Amendment of the Law

Debate between Stephen Hammond and Jonathan Edwards

Thursday 24th March 2011 Commons Chamber

[Stephen Hammond]

Indeed; I am grateful to my hon. Friend.

The shadow Chancellor, in contending today that the changes were too fast and too deep, once again relied on the Keynesian multiplier. He is an eminent economist, and he should know better than to rely too heavily on that mechanism. It has traditionally held out the prospect that public sector investment has an impact on the private sector, so there could be an element of crowding out and of limiting of growth potential. If the right hon. Gentleman has read the recent academic research, however, he will also know that the size of the multiplier in the growth phase of an economy is about a third of the size of the multiplier when an economy is going into recession. To rely on that thesis is therefore to rely on a very weak economic mechanism.

But let us leave the world of deficit denial behind, and welcome a Budget that does not bow to pressure. It is hugely important that the Government should stick to their policy of deficit reduction, as that is the only way to achieve long-term growth in the economy. Market rates clearly indicate that there is confidence in what the Government are doing, and to be blown off course would result in a loss of confidence. The cost of borrowing and the yields on 10-year gilts, which are important for the cost of industry borrowing and UK Government borrowing, would change. Domestic inflation would rise in those circumstances, and any indication of making a special case for one would result in having to make a special case for another. The Government are therefore to be congratulated on sticking to their policy.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

Will the hon. Gentleman give way?

[Stephen Hammond]

I am sorry; I have no more time.

Many colleagues on both sides of the House, including the Chairman of the Select Committee, the hon. Member for West Bromwich West, have made the point that the macro is always based on the micro. The devil is always in the detail. This is the first Budget for many years in which the detail has matched the rhetoric, and in which the detail on the micro side supports the detail on the macro side. Measures include the corporation tax rate, and the 21 new enterprise zones. Far from being a failed policy of the 1980s, this was a great success. Only earlier last year, when I travelled to Merseyside and Manchester to talk to business people there in my role as a shadow Transport Minister, I found that people were asking for this and were keen for it to come through.

The measures to support small and medium-sized enterprises include research and development tax credits and the change in the enterprise investment scheme, which, alongside what is happening with the banks, will bring new capital into the country. These are micro-economic reforms that will come through to build macro-economic success through growth. The simplification of the tax code, the abolition of regulation, the acknowledgement that the 50% tax rate must be only temporary—these are all key levers of growth. They are a sign that in this Budget, the rhetoric is matched by the detail and the commitment.

Finally, growth must come in order to be fair to families, and again with this Budget, the rhetoric matches the detail. The increases in personal allowances, taking the lowest income earners out of paying tax altogether, ensuring that the 40% tax band is not extended, the freeze in council tax—those measures will all impact on real people, and it is real people and the private sector, not just the Government, who build the growth of the economy. The Budget is to be commended; it is the first for some time in which the detail has matched the rhetoric.