Budget Resolutions

Vince Cable Excerpts

1st reading: House of Commons
Thursday 1st November 2018 Commons Chamber

[Sir Vince Cable (Twickenham) (LD)]

I want to develop a point that was made by the right hon. and learned Member for Rushcliffe (Mr Clarke), who said that for many people the Budget was actually a pleasant surprise—it has promised them tax cuts and spending increases—but that in doing so the Chancellor is taking a big risk with an economy that is not particularly strong. It is not particularly strong because, as the Treasury forecast shows, the growth rate looking forward is abysmal—it is about 1.5%, which is one of the worst in the developed world—and that is quite apart from the poor growth at the moment.

The growth rate is also based on a fundamentally optimistic assumption. Quite apart from the lag on growth caused by Brexit at the moment, the assumption in the Treasury forecast is that the Government will land a deal, and not just a deal but a good deal, with a smooth transition to a trading arrangement not greatly different from the present. Well, it might happen—pigs might fly—but it is optimistic and, if that expectation is not realised, the economy has very little resilience. We have very high public debt, as the Government acknowledged. The domestic savings ratio is appalling—I think it is the worst in the developed world and is now negative. The corporate sector is heavily leveraged, as Governor Carney pointed out the other day. All of this is reflected in the current account deficit, forecast to be 4% of GDP, which is one of the worst in the developed world. If something goes wrong, there is no longer an inflow of capital and the exchange rate falls; we have had a devaluation of 17% since the referendum and we will have another one.

The main criticism I have of the Budget is that it may have seemed comforting, but the Chancellor did not actually confront the real issue that we have to face: how do we have a mature debate about how to end austerity? That is going to involve people paying more tax, and the issue is how we do it, and how we do it in the fairest and most efficient way. As the hon. Member for Sheffield South East (Mr Betts) has pointed out, we have not really got to the end of austerity, or even to the beginning of the end of it.

For most parts of public spending, there is a continued squeeze. That is true of schools. We did partially protect them under the coalition, but that is no longer happening. Colleges, which are necessary to deliver the Government’s training and apprenticeships, have been cut to pieces. Local government is potentially in an appalling situation. That means a squeeze on social care, which means that the money going to the health service will be wasted because it will have to accommodate lots of elderly people who should be at home. Bankrupt councils, many of them Tory county councils, will be forced to raise council tax, so we will get a tax increase, but it will be a tax increase by stealth, rather than by confronting the matter openly.

[Layla Moran (Oxford West and Abingdon) (LD)]

On the schools point, does my right hon. Friend agree that the wording the Chancellor used in relation to money for the “little extras” was insulting to teachers, who, day in and day out, find that they have to reach into their own pockets to deliver the basics in schools?

[Sir Vince Cable]

My hon. Friend is absolutely right. I am amazed that the Chancellor is not even aware of this. Many mainstream schools have seen cuts in teaching assistants, teachers, curriculums and so on. This will be compounded because there is nothing in the spending envelope that offers any hope that the problem is going to be dealt with.

That leads on to the question about how tax should be raised. The Government have offered tax cuts in the form of lifting the tax threshold for low earners and for middle earners. In principle, lifting the tax threshold is an attractive policy. I like to think that I was the author of the one we introduced in government. It was strongly resisted by the Conservatives at the time, but they have subsequently adopted it and claimed credit for it. The attraction was not just that poorer people pay less tax, but that the marginal rate of tax is removed when they move out of the welfare system, which encourages work.

In an ideal world, everybody should have a tax cut, but there is an issue about priorities here. Extending the tax cut to the upper threshold is, frankly, something that the country simply cannot afford. At a time when universal credit is being only partially financed following the cuts made by the Osborne Budget three years ago—only about half of that cut has been reinserted—that should be the priority. It is absolutely wrong that priority has been given to lifting the upper tax threshold. Because the two proposals are amalgamated in the Budget statement, I and my Lib Dem colleagues—and, I hope, others—will vote against this.

Beyond that, what this country now needs above all is a mature, grown-up debate about how the end of austerity will be managed. It is going to involve higher taxes for almost everybody—obviously, mostly at the top end, but there is going to have to be a general increase in taxation. I am afraid that the Chancellor’s pretence that we can have our cake and eat it is not realistic. It will rebound on him and on the Government.