Budget Resolutions and Economic Situation

Pat McFadden Excerpts

Monday 13th July 2015 Commons Chamber

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

Budgets, perhaps more than anywhere else, are where rhetoric meets policy. Rhetoric is an inescapable part of politics, but Budgets are the hard end of policy, where we decide our tax rates and revenues, decide on the benefit position and hear about the national accounts. I will spend the few minutes allocated to me discussing those two sides of the Budget.

First, when the Conservatives were elected in 2010 as the lead partner in the coalition, they pledged to get rid of the deficit in five years. We fought that election on a pledge to halve the deficit in five years. That policy was derided as the height of fiscal irresponsibility, but what the Chancellor announced in his Budget last week was that the Government had halved the deficit over one Parliament. They followed the Darling plan, rather than the Osborne plan when it came to the reality of deficit reduction in the last Parliament. They claimed success for their deficit reduction plan, but it was so successful that it now requires austerity for two Parliaments, rather than one.

Secondly, there is a clash between rhetoric and policy in respect of the next five years. The Conservatives fought the election just a couple of months ago on what the Office for Budget Responsibility described as a “rollercoaster” pattern of public expenditure cuts, with the deficit to be eliminated in 2018-19. Yet last week it was announced that the rollercoaster had been ditched, deficit elimination was to be put back a further year and there would be a smoother path of deficit reduction. Again, that is much closer to the plan on which Labour fought the election.

The third area is the mixture between taxes and cuts. The Conservatives fought the election saying that there was no need for tax increases at all and that the deficit would be dealt with entirely by expenditure cuts. Yet this Budget has been audited independently and it will result in a net increase in taxation of £6 billion a year—exactly the kind of plan that they would have denounced at the election.

[Mr Robin Walker (Worcester) (Con)]

Does the right hon. Gentleman not welcome the fact that the Budget closes tax loopholes and helps to make our tax system fairer? Surely that is something that we can unite across the House in supporting.

[Mr McFadden]

I do welcome parts of the Budget, but I do not welcome a party fighting an election on a platform of denouncing one set of policies and then adopting them right after the election.

To continue with my list, the Chancellor’s most blatant example of shopping around was lifting wholesale the plan to deal with the tax status of non-doms—something that was never mentioned by the Conservative party until we raised it in the election campaign. Fifthly, we fought the election on a plan for a staged increase in the national minimum wage over this Parliament—another policy that has been adopted by the Conservative party.

There are parts of the Budget that I welcome, particularly those that the Conservative party roundly denounced when they were being voiced by someone else before the election. However, it is not all agreement, because we have to consider the Budget in the round rather than just individual measures that we agree with. We cannot agree with a Budget that has been denounced as regressive because it attacks the incomes of the working poor, leading 3 million families to lose £1,000 a year. That will cause real hardship for families in my constituency and in many others like it. We cannot agree with priorities such as increasing the inheritance tax threshold for people who already have assets, while at the same time abolishing student grants, which are targeted at low-income families, making it harder for young people to pursue higher education and gain the opportunities that they deserve.

We also have to question the abolition of housing benefit for people under 21. I recently met the YMCA in Wolverhampton, and many similar charities deal with the most vulnerable young people. How will the Government ensure that those young people are not forced into destitution, and that the work of such excellent charities is not destroyed by the change?

Overall, the Budget is regressive. It is not just a march on to Labour territory, as we have read in recent weeks, but a plan that will attack the working poor and hurt incentives to work rather than increasing them. As we have heard, being in opposition is not just about blanket opposition. Shouting “Fight the cuts” is not enough. If we did not learn that over the past five years, we should certainly learn it now. Our attitude to the Budget should be to welcome the parts of it that are stolen from us and that we can agree with, but to oppose firmly the parts of it that are not in the interests of the country and our constituents.

Looking forward, the next few years will not just be about the fiscal path. They will be about equipping young people for the future, because too many of them are denied opportunities; about making sure that an economic recovery can be shared by every part of the country, not just based on a property-fuelled boom in one part of the country; and about our place in the world. On all those issues, we will be a sensible Opposition. We will not abandon the ground that we hold because the Conservative party walks on to it, but we will stick up for what we believe in and oppose firmly and with determination where it is deserved.

--- Later in debate ---

[Mr Iain Wright (Hartlepool) (Lab)]

Productivity is the pressing economic challenge of this Parliament. Unless the country addresses productivity, especially the widening gap in output per hour between ourselves and our main competitors, wage levels and living standards will not rise, and our competitiveness and position as a leading economic nation will be severely under threat. It is welcome that the Chancellor himself has now acknowledged the issue. In his Mansion House speech on 10 June he said:

“Britain must address its poor productivity.

We don’t export enough; we don’t train enough; we don’t save enough; we don’t invest enough; we don’t manufacture enough; we certainly don’t build enough, and far too much of the economic activity in our nation is concentrated here in the centre of London.”

I hope to address all those points in my speech, and ask how the Budget will address them.

Today is the first day in debate on the Budget that the House is able to consider the Government’s productivity plan, which was published on Friday. It is curious that the plan was not published alongside other documents at the time of the Budget statement, as is the norm. That suggests either that the Government fancied another hit in the 24-hour news cycle 48 hours after the Budget or that the productivity plan was not ready for publication on Budget day, and that Whitehall was trawled in a desperate attempt to scrabble together some half-baked measures in order to publish something—anything—in the immediate aftermath of the Budget. Indeed, the plan is littered far too much with phrases such as “will be published shortly”, or

“the government will set out more details of these reforms in the autumn.”

That suggests that the productivity plan has not been thought through as much as the Government would have liked.

On the question of exporting enough, it is a huge concern that there was nothing in the Budget to help to increase the number of firms exporting, or to address the persistent structural trade deficit. The Red Book shows that that is getting worse: in 2014, exports grew by 0.5% but imports grew by 2.4%. The Office for Budget Responsibility forecast that net trade this year is going to be more of a drag on GDP growth than it predicted even in the March Budget. The Red Book predicts a widening gulf between growth in world trade and growth in UK exports in every year of this Parliament. This country is not taking advantage of the growing opportunities throughout the world, and the Government should be helping to address that.

The productivity plan states:

“The government will remodel its delivery on trade, exports, investment and prosperity”,

but it does not give much else in the way of explanation. I hope that the Business, Innovation and Skills Committee can play a role in helping to shape that aim to ensure the Government meet their targets of £1 trillion by 2020 and 100,000 more companies exporting—an important aim that I am very keen to see the Government achieve, but I fear that it is looking increasingly unlikely.

[Mr McFadden]

While my hon. Friend is on the subject of exports, can he tell us how he thinks withdrawal from the European Union would help our export drive?

[Mr Wright]

I pay tribute to my right hon. Friend who speaks eloquently on these matters. With regard to our largest trading partner, I certainly think that withdrawal would not be conducive to hitting our export targets. I hope that the Select Committee will look at the costs and benefits to British businesses of EU membership, which will be important in the run-up to any referendum.

On the matter of there being enough training, the apprenticeship levy is a welcome step, although businesses, training providers and learners need more clarity. The Red Book says that the levy will support all post-16 apprenticeships in England and that

“firms that are committed to training will be able to get back more than they put in.”

What will that mean in practice? Given that the apprenticeship levy will be confined to large firms, will small and medium-sized businesses—which often find it difficult to train apprentices on the grounds of size, capacity and uncertainty over the order book—also benefit from the “get more out than you put in” principle? What happens to excellent large companies that are already exemplary when it comes to apprenticeship training, such as Nissan—in my region—Rolls-Royce and Airbus? Will the levy apply to them? I think it will and, if so, will the levy be used to cascade skills through prime companies’ supply chains, so that entire sectors are as competitive and productive as possible?

I mentioned Airbus a moment ago. The Red Book states that the apprenticeship levy applies in England, so how will it take into account large companies such as Airbus, which has a multinational operation throughout the UK, including at Filton in England and Broughton in north Wales? Will the levy apply to trainees in Filton in the south-west of England and in Broughton in north Wales? In addition, how does the levy link in with existing post-16 provision of education, skills and training, particularly in relation to further education cuts, which undermine colleges’ capacity to provide the training that firms want? Does the Minister anticipate that the levy will offset in full the proposed cuts to further education provision?

On the matter of investing enough, I really want to praise the Government on the measure to make the annual investment allowance permanent and at least £200,000. This is a very welcome step to encourage more firms to invest, with certainty in the long term. Hopefully, it will do much to boost productivity. However, more could be done to encourage innovation, product design, development and manufacture here in the UK. I would therefore have liked to have seen consideration of the expansion of the R and D tax credit, too.

To make us more competitive and productive, it is essential that we have a modern infrastructure. The Red Book and the productivity plan both prioritise road building. There is also mention of airport capacity and broadband connectivity, but for an island nation there was a striking omission. UK ports handle about 95% of all UK import and export tonnage, and 75% of all trade by value. Our ports are vital to our export capability, yet I find it odd that there was no mention of them in the Chancellor’s statement. Will the Minister explain how ports will play a part in boosting productivity? What do the Government intend to do to ensure our ports are as competitive as our rivals’ ports across the continent?

I am keen to see this country at the forefront of innovation, business creation and growth, and for the Government to provide a framework for competitive and productive firms employing highly skilled and well-paid employees. Where the Government have done the right thing to help to achieve that, such as with the annual investment allowance, I will say so, but I am afraid the Budget does not do enough of what is needed to address our massive productivity challenge.