Budget Resolutions and Economic Situation

Thomas Docherty Excerpts

Friday 22nd March 2013 Commons Chamber

[Mr Duncan Smith]

I agree with my hon. Friend and thank him for reminding me that we need to centre the measure down to constituency level, so that hon. Members know what it does. With my right hon. Friend the Chancellor, I will endeavour to ensure that every constituency is informed about how many people will be lifted out of tax and how many will benefit.

[Thomas Docherty (Dunfermline and West Fife) (Lab)]

rose—

[Mr Kevan Jones]

rose—

--- Later in debate ---

[Jacob Rees-Mogg]

There is a union of people whose seats have “North East” in their names and who make helpful interventions. I am extremely grateful to the hon. Gentleman because he leads me right to my next point, which is about the absolute essence of where growth will come from. I refer right hon. and hon. Members to page 56 of the “Economic and fiscal outlook” produced by the Office for Budget Responsibility, which contains charts on household leverage indicators. That is crucial because about three-quarters of the economy is dependent on private consumption. What we needed, and what has taken time, is for household budgets and balance sheets to rebalance at the same point as the Government balance sheet and budget.

In these charts we see that income leverage—interest payments as a percentage of income—is now at an historic low. That is important because it means that households can now afford to spend. Even more important, asset leverage is back alongside historic averages, so households are no longer over-geared in the way they were in 2007 and 2008. I actually think that the figure on household leverage is overstated because there is still a lot of bad debt in the system that the banks have been reluctant to write off because of concerns over their balance sheets. That is what has happened over the past few years. By following stable and sensible policies, the Government have allowed households to shore up their balance sheets, which means that they will now be in a position to begin to spend again should they wish.

Having looked at the big macro picture of two crucial things—Government expenditure under control, and household balance sheets restored—it is worth considering some of the positive detail within the Budget. The £2,000 cut in national insurance for businesses is fantastic. We know that small businesses are the ones that create new jobs—a series of data from the United States show that, on average, large companies shed 1 million jobs a year, while small companies create just over 1 million jobs a year. The reason for that is straightforward: large companies are always looking to cut costs, but small companies are where new ideas are built up. Anything that helps small businesses is welcome and national insurance is a very bad tax on jobs. I hope that ultimately the Government will look at national insurance in the round, but that will need to be in a time of boom, rather than a time of austerity.

The other policy that is relevant to today’s debate, which was opened by my right hon. Friend the Secretary of State for Work and Pensions, is the £10,000 tax threshold. That is a joy to behold because it gets us away from the taxation and benefits merry-go-round where people on low incomes are taxed and then given back some of their own money, once the Government have taken a cut for administration. We want to get that threshold as high as possible so that we do not tax people and then give them benefits. We want to get people out of that altogether, and out of the dependency culture that exists when we tax people on low incomes.

This measure has a further benefit if it can be extended and if the national insurance threshold can be raised, because that will reduce the administration of employment. If the national insurance threshold can be raised towards the £10,000 tax threshold, employers will be able to pay their employees without having a big administrative burden on top. I hope the Government will look at that as it would be a fantastic boost to employment. I think it could possibly be paid for simply by shifting the band for employees national insurance into line with the increase that would be made from the current level to £10,000. I accept there would be a gap on employers, but that might be minimised by doing it in the way I suggest.

[Thomas Docherty]

The hon. Gentleman is making a far more eloquent case than the Chancellor managed for this set of policies. He seems to be saying, however, that we should not have a contributory system towards the welfare state. Is that where his argument is heading?

[Jacob Rees-Mogg]

No, that is not where I am heading. I am saying that the contributions of people at the lowest end of the pay scales should be minimised.

The hon. Member for Hyndburn (Graham Jones) spoke of the Government’s housing scheme. It is potentially a very exciting scheme, and the most important part of the Budget. There has been some talk of the risk, but I believe there is very little risk. I have had a look at the house prices figures produced by the Land Registry from 2008 to date, and at inflation over the same period. If we combine the two, we see that house prices on the Land Registry index have fallen in real terms by nearly 25% since 2008, which means that the scheme is being introduced at a point when house prices are sustainable, and when the risk to the Government’s balance sheet is limited. The scheme has the great potential not only to allow people to buy properties for the first time or to move into better properties, but all that goes with that, such as refurbishment, extra spending on DIY and so on. The measure could be a boost to consumer expenditure as well as free up the housing market.

I have one caveat to make before I conclude. I am concerned about the general anti-avoidance provision, which may threaten the rule of law. I will speak more about that later.