Amendment of the Law

Debate between Owen Smith and Justine Greening

Friday 23rd March 2012 Commons Chamber

[Owen Smith (Pontypridd) (Lab)]

rose—

[Justine Greening]

I will not give way; I am still replying to an intervention. The worst thing that Britain could do right now is to listen to the siren voices of the Opposition. They are very good at criticising, but they have absolutely no credible alternative, and that is probably the key message that will come across to the public who are watching this debate.

From easing access to credit and bringing down the cost of borrowing for small businesses, to cutting corporation tax and reforming the planning system, the measures set out in this Budget will help to get growth back into our economy. They will also help to rebalance the economy by supporting our companies—wealth creators shifting UK plc from a spend-and-borrow path under the previous Government to a make-and-sell future under this one.

[Owen Smith]

Will the Minister confirm that the Office for Budget Responsibility tells us that next year the volume of investment by British companies in the UK will go down by 0.7%—that is, 7% down on the previous year’s estimate? Is that right?

[Justine Greening]

If the hon. Gentleman reads the whole OBR report, he will realise that Britain is an economy that operates in a global marketplace. Of course, his solution to the challenges faced in that global marketplace is to go and join all the countries that are facing problems, not to tackle our own economic crisis that his party left us. I assume that most, if not all the interventions that I get from Labour Members will be cherry-picked statistics that offer no alternative solutions to the challenges facing Britain.

Budget Resolutions and Economic Situation

Debate between Owen Smith and Justine Greening

Friday 23rd March 2012 Commons Chamber

[Owen Smith]

It is interesting that the hon. Gentleman says that; I am going to explain why it is not wrong and why we are right. At first glance, it looks very simple. Page 51 of the HMRC report shows the cost of cutting the 50p rate—the money that will be forgone by the Exchequer—as £3 billion, not £100 million. The next line covers the behavioural impact to which the hon. Gentleman has referred—the one based on the Laffer curve and a bit of undergraduate economic text in the previous 50 pages—and says that the Exchequer will get back £2.9 billion rising to £3.9 billion over the spending period. The key point is that all that is entirely based on a taxable income elasticity measure of 0.45. If we plug that into the equation we get this £100 million gap. Of course, the previous Treasury figures were predicated on a 0.35 number—a more conservative estimate— and that would have given £2.7 billion in revenues each year.

[Justine Greening]

That was wrong.

[Owen Smith]

I would be intrigued to get the Secretary of State to explain why it was wrong. If she looks at page 50 of the document she will see that it says simply that the Government decided that 0.45 was a better estimate. That was predicated on a single academic study produced in the Mirrlees report and there is no other evidence for drawing that conclusion. That is why the Government are guessing at the £100 million. Sensible economists would think a different sort of sensitivity range would have given them a far better estimate.

[Justine Greening]

The OBR is very clear that the £100 million represents a reasonable and central estimate. In fact, I would suggest that the previous Government’s assessment of elasticity in one of their final Budgets was designed entirely to manufacture tax receipts that were never going to materialise. If it was such a good idea, why did it take them 13 years to think of it?

[Owen Smith]

The principal reason why we did not introduce it was because the economy was growing through most of our period in government, unlike the economy under her Government.

Let us return to the taxable income elasticity measure. The OBR says that it might be reasonable, but it also says on no fewer than seven occasions throughout the document that there is “huge uncertainty” around the assumptions—not small uncertainty, but huge uncertainty. The Treasury itself, in its document—albeit buried on page 68 of 69—says:

“The results of this evaluation are highly uncertain.”

The reality is that, based on the Laffer curve, the Government have made up that £100 million number, but over the last year we got £1 billion from the 50p rate.