Amendment of the Law

Sam Gyimah Excerpts

Thursday 22nd March 2012 Commons Chamber

[Michael Fallon (Sevenoaks) (Con)]

I remind the House of my interests on the Register of Members’ Financial Interests. One of the most remarkable things about the Opposition’s response to this Budget is that we have not heard a single pledge to reverse any of the changes being proposed. We have heard a lot of carping and that they are going to vote against some of the measures on Monday, but they are not actually going to change them should they ever come back to power. When they do carp, they seem to be carping on behalf of some rather strange interests. They want the top 10% of households to keep their child benefit. They want the better-off pensioners to keep their age-related allowances. Indeed, they want the super-rich to go on enjoying some £65 million-worth of evasion of stamp duty and abuse of tax reliefs. That seems to me an extraordinary position for the Opposition to get into.

[Mr Sam Gyimah (East Surrey) (Con)]

Is it possible that the opposition to these measures we are hearing, which my hon. Friend has outlined, is opportunistic politics dressed up as principle?

[Michael Fallon]

My hon. Friend is on to something. We note that the shadow Chancellor could not answer the questions on whether Labour would restore the age-related allowances, the changes to which its Members have been moaning about today.

Where I hope there is common ground across the House is that we all want a dynamic, high-growth economy. In my view, that can be built only on sound public finances, fully flexible labour markets and rising productivity in both the private and public sectors.

I shall begin with the public finances. I welcome confirmation in the Budget that we remain on track to eliminate the structural deficit, with the result that, even in difficult trading circumstances both in the eurozone and globally, the Chancellor was able to avoid big increases in taxation or further increases within this spending round. A broadly neutral Budget confirms that we are on course, but keeping our public finances on course will require continued firm control of public spending.

I note that in cash terms public spending continues to rise each successive year that is illustrated in the Red Book. It may be that we have to have a fresh look at some of the entrenched spending targets of the previous Government. We may well need to ask ourselves whether specific targets, for example on child poverty or climate change, are the best way of focusing our spending where it is most needed.

I welcome moves towards flexible labour markets and more local pay. The hon. Member for Foyle (Mark Durkan) is right—this is not a new announcement. If you look back at the spending review of 2002, Mr Deputy Speaker, you will see that the then Government were committed to more flexible local and regional pay. You will find it in the Budget documents of 2003. You will also see it in the previous Prime Minister’s last Mansion House speech as Chancellor in 2006. Of course, the Labour Government did nothing about it; their union paymasters would not allow it. But local pay has applied for the past 25 years at least across the private sector, and it would be wrong to continue to rope off the public sector from the real differences in the associated costs of labour up and down the United Kingdom.

It is unfair to local businesses to have to compete for labour with public bodies and offices that pay well above the market rate. It is certainly unfair to the jobless in those labour markets, who are priced out of jobs as a result. I hope that the Chancellor will go on to tackle some of the other inequalities, such as the big differences in sickness pay between the public and private sectors and the real difficulties that young people under 25 have in getting that first job. One third of the unemployed are under 25. That is the legacy of the Labour party, and we have to do everything possible to help those people to get their first job, not least when at the moment we control their wages and other conditions that create so many disincentives for small companies to take on a single extra member of staff. Why should the state make it so difficult for young people to get into employment?

The test of all the Budget measures in the end is whether they will improve our productivity, as so many Labour Budgets and so much Labour spending signally failed to do. The Office for National Statistics figures for 2010 say it all and are a good summary of 13 years of Labour government. In terms of GDP per hour, France is 18% more productive, Germany is 19% more productive and the United States is 24% more productive. That shows the importance of improving incentives at every level and it is why I welcome the new incentives for the lower paid and middle earners that will be created by the changes to the personal allowance. Taking 2 million people out of tax altogether in two years will improve those incentives. That is a coalition achievement in which both parties on this side of the House can take real pride.

Sound public finances, more flexible labour markets and higher productivity are the keys to the future and to the jobs that our children need. I welcome the progress being made in this Budget towards them.

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[Mr Sam Gyimah (East Surrey) (Con)]

Listening to today’s debate, I have heard little from Opposition Members to dissuade me from the conclusion I arrived at yesterday after hearing the Chancellor’s speech: that this is a fiscally responsible and fair Budget, but one that continues to build the foundations for our long-term growth and prosperity. What the Government are doing for growth and prosperity will be the focus of my speech. First, however, I want to make a few comments about fiscal responsibility allied to fairness.

I am pleased that the Chancellor chose to stick to the plan—a framework within which all the Government’s decisions are being made. At the beginning of this Parliament, the Chancellor made the right decision, to pay the debts of the past and, after a decade of uncontrolled borrowing, to tighten our belts. It is encouraging that the Chancellor continues to stick to that plan, which was initially unfashionable but has now entered the international mainstream.

The task facing us is not easy, and it will continue to be challenging. The gap between how much we earn and therefore take in and how much we spend has fallen from £156 billion—an all-time high, set just before the coalition came to office—to £126 billion. We have therefore made a lot of progress in balancing the books, but we must not take our foot off the gas, which is why I am glad the Chancellor continues to stick to his plan in this Budget.

It is interesting that Opposition Members no longer call for a plan B. A year or so ago not a day would pass without their calling for that. They are no longer calling for it because plan A is working: the deficit is falling and we are beginning to see private sector-led job creation. That is why the Chancellor is right to stick to his plan and to focus on being fiscally responsible. Very few western Governments could these days have announced the Budget that he has just delivered, and he has been able to achieve that because of his past decisions.

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

The hon. Gentleman says plan A is working. Does he agree that it must have been an oversight not to mention at the outset that it would result in damaging growth and therefore pushing up unemployment and the costs of some areas of borrowing?

[Mr Gyimah]

It is precisely because plan A is working that in this Budget we can afford to lift 2 million people out of tax—2 million people who were penalised by the 10p tax introduced by the last Labour Government. Because plan A is working, 24 million of the 30 million workers in the UK can get a tax cut—a very important tax cut in very difficult times. The hon. Member for Birmingham, Erdington (Jack Dromey) said that he would compare his record with our record any day. I say to him that we are lifting 2 million of the poorest people out of tax, while the previous Labour Government penalised them. Our record certainly stands up to scrutiny on that.

Labour has now quietly dropped its plan B, and is instead opportunistically opposing our measure on the 50p tax rate. However, Labour does not say that it would reinstate that rate if it were elected to office tomorrow. It is also saying it would somehow give child benefit to higher rate tax payers.

[Mark Durkan]

If the need for deficit reduction was the justification for the temporary nature of the 50p tax rate and the withdrawal of child benefit, why has the 50p tax rate remained a temporary measure while the withdrawal of child benefit will be permanent?

[Mr Gyimah]

All three main parties agreed that the 50p tax rate was to be a temporary measure. Also, we must ensure that any tax that is imposed actually raises the required revenue for the Government coffers. If it does not do so, it would be irresponsible of a Government to carry on with that tax just because it is good politics. It is right for the Government to set that tax at a rate that discourages avoidance and encourages people to pay.

Fairness must not be the only test of this Budget. Economic growth is also very important. In truth, the Chancellor has very limited room for manoeuvre, and it is good that we have nevertheless done quite a lot for hard-working people, giving back to them more of their hard-earned cash. However, only economic growth will lift the prosperity of all of us. Today, we focus on who are the winners and losers from this Budget, but growth is the most important theme.

I was therefore encouraged to hear the Business Secretary talk about access to finance from the banks. My party colleagues and I know that more borrowing, spending and debt is not the way to get economic growth and to create jobs. We believe that the way to achieve that is through encouraging a spirit of enterprise and adventure, but we cannot encourage that unless we ensure that finance gets into the real economy.

One of the biggest challenges we face in coming out of the 2008 financial crisis is the concentration in our banking system. Some 90% of small business lending is concentrated among five banks. No matter what they say, that means that there is little price competition and it is important that the Government do a lot to ensure that we can get money into the real economy. That is why I welcome credit easing, because by using the Government’s balance sheet to enable banks to borrow and lend to businesses, we enable a situation whereby even if a business had a 1% interest rate discount, it could refresh loans that may otherwise not be refreshed.

[Richard Fuller]

My hon. Friend is talking about credit easing and the use of banks. Does he not also think there is scope for considering alternative mechanisms to provide financing to our small businesses?

--- Later in debate ---

[Mr Gyimah]

I very much agree with my hon. Friend that credit easing is a temporary measure. In the long term, the Government have to change the lending landscape for small businesses—that is the point I was driving at. We cannot continue to rely on five major banks, which is why I welcomed the business finance partnership, a £1.2 billion fund that the Government are using to support non-bank lending institutions that are closer to small businesses. Many of these are peer-to-peer lenders, such as MarketInvoice or Funding Circle, or more traditional institutions such as M&G Investments. It is absolutely right to diversify the lending landscape, so that businesses in my constituency and in many others do not just have to rely on the same bank manager and, more importantly, the computer, which will say no to them when they try to refresh a loan or get the credit that they need.

I welcome the fact that the Budget realises that debt finance should not be the only source of finance for businesses. Equity finance is very important, especially in the context of businesses that do not have the cash flows or the revenues to support debt. That is why I welcome a lot of the flexibility associated with the enterprise investment scheme, venture capital trusts and the seed enterprise investment scheme. Those are all schemes in the Budget that would not make the headlines; nobody is going to focus on them because they do not immediately tell people who are the winners and losers in the Budget. However, it is those measures that will ensure that individuals who want to take risk, to start businesses and to build up their companies are capable of doing so. Whether we are talking about The White Company, lastminute.com or The Body Shop, it is these British success stories that will get us out of where we are at the moment.

What would I like to see as the Chancellor reflects on his Budget, and I hope, takes it further? On the diversification of the lending landscape in this country, we need to be very careful not to stifle innovation as we examine banking regulation. So much of what we are doing on banking regulation is about dealing with the crisis of the past. We should make sure that, in doing so, we do not freeze our banking system in aspic so that new, enterprising and innovative companies that can get credit to small businesses fail to thrive. The Government have announced £20 billion of credit easing, but we probably need to consider doing more in that direction to help businesses.

[Mr Iain Wright]

Does the hon. Gentleman think that the massive downgrading in business investment growth forecasts over the medium term is a sign that plan A is working?

[Mr Gyimah]

Anyone who has been in business before, as the hon. Gentleman has—he was an accountant—and as I have been, will know that one of the most important things is confidence. For businesses to gain confidence, they need to know, first, that the Government are going to create an environment of certainty in which they can operate. They also need to know that the Government are going to balance their books and to create the right environment in which to invest. Lowering corporation tax is a clear signal that we are going to be creating the right environment for businesses to operate in. I am confident that once we have that macro-economic framework right, businesses will have the confidence to invest. It is only through business investment that we will generate the growth and the jobs that all Government Members want and are fighting for. The Chancellor is on the right side of this argument, because we cannot do this through more borrowing, more spending and more debt—that is more of the same and it is all I have heard from Labour Members today.