Budget Resolutions and Economic Situation

Tom Harris Excerpts

Thursday 24th June 2010 Commons Chamber

[Luciana Berger]

My hon. Friend makes a very good point. [Interruption.]

[Mr Tom Harris (Glasgow South) (Lab)]

My hon. Friend is making a powerful and significant contribution in talking about the difficulties that younger parents in particular have in bringing up their first and second children. What conclusions does she draw about the Conservatives’ approach to those difficulties from the fact that Conservative Members are mocking her and laughing when she is trying to make a serious point about the difficulty and cost of bringing up children?

[Luciana Berger]

I thank my hon. Friend for making his point and I am disappointed by the response from Conservative Members.

On Tuesday, the Chancellor said that his Budget would protect the most vulnerable. I urge the Government to address the question of what limiting support to the firstborn will mean in practice. No family that needs help should miss out and, contrary to the Chancellor’s declaration, this cut will affect rather than protect the most vulnerable.

The second very different element of the Budget I wish to raise is the remarkably short-sighted decision not to introduce tax relief for the UK video games industry, which makes a valuable contribution to the UK economy: in 2009, it generated £2 billion of sales, added approximately £1 billion to the UK’s GDP, raised over £400 million for HM Treasury in tax revenues, and employed more than 28,000 people. It is an export-oriented, high-tech, highly skilled, low-carbon industry.

As we speak, the best developers are leaving the UK and going to Canada and the USA. The UK lost 700 jobs in the sector from 2008-09; a full 7% of its work force. That not only is harmful to the UK industry and to games already in production but means that some games that would otherwise have been made in the UK are made elsewhere.

Why are so many of the video games industry work force leaving the UK at a time when global video game sales grew by 24%. between 2007-09? Why has the UK games development industry fallen from the third largest in the world based on revenue in 2006 to fifth place in 2009? It is because the UK’s principal competitors in Australia, Canada, China, France, South Korea, Singapore and the USA all received national or regional state tax breaks for games production. For example, in Montreal, Quebec, there is a five-year income tax holiday for foreign specialists and research and development tax credits cover 20% to 35% of qualifying expenditure.

Other competitive nations have taken a strategic decision that the video games sector is a key element of their economy. Research carried out by TIGA, the trade association representing the UK games industry, indicates that over five years games tax relief would create or save 3,550 graduate-level jobs, increase and safeguard £457 million in new development expenditure and save development expenditure that would be lost without tax relief. Most significantly, introducing games tax relief would increase and protect £415 million in new and saved tax receipts for HM Treasury—far outweighing the £192 million that games tax relief would cost.

Can the Minister explain why it is stated in table 2.1 of the Red Book that the non-introduction of video games tax relief would raise an additional £190 million over the next five years? How was that figure arrived at?

In my constituency and across Liverpool there are a number of video games developers: Genemation, Bizarre Creations, Magenta Software and Playbox. Sony Computer Entertainment, based at Wavertree technology park, employs more than 600 people. Games developed over the past 15 years in north-west England alone have produced and sold over 100 million units, equating to over £3 billion in revenue.

We have an outstanding record for vision and originality of games, but it is clear to me from having spoken to a number of people in the industry that there is a deep sense of frustration. All they want is a level playing field so that we can at least maintain the UK’s position, if not grow the sector, so that jobs are retained and we can compete on a fair basis.

The video games sector is an important and growing knowledge-based industry. More than a third of the work force are carrying out graduate-level jobs in games development. Average salaries exceed £30,000, which is above the national average of £22,000. There is absolutely no doubt that a cultural revolution is taking place in the games sector, whether in serious games such as educational programmes and defence training simulators or recreational games.

Interactive media industries are with us for the next century and we should be doing all we can to support the sector to be a world leader in the field. Just as we have film tax relief in the UK, the Government should uphold the commitment both coalition parties made before the election to have a games tax relief. Britain has traditionally been a leader in the field of video games development, and in many ways it still is. However, we cannot compete without the same tax incentive system that is in place in other countries.

Throughout the Chancellor’s speech on Tuesday, he kept on repeating that his Budget was an accelerated decrease in the structural deficit, but as I have shown through reference to just two of the cuts announced, it is actually an accelerated attack on families. It is an accelerated attack on those who are most vulnerable, on business and on growth and jobs. I will be voting against it next week.

--- Later in debate ---

[Mr Umunna]

No, I am not, but I am seeking to point out what happens when people take a cold, dispassionate and inhuman approach to economics and neglect to consider the consequences of their actions.

[Mr Tom Harris]

I rise in part to respond to the hon. Member for Spelthorne (Kwasi Kwarteng), because it was not my hon. Friend the Member for Streatham (Mr Umunna) who suggested that riots would return to the streets of Britain; it was the Deputy Prime Minister, who said just a few weeks before the general election that the scale of cuts foreseen at the time would result in civic society breaking down in this country. Is the hon. Gentleman suggesting that the Deputy Prime Minister is mistaken?

[Mr Umunna]

Silence.

There has been a lot of talk about IFS and Institute of Directors reports, various statistics, the extent to which we need to reduce the structural deficit and the extent to which it is cyclical—but we are talking about people’s lives, and I am deeply worried about what the approach adopted by the Government means for my constituents and those who live in similar areas. There was talk of contrived anger. My worry is not contrived; it is very real. As has been said, the Office for Budget Responsibility has revised up the unemployment forecast by 100,000 people. The Chartered Institute of Personnel and Development is saying that it is absolutely certain that unemployment will go beyond the 3 million barrier again.

I took the trouble to look into some of the cuts that Geoffrey Howe imposed on the country, and what worries me most is that they pale into insignificance compared with the cuts envisaged by the Government now. Howe cut spending by 4% between 1981 and 1984. The Chancellor is planning 25% cuts over four years.

--- Later in debate ---

[Sajid Javid]

The hon. Gentleman’s own party said before the election that it expected to make very large, severe cuts, in the order of about 20% in real terms. Our Budget proposes cuts of about 25% in real terms in unprotected Departments. Is he really saying that the only thing bothering him is a difference of 5%? I have not heard anything from Labour Members in the past two or three days that remotely suggests how they would achieve the 20% cut that they have talked about.

James Carville, who was President Clinton’s political adviser, once famously said:

“I used to think if there was reincarnation, I wanted to come back as the President or the Pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everyone.”

Soon after that, President Clinton abandoned his plans to increase borrowing, recognising instead that, even at that time, he had no choice but to balance the budget. I have traded in the international bond markets for many years, and working on a trading floor I saw for myself just how severe the financial crisis was. There is no question but that we would have faced economic problems regardless of the actions that were taken by the previous Government, but their actions made things worse, and that is the key. The situation has been made worse by the huge amount of borrowing that we have taken on since that time.

[Mr Tom Harris]

Does the hon. Gentleman believe that it was right for the Government to bail out Northern Rock?

[Sajid Javid]

Personally speaking, on my own behalf, I would not have carried out the bail-out in such a way. I think that the true consequences and costs of that bail-out are yet to be borne out.

I know from my own experience of the bond markets that they take no hostages. We now depend on them utterly for the nation’s finances. My right hon. Friend the Secretary of State was absolutely right to point out that we face a major sovereign crisis unless we take serious action. Some Labour Members have said that it does not look as though we have had problems with financing our budget deficit to date. We borrowed about £225 billion in gilts in the last financial year, but at the same time, the previous Government, through the process of quantitative easing, printed about £225 billion of new money. It is therefore not difficult to work out how, in effect, much of that borrowing was paid for.

The United States was the only other major economy that went through a process of quantitative easing, and we cannot use it as an example to compare with ourselves because, as we know, it has a reserve currency and we do not. That makes its situation entirely different when it comes to such an economic policy. The only other country in the world that I can think of without a reserve currency that went ahead and printed money at about the same time as us—indeed, before—was Zimbabwe. It is rumoured that the Finance Minister of Zimbabwe sent a note in 2008 to the then Chancellor of the Exchequer offering him his economic advice in exchange for lifting visa restrictions on him and his family. I think the then Chancellor took the advice but did not give anything in return.

The bond markets are picking off grossly indebted nations one by one with rising bond yields and falling prices. We have heard today about Greece, and we have seen what has happened in Ireland, Portugal, Spain and Italy. Those who observe the markets carefully need only look at what has happened, to a lesser extent, in France in recent weeks, where problems have started. That is why France, too, recently announced an austerity package. We have no choice but to reduce the record budget deficit, or else we will face an economic crisis of cataclysmic proportions.

[Sajid Javid]

Yes; Professor Blanchflower has been consistently wrong for the past three years since the crisis started, and he was wrong in what he said yesterday.

We have no choice but to cut the deficit, and that requires both cuts in spending and the raising of taxes. As we have heard today, we have to a strike a balance between the two, and the burden must fall on public spending. We have no choice about that, because if we raise taxes too much we will destroy the very incentives that we need to create the growth that will get us out of this economic mess.

As we go through that process, we must naturally try to protect the most vulnerable as much as we possibly can. Opposition Members have accused us of being ideological about the matter, but how can we be anything else? They are absolutely right, and there is no shame in it, because there is an ideological difference between what they believe and what we believe about how to get our country back on track and our economy going.

The Opposition believe in some kind of Alice in Wonderland economics in which we can go on living beyond our means year after year. We believe in the real world, where we have to pay our way. They believe that the state has the answer to all society’s problems, but we believe that individuals, helped by the state, have the answers. They believe in an ever increasing welfare state, in which people are tied down and not allowed to profit from their own industry, and we believe in helping the most vulnerable in society—those who cannot help themselves—but freeing those who can work for themselves and earn an income, and giving them the incentives to do just that. Because of that, we believe that we can get more out of our constrained budget, repair our economy and create a fairer and more responsible society.

[Mr Tom Harris]

Will the hon. Gentleman give way?

[Sajid Javid]

I should like to plough on for a bit, but I will give way in a moment.

The size of our national debt cannot be ignored, either. It has not been mentioned much—we have all talked about the deficit, but let us not forget the enormity of the problem caused by the national debt. Any Government will have to address it at some point. Benjamin Disraeli once said:

“Debt is the prolific mother of folly and of crime.”

He should have known, because there was not just public debt at the time; I believe he had some personal debt, and he was probably referring to that as well.

After 13 years in office, Labour took our visible national debt from £350 billion to more than £900 billion—an almost threefold increase. That does not include the invisible national debt, public sector pension liabilities, which reputable organisations estimate to be more than £2 trillion, and all the private finance initiative liabilities, which grew from approximately £20 billion to £150 billion. We have a huge debt problem, which must be addressed, otherwise not only will this generation and our children pay for it, but our children’s children will inherit it. Let us not forget the changing demographics in our country, where we have a growing elderly population and fewer people of working age. That means that there are fewer people to tax and fewer who are able to fund the state’s activities, including repayment of debt.

The Budget addressed how to start promoting growth, which will help us get out of the mess. The Government are reducing corporation tax, the tax on small companies and on entrepreneurs’ relief, and addressing some of the problems of bank lending Many banks have been held back from increasing lending since the onset of the crisis because of the uncertainty of the future economy. The Budget gives banks much more certainty about the future of our economy, and that gives them more confidence to lend.

The securitisation market has not been mentioned often in the debate. More than the equivalent of £5 trillion has been issued in the past 10 years. Many banks used that to provide funding to small and medium-sized companies and to fund mortgages throughout the world. Securitisation unquestionably caused some of the problems of the credit crisis, but we must consider that market if we are serious about getting banks to lend again. So far this year, European banks have issued €30 billion of securitised bonds, against €500 billion in the same period last year. Last year, 95% was purchased by the private sector; so far this year, 95% has been purchased by the public sector central banks throughout Europe, including ours.

We are considering a bold Budget to redress a dire situation. Its measures are thoughtful and disciplined and it aims to spread the economising process throughout the nation. No group is spared and none is favoured.

[Toby Perkins (Chesterfield) (Lab)]

It is interesting to follow the hon. Member for Bromsgrove (Sajid Javid). There was one thing in the past 14 minutes that I am glad that he acknowledged; otherwise there was little with which I could agree. However, I agreed with the admission that the Budget is ideological and that the Conservative party has delivered the sort of change that it always wanted to make and scrapped the massive improvements that the Labour party made in the public sector. It is not an economic but an ideological Budget. The hon. Gentleman’s honesty, at least about that, does him great credit.

I want to consider the huge and unnecessary gamble that the Chancellor has taken with our economic recovery, and why a genuine growth strategy would enable us to grow our way out of the economic crisis without threatening thousands of people with the dole, and without threatening those who rely on housing benefit or the economic recovery. I shall also talk about the Budget’s impact on my constituents in Chesterfield and Staveley.

First, I shall deal with the myth that the Chancellor had no choice and that the measures were taken out of economic necessity rather than, as the hon. Member for Bromsgrove admitted, political ideology. That is nonsense. The Chancellor’s Office for Budget Responsibility’s report confirms that the borrowing requirement this year was £8 billion less than that forecast by my right hon. Friend the shadow Chancellor in March. Before the Chancellor’s intervention in the Budget, we were on target for the growth forecast for 2011 of 1.25% that the shadow Chancellor had made. The OBR admitted that the shadow Chancellor’s plans for spending restraint over the next four years would have halved the budget deficit by 2014-15, just as he said they would when he delivered his Budget in March.

Uniquely among the main parties, the Labour party is putting forward policies that we campaigned on in the general election a month ago. This could catch on: we could go into elections telling the public what we wanted them to vote for, and then we could come to this place and deliver those policies.

[Mr Tom Harris]

That’s not the new politics.

[Toby Perkins]

My hon. Friend makes a valid point: it probably is not the new politics, but it is something that political parties should perhaps consider.

Hon. Members should remember that the previous Labour Government were the first Government for many years to start paying off the national debt. The stringent financial rules that the former Prime Minister put in place during his long stint at the Treasury put this country into the position whereby we entered the recession with the second lowest debt to GDP ratio in the G7.

[Toby Perkins]

It certainly is not the case. The hon. Gentleman should remember that in 1997 we inherited hospitals that were in a disgraceful state and where people died of things that they could have been treated for, if only they had got to the top of the waiting list. We should also remember that we inherited schools where the roofs leaked every time it rained. Our children were educated in quite disgraceful conditions. That was the legacy of 18 years of the Conservatives, which is why when they lost, they lost so massively that they were not even credible as a party for another 13 years.

[Mr Tom Harris]

May I congratulate my hon. Friend on a terrific election result in Chesterfield? Does he share my bewilderment—and, I have to say, amusement—at the efforts by the Chief Secretary to the Treasury and the Business Secretary to claim not only that they were wrong to oppose an increase in VAT, but that they have miraculously transformed VAT from a regressive tax before 6 May into a progressive tax now?

[Toby Perkins]

I was certainly bewildered by the Secretary of State for Energy and Climate Change’s contribution in opening this debate, and by the idea that when the Liberal Democrats talked about the tax bombshell, what they meant was that VAT was regressive only if it was levied on food, a suggestion that nobody had made and which was never part of the debate. His speech was one of the most bizarre contributions that we have heard over the past three days. I look forward to watching it on iPlayer tonight and reliving the moment, because it is something that will live long in the memory.

I want to talk about the choice that the Labour party made. What we enjoyed under the previous Labour Government was 11 years of stable economic growth. That was the longest period of stable economic growth in this country’s history, yet unlike the Conservatives, we went into recession only when the entire world went into recession. The Conservatives did it differently: they could go into recession when the rest of Europe was in a strong position. It was only the global economic crisis that threw the economy off course under a Labour Government.