Finance (No. 4) Bill

Debate between Rachel Reeves and Anne McGuire

Monday 16th April 2012 Commons Chamber

[Rachel Reeves]

The hon. Gentleman said that investment is coming to Britain, but business investment fell by 2% last year, whereas a year ago the OBR predicted that it would grow by 8%. The reality is that the economic data show that investment is falling and the OBR says that nothing in the Budget will materially affect the economic forecast. The proof of the pudding is in the eating and the numbers show that things are moving in the wrong direction. I find it incredibly out of touch for Government Members to try to speak about the economy as if it is booming and creating jobs and as if businesses are investing when all the economic data show just the opposite. Jobs are being shed and investment is falling, rather than rising.

[Mrs Anne McGuire (Stirling) (Lab)]

Does my hon. Friend recognise that although the investments mentioned by the hon. Member for Skipton and Ripon (Julian Smith) are welcome, increased growth in jobs will come from the small and medium-sized enterprise sector, where there is a complete depression in confidence and job growth? It is all very well to comment on the large investments, but the stimulation should come from those small and medium-sized enterprises, and they do not feel at all confident.

[Rachel Reeves]

I thank my right hon. Friend for that intervention. It is good to hear from a Member who is a little more in touch with the realities facing businesses up and down the country. As she points out, many small businesses are being starved of cash because the Project Merlin agreements for bank lending were not worth the paper they were written on, and at the same time the Government have done nothing in this Budget to help small businesses. The Opposition have proposed a national insurance holiday for all small businesses taking on new workers. That would go a long way towards trying to relieve some of the pressure on the small businesses that are struggling so much right now. The Opposition hope to see measures in the Finance Bill and the Budget to get the economy moving again, to give hard-pressed businesses and hard-working families a break and to give young people who are looking for work some hope for the future. We would be cutting national insurance contributions for small businesses taking on new workers, we would be cutting bills for hard-pressed families by reversing the Chancellor’s badly timed VAT increase, and we would be funding new jobs for young people and new investment in affordable house building by taxing excessive bank bonuses.

Hon. Members do not have to take our word for it—the damning judgment of the Government’s own Office for Budget Responsibility should really worry Members on the Government Benches. Box 3.1 on page 46 of its latest economic and fiscal outlook, headed “The economic effects of policy measures”, says that the only policy measure with a measurable economic effect is the cut in corporation tax, which it says will lead to an

“increase in the level of GDP of 0.1 per cent by the end of the forecast period.”

So in the whole Budget there is just one measure that will have any impact on growth whatever, and that is an impact of 0.1% in around five years’ time. Beyond that, the OBR says in its policy costings document:

“We have made no other material adjustments to the economy forecast as a result of Budget 2012 policy announcements.”

When it comes down to it, the measures in the Bill will do nothing to change the gloomy growth forecasts, nothing to ease the squeeze on living standards and family budgets, nothing to get businesses investing at the rate required to regain our place in the global economy, and nothing to create the new job opportunities that are so desperately needed by today’s younger generation. No, instead of taking serious steps that might help to make up the ground our economy is losing, the Chancellor and his Chief Secretary have turned from their failed experiment in expansionary fiscal contraction and resorted to the notorious Laffer curve as their latest excuse for an economic policy which hits hard-working families and rewards those who are already very wealthy. It is the last refuge of a Government who have lost any sense of purpose beyond the protection of privilege.

Those who are unfamiliar with the obscure corner of esoteric economic theory that is the Laffer curve might like to take a lesson from the Business Secretary who recently explained it. He said it was

“an all purpose, but weak, rationale for cutting the taxes of rich people”

which has

“been correctly dubbed ‘voodoo economics’.”

Indeed, he told his party conference—perhaps some hon. Members on the Government Benches remember this—that some people believe

“that if taxes on the wealthy are cut, new revenue will miraculously appear. I think their reasoning is this: all those British billionaires who demonstrate their patriotism by hiding from the taxman in Monaco or some Caribbean bolt hole will rush back to pay more tax but at a lower rate.”

As he said to his conference, “Pull the other one!”

Perhaps we should instead take a lesson from the Secretary of State for Energy and Climate Change, who warned:

“We should remember that in 1981, President Reagan based most of his policies on the drawing of the Laffer curve done on a serviette…President Reagan used that as the basis for his policy of slashing taxes, and the United States Treasury went into huge deficit…The evidence to support the Laffer curve is weak.”—[Official Report, Standing Committee B, 4 May 1999; c. 66.]

I agree, but those lessons are now being forgotten and we have the same old Tories dusting down the same old trickle-down economic theories. It did not work in the 1980s and it will not work today either. People will see it for what it is: out of touch and the same old Tories.

--- Later in debate ---

[Rachel Reeves]

In Budget 2011, there was £1.1 billion-worth of tax avoidance measures, which is less than half the amount spent on such measures in Labour Budgets. We want more wealthy people to pay their fair share, but nothing in the Budget ensures that. The Government need to tackle tax avoidance, but they should not compensate for that by giving a tax cut to the wealthiest in society.

The Chief Secretary to the Treasury said about the 50p rate:

“The idea that we are going to shift our focus to the wealthiest in the country at a time when everyone is under pressure is just in cloud cuckoo land”,

but it turns out that the Liberal Democrats have joined their Conservative coalition partners in cloud cuckoo land. I hope that the Chief Secretary is enjoying himself there, but I am sure he had hoped to cover his humiliating climbdown by pointing to the benefits to lower and middle-income earners from the increase in the personal allowance. However, as I said in my intervention on him, the Institute for Fiscal Studies has made it clear that the gains from the policy are cancelled out many times over by the losses suffered by ordinary families as a result of the Government’s tax hikes, benefit cuts and tax credit changes. The Government are giving with one hand and taking much, much, more from ordinary families, pensioners and young people with the other.

The cover story that the wealthy will pay more in other ways is unravelling day by day. We have already seen that in the House this afternoon. The cost of the cut to the top rate of income tax is 10 times higher than the amount of money raised by the cap on tax reliefs. I hope we all agree that more must be done to reduce genuine tax avoidance, but that should be a standard feature of every Budget and every Finance Bill. I direct the Chief Secretary to slide 9 of the assessment that the Institute for Fiscal Studies has made of the Budget. It shows that between 2002 and 2009, the Labour Government reduced tax avoidance by over £12 billion, while this Budget reduces tax avoidance by a mere £800 million—less than Labour’s annual average, and less than all but two other Budgets in the past decade. That is before one takes into account the fact that included in the Government’s definition of tax avoidance is tax relief for donations to charities including UNICEF, Macmillan Cancer Support, the Royal National Lifeboat Institution, Oxfam and many others. The fact that the Government cannot tell the difference between that and real tax avoidance shows how incompetent and out of touch they are.

[Mrs McGuire]

Does my hon. Friend agree that it might have been more appropriate for the Chancellor to discuss with the charity commissioners whether bogus charities were taking part in tax evasion schemes than to have come up with an ill-considered tax proposal?