Amendment of the Law

William Bain Excerpts

Thursday 22nd March 2012 Commons Chamber

[Angela Smith (Penistone and Stocksbridge) (Lab)]

This is a millionaires’ Budget delivered by a Cabinet dominated by millionaires. It is regressive in what it does with tax, but it is equally a Budget that will do little, if anything, to deliver the jobs and growth that the economy needs. Exactly a year ago, the Chancellor told the House that he had just

“put fuel into the tank of the British economy.”—[Official Report, 23 March 2011; Vol. 525, c. 966.]

He told us that we would see the economy turn the corner in this financial year, that positive growth figures were forecast, and that unemployment would stabilise as the private sector rose to the challenge as the public sector retracted.

[Mr William Bain (Glasgow North East) (Lab)]

Is my hon. Friend aware that the OBR is predicting that the effect of this Budget will be to increase unemployment by 100,000 this year and next?

[Angela Smith]

I agree with my hon. Friend; unemployment already stands at 2.67 million, and youth unemployment is at a record level.

Despite the Chancellor’s predictions a year ago, things have turned out very differently in the real world. As we enter spring 2012, it is clear that the British economy is flatlining, and the OBR is forecasting just 0.8% growth for 2012.

In effect, the economy will continue to flatline. The Government have conceded that they will overshoot their borrowing target by £150 billion. Consumer confidence is also at a record low. As people see their income squeezed while VAT increases push prices up and inflation runs ahead of wages, many are fearful for the future. VAT costs a family an average of £450 a year, and while the increase in personal allowances reduces tax for the low paid, that is completely outweighed by the VAT rise, cuts to tax credits and higher fuel duty—again, smoothed over by the Chancellor yesterday.

The major beneficiaries of this Budget are, of course, those 14,000 people earning £1 million or more, who are receiving a tax cut of more than £40,000 a year. Some 300,000—just 2% of earners in the UK—will benefit overall from the cut of the top rate to 45%, yet just 4,000 houses a year are sold for more than £2 million. That means that the vast majority of those who gain from this tax cut for the richest will be totally unaffected by the rise in stamp duty to 7%.

--- Later in debate ---

[Mr William Bain (Glasgow North East) (Lab)]

In the past 24 hours, many people have attempted to provide a description of this Budget. Some have compared it to Lord Lawson’s giveaway Budget in 1988, others to the orthodox Budget of Philip Snowden in 1931, but in entrenching the disastrous mistakes in fiscal policy of its two immediate predecessors perhaps this Budget will deserve to be known as the great stagnation Budget. Despite the measures unveiled by the Chancellor yesterday, the verdict of the Office for Budget Responsibility was that they will make no difference to the levels of growth in this country in the next two years.

[Angela Smith]

Does my hon. Friend agree with The Guardian, which said this morning that the Liberals will live to regret the fact that they have moved so far away in principle from the Lloyd George Budget of 1909?

[Mr Bain]

My hon. Friend is entirely right. Staggeringly, in that year the Liberals introduced one of the most progressive Budgets—the people’s Budget. This Budget certainly does not compare to that remotely; it is a highly regressive Budget, as the Institute for Fiscal Studies has confirmed this afternoon.

The effects of this Budget are likely to be 100,000 more job losses—20,000 more in the public sector; £150 billion more borrowing than that forecast in June 2010; and a substantial rise in inequality across the country. Having choked off growth in the past two years, and having weakened both public and private sector demand with austerity cuts that strip eight times more public consumption from the economy this year and nine times more next year than even the eurozone average, the Chancellor is presiding over the weakest recovery from recession since the 1870s.

In addition, as the OBR revealed yesterday, despite the Chancellor’s rhetoric on diversifying the economy and promoting manufacturing, his plan for growth is based on the share of private consumption more than trebling, from 12% to 37.5% this year alone; half of all the new growth in the next five years is forecast to come from consumption. This is not an export-led recovery, but debt-fuelled consumption to maintain stagnant output, at a time when consumer spending has fallen in the UK by 0.8% in the past year. Small wonder that the OECD has found that domestic demand in Britain has slumped. It rose by 2.7% in 2010, when Labour was in government, but fell by 0.2% this year, under this Chancellor. The figure is massively below the 2012 OECD average increase in economic demand of 1.4%. It shows the crisis of the lack of demand that is in our economy, which the Chancellor did not begin to tackle yesterday.

On growth, the Chancellor has given up on fiscal policy as a lever of driving demand, even when the credit ratings agencies, the International Monetary Fund and his US counterpart warn him not to. We face a jobs crisis, and in a crisis of this magnitude, we need fiscal and monetary policy to work in concert to grow the economy out of a slump.

[Angela Smith]

Is it not also the case that the current use of monetary policy to drive growth—quantitative easing—is driving the markets but not necessarily the growth that this country needs?

[Mr Bain]

That is precisely the point that many small businesses up and down the country are making. What we should have had yesterday was a facility to securitise loans to small businesses and have them indemnified by the Treasury. That would mean that the quantitative easing money could flow directly from the Bank of England into small and medium-sized businesses, and not simply on to the balance sheets of the banks. That would have made a huge difference. As many businesses have said, the credit easing scheme launched by the Chancellor with great fanfare on Tuesday will barely scratch the surface of the £190 billion shortfall in credit financing from which our businesses are suffering at the moment.

The Chancellor is refusing to learn the lessons from Japan in the 1990s. He is placing all his eggs in the basket of long-term low interest rates, but in Japan that led only to a decade of stagnation because of similarly catastrophic mistakes in cutting spending too far and too fast.

Even on its own terms, the Budget was a failure for business, with levels of business investment £48 billion below their peak of 2008 and business investment growth having been slashed from 7.7% to just 0.7% in the OBR’s latest forecast. There should have been innovative ideas about promoting long-term investment; there should have been plans for a national investment bank; there should have been plans to bring forward more infrastructure spending; there should have been plans to enhance and boost the borrowing powers of the UK Green investment bank, which will not have those until 2016 because of the Chancellor’s failure on growth. But in yesterday’s Budget, sadly, there were no ideas that would really make a difference to business.

Shamefully, the Chancellor never even mentioned, much less produced, a plan to tackle youth unemployment. With 1 million young people out of work across the United Kingdom and with the figure approaching one in four in Scotland, he should have announced measures for a proper national insurance holiday for small and medium-sized firms employing young people. He should have repeated the bank bonus tax to help to create 150,000 youth jobs. He should have announced a temporary VAT cut, which would have boosted consumer demand, and he should have cut VAT for home repairs and maintenance to give the construction sector a much needed lift.

The test on which this Budget is found most wanting is that of fairness. We are told that the wealthiest 3% of the population require massive fiscal incentives to reward hard work, but it is a different approach when it comes to those on lower incomes or pensioners who have saved for their retirement. The poor are told to work harder and do extra hours of work that are not available in the depressed economy, but 14,000 millionaires will receive a permanent tax cut of £40,000. This Budget is highly regressive and I urge Members to vote against it on Monday.

We are told that the Chancellor has advised the Prime Minister on matters strategic, instead of focusing on the crisis of demand made in No. 11 Downing street—a flatlining economy, slumping business investment, rising unemployment and soaring inequality. The country will not forget that yesterday was the day when the part-time Chancellor produced a bit-part Budget.

[George Freeman (Mid Norfolk) (Con)]

I congratulate the Treasury team on a Budget that I believe will come to be seen as an historic Budget that will put Britain back on track for sustainable economic recovery. I want to say something in the time available about the problem we inherited, because it bears repeating, about the challenge we face and about the opportunity that I believe we can and should be optimistic and ambitious in tackling. The problem has been well chronicled, but the views and ignorance displayed by Opposition Members in this afternoon’s debate suggest that we need to repeat it for them.

We have inherited from the Labour party the worst deficit and debt crisis in this country’s peacetime history; a structural deficit that would have been a crisis alone; an annual deficit from Labour’s historical explosion in public spending; a crisis in the situation with debt as a percentage of gross domestic product; and interest payments that are set to rise, if we have not tackled them, by £76 billion a year—£1 in every £4 the Government spend. As a result, there is a deep fiscal crisis, with tax increases and restraint on public spending hitting every family in the country, and a legacy of rising unemployment because of the credit crunch and bank financing for small businesses. Most powerfully of all, and most damningly after 13 years, there was the unsustainable economic model—a labour boom fuelled on cheap credit and cheap immigrant labour and a consumer boom that Labour knew was unsustainable. Worst of all, perhaps, there is a deep crisis of trust and confidence in political economy and in the belief and faith that the Government can do anything about it.

The challenge is to restore some credibility and confidence, first, in the capital markets through the coalition’s programme for tackling the deficit, and secondly in the boardrooms and businesses of Britain that are the only true mechanism for sustainable recovery. There is also a need to restore credibility and confidence in relation to the entrepreneurs we will need to take the risks to drive growth and the citizens and consumers of this nation so they can have faith again. That requires a new economic model, which my right hon. Friend the Chancellor spoke passionately about yesterday—a model for sustainable recovery. We cannot borrow and spend our way out of a debt crisis.

Recovery needs to be sustainable not just in terms of avoiding the mistakes of boom and bust. We must produce the things that people around the world want to buy and we must have a clean economy in terms of resources and the environment. Recovery needs to be sustainable in the sense that our public services must be financed in a sustainable way. Every pound that we in this place claim as government money has to be earned by citizens and businesses and taken from them, and we should never forget it. At heart, that means that the coalition’s programme for a rebalanced economy must shift from over-dependence on the public sector to the private sector, from London and the south-east to the cities and the regions and to the real businesses of this country that can drive sustainable growth. I congratulate the Treasury team on keeping interest rates low, paying off the debt and supporting business. We have the most competitive corporation tax regime.

[Mr Bain]

Will the hon. Gentleman give way?

[George Freeman]

I am going to plough on if I may. The move on the top rate of income tax from 50p to 45p has set a clear direction.

--- Later in debate ---

[Kate Green (Stretford and Urmston) (Lab)]

All Budgets have a tendency to create both winners and losers, but this Budget, unlike others, appears to create winners and losers in an inconsistent and illogical manner and without any clarity of guiding values or objectives.

[Mr Bain]

My hon. Friend is showing her customary generosity in giving way. I anticipate that she might make the point that 70% of the cuts in tax credits will affect people in the lower half of the income scale, but the Resolution Foundation determined yesterday that 70% of the gain from the change in the personal allowance will go to people in the top half of the income scale.

[Kate Green]

My hon. Friend does indeed anticipate my first point. Although there is of course an attraction in lifting more people at the bottom of the wage spectrum out of tax, it makes little sense to introduce a measure that still favours more men than women when women have already lost out under previous Budgets and spending announcements.

--- Later in debate ---

[Sheila Gilmore (Edinburgh East) (Lab)]

The altruism of the high-paid is remarkable. If they are not paying tax because of successful avoidance measures, their delight at the rate reduction requires some explanation. Perhaps they agree with the Chancellor’s statement that they will pay more tax as a result; if so, their delight is clearly because they are ready to pay more tax than they were previously.

[Mr Bain]

I wonder whether my hon. Friend has had an opportunity to consider what the Institute for Fiscal Studies has said this afternoon—that there is a one in three chance that the Treasury will recoup only 30% of the £2.9 billion in the Red Book that relates to behavioural changes and to people moving from the 50p to the 45p rate. Does not that bear out her point?

[Sheila Gilmore]

It definitely does.

Of course, that may not have been what people were cheering. They may have been cheering in relief at not having to do tiresome tax avoidance planning all the time. If the HMRC’s calculations are correct, high-paid employees are a bit like highway robbers who are holding a musket up to the rest of us and saying, “If you tax us, we are going to take our ball away and not play any more.”