficit—will move into a surplus of 0.1% of GDP by 2016-17, a year ahead of the five-year time horizon. The supplementary target—that the Government’s total accumulated debt should be starting to fall as a percentage of national income by 2015-16—will be met by 2017-18, with a fall from 85.6% of GDP in 2016 to 84.8% in 2017-18. That is two years later than the target; nevertheless, it is forecast to be achieved. The fact that the Chancellor has not tightened the fiscal position further in order to meet the target by 2015-16 is evidence that the Government’s economic policy is far more nuanced than critics suggest.

My right hon. Friend the Business Secretary, in his article in the New Statesman cited a paper by Carmen Reinhart and Kenneth Rogoff that made the important point that

“financial crises are typically followed by slow and difficult recovery.”

Given that Britain had the biggest banking sector relative to GDP of any major country, it is inevitable that Britain’s recovery was going to be slow and difficult. The key is that it is heading in the right direction, which is also the view of most informed commentators, such as the OECD. As it said in its 2013 economic survey of the UK, which was published last month,

“The fiscal stance remains appropriate”.

It went on:

“the Government’s decision in the December 2012 Autumn Statement to continue with its existing consolidation plans and not to override the automatic stabilisers in order to meet the supplementary debt target is appropriate.”

In other words, the fact that accumulated debt will not start falling as a percentage of GDP until 2017-18 instead of 2015-16 is not only acceptable; it is also a beneficial fiscal stimulus—the automatic stabiliser. As the Institute for Fiscal Studies says in its “Green Budget”,

“since meeting the target would do little to ensure the sustainability of the UK’s public finances, the fact that it looks set to be missed should not, on its own, cause significant concern about fiscal sustainability.”

As my right hon. Friend put it in his article, the Government have been

“sufficiently pragmatic to allow the fiscal consolidation to drift from four years to seven.”

When I listen to the shadow Chancellor arguing that we should spend and borrow more to stimulate demand in the economy, I would argue that because the Government have done that, but through the automatic stabiliser, they maintain the confidence of the capital markets, whereas his approach would not. As a consequence, there are 1.25 million new private sector jobs, while unemployment has fallen over the last 12 months by 4% and youth unemployment by 13%. Indeed, in the shadow Chancellor’s own constituency, unemployment has fallen by 2.5% and youth unemployment by 12.5% over the last year.

To those who argue for stronger spending cuts to fund further tax cuts, I would argue that the fall in public sector employment of 300,000 between 2010 and 2013 represents a sizeable reduction in the state sector, with the IFS forecasting that the figure will fall by 900,000 in total by 2017-18. I would also argue that the cuts in corporation tax are precisely the supply-side tax cuts we need to stimulate the business sector, while the rise in the personal allowance is likely to be the most effective tax reduction measure to boost demand.

If there had been more time, I would have said more about exports and the damage and the threat that the eurozone crises have already caused and may continue to cause to the economy’s growth prospects; about the importance to Conservatives of continuing to maintain strong spending on the NHS, particularly with a growing elderly population and ever more developments in medical science; and more about domestic demand in the economy, which the figures show is strong. In short, I believe it is vital that the Government continue on this rocky road to recovery and do not allow themselves to be pushed off course by siren voices claiming that there are short cuts, which of course there are not.