Amendment of the Law
Motion made, and Question proposed,
(1) It is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance.
(2) This Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—
(a) for zero-rating or exempting a supply, acquisition or importation;
(b) for refunding an amount of tax;
(c) for any relief, other than a relief that—
(i) so far as it is applicable to goods, applies to goods of every description, and
(ii) so far as it is applicable to services, applies to services of every description.—(Mr George Osborne.)
This is the Chancellor’s fourth Budget, but one thing unites them all: every Budget, when he comes to this House, things are worse, not better, for this country. Compared to last year’s Budget, growth last year is down, growth this year is down, growth next year is down and growth in 2015 is down. And all he offers is more of the same: higher borrowing, lower growth and more—[Interruption.]
Government Members do not think that growth matters, but people in this country do.
All the Chancellor offers is more of the same. It is a more-of-the-same Budget from a downgraded Chancellor. Britain deserves better than this.
The Chancellor almost need not have bothered coming to the House, because the whole Budget, including the market-sensitive fiscal forecasts, was in the Standard before he rose to his feet.
Order. I cannot understand an Opposition who do not want to hear their own leader. [Interruption.] Order. Just as when the Opposition did not want to hear the Chancellor, the one thing that I can guarantee is that people in this country want to hear what the right hon. Gentleman has to say.
To be fair to the Chancellor of the Exchequer, I am sure that he did not intend the whole of the Budget to be in the Standard before he rose to his feet. I hope that he will investigate and report back to the House.
What did the Prime Minister declare late last year? He said
“the good news will keep coming.”—[Official Report, 24 October 2012; Vol. 551, c. 917.]
What did the Chancellor tell us today? Under this Government, the bad news just does not stop. Back in June 2010, he promised in his Budget a “steady and sustained” recovery. He was wrong. We have had the slowest recovery for 100 years. Last year, he said in the Budget that there would be no double-dip recession. He was wrong; there was. He told us a year ago that growth would be 2%. He was wrong; now he says that it will be just 0.6%. He told us that next year, growth will be 2.7%. Wrong again; it will be just 1.8%.
“Wait for tomorrow,” the Chancellor says, “and I will be vindicated.” But with this Chancellor, tomorrow never comes. He is the wrong man in the wrong place at the worst possible time for the country. It is a downgraded Budget from a downgraded Chancellor. He has secured one upgrade this year: travelling first class on a second-class ticket from Crewe to London. [Interruption.]
The only time when the country has felt all in it together is when the Chancellor was booed by 80,000 people at the Paralympic games. I have some advice for the Chancellor: stay away from the cup final, even if Chelsea get there.
Who is paying the price for the Chancellor’s failure? Britain’s families. In his first Budget, he predicted that living standards would rise over the Parliament, but wages are flat, prices are rising and Britain’s families are squeezed. What the Chancellor did not tell us is that the Office for Budget Responsibility has already confirmed that the British people will be worse off in 2015 than they were in 2010. It’s official: you’re worse off under the Tories. Worse off, year after year after year.
Was there not an extraordinary omission from the Chancellor’s speech? There was no mention of the triple A rating. The Prime Minister called it the “mark of trust” and told us that it had been “secured”. The Chancellor said that it would be a humiliation for Britain to be downgraded. So he is not just a downgraded Chancellor, but a humiliated Chancellor too.
What about borrowing? The Chancellor made the extraordinary claim in his Budget speech that he was “on course”. Even he cannot believe this nonsense. Debt will be higher in every year of this Parliament than he forecast at the last Budget. He is going to borrow £200 billion more than he planned.
What did the Chancellor say in his June 2010 Budget? He set two very clear benchmarks:
“we are on track to have debt falling and a balanced structural current budget by”
2014-15.—[Official Report, 22 June 2010; Vol. 512, c. 168.] He called that “our four-year plan”. This was the deal that he offered the British people. These were the terms: four years of pain, tax rises—[Interruption.] The Prime Minister says from a sedentary position, “Borrow more.” He is borrowing more. He just needs to look down the Bench, because his own Business Secretary said that they are borrowing more. I would keep quiet if I was him.
These were the terms: four years of pain, tax rises and spending cuts, and the public finances would be sorted. So today, the Chancellor should have been telling us, “Just one more year of sacrifice. In 12 months the good times will roll. Job done. Mission accomplished. Election plan under way.” But three years on, what does he say? Exactly what he said three years ago. We still need four more years of pain, tax rises and spending cuts. In other words, after all the misery, all the harsh medicine and all the suffering by the British people—three years, no progress, deal broken, same old Tories. And all the Chancellor offers is more of the same.
It is as if the Government really do believe their own propaganda that the failure is nothing to do with them. We have heard all the excuses: the snow, the royal wedding, the jubilee, the eurozone. Now, they are turning on each other. The Prime Minister said last weekend:
“Let the message go out from this hall and this party: we are here to fight.”
They are certainly doing that. The Business Secretary has turned on the Chancellor, the Home Secretary has turned on the Prime Minister and the Education Secretary has turned on her. The whole country can see what is going on: the blame game has begun in the Cabinet.
The truth is that the Chancellor is lashed to the mast. Not because of his judgment, but because of pride; not because of the facts, but because of ideology. Why does he stay in his job? Not because the country wants him, not because his party wants him, but because he is the Prime Minister’s last line of defence. The Bullingdon boys really are both in it together. They do not understand that we need a recovery made by the many, not just a few at the top.
It is a year now since the omnishambles Budget. We have had U-turns on charities, churches, caravans and, yes, on pasties. But what is the one policy that the Government are absolutely committed to? The top rate tax cut. John the banker—remember him?—has had a tough year earning £1 million. What does he get? He gets a tax cut of £42,500 next year—double the average wage. His colleague—let us call him George—has done a little better and brings home £5 million a year. What does he get as a tax cut? I know that the Prime Minister does not like to hear what he agreed to. He gets a tax cut of nearly £250,000.
At the same time, everyone else is paying the price. The Chancellor is giving with one hand and taking far more away with the other. Hard-working families are hit by the strivers tax. Pensioners are hit by the granny tax. Disabled people are hit by the bedroom tax. Millions pay more so that millionaires can pay less.
The Chancellor mentioned child care in his speech. He wants a round of applause for cutting £7 billion in help for families in this Parliament and offering £700 million of help in the next. What are the families who are waiting for that child care help told? They have to wait more than two years for the help to arrive, but the richest in society need to wait only two weeks for the millionaires’ tax cut to kick in. That is David Cameron’s Britain.
Of course, the Prime Minister still refuses to tell us, despite repeated questions, whether he is getting the 50p tax cut. He is getting embarrassed now, we can see. He has had a year to think about it and he must have done the maths. Even he should have worked it out by now, so come on. Nod your head if you are getting the 50p tax rate—[Interruption.]
I am not getting the 50p tax rate; I am asking whether the Prime Minister is. He should answer—after all, he is the person who said that sunlight is the best disinfectant. Let transparency win the day.
Let us try something else. What about the rest of the Cabinet? Are they getting the 50p rate? Okay, hands up if you’re not getting the 50p tax cut. Come on—[Interruption.]
I was just asking those in the Cabinet to put their hands up if they are not getting the 50p tax cut. They do not like it, do they? At last, the Cabinet are united with a simple message: “Thanks, George.” He is cutting taxes for them while raising them for everyone else.
The Chancellor announced some measures today that he said would boost growth, just like he does every year—and every year, they fail. I could mention the national loan guarantee scheme that he trumpeted last year—
The Chancellor trumpeted the loan guarantee scheme, then he abolished it just four months later. There was the funding for lending scheme, which he said would transform the prospects for small businesses, and the Work programme, which is worse than doing nothing.
Today, the Chancellor talked a lot about housing. When the Prime Minister launched his so-called housing strategy in 2011, in his own understated way he labelled it
“a radical and unashamedly ambitious strategy”.
He said it would give the housing industry a “shot in the arm” and help 100,000 people to buy their own homes. Eighteen months later, how many families have been helped? Not 100,000. Not even 10,000. Just 1,500 out of the promised 100,000. That is 98,500 broken promises. For all the launches, strategies and plans, housing completions are now at their lowest level since the 1920s and 130,000 jobs have been lost in construction. It is a failing economic plan from a failing Chancellor.
The Chancellor has failed the tests of the British people—growth, living standards and hope—but he has not just failed their tests. He has failed his own as well. All he has to offer is this more-of-the-same Budget. Today, the Chancellor joined Twitter. He could have got it all into 140 characters: “Growth down. Borrowing up. Families hit. And millionaires laughing all the way to the bank. #downgradedChancellor.”
More of the same is not the answer to the problems of the last three years. More of the same is the answer of a downgraded Chancellor in a downgraded Government. Britain deserves better than this.
Before I start my speech I shall give colleagues an opportunity to get to their lunches. The slot while they are shuffling out seems always to fall to me.
There is a lot more to digest in this Budget than many—not least those people sitting in the Chamber this afternoon and around the country—thought there would be. The Treasury Committee will have a great deal to consider, particularly the changes to the inflation remit, the employment allowance and the policies on housing and corporation tax.
For many years, and certainly since 2008, Britain has been living beyond its means and the Chancellor’s most immediate priority has been and should have been to sort that out. An equally important task has been to find ways to improve the long-run performance of the economy and supply-side reform.
Ultimately, politicians can do little more than create the conditions that release the energy of others. The future of the economy will depend on the millions of people in small businesses in our constituencies and on our releasing their energies.
Yes. My hon. Friend did not mention fuel duty, which rather surprised me—[Interruption.] Oh, he did? I am terribly sorry, I thought he missed it out. I shall discuss energy in a moment, if I get a chance.
Let me say a few more words about the macro decisions before I move on to the supply side.
When I was leader of the opposition on Cambridgeshire county council we had an approach of presenting an alternative budget so that it could be scrutinised by the scrutiny committees and select committees. That approach is carried on by Councillor Kilian Bourke, the current leader. Does the hon. Gentleman agree that it would be helpful if there were an alternative Budget for him and his Committee to consider in order to check whether it all added up?
If anybody wants to produce one, we will certainly take a look at it.
The Chancellor has not fundamentally altered the macro-economic stance in this Budget. The big shift in direction of Britain’s fiscal policy in response to the crisis came not from this Chancellor but from his predecessor. More than two thirds of the fiscal adjustment announced by the Chancellor in the 2010 Budget had already been signalled by the right hon. Member for Edinburgh South West (Mr Darling). In 2010, the OBR estimated that the economy would grow about 4% more than it has and the key question for the Chancellor has been how much policy should be altered to take account of that—what he should announce this afternoon and what adjustments he should make in response.
It is important to be clear that policy has already been altered a great deal, something that seems to be lost in the brouhaha in this place. Both the Government and the Bank of England have implemented massive policy changes to stimulate the economy. Fiscal policy has been loosened a great deal. The so-called automatic stabilisers—the falls in tax receipts and rises in public expenditure that come with lower growth—have been allowed to kick in. No one knows their full value, but I note that the Institute for Fiscal Studies used to think that they were worth about £100 billion and said yesterday that they were worth £140 billion. No one knows the full effects of QE—quantitative easing—either, but we know that since 2010 £175 billion of QE has been pumped in, bringing the total to £375 billion in all.
Both QE and automatic stabilisers are delivering colossal extra sums to the economy—they are massive policy changes—and the Chancellor has exercised great flexibility in response to the downturn. He does not always seem happy to acknowledge the fact that there has been that huge adjustment, so I thought I would put the points myself after his speech.
I want to say a few words about growth and the supply side, but before I do I want to refer to the greatest single blight on the prospects for the economy, which is the eurozone. Eurozone demand has remained very weak, as the Chancellor pointed out. There could not be a more vivid illustration of the eurozone’s capacity for self-harm than its chronic mishandling of the Cypriot financial crisis over the past few days. What on earth possessed policy makers to play with fire by doing the very things most likely to trigger a run on the banks? I just do not know, but it beggars belief. We cannot influence policy in the eurozone directly, but we can—and should—speak truth to incompetence. That is in Britain’s interest, as well as that of the eurozone, and I urge the Government to do that and ignore what will undoubtedly be bleatings from the Foreign Office asking them to desist.
On the supply side we cannot, of course, do much about the eurozone, but we can do something to improve the micro-economy. For nearly three years, the Treasury Committee has been calling for more coherent and tougher supply-side reforms. The Chancellor has had such an agenda for at least 18 months, but implementing it in a consistent way is proving difficult. The Chancellor has done what he can on tax reform and simplification—a big ask given the lack of fiscal room—and I pay tribute to him today because he has managed a substantial cut in corporation tax and its simplification in one go. That is both simplification and reduction, despite the lack of fiscal room.
Does my hon. Friend agree that that simplification makes it much easier for the Chancellor to generate tax and ensure that people pay it so that we do not get the fiddling about at the margins that we saw in the past under the previous Government’s policies?
I will not add any comments because I do not get any more injury time after a couple of interventions, but I agree with my hon. Friend.
Reforms are going ahead in the labour market, and quite big reforms are being pushed through on the planning side. That is controversial but, I think, necessary. However, I have been arguing for some time that we must concentrate on those areas where policy is pulling in conflicting directions. The agenda might be right, but the execution is not always right:
“There has to be a drive to make the UK competitive in motorcars and engineering...we are saddled by a high cost of energy”
compared with our counterparts in Europe, and certainly in Asia. UK environmental policies are causing “dangerous distortions” to energy prices. Those are not my words but those of Tata Steel’s head of European business operations.
According to Government figures, energy prices for the average business consumer have more than doubled since 2004. Those figures also show that in 2011, almost one fifth of a medium-sized business user’s bills were due to climate change policies. Britain is going it alone with many of those policies, for example by introducing a carbon floor. That unilateralism is rendering parts of our manufacturing industry increasingly uncompetitive, and we are exporting jobs in manufacturing right now.
The Chancellor is well aware of that and has announced an important tax allowance to support the development of indigenous shale deposits. That will certainly help to level the playing field. We really need, however—this is difficult for the Government, not least a coalition Government—to address the contradiction caused by the current high subsidies to renewables. Those subsidies are so high that today the Chancellor has been forced to introduce subsidies for shale gas, just to get it going. As the American experience has shown, shale gas can be highly competitive given a balanced renewables policy. American natural gas prices have dropped by more than two thirds since 2008, which must be a reason—perhaps a major reason—why US manufacturing is doing much better than in recent years.
I also have reservations about aspects of the infrastructure policy. I strongly welcome the extra money being put in, but I wonder whether we are right to put what will amount to at least £34 billion into HS2—which, at best, is carrying a doubtful economic return—but not building much-needed extra capacity for a London airport. We must get to the point where airport capacity in London can be allowed to grow.
I will conclude by discussing briefly the other big obstacle to growth: the dysfunctionality of the banking sector. Again, that is something we can control—unlike the eurozone—although it is difficult for the Government to get to grips with. Britain’s economic recovery will depend to a large extent on a return to growth in the small business sector, and I strongly welcome the crucial measures announced today by the Chancellor to help the small business sector, but the plain fact remains that small and medium-sized businesses in our constituencies cannot get the funding they need from the banks. Banks lack the confidence to lend to them, and businesses lack the confidence to borrow from banks on the terms offered. The SME sector cannot fully recover until the partly state-owned banks return to more normal lending behaviour, and until we introduce greater competition into an over-concentrated market.
The Banking Commission, which I chair, has heard a good deal of evidence in recent months to suggest that until more of the impairments on bank balance sheets are cleaned up—in other words, until those balance sheets are in much better order—banks simply will not return to normal lending. Without that normal lending, SMEs will not recover. How to address that issue during this crisis has been one of the abiding concerns for policy makers, and a matter that the Banking Commission has considered carefully over the past few months. We have given a great deal of thought to the issue, and will be making some proposals in May.
I began by talking about SMEs, and I will end my contribution with that thought. When small businesses have the confidence to borrow and invest, and when banks have the financial strength and competitive need to do so, that is when our economy will recover and that recovery will take root.
It is a great pleasure to follow the Chair of the Treasury Committee.
There must have been at least some Government Members who, however much they wanted to cheer publicly, were wondering privately why no progress has been made in the past three years, and why so much of the promise, as set out by the coalition Government, has failed to achieve what they thought it was going to achieve. I have no doubt that three years ago the Chancellor, the Prime Minister and other members of the Cabinet believed that the measures they were planning were going to work. If we are to understand why we have made no progress, despite the fall in the living standards of an average family of £1,200 a year and the loss of public services, we must look not only at the statistics, but understand why things have gone so badly wrong.
There were certainly points in the Chancellor’s speech when he seemed to be living in a completely different world from the one in which I am living. For example, he made a throwaway remark that reforms to the planning system mean that houses are being built, yet there were fewer housing starts last year than at any time over the past few years. It is nonsense to claim something that is patently untrue, which brings me to my central point about the danger in politics and government of believing one’s own rhetoric.
No, because I need to make some progress. In 2010 when the Conservative and Liberal Democrats got together, they agreed on a political strategy that was to blame everything on the previous Labour Government—it was to be their profligacy, their debt and their fault. Never mind that all parties had agreed on Labour’s spending plans right up to the banking crisis; never mind that the banking crisis was global and not national; and never mind that, although the failure of the banks owed a lot to failures in regulation, the Conservative party had consistently called for less regulation. Those facts were not going to get in the way of a clear political strategy of blaming it all on Labour. The political strategy has had some effect—the polls, which people such as Lord Ashcroft tell us are the only glimmer of hope the Conservatives have, tell us that—but the disastrous mistake for Britain is that the Government believe their own rhetoric. They believe that, because the strategy seems to be effective politically, it means it is true and that they should act as though it is true. That is what lies behind the disaster facing the British people.
No—I would like to make progress.
If the rhetoric were true, the policies pursued by the Government would have worked. If it had been true that all that needed to be done was to get the deficit down as quickly as possible because the problems were simply a matter of overspending, the strategy would have worked. The strategy did not work, because the analysis of what was wrong was fundamentally flawed.
In the first year of the Government, the rhetoric of doom and gloom shattered business and consumer confidence before the first tax increase or the first cut began to bite. It was so important to the Government politically to tell everybody how bad things were going to be that people behaved accordingly. The VAT increase and the cuts then began to bite in the real world. The pessimism deliberately spread by the Government for political reasons began to bite and have an effect—a real reduction in demand.
The House has great respect for the right hon. Gentleman, but he must remember the situation Europe was in on the date the coalition was formed, the crisis in Greece, and the fears that we would not be in a good position. Some of us have always made it clear that a combination of the outgoing Government, the banks and the international financial situation was the cause of the crisis and warned against it for many years.
I am tempted merely to say, “I rest my case.” Throughout the 2010 election campaign, the right hon. Gentleman and all members of the Liberal Democrats said how disastrous it would be to adopt the policies that they later supported. He makes precisely my point. He adopted a position that was absolutely factually wrong and damaging to the country for the political convenience and advantage of the Liberal Democrats—he sanctioned with his own words what happened later.
The Government’s strategy on cutting too far and too fast was bad enough—it shattered confidence and took demand out of the economy—but it was compounded by catastrophic failures in policy. Because the Government convinced themselves that the only thing that needed to be done was cutting the deficit fast, they abandoned many of the tools available to them to stimulate growth. It was interesting today to hear of a single pot for cities to bid for from the Government who, within two months of coming to office, abolished the regional development agencies and the whole development infrastructure. They recognise, three years later, that that was a disastrous mistake, as Lord Heseltine has told them, but at the time, they did not believe that getting rid of those strategies mattered.
The Government also created massive uncertainty in the wider economy. The truth is that there is no absolute shortage of money that could be used to rebuild the British economy. The cash balances of giant companies are huge, but they will not invest, because there is so little business confidence in Britain as a place for investment.
The responsibility for that goes much wider than the Government, because Conservative and Liberal Democrat Back Benchers have spent three years creating uncertainty about wind power, nuclear power, HS2 and the future of airports policy. For everywhere that business might look to invest in this country, Conservative and Liberal Democrat MPs have, for the narrowest of marginal constituency political interests, conspired to create the maximum business uncertainty. It is therefore unfair to blame all the uncertainty on the Chancellor’s misguided policies. Much of it comes from a misunderstanding by Conservatives and Liberal Democrats of what needs to be done—long-term investment and long-term certainty in Government policy to create investment.
For example, such uncertainty is why investment in renewable energy—the Chancellor mentioned green investment—halved between 2009 and 2011. That is a conscious, clear effect of chaos in Government policy and the narrow interests of Conservatives and Liberal Democrat Back Benchers. For all those reasons, unnecessary damage has been done to investment in our economy.
I will not give way because my speech is time limited—I would give way if I had more time.
The Chancellor did not mention a number of things in his speech. For example, he did not mention the march of the makers. Whatever happened to that and our desire to build up an advanced manufacturing industry to lead the way in exports? Perhaps the march of the makers was in an early draft of the Budget speech, but last month’s worst industrial output figures for 20 years probably put paid to the idea of mentioning it today.
There are areas of success—the Government have wisely continued the Labour Government’s policies for the motor industry and reaped the rewards for the country as a whole—but, in too many areas, there has been no coherent policy. In my part of the country, the leisure boat industry, including well known global companies such as Sunseeker and Oyster Yachts and many smaller manufacturers, is a small but world-leading industry. To foster such an industry, we need coherence in Government policy, but what do we find? We find that the banks are not lending coherently as they once did to businesses in the luxury yacht and leisure boat industry; that it is hard for dealers to get finance to trade up and down in the second-hand vessels that need to be sold; and that the Home Office makes it impossible for wealthy buyers from Russia, China or elsewhere to get into the country to see the boats on sale at our boat shows. There is a complete lack of interest in vast parts of the Government in successful strategies to promote successful parts of the economy.
My final point is to agree broadly with the Chancellor on one point. He said that
“unless we fire up the aspirations of the British people…we are going to be out-smarted, out-competed and out-performed by others in the world who are prepared to work harder for success than we are.”
I agree with him in this sense: a country in a disastrous economic position such as ours will recover only if there is a shared patriotic commitment to rebuilding our country, and a shared case in which everybody in the country feels that they have a stake and a role, and that they will benefit from success. That is why the millionaires’ tax cut and other divisive policies that have been pursued against the poorest in our country are so damaging. Those policies are not only socially unfair and morally reprehensible, but because they divide our country and make it clear that there is no common cause and nothing to be gained from pulling together, they undermine the effort needed to build a one nation economy that genuinely works for all people in this country.
That is the problem once again. The political rhetoric cannot be faulted, but the policies needed are entirely missing.
It is perhaps not surprising that as a former Chief Whip, albeit one of relatively short duration, I rise to support the Budget set out by the Chancellor of the Exchequer, but that is what I do.
It is a considerable tribute to the strength of the Government’s purpose that the measures the Chancellor has announced today will be enacted. The Budget takes place against an extraordinarily difficult background. I cannot remember, in 26 years on and off in this House, a more difficult set of circumstances in which a Chancellor has had to craft the Budget, nor such a heavy volume of advice across all media, much of which has been contradictory. The article in last Saturday’s Financial Times by Terry Leahy, which set out the case for the morality of low taxation, is well worth reading and sets out an argument that we do not hear often enough in this House. The article was blessed with a cartoon that showed the Chancellor in a trench surrounded by mud, blood and barbed wire, and wearing a tin hit. He may well feel, after the past few days, that that is not a bad summation of where he stands.
Does the right hon. Gentleman really think that that is a good image with which to portray his Chancellor, since the squaddies were in the trenches and the first world war generals kept sending them out to be killed? Surely that is not an image that the right hon. Gentleman wants to portray.
That was not my image, but the image in the Financial Times. Nor was it of a general, but of a soldier serving in the trenches.
Hemmed in as the Chancellor is, he steers between the Scylla of debt that must be paid down and the Charybdis of growth that must be fought for and secured. I believe that today he has made the right decision in the long-term interests of the country, and I want to focus on those two key issues in my brief remarks.
In terms of the Charybdis of growth, I think he has picked up on the excellent work done by Lord Heseltine, particularly in its reference to Birmingham, and on what we can do in local economies to ensure that growth is boosted.
Today, the Chancellor announced an extra £3 billion of annual public sector investment, but in the 2010 spending review public sector investment was cut by £9 billion a year. Does the right hon. Gentleman agree that in hindsight the Business Secretary was right and that those drastic, immediate cuts were a mistake?
I do not agree at all, and I will come on to address the substantial part of what the Business Secretary said in a moment.
I was talking about the importance of engendering growth in the economy through local activity, and mentioned specifically the work that Lord Heseltine has done in respect of Birmingham. He underlined the importance of the local enterprise partnership and the importance of stimulating growth in an area that remains at the heart of this country’s industrial base. I am reminded that it was only three years ago that I visited the Jaguar factory just outside my constituency in Castle Bromwich. At that stage, two of the three production lines were lying idle and employees were unable to continue to secure work. Now, just three years later, all three production lines are in operation. We see a company that is storming ahead and cannot produce enough cars to satisfy market demand. Last year, it exported more than £10 billion-worth of cars made in Britain and paid in to the Exchequer more than £1 billion of taxation. That real transformation offers hope at a very difficult time in the area of the country I represent. The announcement that we will have a single pot of central money to support local initiatives is enormously important, as is the emphasis that Lord Heseltine places on more effective governance to address the fragmentation and lack of coherence of the business voice, which he has been loud in commenting on.
On the stimulation of growth nationally, today we have heard the Chancellor announce the excellent news about cutting taxes on jobs. I can think of few measures that could be more effective. Prioritising the changes that make growth easier, cutting business taxes—not easy, and not the popular thing to do—and facing down the vested interests that the Chancellor has to wrestle with every day, are all important measures if we are to ensure that growth is supported nationally. Making life easier for entrepreneurs and businessmen is not the route to easy popularity, but it is the route to long-term economic success and growth.
The way the Government have sought, with single-minded emphasis, to boost trade with the BRICs—Brazil, Russia, India and China—and the other countries with growing economies has had a significant effect. I wonder whether my right hon. and hon. Friends on the Treasury Bench think that all the lessons from around the world on how to boost growth and entrepreneurialism have been learned. Encouraging entrepreneurship, improving links between schools and business, and making sure that all the lessons from these emerging markets are learned are all very important. For example, I wonder whether there is more to learn from Singapore, Sweden, Finland and the Netherlands, which consistently top the global competitiveness report issued by the World Economic Forum. I wonder whether the lessons from New Zealand, Denmark and Canada, which are consistently identified as the best countries in which to do business, have been learned, or whether there is more that we can learn from the Nordic and Asian economies that have been so successful in harnessing information and communications technology for economic growth. The Chancellor deserves great credit for the brave steps he has taken today to secure growth.
The Scylla of debt has hung around our neck, and hangs around the economy’s neck, for the reasons that are well known across the House. Anyone who doubts its scale and the anxiety it causes, as my hon. Friend the Member for Chichester (Mr Tyrie) set out, needs only to look at the absurd proposition, coming out of the crisis in Cyprus, that one can confiscate arbitrarily people’s deposits. That underlines the extraordinary difficulties that overweening levels of debt, which we and other countries face, cause.
It is irksome to repeat so regularly the irresponsibility of the previous Government in the levels of debt they left and the measures they took during the good times, but that needs to be repeated so that people understand the sheer scale of what happened. I remember studying the papers on the National Security Council when we were conducting the defence review, and noting that there was, allegedly, from the previous Government a £38 billion black hole in their accounts. I was unable to believe that that was possible and sent back the papers on the assumption that there was a decimal point in the wrong place. But no, it was confirmed on the Monday morning that there was indeed, under the previous Labour Government, a £38 billion black hole in the defence budget. We should never allow them to forget the appalling difficulties that their stewardship of the economy and their legacy have left for the coalition to clean up.
I am afraid that I will be out of time, if my hon. Friend will forgive me.
It is difficult to confront the welfare budget, as the Government have done. We still spend £23 billion on housing benefit. In looking at the welfare budget, which I urge my right hon. and hon. Friends to continue to do, they should of course be guided always by the principles of fairness and decency. It is enormously difficult to cut the welfare budget. People blithely say that we can cut £1 billion off the welfare budget, as that is just 0.5% of that budget. However, cutting £1 billion would take £1,000 off 1 million people, or £100 off 10 million people. That underlines the scale and the difficulty, and the essential need to tackle welfare budget commitments, curtail expectations, and determine the sort of welfare system we will have as a society in the next 30 or 50 years and that we can afford. It is essential that our reforms do that.
In conclusion, I wish to praise the Government and the Chancellor’s courage and wisdom in continuing the international development budget and ensuring that next year we meet our historic pledge of spending 0.7% of GDP on development. Of course, the special protection for this budget is justified only by the results it achieves and the effect it has, and we should never forget that this hard-earned taxpayers’ money has to be justified. Every pound we take off the taxpayer must deliver 100p of value on the ground. This is a huge investment in our country’s future prosperity and security and in the prosperity and security of our children and grandchildren, which is why the Government are absolutely right to stand by the commitment, ensuring that the coalition delivers on that historic pledge.
I have spent much of the past eight years of my life trying to work out the most effective use of public money and the most effective way of doing something about the colossal discrepancies in opportunity and wealth that scar our world and that our generations, for the first time ever, have a real chance to address. That is why I am pleased that the Government are standing by our commitment, that every day they continue to underline the effectiveness of development and that they are maintaining the implicit bargain with the public to spend the money well. I hope to hear far more from Ministers about why the development budget matters to our country. I want to hear all of them making that case, so that the sceptics outside can hear why it is important for our country’s economic and political future.
In a spirit of agreement, I endorse the final comments from the right hon. Member for Sutton Coldfield (Mr Mitchell) about the preservation of our aid budget, which has support across the House, and about how every pound of taxpayers’ money should be spent efficiently and effectively to deliver for our constituents. I fear, however, that that might be where the agreement ends.
The Budget was not only disappointing but unsurprising, given that, as my right hon. Friend the Member for Doncaster North (Edward Miliband) said, it was leaked to the newspapers in unprecedented detail. I want to concentrate, however, on three issues key to my constituency and, I believe, the future of our country and families and households throughout the land: child care, lending for business, and housing.
First, the Government—the same Government who removed child benefits from those earning more than £50,000 a year, reduced tax credits and watered down child care by increasing children-to-carers ratios—are offering a giveaway: £1,200 per child, per year off child care costs, but that is two and a half years away. It is jam tomorrow for parents up and down the country who have been feeling the pain for months and years.
My hon. Friend is making the valid point that the Prime Minister has just taken child benefit from parents who are already struggling to pay massive child care costs and who now learn that the Government will not be softening the blow until their children are in school. Does she not think we ought to be doing much more now?
I completely agree with my hon. Friend. It is tough being a parent, especially in the early years up to age five, so although any support is welcome—all parties have to welcome any support, however inadequate, for children—this is not the sort of thing Labour should be promising at the next election. It is vital that we get cross-party agreement about the importance of families and of parents getting into work.
There is still no promise on the supply of quality child care, however. Supply is a key issue. The Under-Secretary of State for Education, the hon. Member for Crewe and Nantwich (Mr Timpson), who has responsibility for children, has been tinkering, finger in the wind, hoping for more child minders but not more child care in child care settings. There are important and detailed questions that I hope Ministers will consider and that I will follow up for a proper response. Will the child care tax break only apply to Ofsted-regulated child care? If so, how does that chime with the children’s Minister’s desire for lighter-touch, or no-touch, regulation by that very important body? Does the £2,000 national insurance break for small businesses also apply to anyone employing child care directly, as well as the promised tax break? We could see a double subsidy for the higher income earner, who can afford to employ a child carer in their home, and much less help for those at the lower end of the scale.
When only one parent is working, much more difficult issues arise. Low-income parents have higher marginal costs. I think of two women I met at a recent roundtable I organised in one of my child care centres: one was a chef who, because of her working hours, found it much harder to access the sort of child care that would get the subsidy the Government have waved in front of us today; and the other was herself a child carer working for a private nursery on £15,000 a year who could not afford to pay for child care herself and whose employer, shockingly, would not allow her to work part-time. How will those women be helped by what the Government have offered today? We need more detail and to ensure that we make this work for working parents. In a spirit of co-operation, I want it to work—I am not just carping—but I do not see how the proposals will work as planned.
I turn now to lending for businesses. I am proud to represent Shoreditch. It is a borough of thriving small businesses, but there are issues with lending. Merlin’s magic wand has not delivered loans from local banks. The reduction in loan interest has not helped businesses, which tell me that one of their big worries is banks removing overdrafts at a moment’s notice. I want to see—I am disappointed that the Budget did not touch on this—better support for peer-to-peer lending to help interesting nascent businesses.
Does my hon. Friend agree that, given the failure of the funding for lending scheme to get money into small businesses via the main clearing banks, which appear to be using it to reinforce their capital position, the Government should consider using the scheme to help other sources of financing for small businesses?
My hon. Friend, who does good work on the Business, Innovation and Skills Committee, speaks clearly on this issue. It is vital that we do what he suggests. The funding for lending scheme has effectively been supporting more buy-to-let landlords, which was not really what it was intended for, while businesses in Shoreditch—businesses visited regularly by the occupants of No. 10 and No. 11 Downing street—are losing out.
It is interesting that the Labour Front-Bench team, even in opposition, are encouraging local government to consider investing in one of the peer-to-peer lending vehicles, Funding Circle, representing an important part of the difference in ethos between the Government and the Opposition. We want local money invested in local business and creating local jobs—a break from the distant lenders that have no connection to the business models and economies to which they lend. We cannot say that the banks have stood up well to the test. They have let the side down. They overextended themselves with risky lending and brought the world financial system to the brink of collapse, and the rest of us, including local businesses in my area, have been paying the price.
One way to cut the banks out is to have better approaches to peer-to-peer lending. The Government have said that they will channel £100 million to small businesses through alternative mainstream, but we do not have the detail. The key issue about peer-to-peer lending is that, although it is for profit, there is no necessary prior relationship between borrower and lender. The lender, who buys into the model and will believe in the business, can choose the loan recipients, but there is no protection from the Financial Services Compensation Scheme and no full regulation.
The first peer-to-peer lending company, Zopa, was founded in February 2005, but we now have others: RateSetter, the Funding Circle, ThinCats and MarketInvoice. Between them, they expect to provide about £200 million this year alone in funding to businesses with innovative models that are struggling to get money from the banks, which, if they are not familiar with a business model, think it a risk and do not lend, resulting in a vicious circle of not being able to fund a business.
Despite the low level of regulation, there is a good case for peer-to-peer lending organisations receiving more support even as they are. Zopa says that bad debts account for just 0.84% of the £200 million it has loaned over the last seven years, compared with 3% to 5% for traditional banks, so I think the banks are missing a trick and the Government most certainly are. The average increase in employment after a Funding Circle loan was 25%. If we give businesses the tools to get on and build their businesses, we see jobs created. The Chancellor talks the talk on this issue, but he could have done more to help the industry. The problem is that the industry is barely regulated and lenders have to absorb the losses. Where was the discussion today—or even a hint—that the Government might be looking at better regulation? Where were the changes to taxation, for example, to offset losses through bad debtors against tax, which would encourage more people to lend through such models?
My party is strongly supportive of peer-to-peer lending, as it can help small businesses such as those in Shoreditch and Hackney to obtain access to funding that would otherwise not be available—something on which the Government have failed to date. In the current climate there is a lack of access to funding—often to very small pots of funding. Indeed, the owner of Lock 7 cycle shop in Hackney—the first cycle café to open in the country—took out a personal loan to get her business started. She did that because it was quicker and easier than trying to put her innovative business model—a café that sells coffee and fixes bikes—to the banks. Actually, it is not that innovative—I give her credit for being the first, but it is hardly a risky business, given that both sides of the business are likely to do well—but the banks would have been slow, had they even coughed up. To take the chance, she took another route. The Government need to be fleeter of foot if they really mean what they say about supporting businesses.
Finally, I must touch on housing. There is much of promise in what the Chancellor said, but I suspect there will be a lot in the detail, which we have yet to see. The interest-free loan is for all buyers, not just first-time buyers, so it could be a licence to print rent for potential buy-to-let landlords and others looking to invest in second homes. From what the Chancellor said, it is not clear whether this will apply only to first homes.
Does my hon. Friend share my concern that the measures announced by the Government today tilt the financial incentives more towards new build than improving the existing housing stock? Home improvements attract the full rate of VAT; new build does not. One of the imperatives in her area, like mine, is to incentivise the improvement of existing housing.
My hon. Friend makes a good point.
We do not have full details about the exact implications of the measure for overseas owners—albeit perhaps those with a tax footprint in the UK—or whether they can benefit from an interest-free loan. There are many questions about the measure, which I simply pose at this point, because it does not seem to do anything in particular to target those in greatest need. We see nothing for the growing number of private renters who struggle to pay high rents in areas such as mine, who will effectively be paying the mortgages that many borrowers may take out under this proposal.
We have a promise of more housing supply, but in my area we have seen many properties sold over a weekend to investors from Hong Kong or Dubai. They might be good landlords in that they are not cowboys, but they are after the rental yield, so we see a high turnover of population. These are not local homes for local people. We have also had the announcement of an increase in the right to buy discount, to £100,000. My area has been ravaged because people have, obviously understandably, taken the opportunity to buy their homes, yet within a few years they are inherited by people paying high rents or purchased by those who could have purchased other properties, thereby reducing our valuable—and so far not replaced—affordable housing stock.
This is the same Government who want all new affordable housing to be let at 80% of local private rents, which in my area and many others will put it out of the reach of ordinary working people. We see a Government wanting to cleanse areas such as Shoreditch and Hackney, along with other high-price areas, of people on lower incomes and also provide more housing, but for those at the higher end of the scale. Overall, we see muddle. This is also the same Government who have a Department—the Department for Communities and Local Government—that wanted offices in Shoreditch converted into fancy loft apartments, not homes for local people, instead of the kind of business space that is so often visited by the occupants of No. 10 and No. 11. We will lose business but not get the homes we need. The Chancellor has woefully failed to tackle the housing crisis in this country.
It is important first to understand what the Government strategy is, because there have been a number of misleading interpretations of it. Some have said that the reason the economy did not grow last year and is still growing very slowly is that there have been massive public spending cuts that have reduced national output. There is a helpful table on page 53 of the Office for Budget Responsibility report which shows that growth was indeed only 0.2% in real terms last year. However, it shows that the Government sector made a positive contribution of 0.6%, which is far more than overall growth, and that growth was reduced by disappointment in private sector housing investment, changes in stocks in private sector companies, reflecting an absence of confidence, and a poor performance on trade. A similar position is reported in forecasts for the current year, in which it is assumed that the Government sector will still make a positive real contribution to a rather low rate of growth, while it is hoped that the private sector will not have as disappointing a performance this year as it did last year.
The strategy was never about massive cuts in public spending overall; it was about modest growth in public spending. The idea was to get the deficit down through some very large tax rises. Unfortunately, as the latest documents reveal, the 50p and the other income tax changes were especially damaging to revenue. A loss of more than £7 billion has been recorded by those on the Front Bench. The overall figures imply that it was probably even more than that. In the most recent year, tax revenues from income tax overall are down on the previous year, not up. The strategy has not miscarried because it cut too much or because the Government overspent compared with what was planned—they have done a rather better job this year of controlling spending. Rather, the strategy miscarried because the big increase in tax revenue that had been forecast did not come through. That was partly because tax rates were set that did not work, such as the high rate of income tax. Also, the capital gains tax rate is too high, so we will get less in capital gains tax receipts this year than in the previous year. The reason is also partly that growth in the economy was very disappointing.
I entirely agree. There would be much more activity if people could free some of those assets by taking profits and moving them on to people who could use them better and build on land, for example. I hope my right hon. Friend the Chancellor will think about that in due course, because it would make him revenue and help to grow the economy.
Nor has there been any lacking in flexibility by my right hon. Friend the Chancellor in applying his strategy. He has been flexible over the deficit; indeed, we see in the latest figures that he plans to borrow £48 billion more in 2013-14, £60 billion more in 2014-15 and £67 billion more in the following year than in the original plans. He has reflected the fact that the economy has not performed well in the way that the independent forecasters assumed and the fact that tax revenues had a big wobble because of wrong rates and low growth, and he is allowing the state to borrow more to try to pick up the slack. I therefore welcome the fact that in this Budget he is concentrating on things that he can do to promote growth in the areas that subtracted from our growth in the most recent year.
The Chancellor is right to look at ways of trying to promote more housing activity. Many of us represent constituents who would love the opportunity to buy their first flat or house. They have been priced out of the market by the boom and now they are kept out of the market by an inadequate supply of mortgage finance and tough conditions. We need to be careful, because we do not want to fuel another housing bubble, but we also need to recognise that the banking system is not delivering finance for many of our constituents at the moment, and there are people who could borrow prudently and sensibly to buy their first home. I do not want to live in a society where people have to be in their late 30s before they can own their first home. I think we need to do better than that.
My right hon. Friend says that we do not want to fuel another housing boom, but is it not the case that in this country, unlike the US, the boom was largely in prices and, to a degree, transactions? There was never a boom in supply. What we may see today are measures aimed at boosting the supply of new housing.
My hon. Friend is absolutely right. These measures are targeted with that in mind. We need to study their details, but they are clearly well intentioned and I wish them every success. I am sure that we shall look carefully at them in Committee and on the Floor of the House when they come before us in physical form.
The next area in which we need to help is promoting more industry and commerce to deal with the net trade deficit. I am glad that that Chancellor has recognised in his speech that one of the big drawbacks to doing business in Britain now is expensive energy pricing. This is something that we share with the European continent, compared with the American continent. The United States of America is playing a blinder with its very cheap gas and much cheaper energy generally. I welcome the idea that certain businesses and industries will be taken out of the climate change levy altogether.
I do not expect the right hon. Gentleman to agree with me, but I must point out that experts ranging from Ofgem and BP to the International Energy Agency and the CBI have all pointed out that investment in shale gas in the UK will not result in lower energy prices. Why cannot he therefore agree that it makes no sense to go all out for shale gas through tax breaks in the Budget, and that the money would be much better spent on renewables, which would get emissions and fuel bills down?
I am delighted that the hon. Lady has made her own case. She is the cause of the problem. She is pricing people out of the market. She is destroying jobs. She is the reason that people cannot heat their homes at a sensible price. She is the deliberate architect of dear and scarce energy, and now she presumes to lecture us and to say that if we generate more energy, it will be dearer and not cheaper. I suggest that she consult her constituents to find out how angry they are about the cost of heating their homes and their inability to get jobs in industry. She might also like to consult a reputable economist to find out what happens to prices when we produce more of something. I think she will discover that the price normally falls.
I am sorry; I have no more injury time left, and I have more to say. I am sure the Government will be delighted about that.
The Government need to look at the problem of electricity generation. I would like them to go to our partners in the European Union and say that there is no way in which we can close down all our coal-powered stations and still produce enough sensibly priced power in the near future, and that we need a stay of execution and longer transitional arrangements. I believe that the Germans are going to generate a lot more electricity from coal, and they seem to have found a way around the European regulations. I would urge my right hon. and hon. Friends on the Front Bench to do the same, because we need to keep our homes warm, keep the machinery of industry turning and keep the lights on in the offices and shops of this country. We are pricing ourselves out of our ability to do that. We are also running the risk of not having enough electricity, full stop, because of the delays and the problems that the previous Government had in coming up with an energy policy, and because of the present Government’s problems in trying to get an energy policy through, given all the European Union restrictions and complications that are placed in their way.
The most important thing that the Chancellor will need to do in the weeks ahead, in addition to the Budget, is ensure that the banks can now create sensible amounts of credit to power the recovery. This is not just about mortgages for homes, important though they are; it is also about loans for bigger items such as cars and domestic appliances. People need to be able to renew their stock of capital, or get their first capital items when setting up a new home, using finance that is available and affordable.
Above all, this is about ensuring that much better finance is available for stock, work in progress and capital equipment in our small and medium-sized enterprises. The banks say that there is no demand for loans from the SMEs—or, at least, no demand that they are not meeting. We all know that our constituents do not think that that is the case, and we have seen many cases that imply the opposite. Let us be charitable to the banks, however. I know that most of my colleagues here are not, but I wish to be, because I think that banking is an important source of export earnings and income. Many good people work in banks, and we need to support them as well. We need to understand that the banks are now charging so much and imposing such tough terms on loans—they are doing so because they are under a regulatory cosh to lend less and hold more capital, relative to the amount of their lending—that people are simply not bothering to ask their bank manager for a loan because they assume that none will be available. Also, businesses sometimes do not foresee increases in demand ahead and, wrongly, lack the confidence to go out and borrow money.
Of course it is not easy for the United Kingdom Government to rebuild confidence when we are part of the European Union and live close to the continent of Europe, and when we can see the spectacular crash that the EU is designing, thanks to the way in which it is mishandling its single currency and common banking arrangements. I can scarcely believe that we are meeting today against a background of part of the European Union having its banks closed for days on end and unable to carry out transactions to give the business life in Cyprus an air of normality or allow the people in Cyprus to withdraw their hard-earned money.
This is happening within the European Union because it has got its system of bank management wrong and it cannot decide who should pick up the bill when there is a crisis in one part of the eurozone. The Germans say that it is not their problem and they are not going to lend more money. They think that Cyprus ought to be taught a lesson. Cyprus says that it is under EU and eurozone control and that it built a big banking sector that now needs recapitalising. It requires money on a scale well beyond the ability of the Cyprus people to pay, so we have an impasse.
I shall give the House a flavour of the numbers involved. We have heard from a Minister in a recent statement that the proposed bank deposit tax represents 33% of Cypriot national output and income. In UK terms, that would be like saying that we had to impose a one-off levy of £500 billion on people’s bank accounts to put the position right. [Laughter.] Everyone here is laughing nervously. I do not think that many of us would be up for voting that kind of thing through, and I am not surprised that the Cypriot MPs did not vote their measure through.
We are now seeing a desperate idiocy in part of the European Union. Germany thinks that it can ring-fence the situation, and I hope it can, but if we are not careful, it will spread. That would undermine confidence in banking deposits in other parts of the eurozone and drive them deeper into recession. It would do more damage to our export market and, yes, there could even be a little collateral damage to our much better funded banks because of their relationships with EU banks. We need to be in there saying, “For goodness’ sake, sort it out and come up with a fair way of recapitalising those banks, so that the Cypriot people can to return to a normal economic life.” Meanwhile, our Government are right to say that we need to export more and more outside the European Union. With all this going on, and with a forecast of a deep and long recession on the continent, there will be no relief from the European markets through our exports.
Our banking resolution, which is making progress, needs to be speeded up. I urge the Chancellor of the Exchequer to revisit the issue of RBS. I do not believe that RBS is a natural unified bank. It is far too big, and it has far too many businesses in it. We should split it up, sell it on and make it more competitive. We need more competitive banks on the British high street that are capable of financing our recovery. We are trying to build the private sector-led recovery with weak, broken banks in the state sector and not enough banks outside in the private sector. We are also trying to do it under European regulation, which does enormous damage to banking and energy costs, and therefore to industry. Britain is partly free of that regulation, but please, Government, make it freer and get on with the task of creating the jobs and the growth that the British people rightly expect.
It is a pleasure to follow the right hon. Member for Wokingham (Mr Redwood). He has become something of a regular fixture on the first day of the Budget debates during the years I have been in the House. I shall start by agreeing with him about the importance of certain exemptions from the climate change levy. I have the honour of representing a steel area in Rotherham. Steel is one of this country’s strategic industries, and the Chancellor’s announcement today will be very welcome in my constituency. It will help to secure the industry for the future, and I hope that it will also help to secure extra investment from Tata Steel.
It will indeed. This is a result of strong cross-party campaigning by Members including my hon. Friend the Member for Penistone and Stocksbridge (Angela Smith) and me.
I also welcome the Chancellor’s decision to axe the beer duty escalator. I pay particular tribute to the Economic Secretary to the Treasury for his hand in that. In fact, the escalator was introduced in 2008 for a four-year term. It should have ended last year, but instead of ending it, the Chancellor extended it. I am glad that he has seen sense and realised that we have hit the revenue maximisation point at which the tax rate had gone up, but the tax take had started to go down. I welcome that: it will be a boost for the brewing industry, which is a great British industry, and it will be a boost for the pubs, too.
I would like to thank the right hon. Gentleman and all the other members of the parliamentary save the pub group for their support in this campaign. I would also like to echo what was said about the Economic Secretary being a Minister who listened—I warmly thank him for that. Does the right hon. Gentleman agree that this shows that the Government are listening and realised that the beer duty escalator was damaging investment and growth opportunities? Hopefully, we will see growth coming back to the brewing sector, which will have a knock-on effect for pubs.
That was exactly the case that I, the hon. Gentleman and others were making—that the escalator was damaging investment, damaging jobs, damaging pubs, damaging the British brewing industry and that it had even started to damage tax revenues. This afternoon’s decision is therefore sensible and welcome.
The right hon. Member for Wokingham made an important point in the middle of his speech, when he said that the problem of tax revenues was at the heart of the Chancellor’s fiscal problem. The right hon. Gentleman acknowledged that it was partly about growth. It certainly is, and I would argue that he underestimates the extent to which it is about growth. The big gap in the Chancellor’s record to date—and, to an extent, the Budget announcements today—remains that we have a growth crisis without having a growth plan.
When the Chancellor first took office nearly three years ago, unemployment was falling, the economy was recovering and we had had growth of 1.9% in the final year of the last Labour Government. That is the baseline from which the Chancellor has now given us four Budgets, four fiscal reports, four economic forecasts—with each one worse than the last. Since his first Budget plan in June 2010, debt is up, borrowing is up, we have lost our triple A credit rating, the economy has flatlined and we have had the first double-dip recession for 40 years.
Five years after the recklessness of bankers brought the global financial system close to collapse and drove a worldwide downturn and three years after this Chancellor took control, our UK gross domestic product is still 3% lower than it was at the start of that global crisis. So, our economy is smaller, weaker, making less, earning less and contributing less in revenues to the public finances. Other major countries such as Germany or the US have made up the ground they lost during that global financial crisis—we have failed.
Does my right hon. Friend agree with me that it is entirely perverse for the Department for Communities and Local Government to suggest that offices should become homes and thereby not provide space for businesses to grow, which would help to boost the economy in the way we agree is needed?
I have to say to my hon. Friend that there is sometimes a case for changing the historical land use, but that is a decision that very much needs to be taken locally. It will certainly not work if it is dictated by the Department for Communities and Local Government.
To deal with a deficit, which is what we face—whether it be for a country or a family—we must control spending, as the Chancellor said, but if we cut income at the same time, that makes it much harder to close that gap. That is why growth is so vital to a proper balanced plan for the country’s finances. That is why the Chancellor is now further from his fiscal targets than he was before the Budget.
The Prime Minister has tried to claim that the depressed growth has nothing to do with the Government. The independent Office for Budget Responsibility, he told us, is
“absolutely clear that the deficit reduction plan is not responsible; in fact, quite the opposite.”
Next day, a letter from the chairman of the OBR indeed confirmed the opposite, saying
“for the avoidance of doubt”
that the OBR operates
“the widely held assumption that tax increases and spending cuts reduce economic growth.”
In other words, the Chancellor has cut too far, too fast, killed the recovery and choked off growth.
There is good reason to believe that the OBR has underestimated and is underestimating the impact of fiscal policy on growth—the fiscal multipliers. Its estimates to date have been based on the International Monetary Fund figures, which estimate a 0.5% fiscal multiplier, 0.3% for changes in personal taxation and 1% for infrastructure and capital spending. The IMF has recently changed its estimates—up from 0.5% to a range between 0.9% and 1.7%. In other words, the impact of fiscal policy, the potential of the fiscal multiplier and of Government action and Government investment might be much greater than we have been led to believe.
At a time when consumer and business confidence is rock bottom and companies and households are cutting back and not spending, the Government must be ready to do more. They must be ready to invest alongside the private sector and they must, yes, be ready to borrow to help the country through tough times. Borrowing is bad when the repayments are not affordable or if it is done to cover day-to-day spending or indeed a shortfall between income and expenditure. That is why the Government’s planned borrowing bill has been ballooning, but borrowing can be good. It is good if it is for investment to improve infrastructure or the productive capacity of the economy or if it is to create jobs, revive growth and generate the tax revenue that is so sorely lacking.
Companies would borrow to take advantage of an opportunity to increase their earnings and profitability. Companies would never say, “We can borrow to invest only if we can cover the cost entirely by cutting the cost of our operations.” Households would do the same thing if, for example, borrowing to buy a car meant that it was possible to take up better-paid work, or if taking out a mortgage was cheaper than paying a private rent. In those circumstances, households would be daft not to borrow.
There is an interesting example of a proposal, which I have backed, to allow local government to borrow more by removing the cap from the newly localised housing revenue account. We have heard about families borrowing prudently, but local government does borrow prudently, as its average level of debt is less than 5%. The Chancellor told us that the national Government’s net debt is 75%. We are talking about £7 billion, loosening the cap, and 15,000 new council homes—not just for this year, as the Chancellor has announced, but every year for the next five years. That is the sort of borrowing we could do to invest, to promote jobs, to promote growth and to bring in tax revenues, helping to deal with the deficit in a proper and balanced way.
If we want to move the dial on GDP growth when the economy is weak, it is Government investment—not simply private sector investment—that is needed. When the economy is weak, we need more public investment; yes, it will increase debt, but it will also increase output and growth. Even the Chancellor recognised, when he delivered his first Budget, that the last Tory Government had cut capital investment too far, yet the Office for Budget Responsibility has shown that for the first three years of this Parliament, capital spending fell year on year—it is now £12.8 billion lower than Labour planned. Even the £3.5 billion of extra investment that the Chancellor has announced today will not be for this year or next year, but in three years’ time—too little, too late.
I would argue that, after three years of economic policy failure, the balance of economic advantage lies decisively in Government borrowing to invest and build. Borrowing for those purposes can be good borrowing. There is a difference: not all borrowing is bad borrowing. Interest rates on public debt are at an historic low, so now is exactly the right time for government, both national and local, to borrow for that investment. An open advocacy of the means, not just the ends, is overdue.
The Chancellor has confirmed in his Budget that his economic plan is failing, but he has also confirmed that he is sticking to that plan. We need a change. We need a change of policy, we need a change of Chancellor, and yes, we need a change of Government.
Liberal Democrats will look back on our record in government and on every Budget that the coalition Government have delivered, and will judge them according to our values and our principles. We will judge them according to whether we have, together, built a stronger economy and a fairer society that enables everyone to get on in life.
The Chancellor has recognised that building a stronger economy in today’s turbulent world conditions is an extraordinarily difficult thing to do. The Office for Budget Responsibility has said that our export markets have been suppressed, and that that alone accounts for suppressed rates of growth. It is right for us to recognise the extraordinary achievements of businesses in our economy in producing 1.25 million extra private sector jobs since the first quarter of 2010. However, it is also right for the Government to give businesses a helping hand to enable them to go that one step further.
The Liberal Democrats are delighted by the announcement in the Budget of a £2,000 employers’ national insurance credit which will enable every business to take on new employees. A business could take on four adults on the national minimum wage and see absolutely no increase in its employment costs. As a result of this measure, 450,000 small businesses will make no national insurance contributions whatsoever. That will provide a further boost for the recruitment of apprentices, in respect of which the Government already have an extraordinarily good record.
The Government need to do more to get growth in our economy going. Liberal Democrats both inside and outside Government have called for that growth to come from extra capital spending, which is why I am pleased that the Budget contains a further switch to finance more of it. It is worth noting that over the decade since the Government came to office, our capital expenditure will be higher than it was throughout the 13 years of the last Labour Government. However, most capital expenditure does not come from Government; it comes from the private sector and, in particular, from housing. For some time, many of us have been calling for a boost to be given to house building, especially the building of affordable homes, so that young people can get their foot on the housing ladder for the first time.
The Government announced two housing initiatives today. Under the Help to Buy scheme, which will start in just two weeks’ time, they will put a fifth of the equity in a new home on the table for those who can put down 5% themselves. There is also our mortgage guarantee to free up the mortgage market. There are planning permissions for various sites in all our constituencies, but, as we know, they have been frozen for some time. House builders have received the message that they have been waiting for, which will enable them to make a start on those sites, to give people new homes, and to provide new jobs throughout the land. However, growth needs to come from other sectors as well.
Has my hon. Friend seen a report about green growth which was published last year by the Confederation of British Industry? It said:
“The business response is definitive and emphatic: green is not just complementary to growth, but is a vital driver of it.”
The CBI said that green business could
“roughly halve the UK’s trade deficit”
by 2014-15. It also said:
“With a smarter approach, green business could add £20 billion to the UK economy by 2014-15. This is an opportunity we cannot afford to miss.”
I know that Liberal Democrat Ministers are pressing for such action. Will my hon. Friend encourage them to go further, and try to persuade the Chancellor of the business benefits of green growth?
I entirely agree with my hon. Friend. There is, perhaps, a tension in the coalition Government between the Chancellor and the Department for Energy and Climate Change, and, if we are honest, within the Department itself, when it comes to whether sustainable growth from green technologies is desirable. I emphatically believe that it is desirable, and I want investment in wind farms in particular to go ahead. We said at the time of the 2010 general election that we wanted to rebalance the economy, and green growth is certainly one of the things that we had in mind.
What I have in mind particularly at the moment, however, is a major industry in which Britain is a world leader, especially in the south-west of England, and its centre is in Bristol. I refer to the aerospace industry. The Government are working on industrial strategies for 11 critical sectors of the economy, so I was delighted when the Deputy Prime Minister came to Bristol on Monday and announced a £2.1 billion investment in an aerospace technology institute. I would say that the best place for that is, indeed, in Bristol.
We also need to introduce reforms to help local economic growth in all our city regions. I am pleased that the Government have accepted 81 of Lord Heseltine’s recommendations, and especially pleased that they have accepted the recommendation of a single growth fund bringing together investment in skills, housing and transport. The Liberal Democrats have long believed that our economy needs to be rebalanced, away from London and the south-east, and centred on city regions such as Leeds and Bristol.
The hon. Gentleman has said that he welcomes a single pot. Is that not exactly what the regional development agencies had, including the south-west RDA? They had a single pot with no strings attached from the centre, and decisions on the spending of that pot were made in the regions, for the regions. Was it not a mistake to abolish the RDAs and then to wait three years before reintroducing that important flexible funding arrangement?
The right hon. Gentleman is one of the most thoughtful Members of the Opposition, but on this occasion I must respectfully disagree with him. My experience in Bristol suggests that no one misses the south-west regional development agency, but everyone in the greater Bristol area recognises the extraordinarily good work done by the West of England local enterprise partnership. [Interruption.] I hear a chorus of agreement from my west midlands colleagues, including my hon. Friend the Member for Solihull (Lorely Burt). It seems that the experience is the same in that area.
We want to rebalance the economy, away from the south-east and to our city regions, and also—as was pointed out by my hon. Friend the Member for Cambridge (Dr Huppert)—to decarbonise the economy. I want to raise an issue that has not been the subject of much comment, but which I know is tucked away among the Budget details. I think that we should consider how we can provide further incentives for the setting up of social enterprises around the country in order to produce sustainable micro-growth in all our communities, and devise innovative ways of bringing people into business on a not-for-profit basis. That would contribute to a fairer society as well, but the biggest contribution to a fairer society that any Government can make is putting more money into people’s own pockets and purses, so that they can decide for themselves how to spend the money for which they have worked so hard.
At the last general election, all my Liberal Democrat colleagues stood on the basis of their No. 1 priority: the delivery of £10,000 of tax-free pay by whatever Government we were to become a part. That promise will have been delivered in full by April 2014. During his speech today, the Leader of the Opposition urged people to put their hands up in favour of a different tax measure, but 24 million people around the country will be able to put their hands up and say, “I am receiving a tax cut because of this coalition Government, and, in particular, because of the Liberal Democrat participation in that coalition Government.”
Since we came to office, the personal allowance has risen by £3,525. That is an increase of more than 50% in the amount of money that people can take home without income tax being deducted from it. A total of 2.7 million people will have been taken out of tax altogether, and £700 of extra income will land in the pockets and purses of 24.5 million workers up and down the country. That is an extraordinary achievement on the part of the coalition Government, and I am very proud of the role that my own party has played in developing a tax change that is a landmark in the history of our country.
A young person working on the minimum wage has already been lifted out of the income tax net altogether. Members should contrast that with the lamentable record of the Labour party, which introduced the 10p tax rate and then abolished it in order to fund a tax cut for people who were earning much more. Despite what Labour Members say now, Labour’s record in office was one of cutting taxes for the wealthy and raising them for the poorest. The coalition is doing the reverse of that.
We are also delivering further help for families up and down the country who are trying to balance their budgets. Many of my colleagues, particularly those representing rural seats—the Chancellor referred to my hon. Friend the Member for Argyll and Bute (Mr Reid) earlier—will welcome the fact that a fuel duty increase planned by the previous Government has been cancelled, yet again. I say, speaking for myself, that we cannot go on doing this indefinitely; I would prefer us to be much more radical and to scrap fuel duty altogether. It is an extremely blunt instrument of taxation that is long past its sell-by date, and a more economically sensible system of road-user pricing in the long term should replace it.
In pubs and clubs up and down the country, including the Prince of Wales in Gloucester road in my constituency, people will be raising a glass to the Chancellor tonight for the cancellation of another duty escalator—that on beer. I pay tribute to my hon. Friend the Member for Leeds North West (Greg Mulholland), who has badgered me and everyone else involved in this area for the past two and a half years to try to do something to get rid of it.
People will indeed be raising a glass to this Government for this. Does my hon. Friend agree that we now need to hear from the large pub-owning companies? They need to say clearly today that they will pass on the 1p reduction to their licensees, who can then pass it on to their customers.
My hon. Friend makes a vital point. We all know that when the global oil price fluctuates all over the place we do not necessarily see a cut in the price at the pump. I would expect every major beer company to pass on this reduction in full to its customers.
The other significant help that the coalition Government have announced this week for families up and down the country is the increase in our assistance with child care costs—£1,200 per child, to be delivered by 2015. However, our entire structure of taxes works only if people actually pay what we in this place decide should be assessed, so I am delighted that this Government have announced another huge package of anti-avoidance measures. Let us not forget that in 2013 we will see the country’s first general anti-abuse rule. So this is the second largest set of anti-avoidance measures that any Government have introduced—the largest was also introduced by this Government, back in 2011. This Government have done more to tackle egregious tax avoidance and evasion than any of our predecessors, but it is also worth mentioning that tax avoidance is a problem abroad.
Some of us will have been startled yesterday to see 500 masked Osbornes outside Parliament promoting the Enough Food for Everyone IF campaign. We should be proud that this coalition Government are delivering the 40-year-old promise of having 0.7% of our income go to the less-developed parts of the world. I am pleased that some of that increased aid budget is going on a tax capability-building unit, thus making developing countries able to stand on their two feet by collecting their own tax revenues and royalties.
This Budget, over time, will be remembered for that promise of delivering £10,000 of tax-free pay. We have cut the taxes on people in work. We have cut the tax that is a barrier for people entering work. We have given a boost for housing. We have given help with the costs of raising a family. We are indeed building a stronger economy and a fairer society, where everyone is able to get on in life.
I am grateful to be called so early in the debate.
I start by welcoming some of the measures in the Budget. Although there has been a 1% reduction in departmental spending, as a result of the top-slicing, the way in which the Barnett formula works means that Northern Ireland will actually benefit over the two years by about £59 million of additional spending. I do not think the Chancellor meant that to happen; I do not think it was deliberate. Of course it helps to replace some of the 40% reduction in capital spending announced at the very beginning of the Budget period when the Government took over.
Also, I welcome Northern Ireland’s exemption from the carbon price floor and put on the record how much work the Chief Secretary to the Treasury did on that. We took the point to him, saying that this measure was going to devastate all the electricity producers in Northern Ireland and leave them uncompetitive. We said that it was going to add to the costs of generating electricity in Northern Ireland—£20 million this year, rising to £45 million—which would have affected household bills by about 15% and made us dependent on producers in the Irish Republic. The one thing I want to say is that when a case is made to the Government, they do respond. It would have been churlish of me not to acknowledge that in the House today.
Some other measures will have a positive impact on Northern Ireland: the change in the threshold for income tax will benefit 7,000 families; the employment tax exemption will benefit 25,000 small businesses in Northern Ireland; and fuel duty not going up in September will benefit motorists.
For an average haulier, this will mean an annual saving of about £750 per vehicle and for the average motorist it will mean a £25 saving per year. Again, that is a good thing for the hard-pressed motorist.
The Chancellor made much of the monetary measures that he has introduced, especially the funding for lending scheme. Unfortunately, given the state of the banking industry in Northern Ireland and the fact that most of the banks there are not even part of the scheme, this is likely to have very little impact. However, positive impacts are being felt, and it would be right to start by acknowledging that. It is easy in opposition to criticise when we do not have to make the decisions. We can be the armchair economists who see everything that is wrong, what should be done and what one would do if one were sitting on the other side. However, there are some issues that the Chancellor has got wrong.
First, we have a Budget that he has said is fiscally neutral. That comes at a time when the economy needs some form of stimulus. He has admitted in his speech that it is not coming from consumer spending, because consumers do not have the money to spend or the necessary confidence. It is not coming from business spending, because businesses are trying to contract their loans and deleverage during the recession. It is not coming from exports, because our deficit is actually increasing. The only source of that stimulus therefore has to be what the Government can do in a practical and sustainable way.
Does the hon. Gentleman agree that there is an ever-increasing need to stimulate our economy, particularly in Northern Ireland? Our unemployment figures came out today and they are the highest in the past 15 years, with the level at about 23%. Wearing his other hat, as well as his hat in here, does he have any thoughts as to how the local economy should be stimulated?
I thank the hon. Lady for her intervention, which leads me to a point that I wanted to make. We have a Budget that, as the Chancellor has admitted—in fact, boasted—is fiscally neutral. Although it contains good things—I have highlighted some of the impacts of the decisions—it moves the existing money around and does not mean an increase in the total level of demand. If that is not coming from exports, from consumers or from industry, because of a lack of confidence, it has to come as a result of properly targeted Government initiatives.
Although I sit on the Opposition Benches, I do not have a vested interest in Government failure and a failure of economic policy, and nor does my party. I want the Government’s policy to succeed, as it means more jobs for people in Northern Ireland and a better standard of living for them. It means that we can balance our economy. However, it is not a policy that is designed for success; it simply tries to continue the fiscal position that the Government are in at the moment. Indeed, if we look at all the targets that the Chancellor has set himself, we see that he wanted to increase confidence in the economy, yet we have seen low demand from consumers, and firms have not taken up loans—the right hon. Member for Wokingham (Mr Redwood) mentioned that—either because they cannot get money from the banks or do not believe that there is any point in investing at the moment. Firms are running down their stock levels, because they see no prospect of additional sales in future.
The Chancellor also set himself the objective of keeping Britain’s credit rating, but that is slipping because the people who make the assessments are looking at the state of the British economy and asking when we are going to get out of the downward spiral of debt. If there is no growth, we cannot pay off the debt.
I am grateful to the hon. Gentleman. Does he accept that the ratings agency said that if we did not stick to our fiscal deficit plans, it would downgrade us still further, so the reduction in the triple A rating is an incentive to do more to cut our deficit, not less?
Indeed. I am glad that the hon. Lady has raised the matter, because I want to come on to that.
The Chancellor set himself the objective of reducing debt, yet the Red Book shows—this is since the autumn forecast in 2012, so a period of six months—that by 2015, or the end of this Parliament, Government debt will increase from 80% to 85% of gross domestic product. The hon. Member for Chichester (Mr Tyrie) gave us the reason for that: the automatic stabilisers are kicking in. We are spending the money on benefits, or paying people to be on the dole, instead of spending it—this is the point I want to come on to—on the things that would stimulate growth, increase the capacity of the economy and enable us to pay our way out of our debt, while at the same time giving people the dignity of having a job and making a positive contribution to the economy.
That is why I think the Chancellor has got this wrong. There has never been a better time for him to borrow. The 10-year price of bonds is down 2%, and it is now cheaper to borrow than it has ever been. Borrowing for those things that will stimulate growth and increase infrastructure in the economy can be very useful.
Does the hon. Gentleman accept that the issue, as he has said, is the ratio of debt to GDP? There are two ways of confronting it: reducing debt or increasing GDP. If we had growth, that ratio would go down, but growth has been completely ignored.
The hon. Gentleman is quite right. One reason why debt has increased as a percentage of GDP is that GDP has fallen while spending has had to go up to pay for a policy that has failed anyway.
If the Government wish to borrow, what kinds of things should they do? I shall give just two examples of infrastructure projects in Northern Ireland on which tens of millions of pounds have been spent, but which have already begun to have an impact on the economy. First, there has been investment in the broadband infrastructure as a result of the Chancellor’s initiatives in previous Budgets. Project Kelvin and broadband infrastructure around Belfast and Londonderry have helped us to grow the financial services industry in Northern Ireland, which employs nearly 30,000 people, and it has helped us to grow the film industry there too. Both industries need connectivity to north America, and there is faster connectivity to north America from Northern Ireland than there is from the west coast of north America to the east coast. That has stimulated a range of other investments, and it makes sense when it comes to infrastructure investment.
In our tourism industry, we spent nearly £100 million on two signature projects— the Titanic signature project and the Causeway project—which were supposed to generate over half a million visitors in one year. In the first six months, they nearly doubled that estimate, in business for hotels in Northern Ireland and business for restaurants, taxi drivers and so on. The hon. Member for Swansea West (Geraint Davies) made the point that there is good borrowing and bad borrowing. Bad borrowing is paying to keep people at home on the dole; good borrowing is paying to have infrastructure development, which helps to increase the capacity of the economy. I think the Chancellor has missed a trick. Instead of having a financially neutral Budget, he ought to look to the future and ask what we can do and how we can raise money to spend on projects that, in the long run, will generate more tax and jobs, give us growth, and bring down the deficit.
While I welcome the things that I mentioned at the outset, and I acknowledge the way in which the Chancellor and the Treasury have responded to some of the points that we have made from Northern Ireland, for the country as a whole there are things that could have been done that have not been done, which we will live to regret and which will probably result in the Chancellor standing at the Dispatch Box next year saying, “I forecast this, and unfortunately I’m downgrading those forecasts again.”
May I give the Government two sets of thanks? First, may I give them unreserved of thanks for the fact that I do not have to discuss VAT on caravans this year? More seriously, may I give them unreserved thanks for the action on Equitable Life pensioners which, while a little overdue, is morally right and exactly the proper thing to do?
With respect to the Government’s economic strategy, a number of Members have pointed out the difficult circumstances surrounding the Budget from various points of view. The Government clearly have a difficult deal to handle regarding the inheritance from the previous Government. Obviously, there is the borrowing, but it is not just that. The structural deficit passed on by the previous Government was much bigger than anyone understood at the time, and that is just economists’ technospeak for a society that has too much welfare dependency throughout, including even the middle classes, and too much inefficient—costly and expensive—delivery of public services, which are properly needed but badly delivered.
The second part, which is extremely important and has been alluded to slightly by a few Members who have spoken so far, is the international backdrop with which the Government have to deal. We are in a circumstance where world growth is probably about 6%, but that divides sharply into two sectors. The far east, the BRICs—Brazil, Russia, India, China—Vietnam, Indonesia, and so on, have growth rates approaching 10% or thereabouts. In the developed world, of which we are obviously a part, the growth rate on average is nearer to 1%. So we are in a 1% world, and the reason for that is pretty straightforward: it is the dramatic change in competitiveness between ourselves and the far east and other developing countries. That does not mean that it is inescapable, but it means that competitiveness has to be at the centre of the strategy that we undertake—competitiveness, pure and simple. Everything else, all the other macro-economic tricks, frankly do not work.
In that respect I am addressing the comments of the hon. Member for East Antrim (Sammy Wilson). If I may say so—and I do not mean to be rude—he talked very much like a classical Labour Member. He talked about stimulus, and about this being a balanced Budget. It is about £100-odd billion off being a balanced Budget. There is a vast amount of deficit finance in there. But my point is that, if we look at the historic examples of countries that have been knocked off the historic growth rates—3% or 4%—down to something lower and at what has been done with them, there are clear examples of success and failure. Let me tell him, just for a second, about the biggest failure in modern times, which was Japan some 20 years or so ago, which went from a 4% growth rate, pretty much for all the post-war years, to a 1% growth rate after a financial crisis not unlike our own. What did it try? It tried Keynesian expansion. It now has pretty much the biggest public debts in the world, with an annual deficit of 10% of GDP in recent years. Did it work? No, it did not. It also tried monetary activism. I hope that those on the Treasury Bench listen to this, because it had effectively zero interest rates for a decade. Did it work? No, it did not. It also went in for infrastructure spending—the fashionable item this week—on a grand scale. It spent 40% of its Government budget on infrastructure investment, more than was spent to build the entire Panama canal—in one year. Did it work? No, it did not. I am afraid that those macro-economic polices that people love because the arithmetic seems to work are a dangerous allure. We must focus first and last on competitiveness, because without that we will not be able to earn our way in the world.
My right hon. Friend is saying something that should be blindingly obvious. When a Government borrow some money and spend it, once it is spent it is gone. It does not create economic growth. Once they have spent that money, it might have a little bit of effect in the economy, but then it is over. What we need to generate is what the right hon. Member for Morley and Outwood (Ed Balls) used to call endogenous growth, because that is what comes from within the economy itself instead of being stimulated by Government spending.
The right hon. Gentleman seems to be saying that anyone who talks about putting money into the infrastructure and the economy is a Keynesian. Would he not accept that the monetarist argument is that the supply side of the economy is very important, and to stimulate the supply side of the economy often the Government need to spend money on capital injections to increase the capacity of the economy to produce more goods? It is not a Keynesian view, it is a monetarist view, with which I would have thought he identified.
I will come back to the detail in a minute, but the point I am making—it is a serious point—is that we can do what Keynes said and pay someone to dig a hole and then pay someone else to fill it in, and that creates employment. So long as we avoid that and talk about the real value, we are on the same side. I will come back to the real value issue in a moment.
The problem with actions to promote competitiveness is that they are not always politically popular. Very often, they are politically unpopular, and I will elaborate on that in a second. The other element about growth—everyone in the Chamber today agrees that growth is necessary—is that it is also important to the deficit reduction policy. In effect, if 1% is taken off the growth rate, the OBR’s rule of thumb says that within a year or so that adds £10 billion to the deficit every year thereafter—not once, but every year thereafter. So growth is fundamental to the central fiscal policy as well. While we are talking about growth, we have had much talk about double and triple-dip recessions, but judging by the employment numbers, we have not had real recessions; we have had bouncing around zero to 1% growth, and that will show up when the numbers are corrected, as will be done in a few years.
There are six key elements to ensuring the economy’s competitiveness, and they are all pretty straightforward. I agree with what the Government are doing on some of them, but on others I think that they should go further. The first is straightforward: the Chancellor is absolutely right not to hesitate or flinch in the deficit reduction programme. That is absolutely essential. Canada, Germany and Sweden, which are all successful examples—Japan is not—managed their deficit reduction unflinchingly, and in all of them it delivered 3% plus rates of growth within a few years. Indeed, Canada had the fastest growing economy in the G8 when it carried through. The simple fact is that, even with the deficit reduction programme, we will be £600 billion more indebted at the end of this Parliament than we were at the beginning, and that is a devil of a burden for any country to carry. Clearly we cannot hesitate on deficit reduction.
The second key element is the one on which I and my right hon. Friends on the Treasury Bench might have a difference of view. One of the critical drivers of competitiveness is tax policy. I wholeheartedly welcome the actions announced today on corporation tax and national insurance, although I would like them to go further. The simple truth is that expensive, complex and high levels of tax returns are very damaging to a country’s economic competitiveness. We should be looking hard at the tax categories that are most responsive to lower rates. We have heard today, even from the Labour Benches, about a couple of measures—on beer, I think—that will deliver more money for the Exchequer, not less, so even Labour Members recognise dynamic tax strategy. We certainly want to see lower national insurance contributions for employers. I would like to see the employment allowance scheme that we put together extended considerably. Capital gains tax must come down. At 28%, we are collecting much less money than we would if it was somewhere between 15% and 20%. There is a series of other taxes, including corporation tax, on which action could be taken. Again, the examples to look to are Canada, Sweden and Germany.
The third key element, which we did not hear much about from the Chancellor today—perhaps we have not heard much because we are yet to go through the detail of the Budget—is deregulation. The most successful recovery in Europe in the past decade was Germany’s. The Germans took it upon themselves to dramatically deregulate their employment market for small companies. That is key, because small companies are the biggest employment creator in the economy, bar none. The Germans effectively removed employment law for companies with fewer than 10 employees and created mini-jobs and other mechanisms to reduce the bureaucracy and legislation surrounding employment. That is massively important. It is one very effective way of creating new employment, and it is something we should undertake as dramatically as we can.
Another item that was raised earlier—the hon. Member for East Antrim raised it with respect to Northern Ireland alone—was the question of carbon tax and carbon floors. In the next month or so, the changes that are being introduced will give us a disadvantage of £10 a tonne, and not against China or India, but against Germany, Holland and France. We will see a transfer of heavy industry from this country to Europe. There will now be an exemption for ceramics, but frankly there are many other businesses—they employ about 600,000 people—in the energy-intensive industries. We need to address that. The previous Government were very happy to deliver golden rules of one sort or another. I would like to suggest a rule for us on environmental and energy policy: we should not introduce any environmental policy that is not matched by our European colleagues. That would ensure that we do not do ourselves huge harm.
Let me move on to infrastructure. The hon. Member for East Antrim made a perfectly sensible point about broadband, and I agree with him. What I do not want to see is massive expenditure for its own sake in the expectation or hope that that will simply generate employment by itself. The Japanese experiment demonstrates that that does not work. What we want to see is de-bottlenecking of our railways and road systems and underpinning of things such as broadband. The Government can make some good claims in that area, but we need to do more. That is what will fundamentally allow growth to take off in Britain and get us back to the 3% level of growth.
The last item I want to speak about is bank reform. A number of colleagues, including my right hon. Friend the Member for Wokingham (Mr Redwood) and my hon. Friend the Member for Chichester (Mr Tyrie), who chairs the Treasury Committee, have talked about bank reform. Bluntly, we have been too slow—[Interruption.] I am out of time—
I am very grateful to follow the right hon. Member for Haltemprice and Howden (Mr Davis). I agree with part of what he said about competitiveness, and I will come back to that.
On today’s announcements, I think that most Labour Members would want to welcome the changes made to national insurance contributions, in particular, and the help for employers. Changes to personal allowances are valuable for the poorest in our society. Clearly, the scrapping of the fuel duty escalator and lower beer prices will help considerably.
Beyond that, I want to concentrate my remarks on rebalancing the economy, which the hon. Member for Bristol West (Stephen Williams) talked about. I felt that the Chancellor should have emphasised that, but we heard very little about it. As we saw in the figures published last week by the Office for National Statistics, a fifth of our economic output is attributable to London. One could draw from that the conclusion that Londoners are twice as productive as people in other regions of the country. The hon. Gentleman, in talking about his region, wanted to emphasise that London and the south-east are getting a bigger share of the pie than they should be. I want to challenge that basic assumption.
Underlying much of the Chancellor’s analysis—certainly my constituents would want to communicate this—is the question of whose London we are talking about. Should we be entirely preoccupied with those in the City of London, with an elite arriving from Russia, China or the middle east, or with the very many Londoners who did not see sufficient for them in the Budget that he described? The north-east and east of London, as a sub-region, is ranked 113th in terms of economic activity, and there are only 139 sub-regions across Britain. Of the 20 constituencies with the highest number of unemployed people, seven are in London. Of the 20 constituencies with the worst child poverty, nine are in London. This is not a London that feels as though it is benefiting considerably from economic growth; it is a London that is really struggling. We needed to hear from the Chancellor a whole series of announcements that could meet the challenges of unemployment and child poverty, and a London that does not feel as though it is working for Londoners.
The Chancellor could, then, have had more to say about infrastructure here in this city. He could have announced that the Government would bring forward a hybrid Bill on Crossrail 2, which will benefit hugely the transport infrastructure of London—and it will be in need of such benefit after High Speed 2 is complete and we have extra people in London’s transport system, which is creaking from the point of view of someone who is on the tube in the peak hours early in the morning or going home late at night. All we have heard about so far from the Mayor and the Chancellor is a small extension to the Northern line, when in fact we needed to hear something big and major. We hear hon. Members pooh-pooh the need for greater investment in infrastructure; HS2 was that, but we heard nothing more from the Chancellor today.
We heard a huge boast about how planning changes are generating growth in house building, but house building has fallen to a level unseen in this country since the 1920s, and that was during the depression. The situation is absolutely dire. Some 59% of Londoners are renting—the highest proportion since before the second world war. There was a settlement in London whereby people could rent, get a council property and be part of the social housing fabric of this country, or own, but that has gone backwards—59% of people are renting.
Although I will look at the detail of the housing policy announced by the Chancellor, I am concerned that the proportion of people renting will increase as a result of buy-to-lets. Like my hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier), I want to see the detail to see whether the measures will extend to those who want to buy homes in order to rent them out. I do not think that that will ease the situation.
What we needed to hear was a Government commitment to house building, which would be a far more responsive approach to local government in particular. Local governments in London have between them committed £1.6 billion to house building in London. It is not sufficient, but that is their commitment. Islington hopes to complete its target of about 1,600 homes by 2014, and Southwark wants to complete, I think, 1,000 homes by 2020. As my hon. Friend has said, a small change to how the Treasury allows local authorities to borrow against their assets, with changes to the Treasury’s prudential rules, would allow for a huge expansion in local government house building. London local governments estimate that 54,000 new homes could be built over this next period, which is a significant amount that would go some way to meeting the needs of those currently in temporary housing.
A statement on infrastructure and Crossrail 2 and a big announcement on house building, not just house-purchasing—particularly for those who want to buy to let—would have been acceptable.
I am also hugely disappointed that the Chancellor did not once mention youth unemployment, which is having a devastating effect on every single region, town, village and major city throughout the country. He said nothing about it. The Work programme is not working and the Youth Contract is shaping up to look like the old youth training scheme. We need real growth for our young people, but we have heard nothing about it from the Chancellor. He boasted about 55,000 extra apprenticeships in London, but 40,000 of those apprentices are over-35, which is an indication of how much trouble we are in.
We needed to hear more about what a balanced economy looks like. Margaret Thatcher made a deal in the 1980s. [Hon. Members: “Hear, hear!”] Government Members are applauding, but what was that deal? It was to base our economy on two sectors, namely the financial sector—look where that has led us—and the service economy, which is largely retail. Retail alone is not sufficient for our young people and we should have learned more about what a balanced economy looks like.
Absolutely. To have a Budget that places no value on our young people is extraordinary at this time. It is a Budget that is content that the growth in apprenticeships has come largely from retail and administration. The growth in apprenticeships has seen just 210 of the higher-level apprenticeships that we need, but 30,000 level 2 apprenticeships. A Budget that does not acknowledge that is deeply problematic.
It is only by having something to say on infrastructure, house building and construction that we can begin to get back to the balanced economy that this country has so dearly lost and that is necessary if we are to get back to growth.
Let me end on the importance of local government. We did not hear enough in the Budget about local government. We know from the pre-Budget report that there are further cuts to come in local government. We know that adult social services will be under immense strain over the coming months, as council leaders have to make difficult decisions. We know that things such as child protection will be under immense strain as councils make those decisions. It is wrong for the Government to cut 8% of their own spending, but to expect some London authorities to cut 33% from their budgets.
We needed to hear a Budget with investment in local government, something on infrastructure, something on housing and something for young people, but we did not.
The economic strategy adopted by the Chancellor is the right one. On the one hand, we must deal with the massive deficit left by the Labour Government. On the other, we must kick-start the economy. With a budget deficit of £120 billion that is mounting by the day, it would be utterly reckless to borrow more. That is the road to ruin and we must avoid it at all costs.
I am optimistic about the future. I am optimistic that with sound economic policies, we can get our country back on its feet. Only British businesses have the power to lift our country out of the economic legacy left by the previous Government. I chose to come into politics from the world of business. Anyone with experience in business will say that it is tough and that it is really hard work. That work is made tougher by unnecessary regulations and the bizarre tax on jobs that is called employers’ national insurance. I therefore welcome the measures in the Budget that will tackle regulation and reduce the burden of tax.
I want our nation to be back on top. I want it to be on top of the world competitiveness tables, on top of the productivity tables and on top of the world trade tables, but at the bottom of the world taxation tables.
Opposition Members have a real cheek in raising cheap points like that. This Government are doing everything they can to dig this country out of a hole of Labour’s creating. Labour Members should remember that and should be ashamed of such comments.
My hope for our nation is that we will feel proud and self-confident; that it will be a nation where enterprise, employment and economic growth are highly valued. Why? Because that is the only way to afford the well-funded public services and caring society that we all want. It is the only way to have a decent health service that takes care of us. It is the only way to fund a world-class education system that is open to everyone. It is the only way to pay for strong defence through our armed services. It is the only way to generate wealth to help others. Above all, it is the only way to secure social mobility.
I come from a pretty tough background, as do many people. It was not easy growing up in a single-parent household in social housing as a mixed-race kid in the 1960s and 1970s. But I was one of the fortunate few. I was born in Britain at a time when it was possible to make it in a lifetime. I want the opportunities that I enjoyed to be available to every single British citizen. It seems to me that it has become even more difficult for people to forge their way in life. My heart is with the least well-off in our society and with all those people, especially our young people, who want to make something of their lives. That is why we must back British enterprise. We must give British businesses the support they desperately need. We must help them to regain their confidence and competitiveness, because this country needs a thriving, dynamic and competitive business environment. In a competitive business environment, there will be failures, there will be successes, but, above all, there will be opportunities for everyone to work hard and to achieve the type of life that they would wish to achieve.
I made my way by working hard at school and eventually starting a business. I remember being exhausted in the early hours of the morning, filling in Government forms and tax returns, and the stress of trying to meet the payroll—yes, and sometimes failing—and the agonising over whether to take on new employees. I can remember the fear of never being quite sure whether the businesses would make it. It is the same today for millions of small business owners around the country.
I was one of the fortunate ones; the risks and the hard work paid off. For many, they do not. It seems to me that our political elite are nervous about talking about success. There is a tendency to view wealth creation as somehow distasteful or a bit dirty. We love it when young people set up businesses, but we become suspicious if our businesses become too successful.
My message today is this: get over it. Backing British businesses is not only the way to escape our dire economic situation but the way of securing social mobility. We must trade our way to a balanced budget and we must trade our way to a trade surplus. Business is the engine of our economy; it generates the jobs, the livelihoods and, yes, the taxes that make for a good society. Only by embracing enterprise with every ounce of our being can we secure economic growth.
Economic growth can come from nowhere else. Governments cannot do it, but our tradesman, entrepreneurs, business owners and hard-working employees can. They are the lifeblood of our economy and it should be obvious to us all that enterprise is the only route to success. In business, people must get results. If they do not, they are out of business. That is the harsh reality that businesses face every single day and it is about time that our political class adopted those real-world principles. We must learn to like business—to love business—and to take a more business-like approach in government. We must learn to love the process of wealth creation. Government must make life easier for businesses to invest and hire new staff.
I agree with the hon. Gentleman that investment in business is a good thing and that growth in business is a good thing. Would he like to comment on the efficacies of the Government’s efforts so far to increase lending to, and other forms of financing for, business?
I think the Government have been doing an incredibly tough job in incredibly difficult economic circumstances. The funding for lending scheme should work in time, but the deficit and the troubles we have today have all been caused by the Opposition. I will give way to anybody on the Labour Benches who will stand up and apologise to Britain for putting us in this huge hole. I am happy to give way to anybody—will they apologise?
I believe that it is the primary responsibility and duty of Government to create the environment in which enterprise can flourish, and that means unashamedly celebrating business success. Next time we hear of a British company making huge profits, I want to hear the House cheer. Even now I can feel a little shudder from Opposition Members. The reality is that, under Labour, the little guy stays little and the little guy cannot grow. In Labour’s time in office, it bred in this country a culture of state dependency, a trap not just for the least well-off but for the middle classes.
Labour politicians should be ashamed of themselves and the Labour leadership should be ashamed of itself for digging this hole. This is why I am a Conservative. This is why I believe the Conservative way is the best way forward for this country. We want, and I want, enterprise to bloom and succeed so that opportunities are available for everyone in our society.
Turning to the Budget, I welcome the reduction in corporation tax; it makes Britain a more impressive and attractive place in which to invest. I welcome the increase in the tax-free threshold that will allow lower earners to keep more of their money and encourage people off the benefits that Labour created and into meaningful work. I also welcome the capital gains tax relief that will encourage further investment in business and create more jobs. Above all, I welcome the reduction in employers’ national insurance for smaller businesses that are taking on new employees. The direction of travel is good, and we will look forward to digesting the details and examining the implementation in months to come.
In conclusion, I want to see our nation self-confident and at ease with itself, and my vision is of a Britain where people can succeed through hard work. Whether someone is first, third or 300th generation British, I want them to know that the Government are on their side. Business is the engine of the economy and social mobility, and a path to a better life. It gives people the chance to better themselves and forge a better future for their families.
The Conservative party agreed to putting a married tax allowance in its manifesto and in the Budget, and the Democratic Unionist party wrote to request that as well? Does the hon. Gentleman feel some concern and disappointment that the Conservative party, and the Chancellor, have failed to deliver on the married tax allowance that they said they would introduce?
The coalition Government and the Conservative Chancellor are doing the best they can to make life better for families in Britain, and the deficit reduction and other measures we have heard about today work towards that goal. I wholeheartedly support the Conservative part of the coalition in delivering those good things for Britain.
Business gives people the chance to better themselves and forge a better future for their families. A competitive job market cannot discriminate on the basis of gender or skin colour. I believe we have a moral, social and economic duty to embrace wealth creation. If we can learn to love wealth creation, I believe that Britain, once again, has a bright future as a world-leading nation.
I apologise to the House for having to leave the Chamber for a short time earlier.
I welcome one or two of the things in the Budget statement—the changes to national insurance are very sensible, and the reiteration of the general anti-avoidance rule will be important in time. The announcement of flexible inflation targeting for the Bank of England could be significant in how the economy is managed in the future.
First, however, I would like to talk about tax. The Government are right to try to take as many people on low and modest wages out of tax as possible, and the savings so far of £326 a year for basic rate taxpayers, whose personal allowance rose last year from £6,475 to £8,105, makes sense. However, if we are “all in it together”, a saving of £326 makes rather less sense when we are persevering with a tax cut for millionaires who might consider a £326 saving no more than a decent lunch.
It is welcome that the Government are taking people at the bottom out of tax, but we should look at what they are doing to those in the middle, who have seen tax relief before the 40% band kicks in fall from £37,400 in 2010 to £34,370 last year. Therefore, for every £326 saved at the bottom on the 20p rate, people have had to shell out an extra £560 at the 40p rate. I welcomed the announcement that the basic rate tax threshold will increase to £9,440 and then £10,000, but the Chancellor has pulled the same trick with that as he did previously because relief for the 40p band will shrink again to £32,010, as announced last year. Importantly, that means that in the three years before today’s announcement, the Government have increased the number of taxpayers paying 40% tax from 10% to 13% of all taxpayers—a whopping 670,000 extra people. In the past 25 years—this is instructive—the number has doubled. Some 2.1 million extra people pay tax at 40%. The rate used to be for the rich, but the people paying it are not rich or wealthier.
It is not as if the economy has come out of the austerity period—the UK teeters on the brink of a triple-dip recession. People feel poorer because they are poorer. Last year, the Office for Budget Responsibility changed its forecast by reducing household disposable income every year from 2013 onwards. It has done the same for this year’s Budget. People are poorer for many reasons. In the 2010 Budget, child benefit was frozen, and later removed entirely for many people, costing families £2.5 billion a year. Households are and feel poorer because their wages have been frozen or capped while inflation has been higher than forecast. For pensioner households, notwithstanding the much vaunted triple lock, the pensions calculation has gone from the retail prices index to the consumer prices index.
What do the Chancellor’s previous decisions mean? The 1% benefit cap hits 1 million households in Scotland to the tune of, on average, around £165 a year; the tax credit changes hit 110,000 families in Scotland to the tune of around £700 a year; and the child benefit changes hit 91,000 families to the tune of, on average, around £1,400 a year.
I should explain that lesson in recent history. Last year’s Red Book told us that the Government’s discretionary fiscal consolidation—tax rises and cuts—would rise to £155 billion a year every year from 2016-17 onwards. I checked the Red Book today to find out the scale of the increase in the discretionary consolidation—tax rises and cuts—only to find that there is no 2017-18. Indeed, the Government have taken out 2016-17. They are hiding the future. The one thing we know from this year’s Red Book is that the Government continue to be determined to change the ratio of cuts to tax rises to 4:1.
We therefore know precisely where the Government’s priorities lie, and it is not with people, jobs or growth, as we have seen with the announcement of another £11.5 billion of cuts, the detail of which we will get in June. That tells us—the Chancellor is the only one who does not see this—that plan A has failed. He has failed according to his own metrics. The net borrowing requirement, which was meant to be £126 billion last year, falling to £92 billion for 2012-13, has been increased to £121 billion. The national debt—this should worry everybody—was due to peak at 92.7% of gross domestic product, or £1.36 trillion, in 2014-15 on the treaty calculation. It is now expected to peak at more than 100% of GDP—100.8% of GDP—on the treaty calculation by 2016-17. That means a national debt of £1.58 trillion. The Chancellor has therefore failed by his own measures.
On the fiscal rules that the structural current deficit should be in balance in the final year of a five-year rolling programme, and that debt should fall as a share of GDP, the objectives were highly dependent on GDP growth, which, as we have noticed in previous Budgets, is massively dependent, according to the OBR, on incredible, unbelievable, unmet and unmeetable rates of business investment. In 2010, the Government suggested that business investment had to grow by between 8.1% and 10.9%. By the time we got to the OBR’s fiscal outlook the next year, growth in business investment had turned negative. So it went on year after year. The Chancellor is at it again today, forecasting future business investment rates of 6.4% to 10.2% from 2013 onwards. These will not be met either, and the Chancellor will be back at the Dispatch Box making more excuses for why the failure is not his fault.
The biggest disappointment is that although the Government announced a modest stimulus of £3 billion a year in capital investment, it will not be immediate. The crisis is with us here and now. This is a delayed reaction Budget—it does not kick in until 2015-16—and implies a fiscal stimulus in capital expenditure terms of less than 0.25% of GDP. The benefits of that, if there are any, will almost certainly be offset by the other cuts, the details of which we will get in June.
We have an immediate crisis of huge proportions: the national debt is forecast to reach 100% of GDP; all the other metrics have failed; and the much-vaunted triple A rating has gone—that was not mentioned today. The Government’s response is a 0.25% of GDP capital expenditure stimulus, most of which will be gobbled up by cuts made elsewhere. That is a timid, weak and inadequate response. What should have been a bold demand to go for growth instead locks us into austerity. To be frank, it risks a decade of austerity and a decade of stagnant growth to go along with the Government’s failure to invest when it was necessary, and when they could, to get the growth in the economy that we all want.
It is a pleasure to follow the hon. Member for Dundee East (Stewart Hosie). I do not agree with his overall analysis, but he deployed statistics in a careful, if selective, way. I disagree with the fundamental direction of travel that he indicated for the Government; he falls into the trap of allowing immediate difficulties to deflect the Government from the long-term commitment to maintaining financial control and dealing with fiscal consolidation.
It is against that background that I want to commend the Budget statement by my right hon. Friend the Chancellor, in particular for the commitment he expressed to fiscal consolidation and to maintaining control of public expenditure. The Chancellor set out the position clearly and frankly. It is refreshing to have such frank Budgets, particularly in comparison with the first 10 years of the previous Government, when we found out about undesirable developments later on by consulting the Red Book. I urge the Government to maintain a tight control of public expenditure.
Of all the statistics presented today, the most important is the trajectory of debt consolidation and dealing with the financial deficit—one to which I do not think the hon. Member for Dundee East alluded. Although he chose to refer to the national debt, he did not refer to the fiscal deficit, which is an important determinant of the national debt. As the Chancellor rightly said, the deficit has been falling. It has fallen by a quarter, and has now fallen by a third. The trajectory set out by the Chancellor was encouraging: falling by 6.8% next year, 5.9% in 2014-15, and down to 2.2% by 2017. Cyclically adjusted, as I understand from the Red Book, that would amount to 0.6% in 2017, and that is very important.
The Leader of the Opposition gave a disappointing performance and missed an opportunity to set out his plans for the future. He was very keen to draw attention to the downgrade by Moody’s. The hon. Member for Dundee East said that that had not been mentioned—I am mentioning it now. The downgrade took place, and people can make of the ratings agency what they want, but it would be instructive to refer to what was actually said by Moody’s at the time and the reasons it gave for the downgrade, particularly the weakness in the eurozone. On the long-term trajectory, Moody’s stated:
“The stable outlook on the UK’s Aa1 sovereign rating reflects Moody's expectation that a combination of political will and medium-term fundamental underlying economic strengths will, in time, allow the government to implement its fiscal consolidation plan and reverse the UK’s debt trajectory. Moreover, although the UK’s economy has considerable risk exposure through trade and financial linkages to a potential escalation in the euro area sovereign debt crisis, its contagion risk is mitigated by the flexibility afforded by the UK’s independent monetary policy framework and sterling’s global reserve currency status.”
On the last point about our ability to set an independent monetary framework, therein lies another tale, as far as the Leader of the Opposition is concerned. The Opposition say that they are not committed to joining the euro at the moment, but I have not heard them rule out joining it at any stage. I believe that the benefit of an independent monetary framework is a permanent, not just a temporary one, as has been proved over the last decade.
I was one of those who joined the crusade led by my right hon. Friend the Member for Richmond (Yorks) (Mr Hague), now Foreign Secretary, against the euro. Some of the comments made at the time about that crusade, which has been of lasting benefit to this country, have come back to haunt those who made them.
The Leader of the Opposition missed the chance today to set out his plans in detail. He said that the Government had been downgraded and he referred to borrowing, but he did not say how much more borrowing he would undertake, how it would be spent, how it would affect the economy, what effect it would have on our international credit rating or how those who take business and monetary decisions would view this country. We need to hear much more detail from the Opposition. We heard a lot about the millionaires’ tax cut. I do not think that Opposition Members are going to get much more mileage out of that. We all remember that the 50p tax rate was put in place in the last five minutes of the previous Labour Government.
The Opposition’s rhetoric runs the risk of creating an anti-business and anti-success environment and of deterring investors from investing here and earning rewards. That contrasts with the policies we heard from the Government today. I commend their priority in giving help to business, particularly in reducing the rate of corporation tax, which I think is an achievement and will give us a good rate compared to our competitors. I also applaud the employment allowance, which is an imaginative proposal that will help many people and small businesses. Of course, I also applaud the help being given to hard-working families through the tax-free child care, the fuel duty freeze and the beer duty cuts, which will be of particular interest to many of my constituents who have lobbied me from the real ale society. I also welcome the Government’s plans to help more people to buy their own homes. I agree with the priorities the Government have set, with the funds available, within this tight fiscal framework and given the desire not to make unfunded tax cuts. They have struck the right balance in first helping business and hard-pressed families with the pressures they face.
For future reference—this is not intended as a criticism now—I would urge the Government to consider the position of, and to give some assistance to, savers, as the Conservative party committed to doing in a previous manifesto. The savings environment is not the best for small savers, particularly older people looking to supplement their pensions with interest on their savings. They have been hard hit by a combination of the interest rates offered by the financial institutions and the effect of inflation. We need to look carefully at its effect and what more can be done to help savers.
Over the past week or so, we have heard a lot about the effects of the savings levy on Cyprus, but I understand from a calculation that the House of Commons Library made for me that a basic rate taxpayer saver, having obtained the best possible current easy access account, with the forecast rate inflation in the country, at the end of four years will have seen their savings lose in value the equivalent of the 6.75% levy on Cyprus savers. That is the hidden effect of inflation on savings. We know that inflation has been rising and that savers cannot obtain high rates of interest from any of our financial institutions. Very few if any will beat the rate of inflation, and certainly not if one is a basic rate taxpayer.
I urge my right hon. Friends to look carefully at that issue and, in particular, at helping savers with individual savings accounts by giving more flexibility to ISAs. That could be done by increasing the limit for cash ISAs—this point has been made in many circles—up to the same as that for stocks and shares ISAs, to give people the opportunity to save £10,000 tax-free in cash, and also by giving people the opportunity to convert stocks and shares ISAs into cash ISAs. People cannot currently do that—although they can do it the other way around—yet it is something that some in retirement or approaching it may wish to do. ISAs are the most democratic form of saving, if I can put it that way. If future help is to be made available, I would urge the Government to ensure that it goes to our savers.
I applaud the choices we are making for today’s purposes in the Budget. It is right to help hard-pressed families and businesses for the future. This is a business-friendly Government who are taking the decisions to lay the foundations for successful businesses in this country in difficult economic circumstances.
It was in June 2010 that the Chancellor presented his emergency Budget. He said then that the measures he was announcing had
“set the course for a balanced budget and falling national debt by the end of this Parliament.”—[Official Report, 22 June 2010; Vol. 512, c. 180.]
However, today our economy is flatlining. We have a cost-of-living crisis, borrowing is increasing and we have lost our triple A credit rating. Since the last spending review the economy has grown by just 0.7%, rather than the 5.3% that was forecast, and last year the country went through a double-dip recession. Instead of the books being balanced by 2015, as the Chancellor promised, national debt as a percentage of GDP is not predicted to fall again until 2017-18. The whole country can see that, when judged by actions not words, this Government have failed every test they have set themselves. It is people up and down the country who are paying the price for their failure—families hit by the mummy tax; part-time workers who have lost tax credits; the 250,000 people in this country who have had to access emergency food aid or visit a food bank last year so that they did not go hungry; and the 200,000 more children who will be pushed into poverty as a result of this Government’s assault on support for families.
Today was a chance to change course—a chance to put right the mistakes of the past 33 months and correct a failing economic strategy. Instead, all we got was more of the same from a Chancellor and a Prime Minister who, despite all the evidence, refuse to accept that their plan simply is not working. In 17 days, millionaires will get a tax cut, so why do my constituents have to wait more than 900 days for help with child care?
It has emerged today that £38.5 million of shares have been given to nine top executives by Barclays bank. Does not that underline the point my hon. Friend is making about how millionaires seem to be faring much better under this Government than people on low pay or middle incomes?
It is incredibly insensitive that that announcement was made today. People up and down this country will rightly be shocked by it. In a moment I will reference the fact that we are seeing the gap between the richest and the poorest in our society widen. The Government should be doing everything to ensure it is closed.
I acknowledge and welcome the extra money we have heard about today for infrastructure projects, but I note that the majority of it will not be delivered until 2015-16, while work on many of the projects is not expected to begin for years. We must not forget that the Chancellor has spent £12 billion less on infrastructure over the past three years than under the plans he inherited. What is needed is a plan to get our economy growing and to create more jobs across the country right now. The fact that we have a chronic shortage of jobs was reinforced to me last week when I held a jobs fair in my constituency, which was attended by 66 companies. They ranged from local businesses such as the Liverpool Dental Spa and Davey’s Chemists to big global companies such as Nutricia Danone. On the day, more than 500 different job and apprenticeship opportunities were on offer.
My jobs fair last Friday was a great event, with more than 2,000 people coming through the door. That far exceeded my expectations; we had printed only 1,000 welcome packs. Despite what the Chancellor would have us believe, I did not meet anyone whom he would describe as a shirker. That point was also made in a letter to the Liverpool Echo this week from Bernie Hunt of Kensington Fields, a section of which I want to share with the House. Bernie said:
“What a surprise I had on March 15. I called in at the Wavertree Jobs Fair…half expecting to have the car park to myself as Mr Cameron’s Welfare State dependents were supposed to be too busy watching daytime TV recovering from the dole fuelled bender from the night before. What I actually found was those desperate for the chance of a job, or even training for a job, packing the place to the rafters.”
The fantastic turnout reinforced the fact that people who are out of work are not shirkers, but the real problem is that there are not enough jobs. Even if we filled every one of those 500 job and apprenticeship opportunities available at the jobs fair, three quarters of those who attended would still have missed out.
We have learned today that 2.52 million people are still out of work, with youth unemployment at almost 1 million again. There are still more than five people chasing every job vacancy, and even those who can find work still have to accept lower living standards.
I hope that my hon. Friend will also comment at some point on apprenticeships and on the fact that part of the reason for the shortage of jobs in her constituency, and the mismatch of Government spin, is the rebadging of existing jobs as new apprenticeships. Does she not think that the Government should come clean about that?
I have spoken on a number of occasions on the issue of youth apprenticeships, particularly those for people under the age of 19. We have seen a decrease in the number of such apprenticeships. As my hon. Friend says, there is also the issue of the rebadging of different types of jobs. The House will have heard many a representation from the Labour Benches about the Government’s consistent claim to have created 1 million jobs in the private sector, but we know that many of those jobs are simply public sector jobs that have been rebadged.
There has also been a shift in the kind of jobs available. The number of people working in full-time jobs fell in the last quarter. It is now down 378,000 since the beginning of the 2008 recession, while the number of people in part-time work has risen by 572,000 in that period. Since the general election, people have taken an average £1,200 pay cut because jobs are so hard to come by.
I thank the hon. Gentleman for his intervention, but I refer him to the comments that I have just made about the rebadging of public sector jobs. Many fact checks have been done to determine what those jobs actually are, as the intervention from my hon. Friend the Member for Wirral South (Alison McGovern) highlighted. Many of them are now apprenticeships. We also know that many of the assessments by the OBR have had to be downgraded because its estimates have often been too optimistic.
It is in the context of this maelstrom of frozen wages, rising prices and reduced opportunity that the Government are making some of the most draconian cuts to our public services and welfare, despite the fact that the OBR has said that those cuts are reducing growth in our economy. The cumulative impact of the cuts has been to widen the gap between the richest and the poorest, and to ask the most vulnerable and disadvantaged in our society to pick up the bill for the Chancellor’s mismanagement of the economy.
Today should not have been about more of the same; it should have been about changing course. If this had been a Labour Budget, we would have acted to boost confidence, create jobs and support struggling businesses. We need to bring forward long-term infrastructure investment in schools and transport, and we need to use the money raised from the 4G mobile spectrum auction to build thousands of affordable homes—getting builders back to work, creating the homes we need and strengthening our economy for the future. Alongside that, we would have cut VAT temporarily, including to 5% on home repairs, maintenance and improvement, which would have helped the energy efficiency side of our economy. The result would have been a plan for a steadier and more balanced pace of deficit reduction with measures that support our economy and create jobs now.
Government Members say that we cannot do that because it would mean more borrowing. They neglect to mention that it is their policies that are already leading to much higher borrowing. The Government and this Chancellor are already borrowing £212 billion more than they said they would to plug the holes in our public finances caused by a flatlining economy and a higher unemployment bill. The Government argument seems to be, “We will not borrow to grow the economy, but we will borrow to shrink it”. Instead, the real question is not whether we should borrow or not, but what we are borrowing for. Are we going to continue to borrow to pay the cost of the Tory Government’s economic failure and to keep people at home out of work or are we going to act to support those small businesses that want to invest in new equipment, to kick-start house building, to support research and development and investment in low-carbon energy and high-tech manufacturing with a proper plan to get people into work? In other words, we need a real plan for jobs and growth, which would be fairer, more successful in getting the deficit down and make Britain better off for the future.
On a point of order, Mr Speaker. It says on page 93 of the Red Book:
“The Government will…publish the Business Bank’s first business strategy”
this coming Friday, on 22 March. Given that you, Mr Speaker, have been very clear that important announcements should be made first to this House, and given that it is my understanding that the Secretary of State for Business, Innovation and Skills will open tomorrow’s Budget debate, can you give me any guidance about the powers you have either for the publication to be brought forward to tomorrow to allow hon. Members to question the Secretary of State when he is at the Dispatch Box during the debate or to provide for an oral statement to be made to the House on Friday morning? Mr Speaker, how can we question the Government on this important topic?
I am grateful to the hon. Gentleman for his point of order. I do not have formal powers in this regard and have only just had notice of what the hon. Gentleman sought to raise. What I would say to him is as follows: first, the Secretary of State will have heard—or will soon hear—of the point of order, and it is perfectly open to him to adjust his plans accordingly if he judges it appropriate to do so. Secondly, my sense is that this is a matter that can reasonably be expected to be raised in the debate, and the versatility, not to mention the indefatigability, of the hon. Gentleman as a parliamentarian, suggests to me that he himself is likely to do so. As to whether a statement or a publication intended for Friday will be brought forward, I cannot say, but Ministers will have heard what the hon. Gentleman has said, and I will keep an eye on the matter.
I am very pleased to catch your eye in this debate, Mr Speaker, and I ask you and the House to forgive me for breaking the usual convention in that I beg leave to leave the Chamber immediately after this speech because I have to chair a Committee upstairs. I would normally stay to listen to the following speaker.
I commend my right hon. Friend the Chancellor for his Budget, particularly for getting the macro-economic situation right. I would like to quote again from the Library note cited by my hon. Friend the Member for Hertsmere (Mr Clappison), who is no longer in his place. He quoted figures showing that the deficit is already down by a third and that net borrowing as a percentage of GDP is set to fall to 5% in 2015-16 and 2.2% in 2017-18. Those figures are taken from the Red Book. What is absolutely staggering is the fact that the last Labour Government inherited a figure from us of just 0.7% in 1997, which rose to a whopping 11.2%—this is contained in the Library note—in 2009-10. If there were ever any doubt about the fact that the last Labour Government—under the stewardship of the shadow Chancellor—were at the root of all our present economic problems, those figures would prove it to be the case. In absolute terms, our borrowing rose from £5.8 million a year to £158.9 million in the last year for which Labour was in office.
I believe that, surprisingly, the current employment situation shines a bright light on our economy. It was interesting to hear the Chancellor say this afternoon that the private sector was creating six jobs for every job lost in the public sector. We have already created more than 1 million jobs in the private sector in the two years since the last general election. It was also useful and, indeed, heartening to hear the Chancellor estimate that 600,000 jobs would be created in the next year alone. We are creating more jobs than France, the Netherlands, Japan and the United States, and we are outstripped only by Germany in this respect.
I think someone is telling me that 400,000 jobs have been lost in the private sector. However, I am talking about net job creation, which amounts to just over 1 million. That is the important figure. Of course, in a dynamic economy some jobs will always be lost and some will be gained, but as long as more are being gained than lost, we are on the right side of the argument.
The Chancellor mentioned that the eurozone had contracted by 0.6% in the last quarter. That, of course, is one of the reasons why our economy is so difficult to repair. As the Red Book makes clear, 42% of our exports go to the eurozone and 16% go to the United States. Both the eurozone and the United States are experiencing little growth, and the economy of the eurozone is contracting. However, there are some bright spots. Between 2009 and 2012, our exports of goods to Brazil, Russia, India and China increased by 49%, 133%, 59% and 96% respectively. Last year, indeed, we were the only country in Europe that managed to increase its exports to China. The international markets have endorsed the Chancellor’s policy in the form of our 10-year bond yields, which, according to the table in the Red Book, would be virtually the lowest in the eurozone, outstripped only by those in Germany.
I am struck by the fact that, according to KPMG’s table, Britain is the best place in which to do business—better than Switzerland, the United States and France. However, I must issue a small caveat to my hon. Friend the Exchequer Secretary. I fear that we are in danger of losing some of our foreign direct investment, the inward investment that sustains 40% of our GDP. Until recently we were in a fortunate position, in that 70% of all the European corporate headquarters were based within 75 miles of Heathrow, but owing to our current indecision about where our major hub airport should be located, we are losing those corporate headquarters by the day. I think that we should persuade all parties to agree that whatever Sir Howard Davies comes up with in relation to the hub airport should be implemented as soon as possible after the next election, so that we do not lose that international place. Let me also say that, while I fully support High Speed 2, our most expensive engineering project ever, the route should not be designed in isolation from the location of our major hub airport.
I warmly welcome some of the factors that KPMG identifies as making Britain one of the best places in which to do business. I particularly welcome the Chancellor’s announcement today that all corporation tax, whether on large or small companies, is set to fall to 20%. I think that that is a huge achievement, and I think that it will continue to encourage companies to come to this country. I also welcome the fact that the first £2,000 of national insurance will be left in the pockets of the companies themselves. I welcome the fact that the small business rate will be continued and that the Chancellor is abolishing the fuel duty rise this autumn. All those are seen as welcome steps to encourage employment. I particularly welcome the fact that well over half a million new apprenticeships have been established this year, including 570 in my constituency—that is a 63% increase on the figure for the year before.
I welcome my right hon. Friend the Prime Minister’s initiative at the G8 and G20 to make sure that although we lower the rate of corporation tax, we require companies that make profits in a country to pay a reasonable rate of tax on the profits in that country. Our measure will help not only this country, but countries in the third world, which often have difficulty collecting corporation tax from big multinational companies on profits made in them. As the Chancellor said today, these rules—these international tax treaties—were written in the 1920s, and their updating is well overdue.
Let me deal with some more domestic issues. As chairman of the all-party group on wine and spirits, I welcome the Chancellor’s announcement that the beer duty will fall in this Budget. However, his announcement that the 2% alcohol escalator will continue will mean that wine duty will have increased by 50% since 2008, while the duty on spirits will have increased by 48%. The industry supports 2 million jobs, many of them for young people in the hospitality industry, and it contributes £16 billion-worth of duties. There are signs that that is beginning to decline because of the rise in the duty escalator. Alcohol consumption has fallen by 13% since 2004 because of the responsible measures the industry has taken. Until now, the duty on beer and wine per unit of alcohol has been broadly taxed the same. In 1983, the European Court of Justice warned the UK that it is illegal for the UK to tax wine and beer at different rates, because they are seen as competing products. There must now be a real risk of a legal challenge, and I ask the Exchequer Secretary to consider this matter seriously to see whether something can be done about it before the Finance Act is introduced.
In conclusion, there are many things to welcome in this Budget. For individuals who want to work hard and keep more of their own money, I warmly welcome the fact that anybody earning less than £10,000 will not pay tax. We are helping people to buy their own house, and I have only one thing to warn the Exchequer Secretary about on that. As he and others will have realised, house prices in central London are rising very fast—they are literally increasing by the day—and I hope that these measures will not lead to a housing boom in London. We are also helping people with the cost of living, helping people with their pensions and their retirement, and helping people to keep their hard-earned life savings from being removed to pay for the cost of their elderly care. There is a huge amount to welcome in this Budget, but it has not been welcomed by the carping Labour party, which caused many of our economic problems in the first place.
I must say to the hon. Member for The Cotswolds (Geoffrey Clifton-Brown) that it is deeply irregular for a Member to toddle out of the Chamber immediately upon the conclusion of his speech in expectation—and anticipation, no doubt—of a very important engagement. I dare say that he is leaving the Chamber in order to chair the Committee of Selection meeting at 4.45 pm. It is true that that is a most burdensome and important responsibility, but had I known that he would be doing that immediately afterwards, I would not have called him. I put it to him politely that there is a much greater responsibility upon him to sit in the Chamber and listen to the hon. Member for Great Grimsby (Austin Mitchell). If he does have to go, I suppose that we will have to tolerate it, but I hope he will toddle back immediately afterwards.
I did actually mention this to the Deputy Speaker when he was in the Chair before you, Mr Speaker. I said that I would be more than happy to be called at any time later in the evening. So I will be guided by whether you want me to stay or to go to chair the Committee, Mr Speaker.
The hon. Gentleman has acted in good faith and that is respected. If his colleagues are expecting him, so be it. What I politely ask, because the tradition in the House is an important one, is that if he feels able he comes back to listen to other parts of the debate, as that would be appreciated by the House. We do not wish to detain him now if his colleagues are waiting for him, and we recognise that he meant well by the House. The hon. Member for Great Grimsby will have one fewer member of his audience.
I was rather upset when I found that I need not have bothered coming to listen to the Chancellor’s petulant prose because I could have read it all in the Evening Standard, stayed in bed and not suffered the indignity of coming along early. I remember—few will—that the last Chancellor who spilled the entire contents of a Budget to the Evening Standard was Dr Hugh Dalton in 1947. He promptly resigned, which is an example that I commend to the Chancellor, as it deserves to be followed.
As I decided to come to the Chamber, I was rewarded by seeing the Chancellor excel himself in some ways. All the trailers and the headlines in the newspapers said that the Budget was going to be boring, mean, “bleak”—the Financial Times said that—with no change, and grim. In fact, it lived down to all those trailing adjectives: it was a no-change Budget in a declining economy. The main cause of anxiety among Labour Members is the fact that the Chancellor has obstinately adhered to a set of policies that have not worked—conspicuously so—and which have damaged the country’s prospects. It is a Budget proposed for a nation in comparative decline. We have missed out on 4% of GDP—the economy has shrunk that much since 2008—and we have missed out on all the normal growth that would have occurred since then. That is a huge loss in the economy: a smaller economy is bearing a heavier burden of debt. It is difficult, in that situation, for an economy to keep the standards, the services, the social welfare and the spending of a decent society.
Moreover, that economy cannot pay its way in the world. We have a huge and, until the current recession, escalating balance of payments deficit. In such cases, people either have to borrow overseas to finance the deficit, or they have to sell assets at home. We have been selling assets apace in this country: we have sold companies—we must be the most colonised industrial economy in the world as a result of foreign takeovers, which earn fees for the City. We have sold farms, houses and anything that moves. We have set ourselves up as “Tax Haven on Thames”, and international capital and funny money—the funny funds and their manipulators—have been encouraged to come here on the promise that they will pay low taxes. They can go in for all sorts of tax evasion schemes, such as those that the Public Accounts Committee has unearthed, with only soft-touch regulation. In fact, all that companies that come to the UK to fiddle their taxes have to fear is my right hon. Friend the Member for Barking (Margaret Hodge) and the Public Accounts Committee, which has unearthed what has been going on. That must induce terror in them, but the Government have not done anything about it.
Even today’s measures are small beer compared with the scale of the problem of tax evasion and avoidance. We are an economy hung down with debt, and that is true of the state and of companies, particularly those that have been taken over by private equity and loaded down with debt, and of individuals. People are not spending on the high street, and there is no demand so the shops are closing. Who is going to invest in an economy in that state, when there is no prospect of profit because demand is so low? Who is going to buy houses in an economy in that state, as people do not have any prospect of keeping their job for a long period? Uncertainty creates the problem.
The banks are not lending, and we have relied on the Bank of England to do the heavy lifting by effectively printing money, but that money has all gone to the banks, which stash it away in their reserves and do not loan it. The Bank of England’s monetary policy cannot replace fiscal policy: the Government must bear their share of the heavy lifting, and not leave it all to the Bank of England. I am glad to hear that the rubric of the Bank of England is going to be changed, and I hope that it includes economic growth and competitiveness. Too much has been left to the Bank, and too little has been done by the Government.
That is the economy today, and it is a disastrous situation, as confirmed by the report by the Institute for Fiscal Studies. We are bumping along the bottom, and we are heading for a triple-dip recession. That is the picture that the Chancellor should have dealt with, but he failed to do anything. The good things that he did were postponed to 2014 or 2015 in many cases. The Budget is not adequate to deal with the problem.
What we need to do is spend. That is the only way out of a recession like this. A litany of how we must not borrow more and that borrowing is evil is all very well, but borrowing for public purposes is very different from borrowing for private purposes. Borrowing to spend for public purposes creates an economic stimulus and stimulates growth, and that is what we have to do. It is the only way out of the present situation. I am sorry to go on about it, but to Government Members’ taunts about whether we would borrow more, I say yes, we must borrow more. We must borrow to spend to do things to stimulate the economy, to stimulate the animal instincts, as they are called, of the cautious capitalists in this country, to get growth going. Once we get growth going, the problem solves itself. We can only pay off debt in an economy that is growing, as Labour did in our first two or three years of office. We paid off an enormous amount of debt because the economy was growing. We can do that again, but only with growth. We cannot do it by deflation, because deflation increases debt. Deflation means we have to pay for unemployment: we receive fewer taxes and have to cover all the costs of companies going bust and all the weaknesses of the economy. There is an increase in debts from deflation, but there is an increase in the ability to pay off debt from expansion. We therefore have to borrow to expand.
I welcome the Chancellor’s measures on housing, but they are all about owner-occupiers. The big need at present is to provide houses for the two fifths of our population who cannot afford to buy them and to whom the banks will not lend. The mortgages are not forthcoming in any case, but those people are so impoverished that they need public housing to rent. That is what we need to build primarily. Why not have a massive housing programme—300,000 houses over two years? We are already building 100,000 houses fewer than this community needs, and it is those who cannot afford to buy, and who particularly need housing, who are suffering the pain of the housing crisis and the present housing shortage. Borrow, spend, build houses, invest in the future, invest in green energy, which like ICT in the ’80s is the coming future; borrow and spend, stimulate and grow—that is the only way out, but the Chancellor proposed none of that and that is why the Budget is such a failure.
It is always a great pleasure to follow the hon. Member for Great Grimsby (Austin Mitchell) with his candour and honesty in saying that Labour would always want to spend more. Many of my constituents and most of the country recognise that Labour always wants to spend more. I always found it most unusual when, before entering the House, I used to listen to the Budget statements of the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) who professed his devotion to prudence. On the Floor of the House he would constantly hammer home the importance of prudence, and how it was central to everything that he did. If he loved prudence that much, he must have been cheating on prudence with someone who was very reckless, as all the money was spent. The destruction that he has wrought on the economy has been vast.
The Chancellor has aimed to set out a plan to continue to support British business and British families. It is not possible to create an economy overnight that has business confidence. It is not possible to build an economy overnight where there is a massive investment in technology and engineering—it has to be done over time. That is why we should all welcome the Chancellor’s continued moves to bring down corporation tax, from 28% to 21% last year, and 20% going forward.
The constant drive to lower corporation tax will build confidence across the globe that Britain is a place in which to invest. Page 41 of the Red Book shows the dramatic change in business confidence in the UK. In 2007 it was rated at just under 30%, and as recently as 2009, it was rated at under 20%, whereas if we look at comparator countries, such as Ireland, the Netherlands and Switzerland, we see that the percentage ratings were between the mid-80s and the mid-70s. That confidence has totally changed how people view the United Kingdom’s tax competitiveness. Indeed, we have seen the growth of confidence that Britain is a good place to invest as a tax competitive area: it moved from below 20% in 2009 to above 70% in 2012.
Only the other day I met representatives of Caterpillar, a major investor and employer in the United Kingdom. They said that what international businesses need is certainty. They need confidence that the tax regime will not constantly change and that if they invest in this country, their investment will be safe. They reported that that confidence is starting to return, because it is quite clear that the Government want to deliver a low rate of corporate taxation, and it is not going to go down one year and then up the next; the trend is to reduce it continuously. That is what international business wants and that is what will benefit Britain.
Another measure that I do not think has been commented on so far, but which will be of great value to all businesses, especially those in engineering and manufacturing, is the increase in R and D tax credits by up to 10%. Members in all parts of the House talk passionately about the need to promote and encourage engineering and manufacturing. If we want to do that, we must promote and encourage the R and D that is so vital for their success. We in the Chamber—on both sides, I believe—recognise that technology and the people going into those industries are absolutely vital to rebalancing our economy, and so too are the changes to R and D tax credits, both in the way they are accounted for and the amount of money that companies can get back.
In South Staffordshire, we are fortunate enough to have had a great amount of economic success, with rapidly falling unemployment, and major investment coming into the area. Over the past three years we have had announcements of £550 million of investment in the constituency, half a billion of which is coming from Jaguar Land Rover. We see that manufacturing success not only in South Staffordshire but right across the west midlands, and it is being driven and supported not only by R and D tax credits but by the Government’s approach to apprenticeships, taxation and the regional growth fund, which is creating key incentives not only for businesses currently domiciled in the UK but for those that want to invest in Britain or in the European area.
I firmly believe that the measures that have been taken on R and D tax credits are to be welcomed. I also think that the work that is being done on the Technology Strategy Board is making a solid difference by helping businesses of varying sizes, whether they employ a few hundred people or many thousands, to access universities and different areas of funding in order to take the risk and develop the ideas and products that will make Britain more competitive in future.
The issue of financing has been touched on. The hon. Member for Hackney South and Shoreditch (Meg Hillier) talked about lending, particularly to small businesses. I have to say that she and I are, to a certain extent, in agreement on one thing she mentioned. She touched on the Government’s strategy of funding for lending. Currently, that is available to banks, but we should be looking at how we can make it much more widely available, because it would be easy to expand it to all financial institutions.
In my constituency, many businesses are served by the Black Country Reinvestment Society, a mutual that helps many small and medium-sized businesses to get the funding that they would not otherwise get from banks. I think that by changing the funding for lending scheme we would be able to help many similar organisations right across the country.
My hon. Friend is absolutely right. We need to be more imaginative in how we get finance to the small businesses that want to grow.
A little less than a year ago, I had an Adjournment debate on the need to get rid of the beer duty escalator. I am incredibly pleased that the Chancellor has reduced beer duty by 1p. It might not sound much, but it will make a real difference to the 83 pubs in my constituency and to the three small breweries in Kinver, Enville and Essington that are employing people in my constituency. I hope that this will act as a stimulus not only to the brewing industry but to the pub industry right across South Staffordshire, across the west midlands, and across the country. It is my firm belief that this Budget has not only been good for brewers, manufacturers and business, but good for Britain.
Thank you, Mr Speaker. I am pleased to have caught your eye in this debate on today’s Budget.
I want to talk about three issues: interest rates, under-employment and the place of young people in our economy. Before I do so, let me be clear that in today’s Budget we heard conclusively that the Government have failed on every economic test they set themselves. We heard the Chancellor having to announce those debt figures. How he must feel he has let himself down, but he has not just let himself down; he has let the whole country down. He is not just the downgraded Chancellor; he has now had to come and tell us how much more he is borrowing.
The Bank of England has kept interest rates at a historic low. The Chancellor had more to tell us about the framework within which the Bank of England operates. When he was talking about the arrangements for setting interest rates in the Monetary Policy Committee, I noticed that some Government Members’ eyes were glazing over slightly, so let me give them a warning. The Prime Minister has lauded the low interest rates, and he is right to do so, because, frankly, it is the only thing that has gone right. In fact, the Government’s saving grace of low interest rates has resulted from the use of the one economic tool that is not under their own management. While the Governor of the Bank of England has got his foot to the floor in holding interest rates low to try to support the economy, the Chancellor keeps slamming on the brakes. Is it any wonder that we are seeing such poor growth? Under the Chancellor’s stewardship, we should have had growth of about 5.5%; in fact, it has been less than 1%.
It is important that the Bank of England uses its economic tools properly. What the Chancellor said about having a broader remit and taking the long-term view on interest rates is extremely important, and I welcome that discussion. But let us be clear that using monetary policy in this way will not help rebalancing; in order to achieve this, we need serious investment. Government Members need not take my word for it; they need only listen to the Business Secretary, who has clearly been listening to the shadow Chancellor, because they seem to be in agreement that we need a different plan. When the Chancellor made his announcement about the national insurance position of small companies, I wondered whether he had taken a leaf out of the shadow Chancellor’s book and it was an announcement about the Government’s commencing our five-point plan. The Minister is giving me a tentative smile, and being a cheerful soul I will take that positively. Before Government Members talk in too-positive terms about the Budget and the level of income tax, they should worry about food prices, house prices, housing costs, and the real value of the money in people’s pockets.
The Government must address under-employment. Sadly, unemployment has gone up today, but we should be grateful that, despite the fallout from the crash, it has not reached the extreme levels of Greece and Spain. Some people say that they cannot understand why unemployment is not worse when growth is next to zero. In fact, the Chancellor said today that it continues to be a surprise. I do not know why he thinks that, because what is going on is under-employment. People cannot get the hours they want.
I have asked Ministers about under-employment on three occasions in the past month and they have not provided an answer. I have asked the Minister of State, Department for Work and Pensions, the hon. Member for Fareham (Mr Hoban), and the Leader of the House, and on 25 February the Chancellor dismissed out of hand my concern about under-employment. Nobody in government seems to accept that it is a problem. They talk about their 1 million new jobs, but I believe that up to a fifth of them could be the result of reclassification.
On the growth in part-time work, my constituents tell me that they cannot get the hours they want. I hope that I have made it abundantly clear to Ministers that this is a massive problem.
Has my hon. Friend, like me, heard stories of local supermarkets receiving more than 30 applications for increased hours in order to meet the new requirements for tax credits? The unavailability of those hours means that people are struggling to get by as a result of the decrease in tax credits.
Of course I have. I thank my hon. Friend for flagging up the issue of the changes made to tax credits, which mean that people now have to work for 24 hours, rather than 16 hours. That alteration has added insult to injury and disintegrated work incentives.
All Ministers need to do is look at their own labour force survey, which shows that between 2008 and 2012 under-employment went up from just over 2 million to just over 3 million. Do Ministers read the labour force survey? They should do so if not. Spare capacity in our economy is causing real problems. Not only does it hold back our economic development, but it causes real unhappiness.
Hon. Members may remember the Prime Minister talking about a general well-being index when he came into office, but I dread to think what its results would be given people’s misery at not being able to get all the hours they want at work in order to put food on the table for their family.
On the subject of unhappiness, I must mention youth unemployment. Just under 500,000 young people are claiming the dole. Treasury Ministers need to speak to people at the Department for Work and Pensions and find out what on earth is going on. They cancelled the successful future jobs fund in favour of the failed Work programme; the Government’s claims about apprenticeships are, as has been said, simply a rebadging exercise; and the DWP itself knows that its policies are failing. I have asked questions about the Department’s business planning projections, which show that the number of people under 24 to whom it will have to pay the dole before the end of this Parliament is going to increase. That is a disaster for our country. We need a better policy to help young people get into the labour market.
In the time remaining, I want to say what I think that policy should be. We have hammered local authorities despite the fact that it is basic economics to understand that unemployment forms in clusters. Specific localities face significant unemployment, especially among young people, who want a place in the labour market.
That is precisely my concern. In fact, there is a correlation between the level of unemployment in a particular local authority area and the extreme nature of the cut it faces—the more people out of work, the bigger the cut. That makes no sense at all when we all know that some of the most successful back-to-work programmes have been led not by central Government, but by local authorities, which understand much better than Whitehall the barriers that people face in getting into work.
I cannot emphasise enough how the hammering of local authorities has impeded our ability to get young people into work. That is especially true of Merseyside. The biggest barrier to the economic development of Merseyside and the Liverpool city region is the skill level. We need a positive, proactive, local approach to improve people’s skills and help them get back to work. We heard nothing from the Chancellor about that problem in his Budget.
If the Chancellor were here, I would ask him whether he realises the damage that he is doing. I hope that the Exchequer Secretary will pass on that question. Constituent after constituent comes to my surgery despondent about their chances of getting a decent job. They want desperately to work more hours, but are not able to get them. I ask Ministers to come with me to Jobcentre Plus in Bromborough and meet the people there who are depressed and despondent. I ask Ministers to think about whether they could have done better today. They are already adopting some of Labour’s five-point plan. Could they not adopt some of our other policies too? I think that they could have done better today. My constituents deserve a lot better.
We have heard significant news today that we had not heard before. The first piece of news is that the deficit has been cut not by a quarter, but by a third. We know that the conditions are tough, but that is further proof that the Government are making progress with clearing up the absolute mess that we inherited from the Labour party.
We also heard that the economy has created not just 1 million net new private sector jobs under this Government, but 1.25 million. That is six extra private sector jobs for every job that we have unfortunately had to lose in the public sector. We learned that in the west midlands, more private sector jobs have been created in the three years of this Government than were created in the last 10 years of the Labour Government. When Opposition Members talk about unemployment, which Government Members are desperately concerned about, they should recognise that this Government are delivering jobs in the face of considerable economic adversity.
It is this Government who understand that we need to be an aspiration nation. Some Opposition Members laughed when the Chancellor used that phrase in his Budget speech, which was desperately sad. Government Members understand that nations rise when people rise. We are in a global race and no one owes us a living. That is why we have to make ourselves competitive in the world markets.
I am very impressed with the hon. Gentleman’s whipped speech. What is aspirational about the situation of a constituent of mine who has just been made unemployed, has gone out and got himself a part-time job in a local petrol station, and will be hit by the bedroom tax?
The Government have created 1.25 million net private sector jobs. The hon. Gentleman’s constituent will probably be able to do two extra hours a week at the minimum wage to deal with that situation. He could also let out his room or downsize to an appropriate sized property. There are a number of things that his constituent is able to do.
I praise the Government hugely for abolishing stamp duty on AIM and ISDX shares. I do not believe that any other Member has mentioned that. Members from all parts of the House talk about the difficulties that businesses have in raising loan finance. We all recognise that, but that is only one of the two ways in which businesses can get money to grow. The other is to get share capital. Every school knows that if it has a good nursery underneath it, it will have a good supply of children. Exactly the same is true of stock markets. If we can help our small and growing companies, which provide so much job creation, to raise share capital, which means that they do not have to pay back money in a fixed period and can decide when to pay as well as the level of dividends to pay, that is hugely helpful, so the change for AIM and the junior ISDX market is incredibly important and very welcome. The stock exchange estimates that there will be between 40 and 50 initial public offerings in high-tech businesses as a result of the move and Deloitte has estimated that that will create some 38,000 jobs.
The second measure for which I want to praise the Chancellor is that on ultra-low emission vehicles. In just one small sentence in the Budget speech, the Chancellor said that he would support the manufacture of ultra-low emission vehicles with new tax incentives in this country. That is absolutely right. We make the Nissan LEAF in this country, in Sunderland, but the Vauxhall Ampera is made in the United States. I want electric vehicles and other ultra-low emission vehicles to be made in this country to help British workers stay in jobs. I do not think anybody in this House anticipated the scale of the change as we move to ultra-low emission vehicles. I want those jobs in this country and do not want to see the industrial advantage going to China, Denmark, Israel or any of the other countries that are making major moves in this area.
I hugely welcome the announcements on shale gas. It is disappointing that in the time it has taken Cuadrilla to get one exploratory rig up and going in Lancashire, 72 have been got going in Argentina. I know that the excellent Minister of State, Department of Energy and Climate Change, my hon. Friend the Member for South Holland and The Deepings (Mr Hayes), who is on the Front Bench, understands that and will drive the policy forward with the passion for which he is well known and well regarded across the House.
The Government understand the importance of business competitiveness. As I said, no one owes this country a living, which is why I hugely welcome the decrease in corporation tax. Is it not good to look through the Budget book and see that the United Kingdom will have the lowest rate of corporation tax of all our major G20 competitors? By 2015, it will be lower than that of South Korea, Germany, France, China, India, Brazil or the United States of America. That is exactly what we need to do to keep business successful in this country.
The employment allowance that the Chancellor announced at the end of his speech is unbelievably well targeted. It will take off the tax on jobs, which the Opposition, had they been elected at the last election, would have increased. Think of the damage that would have done. It is the Government who understand that we get more people into work if we tax jobs less, so that move is to be welcomed. My colleagues on these Benches have mentioned the KPMG report that said that this country is the most competitive in the world in which to set up, start and run a business. That is hugely to be welcomed.
The measures in the Budget on home ownership are excellent and hugely to be welcomed. Government Members understand and support the desire of people to own their own homes. That is a thoroughly Conservative aspiration and it is one we want to see extended to as many of our constituents as we possibly can. The Help to Buy scheme and the mortgage guarantee scheme are excellent in that regard and I am pleased that my local authority, Central Bedfordshire council, is rising to the challenge and looking to build some 6,000 houses to the north of Houghton Regis in my constituency. That is exactly what it should be doing.
I am hugely pleased to see the Chancellor support the proposals in the Heseltine review. The document contained 89 proposals, 81 of which are being supported by the Government. That is excellent. Local authorities have a lot to add in this regard, as do local further education colleges and university technical colleges. I am proud to have one of those colleges in my constituency. For example, Central Bedfordshire council has worked out where unemployment is slightly higher and where the new jobs are and will be setting up transport between the two with the wheels to work scheme. It will not just leave it to bus companies and so on but will take practical measures to get unemployed people to where the jobs are further to drive down unemployment. I am pleased that unemployment is lower in my constituency than it was at the general election.
My constituents will also hugely welcome the significant increase in the personal allowance to £10,000, brought in by a Conservative Chancellor. It is hugely welcomed by Government Members. It clearly makes sense: rather than taxing people and giving them back some of their own money in tax credits, we believe in letting people on low incomes have more dignity by letting them keep more of the money that they earn in the first place. That is absolutely right.
The measures on fuel duty will be hugely welcomed and I refer the House to what I said earlier about ultra-low emission vehicles. I know that pubs in my constituency will be delighted with the measures on beer duty.
The one area to which I would like the Government to attend before too long is the transferable tax allowance, and I will conclude with a quote from the Prime Minister:
“What is so backward looking in a country where we have social breakdown and social problems of saying that committed relationships, encouraging people to come together and stay together is a bad thing? Of course it isn’t, it’s not outdated if you look around the European Union, if you look around the OECD, we’re almost alone in not recognising marriage in the tax system. And why do we think, why do we think that with our appalling record of family breakdown that somehow we are in the right position and everyone else is in the wrong position…they’ve got it right and we have got it wrong.”
We need to change that. The Prime Minister was right then, and he is right now.
I think I could summarise the Budget with a slightly nautical metaphor: the message from the bridge to the economic engine room is, “Steady as we sink.” The Budget does not recognise the scale of this country’s problems, and although some of the measures that have been announced may be good in a micro sense, they are totally inadequate to combat the macro problems that we have.
Let me go back to the months immediately after the May 2010 general election and the emergency Budget. Although under the Labour Government we had had economic growth, the budget deficit and inflation were falling and employment was rising, and we were told that that was extremely dangerous. The Chancellor conjured up an apocalyptic vision of an economy that was about to be devastated by a reduction in our triple A rating.
Three years on, we have lost our triple A rating, the economy is at best stagnating and at worst falling, we are having to borrow more and inflation is rising, yet we are told that it is all so good that we must have it for several more years. I feel that the electorate—like me—are beginning to doubt the credibility of that argument. I recognise that the carefully choreographed political narrative that was built up after 2010 had some traction, but that traction is going as a result of the incompetence and lack of vision displayed by the Chancellor since then.
I think those costs have dropped by 0.15%, which the public might think—well, shall we say that they have had to bear a huge sacrifice for a minimal improvement and drop in interest rates? I am concerned—this point has not been mentioned by anyone in the House, including those on the Front Benches—that the Government’s current predictions are based on December figures from the Office for Budget Responsibility. We might think that that is okay, but since May 2010 the OBR’s predictions have been conspicuously inaccurate and over-optimistic. If its predictions for the next two years are equally inaccurate and over-optimistic, we are in real trouble. That may not be the case, but if we look at the Library research papers, most other independent commentators and assessors of our economic position predict a lower rate of growth than the OBR. That is of concern and underlines the Chancellor’s failure to put in place measures to combat that issue.
On the opportunities available currently in the economy, the emergency Budget, in order to be successful and meet the Chancellor’s targets, was predicated on an assumption of exceptionally high investment and exports. Since then, the eurozone has had problems. It takes 47% of our exports but is the lowest-growing export market.
Absolutely—as I have said, the Chancellor’s apocalyptic utterances frightened many people into paying off their debts and not spending, which had an impact on consumer spending and subsequently on business.
If our largest export market is stagnating, we look abroad to Brazil, Russia, India and China. The Government have done good work on expanding our exports to the BRIC countries, but they are less than a tenth of our exports to Europe. Anyone who has the idea that we can transform our economy simply by expanding our exports to BRIC countries is living in cloud cuckoo land. I do not mean to say that expanding our exports to BRIC countries is not necessary, but it will not in itself turn the economy around.
We have heard a lot in the debate about the impact of corporation tax and making this country an attractive place for inward investment, but the reality is that investment is stagnating. Industry tells me that, above all, it wants a coherent, co-ordinated and focused Government response. The Prime Minister went, with his entourage of business men, to China, Brazil, India and so on to bang the drum for Britain—I am glad he did so—and the Chancellor has announced the lowest rate of corporation tax for companies investing in this country. However, those things are no good if, at the same time, the Home Secretary—we recognise that the Prime Minister has his problems with her—implements a visa regime that deters people from those countries who want to invest here. That is totally incoherent and economically illiterate.
I welcome some measures, such as those on construction, but the Government’s current construction programme is only a fraction of the Labour Government’s programme. The Government’s programme will take a long time to materialise in terms of economic growth and consumer expenditure.
I also welcome the Government’s investment in the Technology Strategy Board and the catapult centres, which have enormous potential. That leads me to a debate that the Government should have but are not having on how best to invest our scarce resources. All the evidence I get from industry, and particularly from manufacturing industry, says we need more money to be spent on high-quality research and development and implementation. Catapult centres would do that, and we need more money spent on them.
However, we also need more money to be spent on investment allowances rather than on corporation tax. It bothers me that the Government believe almost as an article of faith that a reduction in corporation tax will stimulate inward investment, but they are not considering whether there is a better way of spending that money on alternative ways of investing in British companies. Manufacturers say that investment in R and D is a much more attractive and economically beneficial way of stimulating the investment we need in this country. A large amount of money will be forgone with the reduction in corporation tax. Would that money not be better spent by providing better investment allowances, which will enable British companies to invest, employ and export more, and generally to contribute to the economy? A lot of companies that invest here do not pay much tax anyway, and those that might come could as equally be attracted by an attractive investment allowance regime as a reduction in corporation tax. So far, the evidence in favour of a reduction in corporation tax is not strong, which is why we are not seeing the level of investment that the Government had hoped for.
Low-carbon vehicles are important to the north-east and to my own area in the west midlands, and the motor industry is investing in them. I welcome the Chancellor’s announcement of a commitment to that. However, previous announcements in previous Budgets, particularly on company car taxation and the write-off threshold, have caused confusion and actually delayed investment in this area. I hope that in the Budget and in the Red Book there are indications that that will change, and that we will have the level of commitment and certainty that will encourage our motor industry to continue its investment in this area and become a world leader in an expanded market.
I welcome the Budget, which is a continued step in the right direction. To understand the road that has been travelled, we need to understand where we have come from. There seems to be more than a whiff of denial from the Opposition regarding the difficulties facing the country.
I should start by saying that at first, the Labour Government ran the economy along broadly sensible lines and stuck to the previous Conservative Government’s spending plans. Until about 2001, everything was going well and the economy was being run responsibly. Overspending and excessive borrowing began from that time onwards, and that is where the rot set in. The former Chancellor—and later Prime Minister—the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), had the opportunity to have his way and pursue his economic policies, and that is where things went wrong. There was too much debt. Too much growth was illusory and too much borrowing took place. When the music finally stopped in 2008, it hit this country very hard.
The hon. Gentleman was not in the House at the time, but if he stops listening to central office party propaganda and remembers the history, he will know that the former Chancellor actually paid down debt, for example, through 3G licences. At no time in opposition did the hon. Gentleman’s party argue for less public expenditure in a single area.
The hon. Gentleman is right about the 3G licences, but the taps were then turned on and public spending rose. We had a structural deficit and we were seriously exposed when the crisis struck in 2008. We can see that from the statistics relating to the previous Parliament. We inherited a structural deficit of 11.2%—an enormous level of borrowing. We inherited a massive rise in unemployment, as measured by the claimant count—it went up by 80%. Youth unemployment went up by 78% under the jobseeker’s allowance claimant count. Those were staggering rises and real concerns. It is all very well for the Labour party to say that there is a continual problem with unemployment. It is, of course, a concern to us all in our constituencies, but youth unemployment has been coming down. Unemployment has stabilised and we have not seen the rise that we saw under the previous Government.
Let us look at what this Government have achieved: 1.25 million new private sector jobs and 1 million new apprenticeships. The deficit is now down by a third. Rather than the structural deficit of 11.2% that we inherited, it is down to 7.4% of GDP today and moving in the right direction. We have had record low borrowing costs. The Opposition’s idea that we should borrow more to borrow less will take us one way and one way only—to higher interest rates. The hard-won fiscal credibility that this Chancellor and this Government have achieved is greatly valued by every mortgage holder in this country.
I thank the hon. Lady for reminding me to point out that the Institute for Fiscal Studies said that the Labour party, under its plans, would be spending £200 billion more, so she should be careful before indulging in fantasy economics.
We also need to look at the Government’s welfare reforms, which will do more to make work pay, and education reforms, which will help Britons get the skills they need to compete in the global race. The Government are right to help those who want to work hard, get on and do really well. We hear from Labour Members about the difficulties faced by, and the squeeze on, many hard-working families, but they forget to say that this is nothing new. According to the Office for National Statistics’ family spending survey, disposable income in real terms was £600 in 2000-01 and was £600 at the last general election—it has not moved in real terms for about a decade. The challenge is that families have been squeezed for quite some time. The Labour party forgets that the economy was shielded by the boom of borrowing and debt and that, as a result, those difficulties were glossed over for too long.
It is right that the Government are now getting the house in order and doing more to help hard-pressed families and households. For example, council tax in Kent has been frozen for three years, whereas under Labour it doubled; fuel duty is now 13p lower than Labour planned; and as a result of the £10,000 personal allowance to be introduced next year, many will pay £700 less tax than under Labour’s plan, which will help average families and take 2.7 million out of tax altogether. I also welcome the axing of the beer duty escalator and the 1% outright cut in beer duty. The Government have got the right priorities and are moving in the right direction. Their plans for child care will help families up and down the country who, with the rise of joint working over many years, have found things very difficult.
On business, we need to get the country growing as quickly as possible, but we get growth and jobs not from Government, but from the private sector, enterprise and businesses. The Government have done the right thing in giving an awful lot of help to small businesses, but I want us to go a bit further. We have had the new employment allowance and the seed investment allowance, but I would like us to consider a “get set and grow” scheme, under which somebody could set up a new business and have a two-year holiday from all company filings, corporation tax and employers’ national insurance, light or no employment law and other measures. That way, somebody setting up a business could focus on running it, rather than on ticking boxes, filling in forms and dealing with paperwork. That kind of change would provide real assistance to people who want to get going and do really well.
Studies by the OECD, particularly the “Fostering Entrepreneurship and Firm Creation as a Driver of Growth in a Global Economy” in 2004, show that enterprise formation, growth and entrepreneurship are strongly linked. I hope that the Chancellor and the Government will look more closely at measures to make it easier to set up a business to a certain turnover threshold or certain period of time. As I said, the new employment allowance and the massive national insurance reduction for many businesses are a big step in the right direction, but I would like us to go further.
I also welcome the measures to deal with tax avoidance. Too much corporation tax avoidance has gone on for too long. It grew up over many years. Tax law was not kept fit for purpose in the internet age, and the Government have taken the right action through their general anti-avoidance provisions and their work on the international tax system.
Personally, I would like us to go further and see whether we can reduce corporation tax still more by restricting tax reliefs, which would put our home businesses and multinational businesses from overseas on a much clearer, more level playing field. We should look at minimising deductions for interest and royalties, along with other deductions that are available in the tax system, and restricting transfer pricing. We should also look at the rules on tax presence and whether there is a branch or establishment in the UK, and say to companies such as Amazon, “You’re not really abroad; you’re trading in the UK and you should be taxed as such,” and the international rules should be changed accordingly. That would be the right direction of travel, because we would have an even lower rate of corporation tax than we do today or than we plan to have, and a level playing field for businesses at home and those from overseas.
The last thing I want to say—this will surprise Opposition Members—is how much I agreed with capital gains tax being at 10% for businesses. That was a real spur to entrepreneurs and perhaps the only policy of the former Prime Minister that I agreed with. I regret that the rate has become 28%. We ought to look at how we can foster entrepreneurship, so that entrepreneurs can not only set up businesses and get them going, but sell them and get new businesses going. It is the serial entrepreneurs who are the real wealth creators in this country—the people who drive small businesses, job creation and enterprise creation. The more we can get the tax system to be their friend—to be on their side and support them in what they do—the more we will drive the economy forward and create more jobs for the future.
It is a pleasure to follow the hon. Member for Dover (Charlie Elphicke).
We heard a lot in today’s Budget statement about the “aspiration nation”, but back in 2010 we were told that we could judge the Chancellor by his record and his economic tests. I agree with the Chancellor: we should judge him by his own economic tests, especially now that he has been in his job for three long years. Back in 2010, he told us that he would ensure macro-economic stability by maintaining the UK’s triple A rating. Well, we all know what happened to that, with Moody’s downgrading the Government’s status last month. Back in 2010, he also told us that he would rebalance the economy, creating the conditions for higher exports. A quick look at the statistics shows exports falling in monetary terms and the balance of trade deficit increasing as a percentage of GDP. Quite clearly the UK’s trade with the rest of the world is no success story, despite the 25% devaluation of sterling.
Another promise was that the Chancellor would get people working and reduce youth unemployment. Unfortunately for the blighted lives of the young, he has completely failed on that, too. There are now almost 75,000 extra young people out of work compared with 2010. Worse still, although the Government make a virtue out of the fact that overall unemployment remains static, they need to consider the fact that, without growth, it means that more people are creating less wealth and the country is becoming less productive.
But the country is becoming less productive. In fact, productivity has declined by 2.4% over the last year, storing up massive problems for the future.
On borrowing, the Chancellor told us that national debt would be falling as a percentage of GDP by 2015-16 and that he would bring down the deficit. It is no secret now that he will miss the first target by a mile, with the OBR saying that debt will not start falling as a share of GDP until at least 2017-18. As for borrowing, it was 6.6% higher for the first 10 months of the 2012-13 financial year than for the same period in 2011-12.
I completely agree with my hon. Friend. Indeed, when it comes to growth, the Chancellor stood at the Dispatch Box in 2010 and confidently told the House that by this financial year the economy would be on the mend, with growth forecast at 2.8%, but we now know that his forecast was out by 2.5 %. Today, he had to downgrade growth for this year yet again, to 0.6%.
We have a downgraded Chancellor who has sucked demand out of the economy with his ill-thought-through VAT hike and his draconian cuts to public spending. Those cuts have gone too far, too fast. If the latest estimates are right, spending cuts have so far wiped 1.4% of growth out of the economy, and the biggest cuts are yet to come. But at least the millionaires of Sheffield and Barnsley will have extra money in their pockets this April when the 50p tax rate is abolished.
The measures that the Chancellor has introduced today will go nowhere near to addressing the problems that he has caused. Instead of plan B, we have inadequate measures that do not even go halfway towards addressing the problems facing the country. The child care package announced yesterday, for instance, is designed to help hard-pressed working families, but unfortunately it will not come into operation until after the next general election. Once again, it is jam tomorrow. There is not much on offer for the parents and families struggling with the costs of child care today.
There is no doubt that house buyers might be thankful for the help being offered today, but a quick look at the Chancellor’s record on housing does not bode well. This is the same Chancellor who, in 2011, unveiled what was termed a “radical and unashamedly ambitious” strategy to give the housing industry a “shot in the arm”. My right hon. Friend the Leader of the Opposition referred to this earlier. At the heart of that strategy was a scheme which the Chancellor claimed would help 100,000 to people to buy their own homes. To date, just 1,500 people have realised that dream. That is a 1.5% success rate, which is almost as bad as the Work programme—or as good, depending on which way we look at it.
A year later, we had what was described as the Government
“rolling its sleeves up and doing all it can”.
That included introducing a £10 billion guarantee scheme which, while welcome, has yet to deliver a single penny of support for house building. It took the Government six months to release details of the scheme, and it will not be open to receive bids until April this year. Last year, housing starts fell by 11% to below 100,000, which is less than half the number required to meet housing need, and I am not convinced that the help announced today will kick-start the stagnant housing market.
Then we come to infrastructure. The £3 billion a year—£15 billion over the next decade—is nowhere near what we need to invest in roads, schools, transport and housing if we are going to get the economy growing again and build for our economic future. If, as now seems possible, we are entering the third recession in as many years, we needed to see something much more dramatic today. However, the Chancellor has failed to deliver.
Let us take VAT as another example. The Opposition have said that he should temporarily reverse his VAT hike, because consumers need help and they need it now. Reversing the hike would have alleviated some of the pain they are feeling, and it would have helped the pound in their pocket go a little further.
No! [Interruption.] I have given way twice and I am not giving way again. I do apologise.
The Chancellor should also dramatically reverse the cut he made to the last Labour Government’s capital spending plans, given that spending is now £12.8 billion lower, year on year, than Labour planned. At a time when the economy is barely moving forward, we need the Government to invest. We need to get the builders back to work, to create the homes to give first-time buyers the future they are looking for. In the process, we need to strengthen our economy. For every 100,000 homes built, 1% is added to our gross domestic product, but this is about more than that. There are millions on council waiting lists, there are first-time buyers who cannot get on to the housing ladder, and homelessness has rocketed. Building houses is good not only for the economy but for society, too. Before it is too late, we need to prevent another lost generation from being scarred by unemployment, by guaranteeing every young person who has been out of work for a year or more a job, funded by the tax on bank bonuses that I mentioned earlier.
It is never too late for this Chancellor to change course. Consumers need to be given confidence to spend again; companies need the confidence to invest again; banks need to lend again to small companies that desperately need finance to invest. The country is in desperate need of infrastructure investment. High Speed 2 is welcome, but we are not going to get HS2 for some time yet. We need that infrastructure now. There are many other road and other transport schemes, and how many primary schools do we need? We know that in every part of the country, pressure on places is increasing; we need to get those schools built. By doing that, we could help to kick-start the economy. The Government need to increase their tax receipts to pay for quality, efficiently produced public goods and services.
Unfortunately, this Chancellor seems to be stuck in a rut—a self-defeating ideological rut of austerity piled on austerity. It is a rut that could, I believe, mean many years of sub-normal growth, with the economy settling at a level much lower than its potential would allow. For ordinary people, that will mean living with high unemployment, falling living standards and the continual deterioration of many of the public services on which our constituents depend. The Chancellor should change course now—decisively and with confidence—before the damage being inflicted on the UK economy becomes even more deeply entrenched and damages us permanently.
I welcome the fact that this Budget is a continuation of this Chancellor’s five-year plan and not a rupture. I welcome the fact that the Chancellor has succeeded in reducing public spending, whereas total state spending under Labour rose by an extraordinary 60%. I welcome the fact that, notwithstanding the broader economic challenges, whatever way one looks at the statistics, they tell us that the private sector under this Government has been steadily creating new jobs as fast—indeed, faster—than the public sector has been shedding them. I welcome the fact that under this Government the deficit is down by a third and businesses have created more than 1.25 million new jobs.
I welcome the proposals in the Budget to enhance competitiveness. There is little point in solving today’s problem if one is not preparing for tomorrow’s future. We all have to recognise that Britain is in a global race with countries such as China, Brazil and India and that we have to become more competitive if we wish to remain ahead and among the leaders in the global race—a point very well made in Lord Heseltine’s report “No Stone Unturned”. I welcome the Government’s response to his proposals and his report, which made far-reaching recommendations for stimulating economic growth and engaging the private sector and the spirit of enterprise in the great cities and regions of our countries. As Lord Heseltine put it in the foreword to his report:
“Huge infrastructure demands and hungry institutional funds—link them. Excellence in industry, commerce, academia—extend it. England’s cities pulsing with energy—unleash it.”
I think we would all support that.
May I point out to the House that Lord Heseltine is 80 today? As he was a long-standing and distinguished Oxfordshire Member of Parliament, I am sure the whole House would want to wish him a very happy birthday. If we all have as much energy at 80 as he does, we will be doing very well indeed.
I welcome the Chancellor’s proposals to bring forward infrastructure spending and to spend substantial amounts on speeding up important infrastructure projects. Targeting infrastructure spending, of course, helps boost economic growth. In my constituency, projects such as the east-west rail link, rail electrification, the upgrading of junction 9 of the M40 have already been announced; importantly, an extra £3 billion a year is being invested in infrastructure projects across the country.
I welcome what the Government and the Budget are doing to give support for house builders, for first-time buyers wanting to get mortgages and also for “second steppers” wanting to move up the housing ladder. The news on building construction is extremely important. Housing is key to growth, and builders are not going to build houses unless they can sell them, so I welcome the fact that the Government are allocating more than £3.5 billion to support those who want to get on, or move up, the housing ladder. The Government will provide up to 20% of the equity to help anyone who wants to buy a new-built home, and for three years from January next year, they will also provide a new guarantee to help lenders offer more people 80% to 90% loan-to-value mortgages. All that is good news for house builders, and will help more people to move on to and up the housing ladder.
As I pointed out on Monday to the Secretary of State for Communities and Local Government, in my constituency we want more houses to be built. We want people to be able to build their own homes, we want more social housing, we want more building on the former Ministry of Defence brownfield land at Bicester, and indeed we want Bicester to become a new garden city.
I welcome the support for small and medium-sized businesses. I am glad to say that my constituency is part of a dynamic economy, but it consists largely of successful small and medium-sized businesses. Small companies want to grow, but they often identify their lack of access to finance and long-term capital as a key barrier to their growth. They will benefit not only from the fact that corporation tax is already due to fall to 21% next year—with the result that Britain is now at the top of the list in surveys of desirable places in which to do business—but from today’s announcement that it will fall to 20% in April 2015, which means that the United Kingdom will have a lower business tax rate than any other major economy in the world. That will help to fulfil the commitment to make Britain the most attractive tax regime for business in the G20.
I welcome the fact that the Government are cutting the jobs tax of every business, and the fact that businesses will be able to hire one extra person on a salary of £22,400 or four people working full time on the minimum wage without paying any national insurance. That means that 450,000 small businesses—a third of all employers—will pay no jobs tax at all.
What does my hon. Friend make of the fact that Ireland has a 12% corporation tax rate, although it has had to inflict on itself far more austere economic policies than we have had to inflict on ourselves because it is in the euro? Should we not be emulating Ireland?
May I point out, in a slight rejoinder to that last intervention and to be fair to the Chancellor, that corporation tax is 40% in the United States, 31% in France and 29% in Germany? I think that the fact that it is heading down towards 20% represents quite an achievement.
I have learned over the years not to spend too long “rejoinding” to my hon. Friend the Member for Harwich and North Essex (Mr Jenkin). The whole House knows that he is generally trying to tease. When we can get him on message, the Chancellor will be doing really well.
I welcome the fact that the Chancellor is fast-tracking existing plans to raise the personal allowance of taxable income to £10,000, and that that will now happen next year. It means that 2 million of the lowest earners will not pay tax once the target has been reached, and that is good news for all our lower-paid constituents.
I welcome the scrapping of the fuel duty rise that was scheduled for the autumn, Pump prices will now be 13p per litre lower than they would have been if Labour’s plans had been implemented. I think everyone acknowledges that, while the Chancellor needs to raise some revenue duty, fuel duty is a “tax on everything”, and imposes a significant burden on small business owners and rural families. This is a welcome move for everyone.
I welcome the fact that the Chancellor has scrapped the beer duty escalator which would have increased the price of a pint of beer by 3p next month, and is cutting beer duty by a further 1p. That means that beer will be 4p a pint cheaper than it would have been following the implementation of Labour’s plans. It is excellent news for every village and community pub in my constituency, it is good news for brewers such as Hook Norton, and it is good news for beer drinkers.
We should bear in mind that—quite rightly—the richest 20% in the nation are making the greatest contribution to budget deficit reduction. Indeed, in every year of the current Parliament, the richest will bear a larger share of our nation’s tax revenues than they did in any one of the 13 years of the last Labour Government. So the Chancellor is ensuring that fairness is at the heart of this Budget.
This Budget is intended to help people who want to work hard and to get on. It will rightly continue the painstaking work of getting right what went so badly wrong in the British economy. Obviously, everyone is frustrated that that is taking longer than any of us hoped. Although there are no easy answers, I think every fair-minded person would acknowledge that we are making progress and that this Budget will help to keep Britain on the right tracks.
This is very much more a fudge-it than a Budget. It is a fiscally neutral programme that just takes money from the poorest and gives it to the squeezed middle in a somewhat cynical way. It is part of the Tory journey to a weak and divided Britain. This Budget does contain a few good things, such as the mortgage deposits idea. I would probably support that, although we need to build more houses as well as helping people to get mortgages. I would also support an employment allowance. Apart from that, this Budget falls within the general envelope of economic failure. The debt to GDP ratio is set to rise from 55% in 2010 to 85% in 2015, and that is why we have lost our triple A rating. The way to get rid of such a debt to GDP ratio is to reduce the debt, which is what is happening, with the poor being hit hardest, and/or to increase the GDP—the growth. There has been a marked failure by this Tory Government to generate any growth at all.
In sharp contrast, the Labour party had a great 10 years of unprecedented growth between 1998 and 2008—GDP grew by 37%. It is no wonder the debt to GDP ratio was falling. That was a fantastic economic record of growth, but we then hit the 2008 financial sub-prime debt tsunami from the United States. We ended up with a deficit, moving into 2010, two thirds of which was from the bankers and a third of which was from our pump-priming—investing more than we were earning. Obama and the previous Labour Prime Minister provided the fiscal stimulus, which avoided a world depression. We had a shallow recession which was moving into fragile growth, but then the new Chancellor came along and announced half a million job cuts, consumer demand fell through the floor and we have had zero growth since. It has been a complete catastrophe.
The Government say, “Oh, we have an extra million jobs”, yet there is no overall production growth. That implies that productivity per person has fallen. That is the great economic failure. Why is it falling? It is because we are not investing sufficiently in skills and productive capacity. If we ask any sensible business person, he or she will tell us that to grow we have to invest—in skills, in capacity, in products and in sales—rather than cutting everything all the time. There is a difference between borrowing to invest in productive capability and capacity, and borrowing simply to fund more and more people on the dole, which is the old Tory story. Debt is going up and it is the cost of failure, not the cost of success. What we need is investment in skills, infrastructure and housing—the Mayor of London mentioned that.
If we look abroad at the great emerging economies that are hurtling forward as we are bobbling along at the bottom, we see that Brazil is investing $5.3 billion in biotech and renewable energy. We see a much bigger amount coming from China’s development bank. That is because China is bigger, but again this is patient money being rewarded in economic growth and economic success. The case is the same for public sector research and development in the United States. When we do the analysis of where the global players will come, we find that they will come to clusters of research and development and skills. I am glad that the European Investment Bank is investing in a second campus in Swansea to bring investment there. I hope that the Government will invest in super-connectivity for Swansea, and a lot of businesses have written to the Chancellor about that.
What certainly will not make a difference is changing the rate of corporation tax from 21% to 20%. That simply takes out 5% of the income from corporation tax. If, as has been said, the United States has a 40% rate, Germany’s is 29% and France’s is 33%, we already have a competitive advantage. This move is just giving away money when it should be invested in focused research and development capacity that might get international capital and jobs to migrate here. This approach is completely farcical. That deals with the economy.
As regards society and fairness, we are just punishing the poor for the bankers’ errors. As a result, cuts are hitting the poorest hardest. There is a welfare freeze; council tax rebates have been cut; and the bedroom tax has been introduced, as well as universal credit and the Work programme: 890,000 people have been forced to pretend to work, and if they do not turn up because their child is ill they are sanctioned, they do not receive any income for weeks on end, and they end up at a food bank. That is the direction of travel: punishing the poor hardest for being poor.
The bedroom tax is not going to work. In Swansea, they are already thinking about knocking down walls so that people are not decanted into the private sector, which costs more, leaving empty public sector houses. It makes no moral or economic sense. We do not seem to care about the poorest, given the situation regarding child poverty and the knock-on effect in schools, crime and so on. The Government are going to pay tenants who must pay their housing benefit directly to landlords. There is little money so it will mean arrears. We are asking people to access universal credit online, when a quarter of people are functionally illiterate. They cannot even follow the “Yellow Pages”, so they will not be able to get their money. Two thirds of people subject to the bedroom tax are disabled, so the measure is cruel, callous and unthinking.
We know that the poorest spend most and are more likely to create growth, so that leads to a difficult situation. We all welcome the fact that the tax threshold has been increased to £10,000, which will give people £13.70 a week, which is about the same as the £14 that people subject to the bedroom tax will lose as a result of that tax. One measure costs £12 billion; the other will allegedly save half a billion pounds, so it will not really save anything.
We are moving money to the squeezed middle, but meanwhile millionaires are getting away with it. They will move their money into the next tax year, which is why the Prime Minister gets up on his hind legs and tells us, “A 50p tax would raise less”, as he knows that his millionaire mates will move their income into the next tax year. What is most despicable is the fact that this cynical divide and rule between workers and shirkers, between strivers and skivers—the undeserving poor, Victorian values, the workhouse—is the new Tory party in action, not delivering a future that works and cares but a future that does not work and does not care: a divided and weak Britain, rather than a united, strong Britain with one nation in mind, which is what we need in future.
The speech by the hon. Member for Swansea West (Geraint Davies) reminded me of the cartoon in Private Eye called “Great Bores of Today”. He recited a litany of all the clichés that we expect from the Labour party. I would simply say that the Labour party’s determination to oppose the abolition of the extra room subsidy paid by the housing benefit system shows that it is determined to make sure that there should be no reform of the welfare budget whatsoever. It opposes every single measure to try to restrain expenditure on welfare, which takes up over a third of Government spending. [Interruption.] I notice, Mr Deputy Speaker, that it is getting rather noisy on the Opposition Benches; I shall try not to provoke them any further.
I rarely remember, if at all, a Chancellor rising to deliver his Budget statement against a background of such dire and low expectations about what he could achieve. I am pleased to reassure my hon. Friend the Member for Banbury (Sir Tony Baldry), who has just left the Chamber, that I am happy to commend the Chancellor’s Budget statement. He had incredibly little flexibility at his disposal, but the Budget contains a number of really imaginative measures, particularly the supply side reforms that always help to stimulate economic growth. In whatever economy they are tried, such measures prove to be effective. The reduction in corporation tax is another step in the right direction; the abolition of employers’ national insurance for small employers is a huge step in the right direction; and the limitation on capital gains tax for business is a very good step in the right direction.
I also very much welcome the substantial implementation of the Heseltine review. The Select Committee on Public Administration, which I chair, took evidence from Lord Heseltine, who gave a very good account of many of the things that could and should be done to make the use of public money much more effective away from London, as well as championing things like swifter decisions on infrastructure, such as airport capacity. I commend the review, and I hope yet that the Government will speed up the decision about airport capacity, which is so vital for the health of London as a global city.
My right hon. Friend’s statement also reflected an extraordinary determination to follow through and to continue what he started, and not to be diverted by those who somehow think it would be easier and more effective for the Government to start borrowing more money and spending more money, as though that was a painless way of reviving the economy. It is extraordinary that we have to go back to the lessons that we thought the Labour party had learnt in the 1980s—that we cannot spend our way out of trouble. It has forgotten all the lessons that made it electable under Tony Blair, and I suspect that that makes it unelectable now.
The real question at the heart of the Budget was raised not by the Leader of the Opposition but by a number of right hon. and hon. Members, including one or two Members of Her Majesty’s official Opposition, but not from the Front Bench, and that is growth. The real question that hangs over the Budget is whether we believe the growth forecast. Hitherto, we have been disappointed, and that is because energy costs are so high; it is because of excessive banking regulation pouring out of the EU on to the City of London, which happens to be our biggest export earner and our biggest generator of tax revenue; it is because the banks are not lending because the Government have increased the capital ratios for banks when they should perhaps have been reducing them; it is because quantitative easing might make bank lending cheap for the Government, but it does not necessarily make it easier for the banks to rebuild their balances; and it is because of the burden of high taxation.
I commend the Budget for its consistency and determination, but the question is whether the pace of economic reform that my right hon. Friend is introducing is fast enough. It may yet prove beneficial and necessary to accelerate the spending reductions, the reductions in taxation and the supply side measures, and accelerate even further the infrastructure investment that is so necessary to get the economy to grow. If we find ourselves once again set back by economic forecasts that have not been delivered, we will have to begin to ask ourselves not how we just let ourselves off the lead and start spending money that we have not got and borrowing even more money that we cannot afford to borrow, placing the burden on future generations, but how we start taking additional pain now to avoid greater agony in the future and greater agony for our children and our children’s children.
I remind the House that it is not just that the Government inherited a very difficult situation. I commend chart 1.8 on page 21 of the Red Book. At the peak of the economic cycle in 2007, the structural deficit was more than 5%. As soon as the economy went into reverse after the crash, it quickly became apparent that the previous Government had vastly overextended themselves and had vastly increased public expenditure beyond what we could afford, so that public expenditure peaked at over 50% of GDP, the previous Government having inherited public spending at below 40% of GDP. It was that expenditure that was unfunded, even at the peak of the economic cycle, which is why we now face such a dire economic situation. I commend the Chancellor of the Exchequer for taking this as seriously as he has and setting it out to the House so truthfully. I hope that his forecasts will be delivered.
I preface my remarks with my usual declaration of an indirect interest.
It is always a pleasure to follow the hon. Member for Harwich and North Essex (Mr Jenkin), although I do not agree with much of his analysis, other than the fact that things are not happening as quickly as they should be. I think that the Chancellor has probably had a number of sleepless nights leading up to today’s Budget statement, with the nightmares of Budgets past haunting him—grannies, churches and caravans swirling around in the dead of night. He should also be worrying about the men, women and children whose lives are affected by every tax change and spending cut that he and his Government have introduced and the effects they are having on the public at large. They are certainly giving me sleepless nights—nights disturbed by e-mails at 2.30 am from people desperately worried about how they will make ends meet.
The Chancellor gave a number of excuses for the dire position the country finds itself in, all of which we have heard before and none of which is terribly convincing. However, the one finger of blame he did not point was the one that could be pointed at his boss, the Prime Minister. He is the man whose failure to manage his Cabinet colleagues’ behaviour, announcements or policy direction has left the Chancellor desperately seeking changes to support the grand plan, plan A—A for austerity or for agony, as the hon. Member for Harwich and North Essex mentioned.
There is the failure of the Secretary of State for Work and Pensions to get a grip of welfare reform, because he did not carry out a proper evidence-based assessment of the implications, which is costing the Treasury dear and causing untold misery. There is the failure of the Secretary of State for Communities and Local Government over the past two and a half years to push through any effective policy on the affordable homes we desperately need. There is also the failure of the Department for Transport to deliver infrastructure to get the country moving. All those failures are contributing in one way or another to the lack of growth in the UK economy.
Indeed, the Red Book’s section on infrastructure states:
“The Government will reform its approach to infrastructure delivery, including creating an enhanced central cadre of commercial specialists”.
It states that by the summer of 2013 the Government will get around to
“establishing new infrastructure capacity plans for key government departments.”
It really is surprising that by later this year, more than three years into this Parliament, they might just about get around to developing a plan.
All those failures are contributing to the lack of growth, growth that was there in 2010 when the Chancellor took the reins of office. Yes, it was fragile, but the Government’s decision to come in and, like a bull in a china shop, smash everything that was in place before, regardless of whether or not it was delivering, was just plain stupid and, frankly, arrogant.
Plymouth city council, because of its strong local leadership—it is now Labour-led—has now grasped the nettle and is delivering on its promise to find jobs for our young people through the 1000 Club. That is local government working closely with local businesses to achieve a shared aim. They are acting in the face of a loss of income of around £16 million a year, money that is being taken out of our economy because of the cumulative effect of the cuts in the tax and benefits systems. Of course tackling abuse in the system is important, but devastating local economies because of a rigid commitment to austerity is not.
We will see a wider impact of cutting family incomes in such a deep and devastating way: local shops closing and other businesses struggling. Poor people spend their money locally, so removing millions of pounds from cities and towns across the country will do absolutely nothing to boost growth. These changes are not just damaging growth; we have also seen a fall in average weekly earnings, as set out clearly in the OBR’s report.
It would be churlish of me not to welcome yet another attempt to kick-start the housing market and get it moving, but it is oh so very late. All the other myriad schemes we have seen have failed, and I think that this, too, risks failing to deliver, as my hon. Friend the Member for Penistone and Stocksbridge (Angela Smith) pointed out. Given that the Kickstart scheme was working under the previous Labour Government, why did the incoming Government see fit simply to wipe it out? Why did they not look at the problems facing the housing market and accept that some schemes were helping? Any proposal needs to be de-risked for the developer; then we will genuinely see things pick up and more houses built. Developers do have the capacity to build, and that is exactly what we saw under Labour’s scheme.
My hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier) expressed reasonable concerns about the nature of these schemes, however, and she was right to do so. We will need to ensure that the Help to Buy scheme is absolutely watertight against people who are trying to buy en masse, and there is a whole range of other questions on which we will need to look at the detail. I would certainly welcome an attempt to get second-steppers off and moving. We also need to think about the impact on house prices in general and whether there will be some unsettling of the market as a result of this scheme. The Federation of Master Builders—we must remember that smaller builders generally deliver about a third of all new homes, often in rural areas—has welcomed the scheme but does not think that it goes far enough or will help them to deliver energy efficient homes. Like Labour Members, it believes that a VAT cut would have been much more effective in revitalising home repair and maintenance, and the energy efficiency market.
In the south-west, we have been pressing for infrastructure projects in road and rail to support our local economies, plus investment to maintain Plymouth’s vital air link. We have seen little progress, despite the rhetoric. Of course, the news about Hinkley is welcome; at last that seems to be making progress. The British Chambers of Commerce has already said today that the developments in this Budget are too little, too late. We need this work now, not in 2016, 2017 or 2018. In so many ways, this Budget is a case of “This year, next year, some time, never.” Working families with children will not really benefit. The tax break on child care is likely to be of greater interest to people on higher incomes. So many decisions are being shoved back, towards and beyond the next general election.
The Government’s economic policy is not making sense. We need a steady and more balanced plan in which the cuts that have to be made are seen to be fair and proportionate and the same rules apply to tax breaks. Fairness in adversity is something that people understand; what they do not understand is why some sections of our community are getting such a kicking from this Government.
I start by paying tribute to all the businesses in my constituency, and up and down the country, for all the jobs and opportunities they have created in the past few years. To have created six jobs in the private sector for every one lost in the public sector is one hell of an achievement. When the coalition came to power, in my constituency there were eight jobseeker’s allowance claimants per vacancy; now there are fewer than two per vacancy. Today’s announcements on cutting corporation tax to the lowest level in the G7 and on the employment allowance, which will see 450,000 business pay no jobs tax at all, are very welcome. Welcome, too, will be the measures the Chancellor announced on the cost of living—particularly, for my constituents, fuel duty. We have spent an enormous sum on holding duty levels down. A litre of petrol is 13p cheaper under this Government than it would have been under the previous Government. That has been money well spent for families and businesses.
I welcome the help on child care costs that has been announced in the past few days. Usually when the word “vouchers” is mentioned I come out in a rash, as vouchers tend to favour Sir Humphrey as opposed to the people who are most likely to benefit from them but are perhaps least likely to be able to navigate their way through a complex bureaucratic system to obtain them. I am very pleased about the care that has clearly been taken in assessing many different ways of administering this scheme, and I am very optimistic about it.
I want to concentrate on the measures we are introducing to help those on low incomes and those most in need. In 2009 the Prime Minister highlighted the plight of a single mother of two earning £150 a week who kept only 4p of every additional pound she earned due to the withdrawal of benefits and the additional taxes that she would suffer. Visibly angry, he told a Conservative party conference:
“Labour…have the arrogance to think that they are the ones who will fight poverty and deprivation…Who made the poorest poorer?... No, not the wicked Tories…you, Labour”.
The Prime Minister’s critique captured how we all felt. We were exasperated not only at Labour’s economic incompetence, which had disadvantaged the poorest, whether they were single mums taxed at 96%, baffled pensioners not collecting their credits or parents driven into poverty by working tax credit maladministration, but that Labour was doing it while hypocritically proclaiming itself to be the monopolistic guardian of the most vulnerable in our society. Its self-congratulation despite the misery of the demographic it proclaimed as its social constituency was insulting on so many levels. That outrage was also felt outside the conference hall, in my constituency and across the country.
In government the Conservatives have delivered. Some £30 billion has been saved from the welfare budget and the amount that used to be doled out in error and fraudulent claims will be spent on something useful—getting people back into work—and those who do work will not be penalised like that single mother.
Our values are right. If we do not believe that the poorest are best served by our policies, we might as well give up and go and do something else. The next time Labour Members line up to ask the Prime Minister or one of his colleagues to look at a particular casualty of the spare room subsidy, he should demand to know what the hell those MPs have done to assist their constituent. Have they tried to obtain a share of the locally administered £30 million, which has been set aside to ensure that those with a qualifying need for a spare room get one? How did that go? The “bedroom tax” label deployed by Labour and, I am afraid to say, the class war displayed in the Leader of the Opposition’s speech today, say more about Labour than about us. Labour is still to engage with any serious thinking about the challenges facing this country or how we can help its most vulnerable citizens in particular.
By contrast, we are reforming welfare, tackling the abuses perpetrated by payday loan companies, simplifying the tax system and taking millions out of paying tax altogether. I am particularly pleased with the Chancellor’s announcement to increase the income tax threshold to £10,000, which will lift 30 million people out of paying tax altogether. Given that the average wage in my constituency is £22,000, there will be a lot of delighted people there. Those on the minimum wage will pay less than half the tax they paid under the Labour Government.
Wearing my hat as the chair of the all-party group on ageing and older people, I also welcome the new flat-rate pension and the cap on social care. The Chancellor is right to protect pensioners, who are often wrongly portrayed as rolling in it. The older someone gets, the more their cost of living increases. I am also delighted that we have been able to do more for the victims of Equitable Life. The Chancellor was correct in saying that that is the right thing to do. I am also very pleased that Combat Stress will benefit from the LIBOR fines. It is a wonderful organisation that does very important work.
In the brief time I have left, I want to say something about the Evening Standard. I feel obliged to say it because its editor is a former hack at The Portsmouth Evening News and, in my view, a person of great integrity. I think that a mistake has been made by the Evening Standard today and to claim otherwise does it a great disservice. The editor issued an apology to Mr Speaker, the House and the Chancellor while he was still on his feet. However, given that Opposition Members are still exercised about it, I shall finish by mentioning a tweet sent today by Charlie Whelan, who was salmon fishing while following the Budget. He said that even if it was a leak we should not worry about it, because he used to do it all the time.
Socrates called it eudaemonia—living well. He thought of it as the ultimate arete or virtue. In some respects, that is what Budget day is all about: how we can allocate the nation’s resources so that more people can live well. However, when Socrates spoke of eudaemonia, he would never have confused it with prosperity. He thought of it as a state of human flourishing. The Chancellor clearly thinks of it as mere human affluence.
Well-being may be a function of economic activity, but if so, it is not a direct or simple one. One need only reflect that a specific loss of income is much more damaging to well-being than the corresponding gain is beneficial to it. The bedroom tax that reduces my constituents’ incomes has a far greater impact on their well-being negatively than a corresponding tax credit would have positively. That is because other concepts such as security, equality and justice really do matter. For human beings to live well—to flourish—we require all of those.
Our economy must therefore be structured to provide not just so-called flexibility of the labour force, but security of employment. It must minimise the inequality between the bankers’ million-pound bonuses and the savers at risk of losing part of their life savings to bail out Mediterranean countries. It must explain the justice of someone earning £150,000 still getting £1,200 per child in child care, when a mother in my constituency who cannot find more than 15 hours of work a week gets none.
A good Budget is not just about the distribution of national wealth; it is about the management of society’s resources to enable its citizens to flourish as one nation. On that measure, today’s Budget has failed. Today’s Budget is the Budget of a Chancellor who has painted himself into a corner and then run out of paint. He has been wedded to austerity so obstinately and for so long that when he finally is seduced by the noble Lord Heseltine to share an illicit tryst with growth, he lacks the wherewithal to invest properly.
This Chancellor has been wedded not to prudence, but to patience. Year on year, we have been told that the prospect of economic growth and recovery has receded once more over the horizon, always remaining just four years away. In 2010, he forecast that by today, the economy would have grown by 5.3%; it has grown by just 0.7%. In 2010, he forecast that his austerity plan would stop us going into a double-dip recession; we have been teetering on the brink of a triple dip. In 2010, he told us solemnly that austerity was the only way to avoid losing our triple A rating; we now know that it has helped us to lose it.
Believe no one else about this Chancellor. Judge him by his own words. Judge him by his own U-turns. Growth is lower, real wages are lower, public sector net borrowing is £212 billion more than he forecast and debt as a percentage of GDP is up to 76.8%, when he forecast that it would be 69.7%. The Government’s target of debt reduction by the end of this Parliament is now absolutely unachievable.
The real trouble with the Budget is not that it will fail to achieve its growth objective over the five-year cycle of the political process; it is that the five-year cycle itself bears scant relation to the cycles of the resources that we must manage if we are to create sustainable well-being for our citizens. The Chancellor has engaged in a civil war in this Government against any understanding of true stewardship of our natural resources. Oh yes, he can spot a domestic credit bubble in our housing market, but he is incapable of seeing the far greater danger of an annual global consumption of natural resources that it takes our planet one year and four months to replace. That is a credit bubble of terminal proportions not just for our economy, but for our species.
By the time a child born on this Budget day is eligible to vote, the world will require 45% more energy, 30% more fresh water and 50% more food. This child will be part of the generation that will see the global population move from 7 billion to 10 billion. How do we enable this child to flourish? Do we become the most selfish generation of the most selfish species in our planet’s history, or do we become the generation that understood that justice and sustainability are essentially the same thing? If we want peace in the world, we must create justice. If we want justice, we must live sustainably.
This Chancellor’s old mantra was cut, tax and grow, so what if he has changed it for Heseltine’s grow, tax and spend? If he has not learned that growth must be sustainable, it will all end up in the same mess. In a world of 7 billion people, growth can be sustainable only if it is predicated on advances that bring increased productivity and greater efficiency in the use of resource. For the world to continue to achieve a 3% per annum growth target and to maintain a trajectory that keeps carbon emissions below the 2° threshold, we must increase our productivity per tonne of carbon emitted 15 times over, yet this is the Chancellor who has fought tooth and nail to stop us having a decarbonisation target in the Energy Bill.
The Chancellor is oblivious to the argument, regardless of who makes it—friend or foe, politician or industry. Two weeks ago, six of the largest multinational investors in the UK infrastructure wrote to him. Mitsubishi, Alstom, Doosan, Gamesa, Vestas and Areva have interests that span gas, clean coal, carbon capture and storage, nuclear and renewables. They told the Chancellor of their strong support for the early introduction of the 2030 decarbonisation target and warned:
“We are already close to the point where lack of a post-2020 market driver will seriously undermine project pipelines.”
They explained that supply chain investment decisions depend on reasonable assurances from manufacturers that a production facility built this decade at a cost of millions will have an adequate market for its products well into the 2020s. They told him:
“Postponing the 2030 target decision until 2016 creates entirely avoidable political risk. This will slow growth in the low carbon sector, handicap the UK supply chain, reduce UK R and D and produce fewer new jobs.”
The hon. Member for Chichester (Mr Tyrie), who chairs the Treasury Committee, began the debate from the Back Benches with the extraordinary claim that low-carbon policies are exporting jobs and that green measures are adding 20% to our fuel bills. He should know that energy efficiency measures cost 15%, not 20%, of our energy bills and that the low-carbon sector has provided one third of all economic growth in the UK and is our fastest growing sector, creating thousands of new jobs. The Chancellor and his friends need to begin to recognise that green growth is the surest way through our economic problems, not the contributor to them. Fundamental to that is an understanding of sustainability. Last year, the EEF manufacturers’ body sounded a warning about the risk—
It is a pleasure to follow the hon. Member for Brent North (Barry Gardiner).
The Budget is first and foremost a Budget for the global competition that Britain is in. It equips Britain to compete properly with our partners and the rest of the world, including the BRIC economies. The second important element of the Budget is that it is about aspiration and the people who want to participate in that competition, as signalled by some of the measures on small and medium-sized enterprises. I want to talk first about the fiscal challenge and how it looks now before I move on to monetary activism, which is an appropriate phrase.
On the fiscal challenge, I welcome the fact that the NHS, Department for International Development and education revenue have all been protected. That is absolutely right and how things should be. Of course, it means there will be cuts elsewhere and a different state will emerge as regards our priorities in two or three years’ time, but that will prepare the ground for the entrepreneurial private sector growth that is so urgently needed in the immediate future.
On monetary activism, it is good that the Monetary Policy Committee has a new role in inflation, interest rates and growth. That will give us a lot of hope and the ability to think ahead more as we hear news and announcements vis-à-vis the inflation and interest rates. Linking them together is welcome.
The third really important issue, and the one I want to talk about most, is the supply side, which is so important to the prospects of the real economy. First, however, let me welcome the reduction in beer duty, the increase in the personal tax allowance to £10,000, and the measures to encourage people to buy their own houses. All those things are part of the aspiration that I mentioned.
On the supply-side argument, there is a test: we have a lot of problems, but does the Budget help those problems and come up with solutions to make them less significant, or even turn them into solutions? Our first problem is that we are not exporting enough. We have exported a large number of cars and produced 1.5 million of them, yet only 30% of those cars are constructed in Britain—they are assembled here, but their parts are often imported. My first question is whether the Budget will improve the supply chain by ensuring that it is more localised and therefore forms a greater part of the economic growth needed by the economy. I think the answer to that is yes, because measures such as the business bank and so on add up to appropriate support for small and medium-sized enterprises.
My second question is about credit—tooling-up for new projects is an expensive activity, especially for SMEs that need to get their hands on appropriate money. High street banks are not always the best place for that, and I like the idea that the business bank will effectively reinforce and assist new forms of investment in SMEs from private and innovative areas. That will give a huge boost to an SME’s ability to get the investment necessary to develop its products. The answer to my second question is yes.
We also have a problem with regional underperformance. That is a significant issue for Britain and Lord Heseltine’s report focuses on it well. His idea for local enterprise partnerships to have core funding is powerful and will mean that they can really focus on areas that are of interest to them and which they know about. I think we will be seeing much more forensic activity at that level, and around our cities and other areas where there are local enterprise partnerships. In Bristol, which is near Gloucestershire, or even in Gloucestershire itself, I can see how that would be useful. Such a measure is a recognition of regional underperformance, so again the answer is yes, the Budget actually helps.
Another area of concern is the profile of SMEs, which I have been thinking about for a long time. We have a large number of SMEs, many of which are extraordinarily small. They perform an important role in innovating and inventing but do not always have the critical mass to tackle large supply-chain issues. We must encourage smaller firms to become bigger ones. Does the Budget help with that? Yes, I think it does. Changes to corporation tax and basically having one rate may, I think, encourage small firms that in the past have seen the advantage of using two different forms of corporation tax to come together. Other reasons why firms might enlarge or unify include the industrial strategy, which is already part of our overall plans to boost aerospace. I would like to see that move into the automotive sector, which needs the same sort of treatment.
The final point that bothers me is that, although we have already found jobs for one and a quarter million people in the private sector—a fantastic achievement—our productivity has not increased by as much as we had hoped. The Bank of England’s report on inflation from February 2013 makes that point well. We must worry about how to improve the skills available to our work force—those already working and those who are going to start working—so that we get that extra boost to productivity. The Budget does good things in that respect. For example, it introduces the Technology Strategy Board and boosts sector councils. Both measures, and the Government’s strident determination to improve skills in our colleges and schools, are excellent.
Lord Heseltine was right to recommend that the Government make a huge effort to ensure that we have high standards and good quality courses that demand academic achievement in our colleges. That is what will encourage people to do the work and decrease the productivity gap, which has plagued our economy for too long.
In summary, the Budget is good for Britain and good for those problems.
I was hoping that the Budget would produce a plan for jobs, growth and investment. I was hoping that it would help areas such as mine, and help to rebalance the economy between the south and the north. I was hoping that it would address the problems of my constituents in Hull North and the problems that are becoming far too apparent in other areas of the country. We are becoming “food bank” Britain. That sits badly with other policies the Government are pursuing, such as giving tax cuts to millionaires and fighting hard in Europe to protect bankers’ bonuses.
Jobs are the key issue in my constituency. The latest statistics available show that more than 40 jobseekers go after every vacancy. Today’s figures show that there is 12% unemployment in my constituency against a national average of just over 5%. Young people are particularly hit by unemployment problems. Despite the good work that the local council does with the private sector to try to get young people into work, it is proving difficult to do that. The Work programme has a success rate of 0.83% in my constituency. Jobs are the key to ensuring that my city has a future.
The Chancellor said that 1.25 million private sector jobs have been created, but in my area in the past few months, more than 1,000 private sector jobs have gone from big names such as Kimberly-Clark and Seven Seas. There were job losses in Hull following the underspend on the Warm Front scheme—Hull was one of the bases for the scheme. We need policies that will work throughout the country and not just in specific areas.
The Chancellor said that, for every public sector job that had gone, six private sector jobs were created, but those jobs are often temporary, part-time or zero-hour contracts. A part-time job in Poundland is not the type of job we want in our economy. We want high-skilled, good-quality jobs. I am told that more people will be employed in “McJobs” at McDonalds than in the British Army. That says we are not getting our priorities right.
The Government’s response is the idea that employers have a national insurance contribution reduction of £2,000. That is welcome—the idea is similar to ideas in the five-point plan, which the Labour party has been talking about for many years. However, the managing director of PAT Testing Expert Ltd in Hull has said that the measure is a reduction, not a cut, which is what he was hoping for. The business community is saying that the measure is not quite what they were hoping for.
Overall, the Budget has failed. There is nothing on the skills agenda, which is so important in ensuring that our people have the skills they need to get the jobs for the future. Last night, the caravan industry told the BBC in my region that it needs help in getting investment. The Minister will know jolly well that, come April, there will be 5% VAT on caravans, which was part of the deal that had to be cobbled together after the omnishambles of the previous Budget. The industry is getting no help.
There is nothing in the Budget about business rates. There is nothing on roads or the work that needs doing in my area on the A63—I note that, in the autumn statement, work was planned for the port in Thurrock, which is in the south. The money available for infrastructure is all post-2015. There will be £3 billion, but it will be too little, too late.
The Budget contains no support for the renewables industry, which is where the real potential for growth lies. In my city, we have been trying desperately to get Siemens to build and manufacture wind turbines, so that lack of support is very disappointing.
While there is much in the Heseltine report that it is important to commend, it is disappointing that the Government have not accepted some of the recommendations on the need to protect British innovation and enterprise. As I understand it, there is nothing about the commitment to strengthening local chambers of commerce, which are important organisations for local economies. I am concerned that the single pot might not become available until 2015. Again, that is too late: we need the help now.
On overseas students, our universities’ export of quality education has been vital, with potential for further growth. However, the Government need to get their act together. A lot of overseas students are put off coming to this country by the messages the Government send out on immigration. That is a great shame. The university of Hull has a large number of overseas students and wants to see more of them. It is disappointing that the Government seem to be facing both ways on this issue.
On housing, although I welcome some of the initiatives the Government have brought forward, there are a lot of questions to ask about how they will work and not be abused. More importantly for my constituents, there was absolutely nothing in the Budget about flood insurance. If flood insurance is not available after the summer when the statement of principles comes to an end, that could blight the housing market in large parts of the country. There has been no agreement. As I understand it, the Treasury is standing in the way of an agreement between the Association of British Insurers and the Government. It will not ensure that money is available in the first few years of any new scheme and underwrite it if there are bad floods, such as those in Hull in 2007. That is shameful. My constituents are finding it very difficult to get house insurance now. If they cannot get house insurance after the summer, the housing market in Hull and in other parts of the country that have suffered from flooding in recent years will be in dire straits. The Government need to address this situation urgently. It will become a powerful issue if it is not addressed properly.
The Government talk a lot about how they want the economy to start to improve, but it is clear that growth has been downgraded, there is more borrowing, unemployment is starting to go up—3,000 of the 7,000 rise in the number of job losses announced today were in Yorkshire and the Humber—and millionaires are getting a tax cut in just a few days’ time. The Government have got their priorities wrong.
It is an honour and pleasure to follow my hon. Friend the Member for Kingston upon Hull North (Diana Johnson). I want to start my speech by welcoming one element of the Budget, but then I want to set out why I think it fails three key tests of economic competence, fairness and equality. Let me start with the positives.
As the chair of the all-party group on aerospace, I welcome the announcement made earlier this week, and in the Budget today, that the Government, alongside industry, are creating the aerospace technology institute, which will support investment in vital areas of R and D. Aerospace is a long-term industry, and it takes 15 years to develop a product. It is crucial that long-term sustained investment and cross-party support is in place, so I welcome today’s announcement. Another important factor for the industry is our continued membership of the European Union. If the UK were to leave the EU, it would be disastrous for the aerospace industry, and many other industries throughout the country.
In addition to the aerospace cluster in Wolverhampton, there is another chink of light and optimism on which I want to comment. Jaguar Land Rover has already committed to substantial investment on the edge of Wolverhampton and has just announced that it will almost double that investment, which is a real shot in the arm for the city and will create 1,400 jobs directly and many more in the supply chain and wider economy. That demonstrates the strategic foresight of the regional policy and the regional development policy during our time in government. Had it not been for Advantage West Midlands investing in and decontaminating that site and designating it as a strategic investment site, the Jaguar Land Rover investment, and the many other investments in that site, would not be benefiting constituents in the city.
That said, however, I remain deeply concerned about the local economy in Wolverhampton. The Government’s economic policies fail three key tests. Will they kick-start the economy? Will those with the broadest shoulders bear the greatest burden? Will their economic policies lead to a more equal society? First, it is clear to me and many millions of people that the Government are failing the test of economic competence. They destroyed consumer and business confidence, sucked demand out of the economy and failed to tackle the crisis in living standards. I welcome some of the announcements—for example, on the cancellation of the beer duty escalator and the fuel duty—but this is simply too little, too late.
Inflation is high and rising, wages are falling in real terms and, as a result, firms do not have the confidence to invest and are sitting on big surpluses. There is no growth, very little investment and exports are disappointing. I know that Government Members moan about the eurozone, but France and Germany are outperforming our economy. In the past two years, Germany’s has grown by 3.6% and France’s by 1.5%. The Government have choked off the recovery, the economy is stuck in a rut and the Government seem powerless to do anything about it. This bizarre notion of expansionary fiscal contraction has not worked. They need to think again, but unfortunately they are not.
The changes to take place in 11 days demonstrate that the Budget will fail the fairness test. Some of the poorest people in Wolverhampton, many of whom want to move to smaller council properties, will lose, on average, £728 a year. The Government have ignored the fact that there is very little alternative accommodation available and that the ties people have to their local communities are incredibly important. Many other changes will entrench the inequalities not only in Wolverhampton, but in the rest of the country. In Wolverhampton, for every mile someone travels from the west of the city to the east, they lose a year in life expectancy. The difference between the poorest street in my constituency and the richest street in the country is incredibly stark, but the gap will only get wider, because the Government were incredibly arrogant in last year’s Budget in cutting taxes for the richest people in the country, essentially giving 13,000 millionaires a 100% tax cut.
The third test is of inequality. It is not just that deepening inequality is a bad thing in and of itself—one reason I came into politics was that I wanted to live in a more equal society—but Richard Wilkinson has compellingly argued that unequal societies also perform worse than more equal societies on many other fronts. For example, they have better life expectancies, less childhood obesity and lower crime levels. For that reason, the Government’s economic policies are bad not only in respect of unequal outcomes, but for the quality of life of everyone in the country and for our future.
I regret to say that the Government’s economic policies fail the tests of economic competence—more of the same simply will not work—of fairness and of whether they will create a better and less unequal society. I am very disappointed with the Budget.
Ordered, That the debate be now adjourned.—(Karen Bradley.)
Debate to be resumed tomorrow.