Finance Bill

Tom Blenkinsop Excerpts

Tuesday 20th July 2010 Commons Chamber

[Mr Umunna]

I will turn to those exact points in the rest of my speech if the hon. Gentleman will wait.

Let me address the claim that the Bill will, as the Chief Secretary said, help

“businesses that we rely on to rebuild our broken economy”.—[Official Report, 28 June 2010; Vol. 512, c. 674.]

The signs are that those businesses, along with leading economic experts, do not share his optimism. A recent survey of the service sector by the Chartered Institute of Purchasing and Supply showed that confidence in the sector has been dented by the austerity measures announced in the Budget, of which, of course, the Bill is a part. The survey registered a fall in confidence between May and June this year that was the most significant drop since records began 14 years ago. Since the First Reading of the Bill, the International Monetary Fund has updated its 2011 growth forecasts, downgrading that of the UK by 0.4% on its April figures—the largest drop in the forecast of any major economy over that period. The BDO business optimism index, which measures business confidence, saw its sharpest fall since 1995 between May and June this year, and who can blame those involved?

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

I should like to echo my hon. Friend’s words, especially given that the Government will reduce annual investment allowances by £75,000 under the Bill, which determines that a monetarist miracle will be export-led. Given that on emergency Budget day, the Engineering Employers Federation, which represents manufacturers, said:

“Reducing the corporation tax rate over time…might be a positive signal for large companies, but not for their suppliers”,

how will that meet export-led targets that are predicted, yet not witnessed since 1945, especially when the majority of nations’ economies are contracting?

[Mr Umunna]

Of course, I agree with my hon. Friend. In addition, behind closed doors, some people in the Treasury share the pessimism about the state of our economy, with a leaked Treasury document showing an expected unemployment increase of 1.3 million over the next five years owing to the coalition Government’s economic policies. As well as the colossal human cost of those job losses, that will exacerbate the deficit by significantly increasing unemployment benefit payments, as I mentioned before, and cutting income tax and national insurance receipts significantly, but let me go on to the next point, as I wish to make some progress.

According to the Chief Secretary, the Bill will help to reduce the deficit and take action to eliminate the structural deficit, which is, of course, an obsession of the Government. We have already seen that their determination to do that could lead to the biggest cuts in Government spending that we have seen for many decades, but let us linger a little on the claim that the Bill is “responsible”. I have already explained how the coalition has sought to conflate public finances before the financial crash with the measures taken to mitigate the crash’s impact on hard-working ordinary people, but it is crucial that we establish what is “responsible” and what is not. The facts tell a very different story from that told by the coalition Government.

When Labour came to power, as the shadow Chief Secretary has said, public sector net debt was 42.5% of GDP. On the eve of the financial crisis, it was 36.5%, and interest payments had fallen from 3% to 1.6% of national income. A recent report by the IFS found that,

“the UK public finances were in better shape when the financial crisis began than they were when Labour came to power.”

By contrast, Germany’s indebtedness amounted to 65% of national income in 2007. In France, the figure was 63.8%; in Italy, 103.5%; and Japan ran consistent deficits, with the result that it owed 167.6% of national income by 2007. In short, the UK Government’s borrowing at that time was not of the order suggested by the Conservative party and certainly did not by any stretch of the imagination cause the economic crisis that followed.

That crisis, of course, caused the world economy to contract for the first time since the second world war. As I said, that called for decisive fiscal expansion—for billions to be injected into failing banks and into a flagging economy. How lucky we were that the then Government intervened. I for one refuse to apologise to Government Members for the bold action that the Labour party took to keep people in work, to ensure that they could still take money out of the ATM cash machines in the wall and to prevent the recession from mushrooming into a catastrophic depression.

Let it be said loud and clear that responsibility was what the previous Government did, but irresponsibility is pinning the blame for the size of the public sector debt on the previous Government and using that as a reason to hack off chunks of the public sector through spending cuts. Will Hutton, whom the Government have just appointed to head up their commission on high pay in the public sector, hit the nail on the head when he wrote in October that it was not the Labour Government

“that got us into this mess…What got us into this mess above all was the 30-year rise of Big Finance”.

However, the same people who insist that the previous Government got us into this mess propose in the Bill a corporation tax cut that will gift millions to big finance—that is what I call irresponsible.

Let me finish by examining the claim around which much of the Budget debate has revolved: that this was an “unavoidable” Budget, thus making the Finance Bill unavoidable, too. The two parties in government have made a set of choices that, I dare to venture, predate the economic crisis by a number of years. The game plan on which the Budget was based was disclosed long ago in the 2005 Conservative manifesto, the author of which happens to be the new occupant of No. 10 Downing street. The Conservatives pledged in their manifesto to slash 250,000 public sector jobs and to abolish 168 public bodies. Back then, Howard Flight, the party’s deputy chairman, was secretly recorded saying that the cuts publicly advocated by his party were a fraction of those planned. He said that the actual plans had been recalibrated into something that would be “politically acceptable” and that his party

“had to win an election first”,

but that afterwards

“you can actually get on with what needs to be done.”

We therefore cannot say that we were not warned, although people’s surprise that the Conservatives have been joined in their venture by the Liberal Democrats is wholly understandable.

Given all the shifting political sands and hidden agendas, the game of choices necessitates an eagle eye, because what stands out from the Bill and the Government’s general economic policies is not just the unfair VAT rise and the corporation tax gift to the City, as well as the disingenuous rhetoric with which they are presented, but what is absent from the Budget and the Finance Bill. Where, for example, is the plan to make the financial services sector bear its fair share of the burden? The Wall Street Journal said that the City should

“count itself lucky with the coalition government's emergency budget”.

Of course, the Government will introduce a bank levy that is forecast to raise about £2 billion, but that is a pin-prick when one considers the vast profits made in the sector. Even the IMF has proposed that the levy should raise £6 billion a year if we are properly to curb the “reckless behaviour” of the people in the industry. That additional £4 billion a year could—

Finance Bill

Tom Blenkinsop Excerpts

Tuesday 6th July 2010 Commons Chamber

[Jacob Rees-Mogg]

There were political reasons, I think it might be said, for supporting those spending plans. I was not a Member of the House at that time, and it is a bit harsh for me to be expected to take responsibility. I think a lot of people, not only in this House, held to the mistaken idea that the economy was going to carry on growing for ever. I have always thought that boom and bust is a fact of life. We always have booms and we always have busts, and we will have them again. One can look at studies of financial cycles going back to biblical times, so the thought that there would always be growth was simply wrong, and to try to match Labour’s spending programme was a mistake. However, even Homer nods. The point is that spending was out of control and had to be cut, and taxation is at its limit.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

I know that the hon. Gentleman keeps quoting the figure of 36.4% of GDP, but is that not dependent upon what GDP actually is? According to the coalition Government’s prospectus, GDP will actually go down.

[Jacob Rees-Mogg]

The hon. Gentleman ought to bear in mind that we will achieve growth if we leave some money for business to borrow rather than it all being pinched by the state. That was the point that I was making at the beginning—if the state borrows all the money that is going, in the absence of quantitative easing, it crowds out private investment.

I know that Members do not want to listen to me all evening, so I shall—[Hon. Members: “No, more!”] Well, as I understand it, if I go on long enough tomorrow’s business is forfeit, and that is an Opposition motion, so I will conclude.

We know that the situation is serious and that tax is as high as it can be, therefore spending must be cut, however difficult it is. I commend the Liberal Democrats for their courage in supporting that and facing up to the realities of government, which they have not needed to do for a few decades. If I were wearing my hat, I would take it off to the Liberal Democrats.

--- Later in debate ---

[Mr Jones]

I congratulate the hon. Member who raised the matter earlier. Someone obviously had to scurry away and take the poster down very quickly.

[Tom Blenkinsop]

In my constituency, I recently met representatives of the North East Federation of Small Business, who were concerned about their members who worked in retail on the high street. The increase in VAT to 20% will affect them very badly.

[Mr Jones]

I will come to that in a moment. Let me be honest—I have never considered shopping a leisure activity, and I think people are quite strange if they do. Unfortunately, my family and large numbers of my constituents think that it is. The VAT increase will have an effect on that leisure activity, which will have a direct effect on jobs that occupy a large proportion of the local economy in many areas. My hon. Friend’s constituency has been affected by events at the Corus steelworks, and one possible result of that is that people will be looking for other jobs, including in retail, but those jobs simply will not be there.

Budget Resolutions and Economic Situation

Tom Blenkinsop Excerpts

Tuesday 22nd June 2010 Commons Chamber

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

Does the hon. Gentleman recall that prior to the election, the leader of the Conservative party particularly targeted Northern Ireland and the north-east of England, my region, for criticism on account of the amount of investment in public sector funding? We have seen in today’s Budget that the Chancellor has not heeded the advice of the North East chamber of commerce, a leading voice of business in the north-east, which has said that the Chancellor and the coalition Government need to re-check their commitments on public sector spending so as not to jeopardise economic growth in the north-east.

[Sammy Wilson]

The hon. Gentleman is leading me on to my second point, which is about fairness, but let me finish this point first.

I have described the two sides of the argument. It is a subjective assessment, because the report before us does not present any conclusive evidence to the effect that the financial markets are so nervous that we have to take such deep, draconian action at this stage. Neither is there an assurance that the reduction in the amount of money that is going into the economy as a result of public spending cuts will not have an impact on economic growth.

--- Later in debate ---

[Mr Redwood]

That has to be judged case by case. I will not play the hon. Gentleman’s silly political game so that he can create a sensational press release immediately after I have given him a suitably large number, and I am not going to give him a suitably small number so that he can say it would not have the necessary impact. Suffice it to say that proper management could deliver more for less across many parts of the public sector, and we can do that without compulsory redundancies; we can do it by sensible management.

My first test for my right hon. Friend’s Budget is: how does it promote private sector-led recovery? I am pleased that he has said that he wishes to cut, through a steady process, the headline rate of corporation tax by rather more, I think, than under the plans when he was in opposition. The receipts pages—pages 40 and 41 of the Red Book—on “Budget policy decisions” show that he will be reducing the tax burden for most of business, and that not all of it will be given back in the form of reduced capital allowances in the way that Labour feared. However, if we add in the banks tax, the corporate sector as a whole will be making a bigger contribution. So the thrust of the Budget is that non-banking businesses will get a modest benefit from the changes and that overall business will have to help to pay for the large amounts of public spending still going on. However, a clear message will be sent to the outside world that we want lower taxes and that we believe in lower tax rates. The lower headline rate is the most beneficial thing that we can do to get people abroad interested in coming here with their companies, investments and new ventures, which is what we need.

I am pleased that the Chancellor has done more for small business. [Hon. Members: “Hear, hear!”] All the evidence shows that small businesses are not only politically popular with my colleagues, as we have just heard, but the main generators of new jobs during an economic recovery. They are more creative and need to take on more people. He has targeted them favourably with both the small business profits tax rate reduction and, for those outside London and the south-east, the generous national insurance reduction—as a Member for a south-east constituency, I would like him to extend that to the rest of the country as well, but I understand his argument that he wishes to concentrate the help on those parts of the country with the most unemployment and the biggest public sector problem.

Overall, the Budget judgment is not to ensure that 80% of the strain is taken by public spending reductions. The idea is that next year 57% of the strain is taken by public spending changes and 43% by tax increases. That is quite high on the tax increase side, which is a little worrying, but it reflects how my right hon. Friend is very reluctant to cut public spending in a damaging way and his understandable wish to get on with Budget deficit reduction.

[Tom Blenkinsop]

The right hon. Gentleman mentioned that he would like to see extra advantages for his constituents in the south-east. The Financial Times recently calculated that cuts to benefits and key Departments will have twice the detrimental impact on family incomes in Middlesbrough South and East Cleveland and other constituencies in the north-east as they will in the home counties. Given that, how can the Government talk about us all sharing the burden, and about all of us being in this together?

[Mr Redwood]

I was coming on to talk about the impact on incomes. The Red Book is quite explicit about that, and has some very helpful tables. I suggest that the hon. Gentleman gets a copy for his greater interests, as those tables make it very clear that the more one earns, the bigger will be the negative impact on earnings. As the Chancellor himself said, in that sense this is a very progressive Budget: he has shielded people on low incomes from part of the impact, and made those on higher incomes carry more of it. Although the hon. Gentleman represents a place with more people on lower incomes, they will be relatively protected.