It is a pleasure to follow Mr. Todd; I am delighted that his vocal chords lasted as long as his notes. He made a thoughtful, well-informed and rather sobering speech reminding us that whoever wins the next election will have to take some difficult decisions given the scale of Government borrowing and Government debt. Tantalisingly, he implied that some sacred cows would have to be slaughtered, but he did not tell us which were his chosen ones.
I want to make three points in my brief contribution to the debate. The first is a criticism of the action taken in the pre-Budget report, but the other two are helpful suggestions as to what the Chancellor might do in his Budget both to bring down Government debt and to stimulate economic activity. The criticism relates to the £12.5 billion to reduce VAT for 13 months that the Government announced last December. Let me pick up a point made by Dr. Cable. I am not against a stimulus to help to kick-start the economy, but the VAT reduction was sensationally misdirected. I believe that the Government should have used the money not to encourage shopping but to encourage housing. The money should have been invested in assets in housing and infrastructure, which the Government could then have set against liabilities that they had incurred through borrowing £12 billion. Those assets would also have generated an income through the rental stream from the houses that were built or from selling on those houses for low-cost home ownership. It would have been prudent to borrow to invest rather than borrow to spend. When the VAT reduction comes to an end, the Government and the taxpayer will have nothing tangible to show for it whatsoever—and, I fear, very little intangible either.
Furthermore, investment in housing, construction and infrastructure would have had far bigger employment consequences than the VAT reduction, much of which will have leaked into imports. How many jobs, if any, have been created by the VAT reduction? Yet £12 billion injected into construction and housing would have provided work for the thousands of people in the building and construction materials industry who have lost their jobs during the recession. Crucially, it would have produced more homes for those in housing need and would have brought the Government's target of building 3 million more homes by 2020 within range, whereas the current public expenditure provision of some £8 billion is going to fall well short of that. The money could have enabled registered social landlords to acquire land at good prices to build out schemes that are stalled because section 106 funds are longer available. Starts could have been made on land that has planning consent. Some of the money could have been used to buy new homes that are overhanging the market and would have been put to good use by those on waiting lists. If the Government had done that instead of the VAT reduction, some of us might even have voted for it—who knows? It would certainly have been far more popular outside than what the Government did.
My second point is related to the first. That £12 billion is no longer available, but the housing market is still on its knees. We need to increase the supply of housing without further driving up public borrowing. The Budget should promote long-term, sustainable investment in new private rented housing by pension funds and insurance companies facilitating housing investment trusts. That policy has been around for some 15 years and has had all-party support. The portfolios of our institutions are not exposed to residential housing. They can invest in commercial property, in gilts and equities, and in other esoteric products, but they cannot invest in bricks and mortar—homes that would produce a growing revenue stream, as rents have historically risen with prices. The Government should deliver on some of their promises made over the past 12 years. In 2004, the Treasury consultation paper promised us a real estate investment trust—REIT—structure that would encourage the development of new housing. Then we had the 2006 Budget, which said:
"To attract more capital into house building, we are now legislating to introduce for Britain the real estate investment trusts that are so successful in the USA."—[ Hansard, 22 March 2006; Vol. 444, c. 293.]
However, nothing has happened. REITs have been used only to convert commercial property and pubs; as far as I am aware, not one single residential property has been built through a REIT. That Budget initiative produced nothing at all.
The challenge for the next Budget is to come up with a structure that works. I was delighted to hear at a meeting with Bob Kerslake, chief executive of the Homes and Communities Agency, that that dialogue with the Government is at last being revived. With public expenditure now stretched to its limits, we need a fresh look at how institutional funds can be harnessed to tackle housing needs. Housing starts this month are 59 per cent. down on the figure a year ago. The Government are producing one third of the number of houses this year that they need to meet their target, so there is a real need for fresh investment in housing, and I hope that they will look at the initiative that I have proposed.
My final suggestion is a response to the ballooning public sector borrowing requirement, and the difficulties that confront the Government in financing their debt—an issue to which others have referred in this debate. My hon. Friend Mr. Brady referred to an article by Robert Chote in The Times on
"The biggest task for whoever is unfortunate enough to win the next general election will be to mop up the gallons of red ink spilt over the Government's finances by the economic crisis."
The Government have made it clear that they are bringing forward elements of the capital programme from year three to year one, such as the Homes and Communities Agency budget. I welcome that, but it will push up the PSBR. To counterbalance that, the Government must bring forward some of their income, and they should do that by selling interest-bearing tax certificates. These bonds could be used only to settle future tax bills. I suggest that in his Budget statement, the Chancellor makes such certificates available for sale, bearing interest at 4 per cent. tax free—that being the figure assumed in the pre-Budget report as the average interest the Government would pay on their debt.
These certificates have been introduced before, in 1941, at a time when the Government had to manage a huge amount of debt. Interest then was tax free, and the certificates were discontinued only 30 years later when Government borrowing had been reduced. Those approaching retirement, for example, may wish to invest in these certificates, in order to reduce the tax they pay when they retire. Others may want to buy them to reduce the duty on their estates. They would be even more popular if one could transfer them to other members of one's family, but they would be of interest to anyone who pays tax, not just the well-off.
These certificates are essentially different from straightforward borrowing. Borrowing pushes up the PSBR, whereas the measure I have suggested would reduce it. It is like a company discounting its invoices by selling them for cash. If the Government borrow, they have to pay the money back, but when they sell a tax certificate, they do not have to pay the money back. It also solves another problem. Many people want to save and, looking ahead, we will have to encourage saving. How do people save at the moment? Do they invest in gilts or equities, do they leave their money in their current account—my high-interest current account pays 0.1 per cent. interest—or do they buy gold? We need a new savings vehicle that whets the appetite of savers, and which helps the Government to manage and reduce their debt, and restore confidence in the currency.
There we have it: a rebuke for some well-meant, but hopelessly misdirected fiscal stimuli; a request to do far better and to deliver on a housing policy which the Government are committed to but have failed on; and some lateral thinking on promoting saving and managing debt. I will not mind at all if the Chancellor steals those ideas and puts them in his Budget.
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