Budget Resolutions and Economic Situation

Sammy Wilson Excerpts

Wednesday 20th March 2013 Commons Chamber

[Sammy Wilson (East Antrim) (DUP)]

I am grateful to be called so early in the debate.

I start by welcoming some of the measures in the Budget. Although there has been a 1% reduction in departmental spending, as a result of the top-slicing, the way in which the Barnett formula works means that Northern Ireland will actually benefit over the two years by about £59 million of additional spending. I do not think the Chancellor meant that to happen; I do not think it was deliberate. Of course it helps to replace some of the 40% reduction in capital spending announced at the very beginning of the Budget period when the Government took over.

Also, I welcome Northern Ireland’s exemption from the carbon price floor and put on the record how much work the Chief Secretary to the Treasury did on that. We took the point to him, saying that this measure was going to devastate all the electricity producers in Northern Ireland and leave them uncompetitive. We said that it was going to add to the costs of generating electricity in Northern Ireland—£20 million this year, rising to £45 million—which would have affected household bills by about 15% and made us dependent on producers in the Irish Republic. The one thing I want to say is that when a case is made to the Government, they do respond. It would have been churlish of me not to acknowledge that in the House today.

Some other measures will have a positive impact on Northern Ireland: the change in the threshold for income tax will benefit 7,000 families; the employment tax exemption will benefit 25,000 small businesses in Northern Ireland; and fuel duty not going up in September will benefit motorists.

[Mr Nigel Dodds (Belfast North) (DUP)]

What effect will that have on motorists in Northern Ireland? This is particularly relevant, given that Northern Ireland’s petrol and diesel prices are the highest in the UK and higher than most in the European Union.

[Sammy Wilson]

For an average haulier, this will mean an annual saving of about £750 per vehicle and for the average motorist it will mean a £25 saving per year. Again, that is a good thing for the hard-pressed motorist.

The Chancellor made much of the monetary measures that he has introduced, especially the funding for lending scheme. Unfortunately, given the state of the banking industry in Northern Ireland and the fact that most of the banks there are not even part of the scheme, this is likely to have very little impact. However, positive impacts are being felt, and it would be right to start by acknowledging that. It is easy in opposition to criticise when we do not have to make the decisions. We can be the armchair economists who see everything that is wrong, what should be done and what one would do if one were sitting on the other side. However, there are some issues that the Chancellor has got wrong.

First, we have a Budget that he has said is fiscally neutral. That comes at a time when the economy needs some form of stimulus. He has admitted in his speech that it is not coming from consumer spending, because consumers do not have the money to spend or the necessary confidence. It is not coming from business spending, because businesses are trying to contract their loans and deleverage during the recession. It is not coming from exports, because our deficit is actually increasing. The only source of that stimulus therefore has to be what the Government can do in a practical and sustainable way.

[Ms Margaret Ritchie (South Down) (SDLP)]

Does the hon. Gentleman agree that there is an ever-increasing need to stimulate our economy, particularly in Northern Ireland? Our unemployment figures came out today and they are the highest in the past 15 years, with the level at about 23%. Wearing his other hat, as well as his hat in here, does he have any thoughts as to how the local economy should be stimulated?

[Sammy Wilson]

I thank the hon. Lady for her intervention, which leads me to a point that I wanted to make. We have a Budget that, as the Chancellor has admitted—in fact, boasted—is fiscally neutral. Although it contains good things—I have highlighted some of the impacts of the decisions—it moves the existing money around and does not mean an increase in the total level of demand. If that is not coming from exports, from consumers or from industry, because of a lack of confidence, it has to come as a result of properly targeted Government initiatives.

Although I sit on the Opposition Benches, I do not have a vested interest in Government failure and a failure of economic policy, and nor does my party. I want the Government’s policy to succeed, as it means more jobs for people in Northern Ireland and a better standard of living for them. It means that we can balance our economy. However, it is not a policy that is designed for success; it simply tries to continue the fiscal position that the Government are in at the moment. Indeed, if we look at all the targets that the Chancellor has set himself, we see that he wanted to increase confidence in the economy, yet we have seen low demand from consumers, and firms have not taken up loans—the right hon. Member for Wokingham (Mr Redwood) mentioned that—either because they cannot get money from the banks or do not believe that there is any point in investing at the moment. Firms are running down their stock levels, because they see no prospect of additional sales in future.

The Chancellor also set himself the objective of keeping Britain’s credit rating, but that is slipping because the people who make the assessments are looking at the state of the British economy and asking when we are going to get out of the downward spiral of debt. If there is no growth, we cannot pay off the debt.

[Andrea Leadsom]

rose—

[Sammy Wilson]

I do not have any additional time, but as I have not yet accepted an intervention from a Government Member, I give way to the hon. Lady.

[Andrea Leadsom]

I am grateful to the hon. Gentleman. Does he accept that the ratings agency said that if we did not stick to our fiscal deficit plans, it would downgrade us still further, so the reduction in the triple A rating is an incentive to do more to cut our deficit, not less?

[Sammy Wilson]

Indeed. I am glad that the hon. Lady has raised the matter, because I want to come on to that.

The Chancellor set himself the objective of reducing debt, yet the Red Book shows—this is since the autumn forecast in 2012, so a period of six months—that by 2015, or the end of this Parliament, Government debt will increase from 80% to 85% of gross domestic product. The hon. Member for Chichester (Mr Tyrie) gave us the reason for that: the automatic stabilisers are kicking in. We are spending the money on benefits, or paying people to be on the dole, instead of spending it—this is the point I want to come on to—on the things that would stimulate growth, increase the capacity of the economy and enable us to pay our way out of our debt, while at the same time giving people the dignity of having a job and making a positive contribution to the economy.

That is why I think the Chancellor has got this wrong. There has never been a better time for him to borrow. The 10-year price of bonds is down 2%, and it is now cheaper to borrow than it has ever been. Borrowing for those things that will stimulate growth and increase infrastructure in the economy can be very useful.

[Geraint Davies (Swansea West) (Lab/Co-op)]

Does the hon. Gentleman accept that the issue, as he has said, is the ratio of debt to GDP? There are two ways of confronting it: reducing debt or increasing GDP. If we had growth, that ratio would go down, but growth has been completely ignored.

[Sammy Wilson]

The hon. Gentleman is quite right. One reason why debt has increased as a percentage of GDP is that GDP has fallen while spending has had to go up to pay for a policy that has failed anyway.

If the Government wish to borrow, what kinds of things should they do? I shall give just two examples of infrastructure projects in Northern Ireland on which tens of millions of pounds have been spent, but which have already begun to have an impact on the economy. First, there has been investment in the broadband infrastructure as a result of the Chancellor’s initiatives in previous Budgets. Project Kelvin and broadband infrastructure around Belfast and Londonderry have helped us to grow the financial services industry in Northern Ireland, which employs nearly 30,000 people, and it has helped us to grow the film industry there too. Both industries need connectivity to north America, and there is faster connectivity to north America from Northern Ireland than there is from the west coast of north America to the east coast. That has stimulated a range of other investments, and it makes sense when it comes to infrastructure investment.

In our tourism industry, we spent nearly £100 million on two signature projects— the Titanic signature project and the Causeway project—which were supposed to generate over half a million visitors in one year. In the first six months, they nearly doubled that estimate, in business for hotels in Northern Ireland and business for restaurants, taxi drivers and so on. The hon. Member for Swansea West (Geraint Davies) made the point that there is good borrowing and bad borrowing. Bad borrowing is paying to keep people at home on the dole; good borrowing is paying to have infrastructure development, which helps to increase the capacity of the economy. I think the Chancellor has missed a trick. Instead of having a financially neutral Budget, he ought to look to the future and ask what we can do and how we can raise money to spend on projects that, in the long run, will generate more tax and jobs, give us growth, and bring down the deficit.

While I welcome the things that I mentioned at the outset, and I acknowledge the way in which the Chancellor and the Treasury have responded to some of the points that we have made from Northern Ireland, for the country as a whole there are things that could have been done that have not been done, which we will live to regret and which will probably result in the Chancellor standing at the Dispatch Box next year saying, “I forecast this, and unfortunately I’m downgrading those forecasts again.”

--- Later in debate ---

[Mr Davis]

Exactly.

The simple truth is that this is a blinding glimpse of the obvious in many respects. But this is not impossible to put right. Other countries managed to get back to a 3% growth rate, or thereabouts, so it can be done.

[Sammy Wilson]

The right hon. Gentleman seems to be saying that anyone who talks about putting money into the infrastructure and the economy is a Keynesian. Would he not accept that the monetarist argument is that the supply side of the economy is very important, and to stimulate the supply side of the economy often the Government need to spend money on capital injections to increase the capacity of the economy to produce more goods? It is not a Keynesian view, it is a monetarist view, with which I would have thought he identified.

[Mr Davis]

I will come back to the detail in a minute, but the point I am making—it is a serious point—is that we can do what Keynes said and pay someone to dig a hole and then pay someone else to fill it in, and that creates employment. So long as we avoid that and talk about the real value, we are on the same side. I will come back to the real value issue in a moment.

The problem with actions to promote competitiveness is that they are not always politically popular. Very often, they are politically unpopular, and I will elaborate on that in a second. The other element about growth—everyone in the Chamber today agrees that growth is necessary—is that it is also important to the deficit reduction policy. In effect, if 1% is taken off the growth rate, the OBR’s rule of thumb says that within a year or so that adds £10 billion to the deficit every year thereafter—not once, but every year thereafter. So growth is fundamental to the central fiscal policy as well. While we are talking about growth, we have had much talk about double and triple-dip recessions, but judging by the employment numbers, we have not had real recessions; we have had bouncing around zero to 1% growth, and that will show up when the numbers are corrected, as will be done in a few years.

There are six key elements to ensuring the economy’s competitiveness, and they are all pretty straightforward. I agree with what the Government are doing on some of them, but on others I think that they should go further. The first is straightforward: the Chancellor is absolutely right not to hesitate or flinch in the deficit reduction programme. That is absolutely essential. Canada, Germany and Sweden, which are all successful examples—Japan is not—managed their deficit reduction unflinchingly, and in all of them it delivered 3% plus rates of growth within a few years. Indeed, Canada had the fastest growing economy in the G8 when it carried through. The simple fact is that, even with the deficit reduction programme, we will be £600 billion more indebted at the end of this Parliament than we were at the beginning, and that is a devil of a burden for any country to carry. Clearly we cannot hesitate on deficit reduction.

The second key element is the one on which I and my right hon. Friends on the Treasury Bench might have a difference of view. One of the critical drivers of competitiveness is tax policy. I wholeheartedly welcome the actions announced today on corporation tax and national insurance, although I would like them to go further. The simple truth is that expensive, complex and high levels of tax returns are very damaging to a country’s economic competitiveness. We should be looking hard at the tax categories that are most responsive to lower rates. We have heard today, even from the Labour Benches, about a couple of measures—on beer, I think—that will deliver more money for the Exchequer, not less, so even Labour Members recognise dynamic tax strategy. We certainly want to see lower national insurance contributions for employers. I would like to see the employment allowance scheme that we put together extended considerably. Capital gains tax must come down. At 28%, we are collecting much less money than we would if it was somewhere between 15% and 20%. There is a series of other taxes, including corporation tax, on which action could be taken. Again, the examples to look to are Canada, Sweden and Germany.

The third key element, which we did not hear much about from the Chancellor today—perhaps we have not heard much because we are yet to go through the detail of the Budget—is deregulation. The most successful recovery in Europe in the past decade was Germany’s. The Germans took it upon themselves to dramatically deregulate their employment market for small companies. That is key, because small companies are the biggest employment creator in the economy, bar none. The Germans effectively removed employment law for companies with fewer than 10 employees and created mini-jobs and other mechanisms to reduce the bureaucracy and legislation surrounding employment. That is massively important. It is one very effective way of creating new employment, and it is something we should undertake as dramatically as we can.

Another item that was raised earlier—the hon. Member for East Antrim raised it with respect to Northern Ireland alone—was the question of carbon tax and carbon floors. In the next month or so, the changes that are being introduced will give us a disadvantage of £10 a tonne, and not against China or India, but against Germany, Holland and France. We will see a transfer of heavy industry from this country to Europe. There will now be an exemption for ceramics, but frankly there are many other businesses—they employ about 600,000 people—in the energy-intensive industries. We need to address that. The previous Government were very happy to deliver golden rules of one sort or another. I would like to suggest a rule for us on environmental and energy policy: we should not introduce any environmental policy that is not matched by our European colleagues. That would ensure that we do not do ourselves huge harm.

Let me move on to infrastructure. The hon. Member for East Antrim made a perfectly sensible point about broadband, and I agree with him. What I do not want to see is massive expenditure for its own sake in the expectation or hope that that will simply generate employment by itself. The Japanese experiment demonstrates that that does not work. What we want to see is de-bottlenecking of our railways and road systems and underpinning of things such as broadband. The Government can make some good claims in that area, but we need to do more. That is what will fundamentally allow growth to take off in Britain and get us back to the 3% level of growth.

The last item I want to speak about is bank reform. A number of colleagues, including my right hon. Friend the Member for Wokingham (Mr Redwood) and my hon. Friend the Member for Chichester (Mr Tyrie), who chairs the Treasury Committee, have talked about bank reform. Bluntly, we have been too slow—[Interruption.] I am out of time—