Budget Resolutions and Economic Situation

Tobias Ellwood Excerpts

Friday 23rd March 2012 Commons Chamber

[Matthew Hancock (West Suffolk) (Con)]

It is a great pleasure to serve under your enlightened chairmanship of this debate, Mr Deputy Speaker.

The debate has focused much on the immediate challenges and some specific measures, but I want to focus on the big picture. This Budget has seen a tax cut for 24 million working people and a wide range of measures to help Britain earn its way in the world. After all, this Budget was part of a series of Budgets to tackle the challenge of how to turn this country around after years of economic mismanagement. Some of that requires difficult and controversial decisions to be taken, but the fruits of these labours are not in the next day’s headlines, but in preparing our country for the world we live in.

My generation does not have the certainties of an economic world in which our main competitors were in the west—indeed, in the north-west of the globe and centred around the north Atlantic. We must compete against the growing tigers of the east and the growing and rapidly developing economies of the south, yet our economy was left unprepared for that. We all know that the fiscal situation was dire. Action has been taken over the past two years to deal with our debts, but we also need to ensure that we can earn our way in the world.

Understanding the international context might be helped by a few facts and figures, showing that we cannot any longer rely simply on trading with the old world to earn our living. Over the latest period, demand for UK exports by the European Union has been falling. Compared with January last year, the value of our trade with the EU is down £300 million, while exports to France fell by 14% and by 3.5% to Ireland. Those falls were more than offset by increases in exports to the rest of the world, however. Exports to the rest of the world are up 16% since January last year. Trade with China is up 30%, and trade to India is up 15%. There have also been rises in respect of economies with which we do not have much of a history of trade; our trade with South Korea, for instance, is up 145%. Our trade with our Commonwealth partner, South Africa, is up 57%, too. It is clear that our international trade patterns are changing rapidly, and we can no longer simply rely on Europe and north America to pull us through.

[Mr Ellwood]

My hon. Friend is making a powerful speech. Will he join me in congratulating both UK Trade and Investment on its work in promoting British industry and the Foreign Office on expanding our embassy empire, which had shrunk under the last Government?

[Matthew Hancock]

I compliment UKTI on the turnaround it is undergoing under Lord Green, the exceptional new trade Minister, who has vast experience and extensive contacts across the world. I commend the work he is doing both in the Department for Business, Innovation and Skills and with the Foreign Office, which is putting resources into the effort to increase our trade with the rest of the world, which has languished for so long.

I shall focus now on certain measures that I believe should be taken. Some of them might be controversial in the short term, but in the long term they will all prove to be beneficial and will change views. We must better inform people about the taxes they pay and the effects of those taxes. We also need a simpler and more attractive tax regime, to ensure that people want to create jobs in our country and international companies want to expand here.

We also need an active industrial policy. That is considered a controversial proposal by some of my party colleagues, but my argument is that the Government already put their imprint on the different sectors of the economy. Our financial services regulations are different from our pharmaceutical regulations, for instance. Also, Government decisions on where to put the roads that Opposition Members are happy to welcome has an impact on the rates of development in different parts of our country, and the development of High Speed 2 will, we hope, reduce the north-south divide. The Government have a sector-by-sector stamp, therefore, so we should use the power of Government where it can be a positive force, rather than simply say, “Government must get out of the way.”

--- Later in debate ---

[Mr Tobias Ellwood (Bournemouth East) (Con)]

I am grateful that I was able to catch your eye, Mr Deputy Speaker, in this Hopperesque corner of the Chamber. It is a pleasure to speak in this debate on the Budget and the economy.

During the general election, I made a speech on the economy in which I said that if three MPs were asked the same question on the economy, they would give three different answers. I should confess that I added that if one of the three was a Lib Dem, there might be four different answers. Of course, we are now in coalition, so that joke is probably politically incorrect.

It is day three of the Budget debate and we are beginning to understand the detail of the statement and the impact that the component policy changes will have. Labour is starting to cherry-pick aspects of the Budget, probably to create a distraction from its contribution to the state of the nation’s economy and the inheritance that we received. I can retort by praising the tax breaks for the digital economy, which will help Bournemouth especially because it is thriving in that area; the funds for the Dorset local enterprise partnership; and the raising of the personal tax allowance, which will remove many low-paid workers in Bournemouth from the tax system altogether.

As important as those points are, we should not lose sight of the implication in the Office for Budget Responsibility report that the shadow of the recession that Labour took us into still looms. The eurozone crisis is not over. Oil prices remain high, and could climb higher. Although it has been about four years since the collapse of Lehman Brothers and the run on Northern Rock, we are certainly not out of the woods. We must not forget the scale of the financial mess that we inherited.

Labour’s approach for a decade was to borrow money that the Government did not have. It allowed the banks to do the same by over-leveraging and lending to people who could not afford it. It is all very well for Labour to blame the rest of the world and the state of the global economy, citing Fannie Mae and Freddie Mac, but there were issues here in the UK for which the Labour Government were responsible. Bradford and Bingley was offering 150% mortgages. That was a UK responsibility. It was happening over here. We cannot blame that on the Americans or on the state of the global economy. Even with the knowledge that the recession was under way and was likely to get worse, Labour kept on spending.

[Mike Gapes]

Is it not the case that, in opposition, the Chancellor of the Exchequer said that there was too much regulation by the last Labour Government?

[Mr Ellwood]

I do not agree with that statement at all. It happened under the Labour Government’s watch, and they were responsible. Their Chancellor, who later became the Prime Minister, inherited a stable economy. Indeed, in the first three years of the Labour Government, they actually balanced the books. Then in 2002, they overspent by £19 billion. By 2008 they had overspent by £68 billion, and by the following year they had ratcheted up a £152 billion deficit. That was after Lehman Brothers and Northern Rock. In their final year, they were still spending like there was no tomorrow, ratcheting up a decifit of £145 billion, taking us to an overall debt of close to £1 trillion. That is not good Government responsibility for the economy.

Not until we had a general election and an emergency Budget from our Chancellor, back in June 2010, was there some slowing down in Government spending. He introduced measures to protect the economy and set out a comprehensive strategy, including measures to control public finances and stimulate growth and tax reforms to increase our global competitiveness. Those measures were lacking under Labour, and the hon. Member for Ilford South (Mike Gapes) should ponder them.

I do not have time to go into the detail, but it would be helpful to break the Budget measures down into fiscal and monetary policy. Fiscal policy means the Government expenditure and taxation measures that have a direct effect on the distribution of income, demand and the level of economic activity. Two prime examples are the corporation tax cut, which will make us far more competitive, and the reduction in the top rate of tax to 45p so that Britain no longer has the highest rate in the G20.

By contrast, Labour introduced the 50p rate just before it left office, and it failed to raise the predicted revenues and undermined our competitiveness. Looking back in history, Labour seems to have had a love affair with high income tax rates over the past four decades. It was Wilson who put the top rate up to 83%, and Margaret Thatcher then reduced it to 60% in 1979 and 40% in 1989. What did Labour do when it came into office? It did not put the rate back up again; it kept it as it was. It recognised—certainly Tony Blair recognised—that to remain competitive, we had to have sensible tax rates.

I do not have time to dwell on monetary policy—the supply of money, the cost of money, the rate at which it is controlled, the price that the Government pay to borrow it and the total supply of money into the economy—but it has an impact on matters such as controlling our triple A rating and the price of borrowing. The Government have kept interest rates low and used selective quantitative easing, and that sound monetary policy is moving Britain forward.

This is a radical and reforming Budget that will help Britain earn its way in the world in continuing difficult times. Labour gave us a disastrous economic legacy, for which it is only now, sheepishly, apologising. It led to record debts and a halving of our manufacturing base, resulting in our coming within a whisker of losing our important triple A rating. The Government are at last balancing the books, reforming our tax system, supporting British business and staying on a course towards economic recovery. The OBR has revised upwards its growth forecast for this year. It is low, but nevertheless improving, and the OBR predicts that it will reach 2% in 2013. Labour has proved that we cannot borrow our way out of trouble. This Government are proving that we have to earn our way out.