Finance (No. 3) Bill

Steve Baker Excerpts

Tuesday 26th April 2011 Commons Chamber

[Jacob Rees-Mogg (North East Somerset) (Con)]

There is more rejoicing in heaven over one sinner who repenteth than over the 99 who are not in need of repentance, and it has been wonderful to listen to the hon. Member for Linlithgow and East Falkirk (Michael Connarty), because he made a wonderfully Conservative speech, saying that taxation and over-regulation are fundamentally bad things—bad for the economy, bad for business, and bad for Britain. That is absolutely true, but unfortunately it misses the point that when this Government came into office, the coffers were bare. There was no money left, and therefore tough action has needed to be taken on both spending and taxation. I want to see taxes fall in every possible area—I want taxes on income, capital gains, companies and oil companies all to be reduced—but I only want Her Majesty’s Government to do that when it can be afforded.

We need to look back at the seriousness of the situation we inherited, and at what this Government are doing. Gross debt issuance from 2008-09 to 2010-11 is £540.5 billion. That is money that has to come from savers and from foreigners, and a good chunk of it actually came from the Bank of England: some £205.9 billion—getting on for half the total—was just printed by the Bank of England. That is not a way in which any responsible Government could ever have carried on; to have done so would have been desperately inflationary.

I want to come back to the point made so eloquently by the shadow Chief Secretary about Ricardian equivalence, because that is relevant. No one is saying that every £1 in debt is necessarily going to relate to £1 in future taxation, but the broad principle is right. The electorate understand this; they understand it from their own financial affairs and they see it from the Government’s. They understand that if a huge debt is built up, it has to be repaid, and it will be repaid by them out of their earnings or their assets. We already see not far short of £50 billion a year being spent on interest payments. The British electorate know that that £50 billion is coming out of their taxes, as will the repayments. Indeed, as we get on to the repayments and refinancing, we will have a further gilt issuance of £578 billion between now and 2015. Enormous amounts of money are still being raised on the debt markets even when the Government are implementing a programme of tough cuts and some tax rises, which people do not like, but that is because of the severity of the situation the Government inherited, and if they had not implemented that programme, the confidence of the markets would have evaporated.

That confidence is what allows the Government to finance themselves. This is where the gilt market is so important. The five-year gilt is trading 5% away from its historical real average; that is 500 basis points, which is a gigantic amount in gilt market terms. The five-year gilt is usually at a 2% premium to the retail price index, but it is currently at a 3% discount to RPI. That shows that the financial markets believe that the Government have got it right.

Most economic decision making takes some years to come into effect, and I must confess that in this regard we have heard a lot of nonsense about quarterly growth figures relating to decisions on cuts taken before any of their consequences had actually come through. It takes much longer than that for economic results to happen, and I would therefore say that the figures for this quarter, the last quarter and the one before that are to the credit of the Opposition, and not as yet to Her Majesty’s Government; it will be to the credit of Her Majesty’s Government when we have got 2.5%-plus growth. The gilt market and the currency market are, however, immediate responders to Government policy, and the response that they have given is a vote of confidence. They know that the Government have broadly got it right. The currency has strengthened, and is continuing to strengthen, against the dollar—an indication, perhaps, that the United States has not got its fiscal situation as well sorted out as we have here.

Let us consider some of the specific things that the Government are doing in this Bill. I particularly welcome, as does my hon. Friend the Member for Bristol West (Stephen Williams), the increase in the tax threshold. A wonderful pamphlet produced by Lord Saatchi and Peter Warburton a few years ago asked why poor people pay tax and why we have this merry-go-round whereby we take money out of someone’s pocket and put it back into their other pocket having taken some element of it to finance our bureaucracy along the way. The more the Government can raise the tax threshold, the less of that money will be wasted as the machine churns through and the more people will be taken out of tax.

I will add one point that may not be deemed helpful. My hon. Friend mentioned that over a couple of years 2 million people are to be taken out of tax, but Her Majesty’s Government might like to know that the Chinese Government have just succeeded, by increasing the income tax threshold from 2,000 renminbi a month to 3,000 renminbi a month, in taking 76 million people out of tax. That is something for the Treasury to aim for, because that number exceeds the entire population of the United Kingdom.

The increase in the tax threshold is extremely welcome, as is the reduction in corporation tax. Being competitive on corporation tax is something that the Irish were so clever about, and may we wish them well in their fight against the European Union’s attempts to make them increase it. By reducing corporation tax we attract businesses that could otherwise go anywhere in the world. We know that businesses can move and that WPP is thinking of moving back to the United Kingdom because of the right trend in taxation. In that regard, I encourage Her Majesty’s Government to avoid any of this nonsense about a Robin Hood tax. Robin Hood was not as good as he was made out to be—particularly for the sheriff of Nottingham—but even if such a tax were as heroic as the late Robin Hood, it would still be a very bad tax for this country.

[Steve Baker (Wycombe) (Con)]

I was just wondering whether my hon. Friend would agree that Robin Hood actually took from the state to give back to the people.

[Jacob Rees-Mogg]

I am not entirely sure that that is what he did. I think he also stole from the Church, which is why I have my doubts about him; I am not really in favour of people pinching things from holy mother Church.

The other great thing about this Budget—this is why it should be welcome—is that it recognises the limitations of governmental power. Let us consider what has happened in Japan since 1990. The Japanese Government have tried loose monetary policy and loose fiscal policy, sometimes at the same time and sometimes at different times, and they have managed to take the fiscal debt to 200% of GDP without managing to achieve any growth in this period. Governments cannot command economies in the way that some socialists think that they ought to be able to do. Governments can only set the right terms for business to be done, and that is where the deregulation programme is so important.

If the Government can follow through on that programme and sweep away the burdens that stop business doing business, that is how we will be able to get economic growth. It will not be Government expenditure that leads to the economy recovering rapidly because—let us return to Ricardian equivalence—people will recognise that there is great waste in Government expenditure. It will not necessarily even be very low interest rates that will do that, although I am in favour of a loose monetary policy, because eventually we reach the point where there are no borrowers there to borrow—we may be in that position. The Red Book points out that total private sector debt is 450% of GDP. If that does not make your blood run cold, Mr Deputy Speaker, I do not know what will, because that is an extraordinary level of private sector debt and it is very hard to pretend that an economy can grow by further private sector debt being taken on. So we are back with the real opportunity being a deregulatory one for the Government to push that agenda as hard as they possibly can so that businesses can do business, investors can invest and people can work. That will then lead to the tax coming through at lower tax rates and the expenditure being made that the Government wish to make, and we will be back to the glorious time that we had when Nigel Lawson was Chancellor of the Exchequer.