Capital Gains Tax (Rates)

Viscount Thurso Excerpts

Wednesday 23rd June 2010 Commons Chamber

[Mr Alistair Darling (Edinburgh South West) (Lab)]

I welcome the opportunity to open the second day’s debate on the Budget. There are two tests to be applied to this Budget. The first is what it does to ensure that we can secure the recovery and get long-term sustainable growth, and therefore support jobs. The second is what it does in respect of fairness and, in that context, what it says about the promises made by the parties that now comprise the Government.

I expect that over the next few days many points of detail will be explored, but I want to look at some of the bigger issues, especially the context against which this Budget needs to be judged. Before I do that, I welcome the Secretary of State for Business, Innovation and Skills to his place. I have not had an opportunity to cross swords with him in this Parliament, and I look forward to doing that and to hearing what his views are now as opposed to what they were a mere seven or eight weeks ago.

I want to start with the context in which the new Government made their decisions on this week’s Budget. Yes, that context has to be the need for us to reduce our borrowing—no one disputes that, although there are very live and real arguments about how fast and the extent to which the deficit ought to be reduced. However, I believe that it must also be seen in the context of growth. For some, like the Business Secretary, what I have to say will not be news because, after all, he largely agreed with the approach that I took during a lot of the last Parliament. However, he seems to have become rather more forgetful in the past few weeks, so a reminder may be useful.

On 28 April, which the right hon. Gentleman may now regard as being ancient history, but for most of us does not seem that far away, he said:

“The deficit problem is easier to solve if there is growth. That is why the next government has to recognise the fragility of the economy and not take action which would precipitate a double dip recession leading to more unemployment and even bigger budget deficits.”

I agree with the sentiments behind his statement. He was right on 28 April, and my guess is that he will still be right on 28 June, but I cannot understand why he has changed his mind in the intervening period. Growth is slightly stronger than before the general election, because at that time we thought that it was just 0.3% in the last quarter. However, although it has improved, it can, on no view, be said to be anything other than pretty modest and pretty fragile. I believe that the measures announced in the Budget yesterday present a risk of derailing that recovery, and worse, of giving rise to a situation in which our economy simply bumps along the bottom for a number of years. In that way, we would not get the growth that we need, and we therefore would not get the jobs. Worse still, of course, we would not have the funds to reduce our deficit and, therefore, our debt.

The past three years have been tough for businesses and families throughout our country and, indeed, many are still experiencing the problems that arose because of the recession. However, as I said, we have seen a return to growth, but it is only 0.3% in quarter one; unemployment has stabilised and begun to fall; and tax receipts are higher than expected, which is why our borrowing is £11 billion less than I forecast in March. All those improvements are a direct result of the action that the previous Labour Government took.

Throughout this debate and for some time to come, doubtless we will hear the now familiar mantra that everything that is wrong and all our problems are confined to one country alone—ours—and that they are due solely to the actions of the previous Government. Like any Government, we got some things right and some things wrong, but I am absolutely certain that the action we took to stop this country tipping from recession into depression was right, as was the action we had to take to stabilise the banking system. I will not yield to anyone who says we should have done differently. We needed to stabilise the economy and to keep people in their jobs and homes. We took that action because we do not believe that in such a situation people should be left to sink or swim. Those actions were taken largely with the support of the Liberal Democrats when they were in opposition, but everything has changed in the past seven weeks.

[John Thurso (Caithness, Sutherland and Easter Ross) (LD)]

rose—

[Mr Darling]

I will give way to someone who is perhaps an unreconstructed member of the Liberal Democrats, especially one who represents a constituency in the north of Scotland that may be the subject of change because of his leader’s determination to reduce the number of constituencies, particularly in his neck of the woods.

[John Thurso]

I am grateful to the right hon. Gentleman for those kind words, but I suspect I would be out of order if I responded.

May I bring the right hon. Gentleman back to the point he was making and remind him that when the Northern Rock crisis hit, my right hon. Friend the Business Secretary immediately proposed that nationalisation was the correct way forward, and that the Government whom the right hon. Gentleman represented prevaricated for six months before taking that action?

[Mr Darling]

The hon. Gentleman raises an interesting point. He is right that the right hon. Gentleman called for nationalisation at an early stage. The current Chancellor, however, was dead against that. I imagine that if that situation arose now, the Chancellor’s view would prevail and the Business Secretary would have to do what he is told. The hon. Gentleman is absolutely right that at the time I agreed with a lot of what the Business Secretary was saying. For reasons that I will not go into just now because of the various legal requirements and other considerations, we did not nationalise Northern Rock until February 2008, but we were absolutely right to do so then. The Chancellor still thinks that we were wrong, but I am glad to say that the current Secretary of State for Justice believes that our action was right. The action we took, whether in relation to Northern Rock, the rest of the banking system or the rest of the economy, was critical.

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[Diana R. Johnson (Kingston upon Hull North) (Lab)]

May I welcome you to your new position, Mr Deputy Speaker, and thank you for calling me so early in the debate?

I pay tribute to the hon. Member for Harrogate and Knaresborough (Andrew Jones). I am very pleased indeed to follow a fellow Yorkshire MP making his maiden speech. In particular, he talked about some of the best traditions of Yorkshire—first, the community spirit of Yorkshire people and, secondly, the great Yorkshire institution of Betty’s tea rooms. I am sure that hon. Members on both sides of the House will appreciate the fact that people can get a good cup of tea and a good piece of cake at Betty’s tea rooms.

I wish to comment on one of the other contributions to the debate. The Secretary of State for Business, Innovation and Skills made quite an attempt at explaining his about-face in respect of what the Liberal Democrats fought the general election on and how he now comes to the Dispatch Box to defend the vicious and savage cuts in the economy. He is obviously a distinguished and well-thought-of economist, so it was rather strange that he did not pick up before that the position was so bad that he would have to change his party’s policy. He was seen as brilliantly forecasting some of the problems in the economy during the previous Parliament and he has been given great recognition for some of his forward-thinking views, but he was not able to pick that up in the weeks before the election. I was rather taken aback by how out of touch he claimed to be and by how he had to have the meeting to explain the current economic situation and to change his party’s policy.

I was also very surprised indeed to hear a Liberal Democrat try to argue that VAT is not a regressive tax. I have never heard anything like it, and it took my breath away when I recalled that my Liberal Democrat opponent in the general election made it clear on every hustings where I appeared with him that increasing VAT was not something that the Liberal Democrats would support. He constantly attacked the Conservatives for the fact that, whenever they have been in government, they have always put up VAT.

The main reason that I wish to speak in this debate is the growing anger—not only in my constituency of Kingston upon Hull North, but in vast swathes of the north of England—at the coalition’s policies so far announced and those in the Budget statement yesterday. Many of the policies that the coalition Government have proposed to the British people have no mandate—obviously, the deal was done after 6 May—and the electorate, particularly Liberal Democrat voters, feel misled, betrayed and disfranchised. When I talk to people in my constituency, they tell me that they did not vote for many of the polices proposed in recent weeks and yesterday. In fact, they feel that they were not given the opportunity to vote on the very policies that the coalition Government have proposed. As I have indicated, the Liberal Democrats sought election clearly on the mandate that they would not let cuts come during this financial year and that they were against VAT increases, but look at them now.

[John Thurso]

May I reassure the hon. Lady that I have spent a great deal of time talking to my constituents since the Government were formed and that the only thing that they wish to express is their overwhelming relief that the Labour party is no longer in government?

[Diana R. Johnson]

If the hon. Gentleman talks to the electorate in Yorkshire, he will find they express a different view. He might also find that the views of his electorate have changed considerably since they heard the Budget.

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[John Thurso (Caithness, Sutherland and Easter Ross) (LD)]

I congratulate you on your election, Mr Deputy Speaker. This is the first time I have spoken with you in the Chair.

First, let me respond to the hon. Member for Kingston upon Hull North (Diana R. Johnson). The thrust of her speech was almost entirely, “It’s the banks wot done it,” whereas her party, although in government, did not have a great deal of responsibility. She is right in that the major part of the crisis was brought to a head by the irresponsibility of the banking community throughout the world, especially in the UK, but she is not right to ascribe the whole crisis to that one cause, because there are two more that must be taken into account. Probably the most important—it has driven many of the problems in the economy—is the imbalances in the world economy. I served on the Treasury Committee in the last Parliament, and even before Northern Rock, that was something to which Members from all parties were drawing attention. There is a major structural problem in the world economy, and because of our particular weakness in relation to the financial sector, we suffered more than others.

The second thing that has to be taken into account is the amount of debt in the economy. The point is extremely well made by the chart on page 7, which sets out that relationship, so that one can see the inexorable rise of debt in the financial sector in comparison with debt in non-financial companies and households. If I remember the figures correctly, over the past 50 years or so, the consolidated balance sheet of the financial industry has gone from roughly half of GDP to five times GDP. That is the core of the problem: at every level in society we have been living beyond our means, and it is necessary to deal with that.

I want to focus mainly on enterprise, growth and rebalancing the economy, but I should like to make one or two general points about the Budget as a whole. The right hon. Member for Edinburgh South West (Mr Darling) is not in the Chamber now, but having shadowed him as a Minister in several Departments in the last two Parliaments, and having dealt with him in the Treasury Committee, I have great respect for him, and I echo the remarks of my right hon. Friend the Secretary of State for Business, Innovation and Skills about his integrity. He was given a hospital pass when he accepted the keys to No. 11, and it is to his credit that he managed to stay on his feet. None the less there have been some significant mistakes, to which I shall allude.

Looking at the Budget as a whole, I ask myself two questions. First, how would I feel about the Budget if I were sitting in my old home on the Opposition Benches? Secondly, how would I feel about the Budget if I were sitting on the Government Benches supporting a wholly Liberal Democrat Government? We can all have aspirations. Let me answer the first question. I would feel extremely cross, deeply angry and irritated, because I would see a Budget that contained a mass of things for which I had just campaigned and which I had proposed to my constituents as things I wanted to do in government—so I would have been sitting on the Opposition Benches powerless, while whoever was in government was introducing all the measures for which I had fought. I would say to myself, “How on earth do I oppose that?” but I would not be able to come up with much of an answer.

[Angela Smith]

I wonder therefore whether the hon. Gentleman campaigned against Lib Dem policy in the election, and campaigned for massive cuts to the economy now rather than later.

[John Thurso]

As a matter of fact, given my experience on the Treasury Committee, I was extremely careful about what I said. I stated my preferences, but I also stated the principles underlying them; I shall come on to that in a moment. First, however, let me answer my second rhetorical question, which requires a little more consideration. The first thing that I would look at—this pertains to what the hon. Lady was asking—would be whether the deficit needs to be dealt with now in depth. I shall draw guidance from my experience as a member of the Treasury Committee and from my own experience of rescuing nearly bankrupt companies in the past.

In past three years or so on the Select Committee, I observed how often Members in all parts of the House were behind the curve in estimating the scale of the problem. When we looked at Northern Rock in our report “The run on the Rock”, it took time to perceive not only the scale of what happened at that institution but the fact that it was a precursor or early symptom of what was to come later in 2008. I remember the Governor telling us quite late in 2008 how this was a financial crisis that he hoped would not get into the real economy. Looking back, one has to say that that was a false hope.

[Huw Irranca-Davies]

I share the hon. Gentleman’s frustration, as many people were behind the curve, but one person who was not is “Danny” Blanchflower, the economist, who spotted it coming, identified it and sent out the warning signals. We, collectively, were not listening. He is now warning, “Cut hard and deep and you’ll send the recession backwards.” Should we listen to him?

[John Thurso]

We should certainly listen to “Danny” Blanchflower, for whom I have great respect. He gave evidence to the Select Committee on several occasions, and he is one of a number of voices that we should—[Interruption.] Absolutely—it was David Blanchflower’s nickname at the time. We should certainly listen to him, but we should also listen to all the evidence. He was, on that occasion, more right. I am not persuaded, having heard other voices, that he is entirely right now—but he does highlight a danger, and we should certainly not disregard that. Across the piece, as the hon. Gentleman acknowledged, we did not appreciate the scale of what was coming.

When I look at what was happening in the early part of this year, my instinct would be to cut the least possible, and to stimulate growth as much as possible. However, there comes a point at which we have to deal with what is before us, rather than what we hoped might be before us. It became clear during the election—and I remember making this point at an all-party hustings—that throughout Europe it was a very different ball game from the one with which we had all been dealing just three, four, or five weeks before, and that we needed to take that into account.

I am therefore predisposed to assume the worst, and to look hard at the core problem. The next piece of guidance derives from my experience of running companies in the hospitality industry. I am not for a moment saying that the relatively small companies that I ran bear comparison to a country, but some of the principles do. I remember taking over two companies that were essentially bankrupt. If the owning shareholders had not guaranteed the finance, they would have gone into administration. In both cases, my job was to turn them round, and I heard arguments about how I should get hold of money and invest it on the one hand, or how I should redress the costs of the company on the other.

When people do not have money—the piggybank is empty, and it is difficult to get money from the banks—they have no choice but to live within their means. I learned that by stabilising company expenditure, and forgoing some investment for the future, I could produce a more stable enterprise. It is the same with this country and the balance of risk. The risk, on the one hand, of failing to take action is that we seriously run out of money, our credit rating is reduced, our borrowing costs go up, and we end up spending far more on debt interest than on health, education or defence. Something would then be imposed on us, as happened with the Labour Government in the 1970s. The risk on the other side is that if we cut too quickly, growth will be stifled and we will take longer to come out of our current situation. Balancing those two risks, I believe that the risk is greater if we do not deal with the deficit, so it needs to be dealt with.

Secondly, is the Budget fair? My right hon. Friend the Secretary of State for Business, Innovation and Skills made an extremely good case for demonstrating that it is—in as much as any pain can be fair. I would far rather be standing here supporting a Budget that gave people lots of money. That would be lovely, but, as the Labour Chief Secretary to the Treasury said, there is no money. So we have to be prudent, and that means that we have to share the pain. The whole point is that everybody will suffer, but we have to ensure that the suffering falls least on the most vulnerable, and most on those who can afford it. Charts A1, A2 and A3 in the Red Book set out exactly how the suffering will fall, and it is perfectly clear from them that those at the bottom will bear the least pain and those at the top bear most.

In my constituency average earnings are £21,000, and table A1 on page 64 shows that after the Budget somebody on £20,000 will be £170 better off, given the amount of income tax and national insurance that they pay. They will pay £170 less than they would have done. Table A2 shows that they will receive £145 less in family tax credit, but when we put the two amounts together we see that they will still be £25 better off. That is not a large amount of money, but it makes the point that if we take the Budget in the round, including VAT, which nobody can deny is regressive on its own, we clearly find that the pain is shared, and felt less by those at the bottom than by those at the top. So I conclude that the Budget is fair.

I welcome the Budget. It is not one that I would have liked to have to support. I would have liked to see the coffers full, and to be able to be nice to people—but in the circumstance this is the right Budget, and it is fair.

[Owen Smith (Pontypridd) (Lab)]

Will the hon. Gentleman not also reflect on the fact that those tables do not capture the punitive effect of the forthcoming 25% cut in non-ring-fenced public services on people who most rely on benefits and public services? Those elements in the tables and in the Budget do not really take into account—in the round, as he puts it—the full impact of the cuts that we will see.

[John Thurso]

The hon. Gentleman makes a very good point. Broadly speaking, 20% to 25% cuts are going to be introduced in this autumn’s spending review, and we will need to look at that. However, I find it difficult to take lessons on that from a party that introduced £40 billion of cuts without a single centime being allocated to anything whatever. That is like a bankrupt father promising his children a sackful of presents at Christmas as the bailiffs wheel him out on Christmas eve: it is deeply irresponsible.

Let me turn to the specific measures. I absolutely must commend the Government on their commitment to consider a pilot scheme for a remote rural fuel discount, because year in, year out I made that proposal from the Opposition Benches and the previous Government compared it to the cost of beer and all sorts of other things. My friends in the Conservative party chose to wait and see what would happen, and I am delighted that they did so, because they now agree that my measure should be considered, for which I thank them warmly.

On enterprise, it is critical that we rebalance the economy. First, we must achieve a rebalancing whereby there is more private sector and less public sector. That does not mean that the public sector has to shrink; the private sector has to grow to support the public sector. Secondly, we absolutely have to move our economy away from an utter dependence on financial services, which delivered 25% of tax revenue three years ago, and towards manufacturing industries and technologies and skills-based industries throughout the regions of the United Kingdom.

I am glad that the Government will continue with and enhance the enterprise finance guarantee scheme. However, the scheme has one flaw, which I have highlighted many times: the Catch-22 situation whereby the banks that do not lend then decide whether to include an enterprise in the scheme. There must be some way in which the banks’ decisions can be reviewed.

I also commend my right hon. Friend on the action being taken to get non-bank finance into small and medium-sized businesses, but may I gently ask my friends who are now on the Front Bench to look at the papers that I wrote—they were in the Liberal Democrat manifesto—on enterprise funds, and consider whether some of those ideas might help to address how we get equity funding into small businesses? May I also stress the importance of the regional growth funds and express the hope that the details of them and how they will work will be brought forward quickly? The concepts of an infrastructure bank and a green investment bank should be brought forward as rapidly as possible, too.

Having looked at the Budget, I conclude that it is not one that I particularly like to see brought in, but it is necessary. There is pain, and it has to be borne, but the Budget is equitable in that the pain falls least on those who have least. Notwithstanding my personal regard for the shadow Chancellor, I really cannot take lessons from him or his party, having listened for nine years from the Opposition Benches to their boasts about the end of boom and bust. We now know that the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) was the father of all booms and the mother of all busts. That much-vaunted child, prudence, is lying battered, bloody and bruised in the gutter—and it is this Government who will take her out and restore to health.

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[Geoffrey Clifton-Brown]

I am very grateful for that intervention. I have always been a supporter of nuclear power, and I am one of the very few Members who have been to Chernobyl and survived, so I can see what goes wrong in the nuclear sector. However, with modern technology—I say this carefully—I can see that the nuclear sector has an important role to play in the range and mix of our power generation.

The Labour Government left us with another really dire legacy, however, because if we do not introduce nuclear power generation to this country I do not see how we can keep the lights going in the next 20 years—[Interruption.] The Liberal Democrats had different views, but they have looked at the problem and signed up to a nuclear power programme, and I congratulate them on that, because it is the right thing to do. We in this House should not come up with ideological dogma; we should all look at the facts and see what is the correct thing to do, which is—[Interruption.] It is all very well the hon. Member for Penistone and Stocksbridge (Angela Smith) pointing at the Liberal Democrats, but we in the Conservative party have had to swallow things that we do not like. We have looked at the facts and seen the correct thing to do. Therefore, I support nuclear power.

[John Thurso]

My hon. Friend will know of my long-term support for nuclear power, which I expressed often in the House in previous Parliaments. However, the critical thing is to be in favour not of nuclear power, but of a proper engineering and scientific-based assessment of how to ensure the lowest carbon energy, and if that leads us to nuclear, that is the correct answer.

[Geoffrey Clifton-Brown]

As always, my hon. Friend’s wise words are correct. Nuclear power is not only an efficient way of generating energy, but a clean way. We have to use the very latest technology to deal with the nuclear waste that is produced, but I am absolutely certain that if we adopt an open mind and let our scientists get to work, we will find better and better ways of dealing with the waste that nuclear power stations produce. I welcome my hon. Friend’s support on that.

Innovation and exports are just beginning to return, and I am sure that hon. Members from all parts, if they have listened to businesses in their constituencies, will have had that experience. I have a wonderful firm in my constituency, a small FTSE company called Renishaw. It is the world-beater in measuring technology—metrology—but unfortunately it had to lay off several hundred people during the worst of the recession. I am pleased to report to the House, however, that in the past month or so it has begun to re-employ people. That is good news, because we must all work hard on measures with regard to how we employ the maximum number of people in this country. There is nothing worse than people who want to work but are unemployed—and unemployed through no fault of their own. We should concentrate on the terrible figures for 16 to 25-year-olds not in education, employment or training—the so-called NEETs—who are without jobs at the moment, because we have inherited a shocking waste of young talent.