I beg to move, That the Bill be now read a Second time.
This year's Finance Bill comes as the world economy is shrinking for the first time in peacetime since 1932. It is the first time ever that five of the biggest banks in the world have had to be rescued by their national Governments. That is the scale of the international challenge we are facing.
This Finance Bill provides for vital measures to support the economy this year and to help British families and businesses through the more difficult times. It also provides for help to support the long-term prosperity of Britain and to ensure that public finances are sustainable for the future. Those two objectives are fundamentally linked, but the main Opposition party, astonishingly, seems to oppose both of them.
If we do not take action now to get our economy moving and growing, it will cost us more in the long run. We need to take action now to support businesses and families to help them through the downturn. If we do not provide real help now, recession will last longer and run deeper, reducing the tax revenues we get from growing businesses. It will increase the amount we have to spend on unemployment and it will push our borrowing and our debt up higher and cost us all more in the long run. That is why the best way to get borrowing down in the future is to support growth in our economy now.
I agree entirely, as I think that cutting budgets in the teeth of recession is very foolish and that fiscal stimulus is essential as monetary policy alone is not enough. Why, then, is the Chief Secretary cutting £500 million from the Scottish budget next year, when everybody knows that the UK and the world economy will still be in recession? Why are her Government taking such a foolish measure, which runs against her own argument?
The hon. Gentleman knows that that is simply not the case. In fact, we are increasing the Scottish Executive's budget by more than £2 billion over the next few years. We expect the Scottish Executive to make efficiency savings in 2010-11. Indeed, if the Scottish Executive set the same efficiency targets that Welsh, Northern Ireland and English Departments have set—of around 3 per cent., instead of the 2 per cent. set by the Scottish Executive—the additional efficiency savings could be used to support the economy in Scotland as well as across the rest of the country.
The Bill provides for a series of measures—many of them temporary, many of them funded by short-term increases in borrowing as part of the fiscal stimulus that the Government have outlined—to help the economy right now. Clause 9 thus legislates for the temporary VAT reduction to 15 per cent. to run until the end of this calendar year.
The right hon. Lady will be aware that VAT is due to go back up to 17.5 per cent. on
Her Majesty's Revenue and Customs has said that it will continue to discuss with businesses how to ensure that the change happens smoothly. It is right to ensure that this VAT reduction is only temporary, as it is part of our fiscal stimulus. The hon. Gentleman is wrong to oppose the temporary reduction in the VAT rate, which applies across the country, because the cut is equivalent to putting £12 billion into the pockets of consumers and businesses that would otherwise have been taken in tax. It is about putting money into people's pockets and into the economy when it is most needed.
"The VAT reduction last November was worthwhile. It gave £8-10 billion directly to consumers and as a result helped small businesses in particular."
Will the hon. Gentleman explain why he wants to take that £8 million to £10 million away from businesses, including small businesses, right now?
I am grateful for the Chief Secretary's generosity in giving way again, but she has been here longer than I have, and she is aware of the conventions of the House. If she wants us to answer the questions, let her party call a general election, and we shall be delighted to do so.
Let me return the Chief Secretary to my original question, which has nothing to do with Tesco other than the fact that Tesco is likely to be open on the evening of
The hon. Gentleman should accept that if he wishes to take part in debates in the House, he needs to be able to defend his own views rather than merely asking questions about other people's. That, in the end, is what parliamentary debate is all about.
Whatever the date on which the VAT rate changes, businesses will naturally want it to be extended by a few more days, because they know that they are benefiting from the cut.
Order. Hon. Members must let the Chief Secretary speak. That is the nice, polite way of doing things, is it not?
Hon. Members need to recognise that the important thing is to provide certainty for businesses so that they can plan. Whatever the date, they will need to make arrangements to comply with the change, and HMRC will continue to work with them to ensure that the arrangements are made smoothly. I repeat, however, that hon. Members continue to oppose a cut in VAT that is making a huge difference across the country, supporting the economy at what would otherwise be a devastating time given what is happening throughout the world. The independent Centre for Economics and Business Research has examined the impact on retail sales, and has said:
"The figures are clear; the VAT cut is working... There has been a clear and immediate impact on retail sales since its introduction."
The centre estimates that, between December and February, retail sales were £2.1 billion higher than they would otherwise have been.
Liberal Democrat Front Benchers oppose the reduction in VAT because they would have preferred to spend the money differently. I respect that position, although I disagree with it. Of course it is also right to put money into public sector capital projects, and we are doing that as well, but the advantage of the VAT cut was that it was by far the fastest way of putting money into the economy to provide immediate support across the economy. Unfortunately, Conservative Members simply opposed the VAT cut, along with anything else involving additional investment or spending in the middle of a recession—an economic policy that is not just bonkers but dangerous.
Does my right hon. Friend agree that my neighbour, Mr. Clarke, was right on this point, although he was shut up by his colleagues? More broadly, the stability of high street sales has surprised many people during the current recession, and it is depressing to observe the eagerness with which Conservative Members have tried to talk down the economy throughout the crisis.
I am grateful to the Chief Secretary. I hope to explain in detail later—if I am lucky enough to catch the eye of the occupant of the Chair—why I oppose in principle the Government's policy on VAT reductions, but may I first press the Chief Secretary about the date? I understand that the retail industry is very worried about the change being made in the middle of the Christmas sales period. Has the Chief Secretary received representations, and why is she sticking so firmly to
We have had discussions with representatives of the retail industry and others about the timing of the change. The main thing they said they needed was certainty about the date so that they could plan, which is why we have set a date. Extending the VAT reduction until, say, the end of January to move it outside the sales period would have cost substantially more. We made a judgment, and the Chancellor made a judgment, about what time would be right, bearing in mind the scale and timing of the fiscal stimulus. I repeat that the change in the VAT rate is part of the fiscal stimulus, which we believe is the right measure to take and which evidence shows is helping the economy through a difficult time, but which Conservative Members have continually opposed.
I said that the fiscal stimulus was supported by countries throughout the world. Let us be clear which countries support a fiscal stimulus: America, Japan, France, Germany, Italy, and all the countries in the G20 are supporting their economies with different kinds of investment.
The Conservative party is completely isolated, because it is the only major party not only in Europe but in the entire world that is calling for cuts in spending in the middle of a recession, and cuts in investment, to take money out of the economy. That is absolute, utter madness. It is completely irresponsible in terms of the future, and in terms of people who currently have jobs. The measures that we are taking are supporting half a million jobs: half a million jobs that could be lost as a result of the approach the Conservatives have taken. They do not care about unemployment, and they do not care about protecting and supporting people's jobs, because they want to take billions of pounds out of the economy at a time when it is vulnerable.
My hon. Friend is right. In fact, the contradictions between Conservative Back Benchers and Front Benchers on this issue, and even between its Front Benchers, are legion.
Let me explain how other clauses are providing support as part of the fiscal stimulus. Clause 24 doubles tax breaks for business investment. It increases the rate of capital allowance relief to 40 per cent. for one year from April, allowing all firms investing over £50,000 in the current financial year to benefit from a higher rate of tax relief on investment. It is a boost for business but it is opposed by the Conservatives, although, to be fair to the shadow shadow Chancellor, Mr. Clarke—who was mentioned earlier by my hon. Friend Dr. Palmer—he has said:
"The increase in capital allowances is worth trying. I approve of that."—[ Hansard, 27 April 2009; Vol. 491, c. 612.]
The problem is that the shadow Chancellor does not approve of the money being provided to pay for it. That investment is needed to support the economy now.
For basic rate taxpayers, clause 3 means an increase in the income tax personal allowance, making them £145 better off than they were in April last year. It provides extra help for ordinary families now, which is opposed by the Conservatives. Clause 23 extends from one to three years tax breaks for business through the loss carry-back rules. It will help up to 75,000 businesses that made a loss last year, and it is part of the fiscal stimulus. It provides real help for businesses now, which is opposed by the Conservatives.
Whether it is the £5 billion of extra help for the unemployed, the £600 million of extra help enabling teenagers to stay at school, or the £3 billion for public sector capital programmes, time and again the Conservatives oppose the vital investment and support that our economy urgently needs so that we can emerge from the recession sooner and stronger.
I am very sympathetic to the Chief Secretary's efforts to provide tax reliefs for businesses, but she will know that, notwithstanding the support that the Government are trying to give, the banks' reduction in overdraft facilities tends to negate some of the benefits in the Bill. Can she do anything to force the banks to provide facilities that companies desperately need, without which many of her proposals will be compromised to some extent?
The hon. Gentleman makes an extremely important point. He is right that this started with the global credit crunch and the restrictions on credit for companies across the country. As a result of the additional support we have given, particularly to the Royal Bank of Scotland and the Lloyds group, clear lending agreements are now in place, under which lending must be substantially increased compared with last year. We are monitoring those lending agreements very closely. We are also working with other lenders across the country, because lending by foreign banks has dropped by more than £100 billion since the credit crunch began. The issue clearly goes much wider than the major banks that I have just mentioned.
The hon. Gentleman might also be interested to know that the Department for Business, Enterprise and Regulatory Reform is holding regional engagement meetings and events, bringing together senior regional banking executives and regional businesses to discuss how lending operates locally and to try to improve that.
The right hon. Lady acknowledges that the problem is not only the big banks in the UK, but other banks, particularly foreign banks, withdrawing from the marketplace. Will she put it on the record that the Government recognise the important role that non-bank lenders used to play, particularly in the small and medium-sized enterprises credit market? They are now almost totally absent from the market, yet they seem to have been excluded from all the packages the Government have put in place. Does she recognise the importance of getting non-bank lenders back into the SME market?
The hon. Gentleman is right that credit has been constrained across the market. Some intermediary lenders have found it difficult to get finance and therefore to get involved in lending. We think it is important to support lending across the board within a well-regulated framework, which is why we have set out major lending agreements. We are working across the board. The lending panels approach, chaired by the Chancellor and Business Secretary, is looking at lending not simply by the major banks, but at lending institutions more broadly.
No, I do not; funnily enough, I do not think that that would be a useful way to spend money in the current circumstances—and nor, frankly, do I think it would be remotely fair.
We have set out a series of measures that help the economy now. The Opposition claim that we cannot afford to implement them, but the truth is we cannot afford not to. The best and fastest way to bring borrowing back down is to support the economy and promote a return to growth. That is why every one of our major competitors is also increasing borrowing to support their economy, even though most of them have significantly higher levels of debt than us. They agree with us that it is right to support the economy in the short run because it will cost us more if we do not.
May I remind my right hon. Friend that Canada recently cut the goods and services tax—its equivalent of VAT—and that it also introduced a Budget in January this year with the equivalent of 3.2 per cent. of GDP in fiscal stimulus? The province of Ontario is lowering sales taxes, and several other provinces across Canada are also considering lowering them—there is a provincial sales tax as well as a federal one. Canada is a G7 country that is engaging in fiscal stimulus, and it has a Conservative Government.
My hon. Friend is right that that is, indeed, an example of a Conservative Government who are pursuing ways of supporting their economy. It is also a sign of the widespread consensus in favour of such measures that exists around the world; there is a recognition that countries need to take action to help people who are losing their jobs and who are afraid of losing their homes, instead of turning their backs on them, as the UK Conservative party did time and again in recessions past.
Once the economy is growing again, we will need to make sure that borrowing comes back down. Economic growth itself will help bring borrowing down, but we need to go further, because, for example, tax revenue from the City has been heavily hit by the credit crunch and we do not expect it to return swiftly.
The Bill also provides further measures to help bring borrowing back down once the economy is growing. Weirdly, for all their talk of fiscal rectitude, the Conservatives seem to oppose these measures as well. Clause 6 implements a new additional rate of income tax from 2010-11 of 50 per cent. for those with incomes above £150,000 per year, and clause 4 legislates for a gradual reduction in the personal allowance for those with incomes above £100,000 until that is completely removed. We think that it is fairest for those on the highest incomes to contribute more because over the past 10 years their incomes have increased by an average of £5,000 a year, compared with £600 a year for the average taxpayer.
The right hon. Lady is outlining opportunities in respect of the upper end of the income scale. Will she not also outline the opportunity, which the Government appear to have missed, to increase substantially personal allowances at the other end of the income scale so that the incomes of those who earn, for example, £10,000 or £12,000 a year are tax free?
We are, rightly, increasing the tax allowance. That means that individuals will get an extra £145 compared with this time last year. We have also significantly increased tax credits over the years to provide additional support not only for those with children, but for those who are in work but on low incomes. That is the right thing to do. It is right to support those on lower incomes as well, as part of fiscal consolidation, to ensure that there are fair measures, which mean that those on the highest incomes have to pay more.
With the tapered withdrawal of the personal allowance, and if national insurance is included in the calculations, higher earners will face a marginal income tax rate of 61 per cent. Philosophically, what is the highest level of marginal income tax that the right hon. Lady would contemplate?
We have made a judgment about what the right measures are in this case. As the hon. Gentleman knows, there is an issue to do with introducing changes in personal tax allowances. We have introduced a taper so that they are removed gradually in order to avoid too high a rate of marginal tax. In the end, however, any tax issue has to be decided on the basis of balancing the need to raise appropriate amounts of revenue with the need for a fair tax system that supports employment and other things that we believe are important in the economy. We have made those judgments.
Clause 71 prevents forestalling while we consult on the details of reducing pensions tax relief for those on more than £150,000. We continue to support tax relief.
My hon. Friend makes an important point. We are continuing to make progress towards the 2010 target, and also towards the 2020 target, which we propose to legislate for and therefore embed in law, to support both the long-term commitment and the short-term measures. My hon. Friend will know that some measures announced in last year's Budget that have been implemented this year also increase significantly child tax credit and lift children out of poverty. This year, as well as a limited increase in child tax credit, the particularly important issue is to ensure that parents can get back to work as rapidly as possible. We know that the big increase in child poverty in the 1980s was strongly linked to parents losing their jobs, and often to people never getting a job in the first place and then becoming parents having become long-term unemployed. That played a major part in that very substantial increase in child poverty. For those reasons, it is right to invest to help parents get back into work. The impact of the current recession on child poverty is uncertain. As my right hon. Friend the Financial Secretary has made clear, that makes it more difficult to make progress towards the 2010 target, but we are determined to continue to keep making progress and to work towards it even through these more difficult times.
Merely making progress towards a target for next year is simply not good enough. It is time that the right hon. Lady came clean with the British people. The promise was made to halve child poverty by 2010. She should tell the House and the people of this country now: is that target going to be met?
What a ridiculous question; the hon. Gentleman does not believe in the target in the first place. How dare he come here to start making pompous remarks about whether the target is going to be met and whether we are making commitments towards it. We are determined to keep making progress towards it, because we think it is right to keep tackling child poverty, whereas his party doubled and trebled the rate of child poverty in this country because it was not prepared to take the action needed to support those who needed help to stay in work and help with their incomes. His party is still committed to making cuts in, and undermining, the tax credits system, which has been so important in helping children out of poverty.
The Chief Secretary may want us to meet a target by 2010, but she can do that only by calling a general election, in order to allow us to have a change of Government. How does she square what she is saying about child poverty with what the Treasury Committee has said in the report that it published today? It said:
"We are concerned by the lack of any substantial measure to combat child poverty in both the Pre-Budget Report 2008 and Budget 2009. On current indicators the Government will fail to meet its 2010—11 target by a significant margin."
Once again, I note that the hon. Gentleman is not prepared to make any commitment, even to any targets. He is not prepared to make a commitment to support cutting child poverty at all. We have continued to make progress in cutting child poverty and will continue to do so. I say to him again that the most important measures that we are taking that will tackle child poverty are those to help parents to get back into work. Some £5 billion is being invested in helping those who lose their jobs to get back into work—that is £5 billion that Conservative Members refuse to support. They refuse to support £5 billion that can make a difference to parents across the country who might otherwise slip into poverty with their families if they are not able to get the help that we are determined to provide to get them back into work. Time and again, the Conservatives oppose not only the investment that Britain needs, but the measures to help bring borrowing down afterwards.
I return to clause 71 and the pensions tax relief measure that I mentioned. We continue to support tax relief for pensions and savings—indeed, we spent nearly £30 billion on pensions tax relief last year. However, more than £6 billion of that went to the top 1.5 per cent. of earners, and that cannot be fair. On average, someone on more than £150,000 will get about £27,000 a year in tax relief, whereas a basic rate taxpayer gets only about £1,000. I see from the Opposition's amendment that they have decided to oppose this measure and to defend unfair tax breaks for the very highest-paid people in the country.
Clauses 15 and 16 implement fuel duty increases, but even by 2013-14 the duty will still be lower in real terms than it was in 1999. The measure will also reduce CO2 emissions by 2 million tonnes per year by 2013-14.
The cost of motoring might be lower in real terms, but I can tell the Chief Secretary that on the islands in my constituency the price of fuel tends to be between 15p and 30p a litre higher than on the mainland. Will this Government not do what Governments in other European countries do and apply for a derogation that allows them to charge a lower rate of fuel duty on islands? There would be no possibility of fraud because islands are clearly separated from the mainland.
The hon. Gentleman will know that the Chancellor has raised concern previously about differential rates of petrol pricing in different parts of the country and has pressed for further work to be done on ensuring that unfair competition does not lead to some areas paying a higher penalty. The hon. Gentleman will also know that the points that he raises are raised by those in other parts of the country, including those in more rural areas. The important thing is to ensure fair competition in the sector and to continue to monitor fuel prices, as we did when the Chancellor delayed the increase in fuel duty as a result of the high oil prices last year.
Clause 93 is part of a further crackdown on tax evasion and avoidance and proposes naming those deliberate tax defaulters who are charged with civil penalties, in addition to those on criminal charges who are already named by the courts. Along with the other measures on avoidance and evasion, that will help to secure £3 billion of tax income.
The Chief Secretary mentions clause 93—the naming and shaming clause. Will the Revenue have the power to do deals with taxpayers who are prepared to accept penalties rather than to be named and shamed? Will HMRC be able to use that plea bargaining arrangement?
The purpose of this measure is to encourage taxpayers to come clean, to pay up front and to recognise things that they might have been doing in the past that are wrong. Hon. Members will obviously have the opportunity to discuss the detail throughout the detailed clause debates on the Bill, so I will be happy to hear representations from the hon. Gentleman. The measure's purpose is to encourage people to come forward and, on that basis, people such as those whom he mentions will not be named and shamed, and the provision will apply only to the most persistent defaulters, providing a strong signal that people should pay their taxes. Ordinary people pay their taxes, and those who are on the highest incomes and can afford the most expensive accountants should not be able to avoid making their legitimate contributions to this country's tax base.
The Chief Secretary has been talking about maximising the income for the Government. One of the major sources of corporation tax is the oil and gas in the North sea, but tax is paid on it and it provides jobs to my constituents only if it comes out of the ground. The Government have moved a little way with the field allowance in trying to encourage investment in very marginal fields. Why have they not gone further in recognising the banking crisis, the credit crunch problems and the cash-flow problems by examining the industry's request to bring forward tax relief early for new entrants who do not have income at the moment, in order to encourage them to invest? They are the lifeblood in respect of bringing that new oil and gas out of the ground. Without that, there will not be the future revenues.
The hon. Gentleman conceded that we have taken action to try to support the North sea oil industry, including promoting the opening of new fields. Obviously, in the light of the credit crunch, every sector makes representations to us about the additional support they require, and we have to judge how best to support the economy as a whole. That is what we have done, by providing the kind of tax breaks that support industry as a whole.
The measures I have set out will help to bring borrowing back down, once the economy is growing, but curiously most of them seem to be opposed by the Conservatives. Last week, their leader said he wanted to bring borrowing down faster, yet on Tuesday of last week they voted against billions of pounds of future tax revenue that will do exactly that. They have also said they would reverse the new top rate and the national insurance changes, they are opposed to the pension changes and they would introduce tax cuts for millionaires' estates. All in all, their tax gap in future years is about £10 billion—the vast majority of it tax cuts for the very richest in the country.
I was inviting the Chief Secretary to give way so that I did not have to raise a point of order. I just wish to place on the record the fact that, as she very well knows, we have not made a commitment to reversing the new top rate.
Perhaps the hon. Gentleman ought to mention that to Mr. Cameron, who said very clearly that this would join the queue of measures that the Conservatives were determined to reverse. In other words, the right hon. Gentleman is determined to reverse not only the top rate of tax, but a series of additional measures, and today we have found out what some of them are. The list includes the changes to tax relief on pensions for those on the very highest incomes and the national insurance changes. In addition, they want to put in place the tax cuts for millionaires' estates. The vast majority of the measures that Conservative Members want to propose are tax cuts for the very richest in the country, in order not to bring down borrowing but, in fact, to increase it.
The Chief Secretary has talked a great deal about tax increases for people on high incomes. One might get the impression from what she has said so far that there were no tax increases for people on ordinary incomes, whereas more than half the tax increases announced in this Budget for this year will fall on ordinary people, not on those on higher incomes. As she is so interested in the Opposition's policies, let me tell her, for her information, that our priority will be cutting Labour's taxes on jobs—the increase in national insurance contributions that will affect everybody who is earning more than £20,000 a year.
If that is the case, why is the Conservative party's only manifesto commitment to cut tax on inheritance for millionaires' estates, so that the 3,000 richest estates in the country will each get £200,000? How can that be a defence of ordinary people? It is defending the richest estates and shows the wrong and distorted priorities of the Conservative party in the middle of a recession—so much for fiscal conservatism.
There is a pattern here. In the 2005 election, the Institute for Fiscal Studies said that the Conservatives' plans for tax and benefits alone would have cost an extra £5 billion—unfunded except by higher borrowing. Before the credit crunch hit, they were calling for £10 billion of unfunded tax cuts. The idea that these guys want to bring borrowing down is a joke. They do not want to cut borrowing. They just want to cut spending. That is what this is really all about.
Does my right hon. Friend agree that the Conservatives are keen to knock back taxes because they want to cut the public services on which all our constituents depend? I point her to the excellent report by PricewaterhouseCoopers that spells out the severity of the cuts package that the Conservatives' proposals would produce and the devastating impact that it would have on our constituents.
My hon. Friend is right. The fact is that the Conservatives want to cut spending right now in the middle of recession—hitting apprenticeships, transport and education. This is the Conservative party finally ditching compassion and returning to its ideological roots. This week, the Conservative leader has admitted Margaret Thatcher is his great inspiration in rolling back the state.
The Conservatives have been watching too much "Ashes to Ashes". This is '80s revivalism gone rampant. Spandau Ballet are back together, Depeche Mode are back in the charts and they are pinning their hopes on Boy George. All we need now is for Mr. Hammond to don the stripy legwarmers. If they honestly think that a return to Thatcherism is best for Britain's future, they are living in cuckoo land.
We remember Thatcherism. We remember the devastation it caused to our communities, the generations of young people abandoned to long-term unemployment, the soaring child poverty, the public services neglected and the families scarred. We will not return to the politics and policies of the '80s.
We have presented a Finance Bill that supports the economy and brings borrowing back down when the economy is growing. The Opposition want tax cuts for the very richest, spending cuts on the very poorest, cuts in the middle of recession, the rolling back of the state and businesses and families left to sink or swim. The measures that we are taking will support 500,000 jobs across Britain. The measures that they support would betray jobs across Britain. The measures in this Finance Bill will help to support our economy and Britain's future, and I commend it to the House.
Well, that was quite a rant. The Chief Secretary has obviously decided that if she cannot defend her own policies and record, the best thing to do is to come out of the bunker spraying fire in all directions and hoping to get away with it. We will take no lectures from her or anyone on the Treasury Bench about the economy and the challenges ahead of us.
The overwhelming sense that I got from that speech, and indeed from the interventions from Labour Members, was that they simply do not get the scale of the crisis that they have created and the challenges that it may fall to others to pick up in an attempt to put this country back on its feet. Hon. Members might be forgiven for experiencing a sense of déjà vu today. It is only last week that we were debating—and unravelling—the Budget. Now we must debate a Finance Bill that was published only last Thursday. Outside experts have scarcely had a chance to digest it, but it will be forced through the House at a pace dictated by the political decision to delay the Budget until after the G20 meeting, rather than by the needs of good government and proper scrutiny. It was a political decision to delay the Budget until after the G20, because the Prime Minister had intended to announce a major fiscal stimulus, which he could present as part of a wider plan delivered by him on his saving the world agenda. That plan was dashed by the Governor of the Bank of England on
We have déjà vu in another sense. Last year's Finance Bill Second Reading was dominated by the Government's attempted sleight of hand on the 10p tax rate and the growing rebellion on the Labour Benches as the impact of that broken manifesto pledge became apparent to them. This year, the split in the Labour party is caused not by any sympathy for the targets of the distraction taxes in the Budget, but by a tug of war for the heart and soul of the Labour party between the adherents of new Labour's embrace of aspiration and the exponents of the politics of envy as the most expedient tactic for a Prime Minister who is already up to his armpits in the political mire and sinking fast.
I thought that the hon. Gentleman would spend a little more time on the 10p issue. When Labour Members attempt to amend the Budget to do justice for the group that still has not been fully compensated for the 10p change, will we be able to depend on the support of the Opposition?
I am grateful to the right hon. Gentleman for his intervention and interested to hear that he is still pursuing the issue. It occurred to me as I prepared my speech that I had not heard from him on that subject. We will, of course, consider carefully whatever he presents, but he will have to recognise the difficult fiscal circumstances.
I am sorry that the hon. Gentleman does not know what is happening. We have made it plain on the Order Paper; an early-day motion has been signed by those Labour Members who wish to see full justice for the group of low-paid workers who lost out with the abolition of the 10p tax rate.
I promise the right hon. Gentleman that I shall look carefully at his proposals. In disappointing contrast to last year, we have not had the opportunity of a discussion ahead of the debate on the Floor of the House to consider what we can do together to press the Government on these matters.
A quick glance at the record of last year's Second Reading debate will suggest that we do not need to take the words that we have just heard from the Chief Secretary too seriously. Last year, she told us that it was impossible to change the personal tax system and personal tax rates in-year, but when it became politically beneficial to do so, she found a way. She told us that the British economy was well placed to weather the global storms, that claimant count unemployment was at its lowest for 30 years and that the UK would be the fastest growing economy in the G7. It seems that hubris is capable of human-to-human transmission, at least in the closed confines of a political bunker.
The Chief Secretary also told the House last year that the Government were using the flexibility of the fiscal rules to borrow more in a sensible and sustainable way. What she did not say was that shortly after the Finance Bill became law, the Government would use the flexibility of the fiscal rules to abandon them altogether before they were comprehensively shattered by the growing crisis in the public finances that will be this Administration's legacy.
If we fast forward to this year, we may be making modest progress, because I do not think that I heard the Chief Secretary describing the £175 billion that the Government will borrow this year and the £173 billion that they will borrow next year as sensible and sustainable. Last year it was the denial Budget—no one would be worse off as a result of the abolition of the 10p tax rate—and this year it is the distraction Budget, with a subliminal message that taxing the rich can resolve the gaping hole in the public finances as the Government desperately try to divert attention from the reality of the Chancellor's package. It is a reality of tax rises for the many not the few and of spending increases before an election to mask a programme of massive cuts afterwards. The Budget has a £45 billion hidden tax bombshell aimed at the many and timed to go off after the general election that even this serially unelected Prime Minister will be forced to concede to the British people by this time next year. That is £1,430 per family of extra annual taxes, and I confidently predict that he will not remind the public of that in the run-up to that election.
My hon. Friend is right, and as I made clear earlier in my intervention on the Chief Secretary, when it is possible to repeal any Labour taxes our priority will be to repeal Labour's tax on jobs, which will hit people on £20,000 a year or more just as the economy is coming out of recession—if we believe the Chancellor's forecasts.
Sadly, I can make no such commitment. We do not know what the state of the public finances will be next year. The track record of forecasting by the Treasury over the past 12 months suggests that recovery might be very far distant from what is predicted in the Red Book, published just a couple of weeks ago. However, our priority for reducing taxes will be the tax that most affects the many, which is the tax on jobs.
The hon. Gentleman has referred several times to what he describes as the difficult fiscal circumstances. Given that that is how he sees them, why do the first votes cast by his party and by him in Divisions on the Budget add £6 billion to the projected Budget deficit?
They do not. In the course of the debate on this Bill—in the Committee of the whole House and in the Public Bill Committee—the hon. Gentleman will discover the alternative solutions that we propose on fuel duty, corporate taxes and so on, which will explain how we would fill that gap. We are certainly not making irresponsible pledges, as I have made clear to Dr. Palmer.
This goes beyond the extra taxes that will hit ordinary families. The public capital investment programme will also be halved over the next five years. I ask the House to listen to what the Chief Secretary said in last year's Second Reading debate:
"Previous Governments often slashed capital investment when economic pressures grew. We are protecting it".—[ Hansard, 21 April 2008; Vol. 474, c. 1064.]
We truly have moved through the looking glass if halving a budget can now be described as protecting it. This is a dishonest Budget that is all about protecting the jobs of the few on the Treasury Bench rather than the many in the British economy—a crowd-pleasing, economy-damaging tax on the rich this side of an election, with a hidden tax bombshell targeted at the many timed to go off after an election.
The hon. Gentleman refers to public sector investment. As he will be aware, the level set out in the Budget is still twice that of public sector investment as a proportion of GDP in 1997, when we inherited it from his party. Will he also take this opportunity to say whether his party supports Crossrail?
Let me deal first with the public sector investment. The right hon. Lady did not take the opportunity to confirm in her intervention that public sector investment as a percentage of GDP will halve. It will halve over the coming years—I do not think that the Government have been shouting that from the rooftops. We believe that Crossrail is a good project. It fits very well with our agenda of improving rail infrastructure — [ Interruption. ] She sits there, chuntering about guaranteeing to support this project or that project. Do the Government have no conception of the scale of the hole that they have dug? Every single programme and project will have to be reassessed and re-evaluated. Each project will have to demonstrate its value for money and its effectiveness in an extraordinarily tight fiscal climate created by the disaster that the Government have visited on this country.
This year sees the continuation of the recent trend for the Budget to be increasingly disjoined from the Finance Bill that follows it. Annual taxes are announced years in advance, not for the purpose of providing greater forewarning and more stability and transparency in the system, but for pure political advantage. An early announcement by this Government does not mean greater certainty. Last November, the tax rate was to be 45p from 2011. By this April, it had become 50p from 2010.
This country's tax system is losing credibility and the process by which tax changes are made not in response to long-term economic challenges but in pursuit of short-term tactical political gain is causing immense damage to our international competitiveness. It all started with the pre-announcement of the abolition of the 10p rate and the reduction of the basic rate in the Prime Minister's last Budget as Chancellor in 2007. It accelerated with the disastrous pre-Budget report of October 2007, as we saw the first example of the now familiar phenomenon of the Prime Minister trying to head off a catastrophic loss of confidence in him on his own Benches. It continued with the 2008 Budget, with last year's pre-Budget report and now with this 2009 Budget.
Before I move on, perhaps the Chief Secretary could clarify one issue. She talked about the new 50p tax rate. Will she clarify whether it is intended to be a permanent feature of the tax system or a temporary arrangement? The Chancellor said in his interview with the Daily Mail on
"to contribute a bit more while we resolve this situation", signalling a temporary increase to contribute to resolving the mess in the public finances. That is hugely significant, because the behavioural response to a temporary surcharge on higher earners could be quite different from the response to a clear break with the established consensus on top marginal rates.
Will the Chief Secretary tell us whether the signal sent out by the Chancellor is the Prime Minister's policy? If so, would it also be the policy of a Labour party led by Ms Harman or by Alan Johnson? If the Chief Secretary cannot speak for them, would it be the policy of a Labour party led by her or by someone very close to her? If she cannot clarify that point now, perhaps the Financial Secretary can do so in the winding-up speech this evening. It is a very important point, which needs clarification.
Is not the logical conclusion that the range of measures to increase the top rate of tax means that the Government will eventually have to come back to the House early next year to reform capital gains tax, which is now very much out of kilter with the income tax rates? That is one reason why they will not collect the sort of money that they expect. People will avoid it and they will try to capitalise their incomes.
My hon. Friend makes a good point. The Government have clearly already sought to close one of the most obvious loopholes to people who are subject to the higher rate of tax by restricting pension relief. Capital gains tax remains a potential loophole, however, and he might well be right that the Government, for all their silence on the issue now, will simply abandon any pretence of a low-tax competitive regime and will resort to higher tax rates in capital gains, too.
The Budget brought home to the British public the scale of the challenges facing our public finances, even if the impact of addressing them has been pushed out to the other side of a general election. The recession that is afflicting the economy will mercifully be behind us at some point, for the simple reason that the Prime Minister did not abolish boom and bust. The economic cycle, I am glad to say, survives and will eventually turn upwards, but the hole in our public finances will remain even if the economy bounces back in line with the most optimistic projections that we have heard. It is a structural deficit, which is the result of a Government recklessly living beyond their means since they started their 2001 general election campaign, repeatedly making promises to the electorate that the country could not afford. That is not even bribing people with their own money; it is bribing them with their children's and grandchildren's money.
On the subject of ending boom and bust and cycles, does my hon. Friend believe there is any credibility whatever to the Red Book's projection, in table 2.1, that growth will decline 3½ per cent.; suddenly and miraculously increase next year by 1¼ per cent.; and then, in 2011, go up to 3½ per cent.? Does anyone my hon. Friend knows, beyond the Chancellor and his Chief Secretary, believe there is any credibility in these forecasts?
I shall come to that point in a moment, but the simple answer to my hon. Friend's question is no. I do not know anyone else who believes these forecasts. While he is on the subject of cycles, as I have said before, I think the only cycle that the Prime Minister understands or is interested in is the political cycle, and our economy is being run with regard to the political cycle, not the economic cycle.
The Chancellor, in his Budget, was therefore torn between a desire to hide from the electorate the scale of the adjustment that would be required until after one more election, and a desire to send a signal to the bond markets that would induce them to continue funding the Government's unprecedented borrowing requirement. So what we got was the usual fudge: optimistic growth projections that unravelled within minutes of the Budget and have been further undermined by the Office for National Statistics data published since, and tax increases for ordinary families now, but with much, much more to come after the election, starting with the tax on jobs that will hit everybody on £20,000 a year or more in 2011, all under cover of the smoke generated by the 50p distraction tax "on the rich", designed to fool the gullible.
We also got a slashing of planned public expenditure growth. After allowing for the increased cost of servicing the huge pile of debt that this Government are building up, and of benefits for those joining the dole queue, there will be real-terms cuts equivalent to 2.3 per cent. in departmental expenditure totals. That is on top of the halving of capital expenditure budgets. It is an unprecedented scale of cuts in departmental expenditure. All this from a man who told us in 2005 that further efficiency savings were not possible, and that any reductions would necessarily involve cuts in front-line services. He was wrong then, and I suspect he would wish to argue now that he was wrong then. The fact is that a Government who said no further efficiency savings were possible subsequently claimed to have made £26 billion-worth of efficiency savings, and to have identified a further £15 billion-worth of efficiency savings. They have no credibility left on spending: no one believes a word they say any more.
My constituents, particularly those who live in rural areas of Holderness, many of them perhaps historically Labour voters, feel betrayed because they know that their national insurance is going to go up and that they are paying more to fuel their cars, which they need to try to find work, and they are expecting to see higher rates on drink when they go to their local pub—at a time when pubs are closing at the rate of 40 a week. As a final insult from this Budget, if they go for a game of bingo at the end of the week to try to cheer themselves up, they see that £105 million is being taken from bingo players. This Government and this Budget are hitting ordinary people; they are not hitting the rich, and they are trying to disguise it.
My hon. Friend is exactly right: it is a distraction Budget. What his constituents do not know, however, because understandably they have not sat and read the detail of the Budget Red Book, is that this is only the start. They will be hit by a further £45 billion a year of taxes as the Chancellor struggles to close the gap that his disastrous policies and those of his predecessor have opened up. Even if we accept the highly optimistic assumptions about the pattern of tax receipts in the recovery, the Chancellor still acknowledges that it will be 2017 before the current Budget is back in balance, and 2032 before our debt is back under control.
One clear victim of this Budget is the credibility of Treasury forecasting. The whole process is undermined if nobody, but nobody—except the Chancellor—believes the forecasts for growth and for tax revenues. The case for an independent office of budget responsibility was made by the Chancellor's Budget speech more effectively than any of its proponents could have hoped. No Chancellor in future should be able to build his Budget on foundations of sand—to treat the Budget process as a political manoeuvre rather than as an exercise in fiscal responsibility. We will attempt to insert into this Finance Bill provisions to ensure that before next year's Budget, a rigorous and independent approach to forecasting is established, ending the farce that we witnessed on Budget day, as the Budget growth projections unravelled before our very eyes, rendering the entire Budget Red Book almost immediately redundant.
I have some specific issues to raise on several clauses, but first I should like to set out three key themes linking our main criticism of the Bill: first, its failure to rise to the challenge of building the competitiveness of the UK as a place to do business in the recovery; secondly, its failure to support savers at a time when rebuilding the savings culture will be critical to Britain's future; and thirdly, its abject failure to balance the rights and responsibilities of taxpayers and the Revenue as it extends and expands Revenue powers. I shall elaborate on each.
Britain is in the depths of the worst recession since the second world war. Unemployment is rising at the fastest rate since records began and the public finances are set next year for a bigger deficit than that of any other G20 country. But even in these circumstances, this should have been a Finance Bill for the recovery. We do not know when it will come, but we need to be sending powerful signals to business about the tax landscape in the UK in the future, to ensure the investment and the jobs that Britain will need when Labour's recession is over.
Rebuilding Britain's competitiveness should be the key focus of this Bill—and, of course, competitiveness requires a regime that ensures fiscal discipline in the future as the bedrock on which a strong economy can be built. It also means addressing the long-standing challenges that Britain faces in productivity, infrastructure and skills. It means modernising Britain's public services and its welfare system, but it also means ensuring a competitive tax system. That is not just about the quantity of tax, important as that is. Business understands that the disastrous fiscal position that the country faces means that there is no immediate prospect of moderating the overall tax burden, but powerful, revenue-neutral signals can still be sent, even at a time of intense fiscal pressure. The nature of the tax code, the certainty of its impact, the manner of its making and the clarity of its future direction all contribute to tax competitiveness.
In a global marketplace, Britain will never be able to compete on tax burden with emerging economies with a limited social infrastructure, but we can and must compensate for our higher taxes by offering a more stable and predictable regime with greater transparency and more certainty—in short, the benefits a business might expect from locating in a higher-tax, mature jurisdiction. What we cannot do—it is simply not an option—is expect to be able to levy developed-country tax levels with the uncertainty, arbitrariness and unpredictability more usually associated with the tax regimes in developing economies.
Ten years ago, the Prime Minister set out his three principles for the UK's tax system: simplicity, fairness and competitiveness—a long-term, strategic approach to business taxation. However, what we have had in the last few Budgets is the very opposite: a shambles of initiatives, often half-baked, often unworkable and often reversed during the legislative process or thereafter, some of them—the 2007 pre-Budget report springs to mind—literally put together on the back of a fag packet in response to immediate political pressures. We have seen the abolition of the 10p tax rate, the fiasco of the non-dom tax charge and the disaster of the capital gains tax taper relief abolition—and the pattern continues.
If we cannot reduce the tax burden on business, we have to redouble our efforts to reduce the compliance burden to maintain Britain's global competitiveness. Sadly, the Bill is a missed opportunity, at a crucial moment in our economic history, to send those powerful positive signals. It will further erode Britain's standing as a stable, predictable and business-friendly jurisdiction in which to operate.
I now turn to the second theme: pensions and savings. The economy that will rise from the ashes of this recession will differ in shape and structure from the pre-August 2007 economy. It will be built on equity, not debt. It will depend on our savings ratio, not our borrowing capacity. The Prime Minister appeared to understand that important shift. As recently as last month, he was hinting in radio interviews that he would do something for savers in the Budget. What we got was a limited, complex change to the individual savings account regime that the industry has condemned as burdensome and confusing, and some very ambiguous signals on pensions that will further undermine long-term saving; I will return to those in a moment, when I address some specific provisions of the Bill.
There was nothing in the Budget to match the Leader of the Opposition's bold proposal for this year's Budget. He proposed the abolition of income tax on savings income for basic-rate taxpayers, and an immediate increase in the pensioner tax-free allowance of £2,000 a year—all funded by advancing to the current year the introduction of the efficiency savings that, in the pre-Budget report, the Chief Secretary announced that she had identified, although apparently she could not bring herself to deliver them until after a general election. Let me be clear: it is not a fiscal tightening to take taxpayers' money back out of the pocket of Government, and redistribute it to hard-pressed taxpayers with a high propensity to spend—people, in particular pensioners, whose savings income has been very much squeezed, in some cases leaving them almost at the point of destitution. On that second count, the Bill fails miserably to rise to the challenge of shaping and building the new economy based on savings and equity, not mountains of excessive debt and easy credit.
Thirdly, the Finance Bill advances still further the Government's agenda of enhanced powers and increased discretion for Her Majesty's Revenue and Customs. With additional powers should come additional responsibilities, and if Britain's business tax regime is to remain competitive and internationally attractive, the extra powers have to come with proper safeguards, and have to be matched by obligations on HMRC. The concept of a taxpayers' charter, setting out the rights and obligations of taxpayers and the Revenue, appears to be dead. In clause 91, it becomes an HMRC charter—nothing much more than a mission statement prepared and delivered by HMRC, setting out its aspirations. That is a far cry from the statement of rights and responsibilities for both taxpayers and Revenue authorities to which many thought that the Government were committed.
Let me make it clear to the Chief Secretary that we will support the creation of powers that HMRC genuinely needs to prevent unlawful tax evasion and to counter complex tax avoidance, but the burden on ordinary, law-abiding taxpayers has increased exponentially over the past decade, as Britain's tax code has doubled in length to overtake India's as the longest in the world. We need a focus on the simplification that the Prime Minister promised, and pressure on the Revenue to deal fairly with taxpayers. For example, we could match the new restrictions on time for reclaiming overpaid tax with an obligation on HMRC to make prompt repayments.
I would like to address a number of clauses in the Bill, making specific observations and putting questions to the Financial Secretary to the Treasury. Clauses 4 and 6, to which the Chief Secretary has referred, introduce the withdrawal of personal allowances on incomes above £100,000, and the multiple additional tax rates that will be required to give effect to the 50p tax proposal, which is to be introduced next year. We on the Conservative Benches—and, in fact, some on the Labour Benches—know the Prime Minister's motive in seeking to create another of his beloved dividing lines. It is a political gesture; he is throwing some red meat to the heartland vote as he abandons any pretence of reaching out to aspirational Britain ahead of the next general election. Mr. Byers was correct to say that the measure
"has more to do with political positioning and tactical manoeuvring than a principled, strategic approach to taxation and the raising of revenue."—[ Hansard, 27 April 2009; Vol. 491, c. 615.]
My hon. Friend raises an important point. The view of some independent experts is that the new top rate of tax may raise significantly less than the Chancellor predicted, having used the static model that is used to produce the Red Book's projections. There was no taking account of behavioural impacts; it was assumed that the very high-rate taxpayers, who are probably very mobile in many cases, would simply leave their affairs as they were, and would not consider relocating away from the United Kingdom, so I share some of my hon. Friend's concerns.
The Government must be aware that there is a price to pay for playing such political games—a yet more complex system of taxation. We will now have 16 different personal tax rates in the UK, including the rates levied on trusts and dividend income, and a top marginal tax rate of more than 60 per cent. Specifically, may I ask the Financial Secretary to tell the House this evening what the Government's response is to the concerns raised about the trust tax rate? In aligning the trust tax rate with the new, higher 50p rate, HMRC made the assumption that all beneficiaries of trusts are people who are likely to be subject to the top rate of income tax. That is simply not the case. Although it may have been a broadly reasonable assumption when the top rate of tax was 40 per cent., it is an unreasonable assumption when the top rate of tax affects only those people with an income of more than £150,000.
There will be many beneficiaries of trusts with incomes far below the £150,000 threshold whose income will now be subject to tax at the 50 per cent. rate. That undermines still further the legitimate use of trusts, and should be carefully considered. May I suggest to the Financial Secretary that, as was the case with the initial stab at changing the non-doms regime, announced in the 2007 pre-Budget report, Ministers may have been the victim of long-standing HMRC agendas that are hostile to trusts per se?
My hon. Friend is making an extremely powerful point. Does he acknowledge that the types of people whose assets are held in trust and who might be caught would include victims of injuries who have been the beneficiaries of compensation arrangements? Many of them may be miners, and may suffer from appalling disabilities. Their assets are held in trust to protect their financial position. Most of them would not be higher-rate taxpayers.
My hon. Friend makes an important point. I am scratching to the bottom of my memory; I seem to recall that we addressed the issue of trusts for disabled people in a previous Finance Bill, but I am sure that the Financial Secretary will want to clear up the issue when he addresses the broader point in his winding-up speech.
I wonder whether the hon. Gentleman could clarify a matter for me. I understand that he decries the complications that the proposals will introduce. He makes the Laffer-curve argument that the 50 per cent. tax rate may be counter-productive in terms of tax revenues. I have to say to him that I support it for reasons of social equality, and because of what it says about our society. May I ask him to answer a question on behalf of his party? If he is concerned that the proposals will lead to a drop in tax revenues, and will over-complicate the tax system, is his party committed to dropping the 50 per cent. tax if it gets into government? If not, why not?
As the hon. Gentleman well knows, we are not making any commitment to repeal any of the tax increases proposed by the Government, because of the extraordinary fiscal circumstances in which we find ourselves, with which any incoming Government or, indeed, any re-elected Government would inherit and would have to deal. Clearly, it would be absurd to say that any Government of the day would not look at the yield produced from a tax measure or a series of tax measures.
My hon. Friend Mr. Newmark, quoting from the Institute for Fiscal Studies, suggested that the top rate of tax might produce a sum approximating to zero. In fairness, that comment was made before the suggestion that changes would be made to the pension tax relief that was available. It is probably fair to say that the yield will be less eroded as a consequence of the closing of that obvious loophole, which will be readily available to all those on high incomes who are subject to the PAYE system.
Clause 7 sets the main rate of corporation tax at 28 per cent. and clause 8 holds the smaller companies rate at 21 per cent., postponing the Government's planned increase to 22 per cent. We on the Conservative Benches believe that British business needs a shot in the arm to stimulate investment in the recovery—a psychological as much as a fiscal boost—so we will put forward our revenue-neutral package of proposals to reduce the main rate to 25 per cent. and the smaller companies rate to 20 per cent., paid for by reducing complex allowances and reliefs.
In 1997 Britain had the fourth lowest rate of corporation tax in the European Union. Our rate has gone down since then, but we have been asleep on the job while all around us are busily sharpening their competitiveness, and we now have the 19th lowest rate in the EU. Part of the plan for Britain's economic recovery must be restoring that tax competitiveness and sending a clear signal that the UK is determined to remain at the front of the pack of competing business locations, not bringing up the rear. That message should have been at the heart of the Bill, yet it is spectacularly missing.
I turn to clause 9, which extends the failed VAT reduction—the fiscal stimulus which, despite what the Chief Secretary said, has stimulated no one—for a further month, to
My hon. Friend Mr. Ellwood tried in vain, as did other Members, to get this question across to the Chief Secretary. It has nothing whatsoever to do with fiscal stimulus; it has to do with the practicalities of changes in the tax regime. We genuinely cannot understand why the Government have not listened to the universal view of retailers that, regardless of the merits or otherwise of the VAT reduction, changing it back at midnight on
The change could be made on
The hon. Gentleman makes a fair point, to which I hope the Treasury Minister will respond, but there are fiscal implications, even if the delay is a few days. Currently, the cost of the VAT reduction to 15 per cent. is about £1 billion a month, so were we to defer by only three days, as suggested by Mr. Ellwood, the approximate additional cost would be £100 million. Of course, with new year sales, it might be even higher.
The hon. Gentleman makes half the point. The date could have been left as
There is a more substantive question that I would like to put to the Chief Secretary. If, despite the horrendous fiscal position that the country is facing, the Government are determined to borrow and spend the extra £7 billion or so that the scheme will cost between now and
Clause 11 brings in the increased duties on alcohol, but in the form of an across-the-board hike. Since the last Budget, tax is up on beer by 8p a pint, on wine by 28p a bottle—and as almost all wine consumed in this country is imported, Labour's devaluation has added a 30 per cent. premium on top of that—and on a bottle of spirits by 47p. During the Bill's Committee stage, we shall attempt to force the Government again at least to consider and evaluate a smart alcohol taxation regime, focusing on the greatest burden associated with problem drinking, such as alcopops, high-strength beers and ciders, and using the proceeds to reduce duties— [Interruption]. I appreciate that the hon. Member for Taunton represents a constituency where any attack on cider may be unwelcome, but perhaps he should look at what has happened in Australia and Germany, where that approach has been used to good effect. The Government should seriously consider introducing such a system here, instead of using health concerns as a cover for a blanket tax rise on responsible drinkers.
Clauses 15 and 16, which the Chief Secretary did not mention, set the fuel duty rates for this year, with a two-stage increase— [Interruption.] I am sorry; the right hon. Lady did mention them, but she did not give them the kind of prominence that she afforded to the increased taxes on higher earners. Perhaps that is not surprising because, according to the polls, the fuel duty increase was the single most unpopular measure in a generally pretty unpopular Budget.
Oil prices are significantly lower now than they were at their peak, and we believe that the Government have missed an opportunity not just to impose an extra tax on motorists, but to consider a fair fuel stabiliser, as proposed by my hon. Friend the shadow Chancellor. The Government are proposing to increase taxes now, when oil prices are somewhat lower. They have presented no mechanism for protecting the motorist against the effects of pump price increases if oil prices rise again. [Interruption.] I do not know why Rob Marris finds this so amusing.
Instead of a flat increase, as the Government propose, it is a perfectly sensible proposal to introduce an increase now that is linked to a set baseline price of oil, so that as the price of oil increases the Government moderate the level of tax and mitigate the increase in price at the pump that the motorist and the business user pay—changed perhaps every six months. [Interruption.] I do not think that the Chief Secretary is in a position to start talking about regular increases in fuel duty, when she has two pencilled in for the next six months in her Budget.
On the other side of the coin, the Government would receive higher revenues from North sea oil taxation as the price of oil rose. That is a mechanism for stability—less volatility in the price of petrol at the pump, less volatility in Government revenues as oil prices fluctuate.
I am grateful to the hon. Gentleman for his usual generosity. What I find amusing is this kind of groundhog day; we sat through the Conservative party making the same proposal, or what sounded very much like it, 12 months ago with the fuel duty stabiliser. There was a kind of shock-horror among Conservatives a few months later when they realised that as a result of their fuel duty stabiliser proposals, certainly as put forward last year, a marked drop in the price of oil on world markets would have left motorists in a far worse position. If the hon. Gentleman is outlining a different fuel duty stabiliser—mark II—this year, perhaps he could put a little more flesh on the bones, because it sounds awfully like last year's disastrous proposal.
It was not a disastrous proposal last year and it is not a disastrous proposal this year. It is a long-term proposal and, yes, the hon. Gentleman is absolutely right: as oil prices fall, the duty at the pump will increase; as oil prices rise, the duty at the pump will decrease, protecting families from fluctuations in the price of oil at the pump and the Exchequer from fluctuations in revenues. It is a perfectly sensible proposal, and we shall go on making the case for it until the Government finally give up, go to the polls, move over and let someone else sort out these problems. We are consulting on the details of its implementation, and a great deal will depend on the level at which one fixes the baseline oil price. I absolutely concede that point to the hon. Gentleman, but I urge the Government at the very least to consider the proposal. I am certain that the Treasury has in fact considered something similar. If the hon. Gentleman wants to make a submission to our consultation, I guarantee that it will be given VIP treatment when it is received by the shadow Chancellor's office.
Clause 20 deals with bingo duty, to which my hon. Friend Mr. Stuart has already referred. It increases the duty by almost 50 per cent., which is a blow to an already beleaguered industry, although the Government say that the increase is offset by the impending removal of VAT as a result of a VAT tribunal decision that is in the final stages of resolution in the High Court. The industry has long campaigned for the removal of VAT, which is not levied on other forms of gambling, but Ministers, facing defeat in the courts, appear to have pre-empted the legal process and neutered its likely result. The industry is horrified, and they were even more horrified to hear the Financial Secretary on
Here is one of them.
I hope that the Exchequer Secretary, since she is present, might also take this opportunity to intervene and explain what has changed since a Westminster Hall debate on
"altering the"— bingo—
"tax regime would not be appropriate."—[ Hansard, 25 February 2009; Vol. 488, c. 130WH.]
I am very grateful to my hon. Friend for allowing me to intervene on this important subject. Some 8.5 million people play bingo every year, one third of bingo operators or companies are under threat due to the 46 per cent. tax increase, and I urge the Minister, through my hon. Friend, to reconsider what is happening. This is not just about dear old ladies who go out, although it is their one evening out all week. If such places shut, the social fabric of many communities will change, and the Government ought to reconsider the matter.
My hon. Friend articulates the case passionately, and many Members from all parts of the House look at the challenges to the bingo industry and pubs in the same way: a vital piece of the community's infrastructure is in jeopardy, and that will change for ever the nature of the towns, villages and communities in which we live.
Clauses 23 and 24, I am pleased to say, introduce a welcome if limited carry-back of losses for an extra year—restricted to £50,000—and the accelerated first-year capital allowances for one year only. Those measures are welcome, but because of the lack of available credit, many small and medium-sized enterprises will be unable to take advantage of the incentive to invest, even if they see market conditions improving—something that yesterday's CBI figures suggest is still a way off. I say to the Chief Secretary that fiscal incentives are fine, but the plight of many, if not most, of those companies is rooted in the credit squeeze, and until they and their customers can secure access to normal lines of credit on normal terms, we will not see a recovery. It is true that quantitative easing is forcing money into the system, but a massive public debt issuance and the continued solvency crisis in the financial sector ensure that very little of that easing is getting past the Government and the banks and out there to the SMEs in the real economy that so desperately need it.
Clause 27 makes some minor changes in respect of venture capital trusts. The Government will be aware of calls for a more radical approach, expanding the scope of such trusts to allow them to invest in a wider range of companies and in the secondary market, and helping to provide the liquidity that is currently absent. Despite the rhetoric, the Government have not resolved the crisis in credit markets, and they have failed to get normal bank lending to SMEs flowing again, as banks unsurprisingly focus on rebuilding their balance sheets over supporting their customers.
However, here is a suggestion from industry to improve access to a source of equity capital for SMEs, especially those listed on the alternative investment market, and to deepen the market in such equity capital by including secondary market activity in the scope of VCTs. I raise the issue because the European Union recently—I think it was only last Wednesday—approved venture capital trusts for state aid purposes, and the Government's position to date on VCTs may have been partly driven by an uncertainty about whether any different approach would be permitted under state aid rules. I therefore hope that the Financial Secretary can this evening clarify whether the Government are able to consider going further to support SMEs in that way.
I welcome, too, clauses 34 and 35 and the schedules that they introduce, finally delivering the foreign profits exemption regime and the associated cap on interest deductibility that has been promised or threatened—depending on which way one looks at it—for some time. We believe that the measure will broadly help British-based international businesses in the recovery; it is just a shame that the context for that positive mood on corporate tax is a Bill that contains a raft of measures on other areas of the tax regime that is bound to make Britain less attractive and thus dilute that positive impact.
Business is generally satisfied with the proposals in clauses 34 and 35. The CBI has, none the less, laid down a marker whereby it thinks that further details could usefully be discussed before the interest cap regime comes into force, but the delay to its enforcement allows for that possibility. There is a lesson that we should learn from the package, because the initial proposal was vigorously opposed by business, which considered it to be damaging to Britain's international competitiveness, but the end result has been broadly welcomed. That is an example of how proper consultation and debate between business and Government can deliver what this country needs both to make its tax regime competitive and effective and to allow us to maintain our prosperity in a globalising market economy.
The Financial Secretary should take an important lesson from that example. In future, Government should tell business well in advance—at least at the pre-Budget report preceding a Finance Bill—the outcome that they require of a measure. However, the Government should not be prescriptive about how the measure is delivered; they should sit down with business to establish the best, least damaging and most competitiveness-enhancing—if I can say that—way of achieving their objective.
Clause 71 introduces schedule 35, which provides for a new tax on the pension contributions of higher earners. It effectively removes the principle of pension contributions being made from pre-tax income. The A-day regime for pensions, which has been referred to in the context of the Opposition amendment, was introduced only in 2006. What was meant to be a long-term regime for long-term saving is being significantly tinkered with, and the signal is being sent out that the settlement is not the enduring fixed landscape that it was billed to be back in 2004, when it was first mooted.
The measure introduces more complexity and uncertainty; long-term commitments are being overturned for short-term gain. I have already acknowledged the Government's concern that the 50 per cent. rate of tax makes pension tax relief an obvious route for legal avoidance; that is why they have sought to limit the availability of tax relief to the highest earners. But why on earth did they not do that in the simple and obvious way—albeit one that would also have breached the A-day commitments—of changing the maximum contribution limits under the A-day regime?
How can it be fair or reasonable that, under the regime proposed by the Chief Secretary, someone earning £150,000 can get 40 per cent. relief on a £100,000 pension contribution—that is, £40,000 of relief from the Exchequer—but someone earning £200,000, and contributing only £20,000 to a pension fund, is limited to 20 per cent. relief? That perverse outcome risks sending a signal of instability and unreliability throughout the pension regime. It risks a disengagement of top earners from company pension schemes that also benefit tens or hundreds of thousands of lower-paid workers. I am not convinced that disengaging top executives from pension schemes that benefit the many is the best way to protect those schemes.
Many savers will see the measure as the thin end of a wedge, reinforcing Labour's attack on pensions which began in 1997 with the £5 billion-a-year tax raid on pension funds. That has undermined what the right hon. Member for Birkenhead has described as a pensions system that was once the envy of Europe, but is now arguably one of the least good on the continent.
I have recognised that the Government had a legitimate motive for moving to limit tax relief on top earners in the context of a 50 per cent. tax rate. However, the right hon. Lady has not answered the question that I put to her: does she think it fair that someone earning £150,000 can put £100,000 into their pension fund and get full relief at 40 per cent., but someone earning £200,000 and putting £20,000 into their pension fund cannot get relief above 20 per cent.? That does not seem fair either.
Will the Financial Secretary confirm one issue in his winding-up speech? There is a great deal of concern in this country about the growing apartheid between private and public sector pensions. I want him to confirm whether in unfunded final salary pension schemes the value of the notional contribution that is subject to the tax clawback will be based on an actuarial calculation. Will the value of that contribution be added to gross salary for the purpose of calculating the £150,000 threshold? Take as an example a senior civil servant on £120,000—actually, they might be a middle-ranking civil servant on that salary these days. The real value of their pension rights imply an annual contribution of, say, £35,000. How will that be treated to ensure a level playing field between unfunded public sector pension schemes and private funded schemes?
On the anti-forestalling regime, which has understandably been put in place to prevent people taking advantage of the delay in the implementation of the arrangements by making very large contributions to pension funds, does the Financial Secretary recognise that what is proposed penalises those who are not making regular payments, at least quarterly? Does that not betray a certain mentality in Her Majesty's Revenue and Customs—that the people to be looked after are those in the pay-as-you-earn system in 9 to 5 jobs? Does it not betray a woeful failure to understand the lives and lifestyles of the self-employed, those who have irregular incomes and people whose incomes depend on the success of the small businesses that they run? Such people are typically advised to make annual or semi-annual contributions to their pension funds, but they will be excluded from making their usual contributions under the arrangements that the Financial Secretary has set out. This may be another case of HMRC having pulled the wool over Ministers' eyes. Will the Financial Secretary consider the matter urgently and give an assurance tonight that he will ensure that those who have made regular contributions in the past—even if they have not been as frequent as quarterly contributions—will not be inadvertently caught by the anti-forestalling measures?
The Bill risks being a missed opportunity to prepare Britain for economic recovery in a climate of continued fiscal restraint—a world where equity and saving will replace excessive debt and easy credit, and where green industries, local, close-to-market manufacturing and new services will rise to balance out Britain's over-dependence on the financial and property sectors and on public spending growth. It is not too late; substantial—one might even say fundamental—changes have been made in previous Finance Bills as a result of parliamentary pressure and belated attention to outside experts. I hope that that will happen this time.
A strong and powerful signal needs to be sent that Britain is open to the world for business and that in the recovery we have resolved, despite our problems, not to look inwards and withdraw from the challenges of global competition, but to embrace those challenges. We need to signal that we are determined to create the competitive, world-class business environment that will attract the jobs, trade and investment to secure Britain's prosperity well into the 21st century. To do that, we need continuity, simplicity, fairness, transparency and certainty in our tax regime. The Bill does not achieve that, and this Labour lot cannot achieve it. Change is needed so that Britain can begin the process of rebuilding an economy shattered by Labour's recession.
I want to address an assumption about the Budget which is shared not only by all those on the Treasury Bench but by those on the official Opposition Front Bench. I hope that they are correct. The assumption to which I refer is that somehow the country will get safely through to a general election, which most of us expect to be called in May next year. I want to question whether the Budget's assumptions on borrowing will be borne out, and whether the market will continue to buy those assumptions, particularly given the Government's difficulty, in rapidly changing circumstances, in presenting the House and the country with figures that have some semblance of stability.
Think of the past six months, during which we have been through three very different worlds. There was the world prior to the pre-Budget report. Another world was then described to us in the pre-Budget report, whose assumptions and figures began to give way very quickly to a clearer reality. Finally, the pre-Budget report was replaced by the Budget itself. As Members have already made plain, some of the assumptions that underpinned the Budget did not even last for 24 hours. I question whether it is safe for the country, and therefore proper for this House, to continue a debate on the Budget that does not have a plan B ready to implement should the Government's trust in the debt market not be fulfilled.
This morning, along with some Opposition Members, I went to the Debt Management Office, where we saw a market being made for a £3.5 billion, 4.5 per cent. interest rate gilt over 10 years. That was more than two and a half times covered; indeed, we were told that the market was very satisfactory. When asked, members of the Debt Management Office staff confirmed that there is continuing confidence in and appetite for gilts in this country.
Of course the office would say yes to that question, because if they said no, then whatever we call it would hit the fan. I am grateful for my hon. Friend's intervention, because I want to emphasise that one hopes that the scenario that he describes continues, as it is in the immediate interests of the country. I raised the issue because on three occasions the Debt Management Office has had difficulties in placing a week's debt. Given that, as a country, we are attempting to float debt of an unprecedented size, it would be extraordinary if that did not affect long-term interest rates and therefore the long-term recovery that we so desperately want in our economy. In the terrible scenario whereby the Debt Management Office reports to the Treasury that that day's debt has not been sold, we are in another world, which has not yet been described.
The right hon. Gentleman will be aware that over many years our banks moved from depending on depositors to depending on the international money markets, which seemed to be functioning well. When those markets froze, the trigger came that caused the collapse of so many financial institutions—or might have done were it not for Governments intervening. He is right to bring to the House the issue of what would happen if the gilts markets too lost people's confidence and ceased to work.
My point is to draw attention to the scenario—not to wish that it would occur, but to suggest that it would be sensible if we thought that it might, and planned for it, given the horrors that would confront the country if there were nothing in the cupboard at that time.
We are in a different position from when we were raising similar sums of money to fight the second world war. Then, some of our allies, particularly Canada, gave us huge sums of money, and others lent us huge sums; they all had surpluses and were keen to lend to us. But now, all of the Group of Eight countries are hoovering the markets to raise money to cover their debts. We are not the only country doing this, and lending to us may not be seen as the most favourable option by people who have money to lend. It is wrong to assume that because we have done this before in wartime, we will somehow be able to do it now. We have to take the view that several major economies are now in the same boat, and it seems reasonable to assume that over time it will get more difficult, not less difficult, to cover that debt.
Let us suppose that it all goes wrong—pray God that it does not, but let us suppose that it does—and the Debt Management Office reports to the Prime Minister that money is not forthcoming. What would happen to sterling on the markets the next day? It would collapse, and then what would happen to the well-being and the living standards of our constituents? That is too terrible to contemplate. That is why I tabled an amendment, supported by the Liberal Democrats—I assume, Mr. Deputy Speaker, that we will not get a chance to vote for it—proposing that, given the paralysis on the part of those on the Treasury Bench and on the official Opposition Front Bench, this House should play some part in seriously discussing how we can bring our tax revenue and our expenditure into balance.
Let us assume for a moment that the figures that the Government gave us in the tables in the Red Book are right. They assume that by 2012-13 we will all be singing and dancing, and the economy will be back in growth again. Even in those circumstances—again, let us hope that the assumptions are correct—we expect to raise, as a proportion of GDP, a little less than 38 per cent. in tax, but we will still be spending 41 per cent. Today the National Institute of Economic and Social Research has suggested that those figures will not hold—they will crumble—and that in 2012 expenditure will be 48 per cent. of GDP. That means that in each week of that year we will try to offload on to the debt market shed-loads of debt the like of which we have never tried to get buyers for before. We can put our heads in the sand and pretend that we might get through with a bit of luck, or we could, as a House, decide that given the failure of those on the Treasury Bench and of the official Opposition, we should take some hand in planning how we are to try to achieve a greater balance between tax revenue and expenditure.
I shall conclude by referring to a matter that I have raised in the House before—the size of the lost revenue for pension savings. In introducing the debate, the Chief Secretary said, I think, that that figure would be £30 billion. If we started to discuss options rationally, not in a crisis where we have to slash and burn the night before the markets open the next day, we could seriously consider what this country does in supporting pensions. We could have a reform that says that we will put ourselves on track to abolish pensioner poverty. In the past, I have made proposals describing how we could achieve that through a funded scheme that would wrap around the state pay-as-you-go scheme. If we did that we would know that, over a 15-year period, the cost of the failure to have serious pension reform, which is currently £15 billion and rising, would be on a downward course. We could say to savers, "Because we are putting in place a guarantee which will take every decent citizen out of poverty in old age, over time—15 or 20 years, maybe longer—we are going to phase out the subsidies that we give through the tax system to try to get you to save in a particular way to get a pension at the end of the day. That won't be our concern, as a Government."
That would also provide a civilised way of saying to the public sector, which includes us, "We are closing all public sector schemes to new members." If things do not change, we will, on today's terms, be paying out £90 billon a year to public sector pensioners like me—more than most of the Government's major departmental budgets. Does anybody think that even if we did not have this sort of crisis, we would have the revenue to pay that?
The right hon. Gentleman mentioned the public sector, "including us". Will he acknowledge that we have to start somewhere, and that the Leader of the Opposition has made the commitment that a Conservative Government would close the parliamentary pension scheme to new members?
Absolutely, and of course that will be a start, but important though our budget is to taxpayers at the moment, it is small compared with the budget that we will be paying out mid-century—£90 billion, unless we make changes. We could just say in a rough and ready way that we are closing schemes, or we could have serious pension reform and consider that the only task of Government is to get a scheme that takes everybody out of poverty in old age providing that they have been decent citizens. We could then say to people, "It is being closed, but nobody will be pushed into poverty as a result. What you add on top is your concern, not ours. We are not even going to lecture you about it, and we are certainly not going to bribe you to do it."
With those moves alone, the means-test budget of £15 billion and rising would be set on a downward course. The Chief Secretary told us today that there would be a £30 billion subsidy budget in the tax system for pension savings, and that that budget, too, would go down and then be eliminated. We would prevent future liabilities from accruing in the public sector, although of course we would have to accept the bill for paying off the liabilities that have been earned.
Surely this House ought to gird its loins and say that this is the sort of debate that we want to have, and that we are going to reshape the nature of government in the next Parliament. This debate could play a key part in that, but it could also act as the longstop and the plan B. If the day came—I hope that it never does—when the Debt Management Office said that confidence had drained away and that we could no longer shove shed-loads of debt on to the market and get it bought, we would already have in place a civilised way of bringing public expenditure and tax revenue back into balance. That would reassure the markets, so that the terrible day would not come upon us when the Government simply could not raise the money to pay the wages that week.
Thank you, Mr. Deputy Speaker, for giving me an opportunity to contribute to our deliberations this afternoon.
The Budget that gave rise to this Finance Bill was a total humiliation for the Prime Minister himself and for the Labour party generally. The reputation of the former has been destroyed for ever, and the reputation of the latter for at least a generation, and possibly irredeemably. Their self-imposed destruction does not concern me, as they are the architects of their own misfortune and eventual downfall, but what does concern me is the catastrophic impact that this Budget and this Bill will have on our country both financially and socially for many decades to come.
The context of all our deliberations is debt. That point was made by Mr. Field, and is made in the amendment that he, my hon. Friend Dr. Cable and I tabled. I shall turn to it repeatedly throughout my contribution. I wish to examine what the Government are going to do, and the suggestions being put forward by the other parties to try to tackle that huge burden. The scrappage scheme, the increased alcohol duty and the manifesto-shredding, aspiration-capping 50p income tax rate are all brought about by the need to address our huge public debt.
The Government of this country are now borrowing £480 million every day. We are borrowing £20 million an hour. Our national debt increased by £12 million during the time that the Chief Secretary took to make her speech opening this debate. I am afraid that it went up by another £21 million while the Conservative spokesman was talking, which makes the rate charged by the Conservative shadow Foreign Secretary seem positively mean-spirited. I shall try to boil those numbers down to understandable levels, because people trade tens of billions as though it were small change. Our debt is clocking up another £1 million every three minutes, and it is a serious and frightening problem. It will rise by £175 billion this year, £173 billion next year and £140 billion the year after that. When the Prime Minister delivered his first Budget as Chancellor in 1997, almost exactly 12 years ago, total Government spending was £322 billion. Now the debt increase alone for the next two years will be £348 billion.
The Prime Minister used to boast about the golden rule of keeping total debt below 40 per cent. of GDP. Now, according to the Institute for Fiscal Studies, we will not get down to that proportion until I am 62-years- old, and I am 38 at the moment. I was going to say that that would be the rest of my working life—but by the time I get to that age we will had to respond by increasing the retirement age significantly. All those assumptions are desperately bleak, but they are, simultaneously, heroic in their optimism.
The hon. Gentleman has just moved on to the point that I wished to make, which is that the assumptions are based on optimistic forecasts about future growth, which no one believes. Following on from what Mr. Field said, when someone running a small business is in difficulty and goes to the bank, the single most important thing that they have to do to ensure that the bank will continue to lend to them is to give realistic forecasts. The bank will lend even with quite bleak forecasts, but it will not continue to lend to someone who has given forecasts that turn out to be completely and utterly wrong, because that undermines the confidence of those doing the lending.
I agree with the hon. Gentleman's point, because the predictions are both bleak and optimistic at the same time. The Chancellor tells us that the economy will grow by 3.5 per cent. in 2011 and the same in all subsequent years. He had better be right—but I am afraid that the Government's track record of predicting economic growth is hardly encouraging.
In his final Budget, in 2007, the present Prime Minister tried his hand at predicting future debt. We can see the predictions year on year by going back and looking at Red Books. His predictions in 2007 were the least accurate forecast that this country has seen since the day before southern England was flattened by a terrible storm, when Michael Fish said:
"A woman rang the BBC and said she heard there was a hurricane on the way, well, if you're watching, don't worry, there isn't."
There was a hurricane then, and there is an economic hurricane now. The Prime Minister completely failed to foresee it. In his final Budget speech, in 2007, he said that borrowing in 2009 would be £30 billion. Instead, as we know, it is £175 billion. That is how accurate his last two-year forecast was.
My fear is that the Chancellor has retro-fitted his entire Budget assumptions. He has decided what level of debt he would like in 2011 and then calculated the growth rate necessary to achieve it. Does that growth rate include quantitative easing, to try to inflate it further? We have to hope the figures are more reliable than that. Whether or not that is included, we must hope that those predictions come true, but the omens are not auspicious. The Budget forecasts look like the sort of predictions that politicians make when they do not expect to be in office when the day for which they are forecasting arrives.
If Labour does not deserve to be in Government, which I think is manifestly the case—
I suspect that I know where the hon. Gentleman is heading, but has he not made the case for some form of independent statutory provision of such forecasts as a backdrop to the Budget? Any Chancellor should make forecasts in response to the real situation that the country faces rather than the fantasy situation that he wishes to paint.
I am all in favour of reliable official data, which are the backdrop against which we have to make all our calculations. My fear about the Conservative policy, as I understand it, is that a Government are elected to deliver their policies. Advisers advise, Ministers decide, as a former Conservative Minister once said. I would not want to see an elected Chancellor hamstrung by officials. The hon. Gentleman may say that that is not a potential consequence of his policy, and I hope that it would not be, but if an elected politician were not able to do what he or she saw fit, even with the assent of the House, because of obstacles put in their way by a quango, that would cause me concern.
Let me reassure the hon. Gentleman that the only obstacle in the way of the Chancellor of the day would be that he would have to make his Budget against the backdrop of an objective set of fiscal projections, not a fantasy set of fiscal projections. If the hon. Gentleman regards that as being hamstrung, I do not share his view.
I have no doubt that the people in the Treasury feel that they are carrying out their work with a degree of objectivity. Perhaps one person's objectivity is not another person's, but the hon. Gentleman has made his point. The proposal sounds to me like the sort of policy that it is more typical of Opposition parties than of governing parties to devise, but it is not necessarily the worse for that.
I am grateful to the hon. Gentleman, who is being most generous in giving way. I would point to the Congressional Budget Office in the United States, which reports to Congress and provides objective information. In no way does it get in the way of elected politicians, but it does mean that they have to deal with real figures and not be tempted into manipulating them when they find themselves in the type of predicament that the Prime Minister is in now.
Absolutely. Let us not get too hung up on this issue, but I take the hon. Gentleman's point. There are potential benefits and lessons that we could learn, although all political systems are different. The Treasury Secretary is not an elected politician in the United States—indeed, nobody in the United States Cabinet is, apart from the President and the Vice-President—but I understand the hon. Gentleman's point.
The point that I was making before those interventions was that the Government have presided over extraordinary levels of debt, which we will be paying back until 2032, by the most reliable estimates. Many people—the mood in the country appears to suggest this—think that the Government have run out of steam and served their time in office. The question then arises whether any other political parties have solutions and policies superior to those being put forward by the Government. I know that the Conservatives revel in our national misery and are running around celebrating their election win already, without anyone having yet cast a vote, but let us see whether their record justifies their confidence.
"It believed its own demented propaganda about ending boom and bust".
He is exactly right: Labour did believe that demented propaganda. However, the Conservatives believe the same demented propaganda. Talking about the Iraq war vote, it is only now that they turn round and say, "We were so convinced by the sincerity of Tony Blair. We feel very upset that he's let us down." After all, why else would Mr. Cameron, Mr. Osborne and others have as their central policy—until it collapsed in the past few months—that the Conservative party would "share the proceeds of growth"?
The only way we could share the proceeds of growth indefinitely is by believing that there would be a continual boom and no prospect of bust. If the Conservatives thought that there would be an economic cycle of boom and bust, they would have to say that they would share the proceeds of negative growth, and I have never heard a Conservative spokesman once mention that. What the Conservatives said was predicated on the assumption that growth would be permanent. In the debate on the Finance Bill exactly a year ago, I warned the Conservatives of the folly of matching Labour's spending commitments. I said that simply, clearly and in black and white. I was ignored on that occasion, and told that it was an article of faith for the Conservatives to stick to the Labour party's spending commitments, but then, a few months ago, they came up with exactly the opposite policy, having heeded my warning.
The Scottish Nationalist Member tells me to keep it short when coming up with ways to try to balance the Budget. I am afraid that that will not do. It is all very saying that, but one day the taps will have to be turned down a little bit in Scotland. We cannot go on spending so far above our means. When the hon. Gentleman says, "Keep it short," he is showing a complete lack— [ Interruption. ] Perhaps I need to go through this again: we are borrowing £480 million every day, so just a few little— [ Interruption. ] A Conservative-SNP coalition thinks that everything can be done by saving a bit of money on spin doctors, but I am afraid that the problem is much more serious and grown up than that.
When I said, "Keep it short," I meant the hon. Gentleman's speech. I look forward to hearing the explanation, and, yes, I know how much the debt is, but is he now committing his colleagues in the Scottish Parliament to voting for Labour's spending cuts or is he prepared to continue to support his Front Benchers here, who believe that we need a fiscal stimulus and that we should not make cuts in the teeth of a recession?
I am not telling my colleagues in the Scottish Parliament anything. We have a system of devolution, which I thought the hon. Gentleman was in favour of, as far as it went, and they have to make their own decisions. The facts of the matter are that, on the Government's optimistic assumptions, we are borrowing almost £500 million every single day. It is not good enough for either the SNP or the Conservative party to come up with a few little, piecemeal measures—the scale of the problem is far more substantial. The reason the Labour party was able to sail the ship of state towards the rocks with its Budget was the pathetic "me too-ism" of the Conservative party, which has given Labour an alibi throughout the past year and a half.
The hon. Gentleman has just accused the Opposition of talking the economy down, but he keeps going on about this £175 billion. I am the last person to want to talk down the scale of the Government's debt problem, but when we come to address it in future fiscal policy will he acknowledge that a significant part of it—in fact, the majority—is a cyclical deficit? If we are going to have a serious debate, we need to address the £50-odd billion of structural deficit that will survive the recovery.
There is both the cyclical deficit and the structural deficit. In time, the automatic stabilisers that people talk about so often will, I hope—this is what the Government say in their borrowing figures—address the cyclical element, but there is a need to address the structural shortfall as well, which is the whole purpose of the wisely worded motion that the right hon. Member for Birkenhead, my hon. Friend the Member for Twickenham and I have tabled.
May I remind the House of the figures that I gave earlier? The Government think that we will be back in growth. The National Institute of Economic and Social Research thinks that we will have tax revenues of 38 per cent. and expenditure of 48 per cent. The structural imbalance in our national accounts is so much greater than the cyclical.
I completely agree. That is the point I was trying to make.
I am pleased that there are members of the Conservative party who have woken up to the dangerous situation. I am not surprised that it took the Conservatives a while. After all—this is the point I was trying to make when I said they had given the Government the covering fire they needed—it was the Conservative party leader who boasted that he was the "heir to Blair", but it was the previous Prime Minister, Tony Blair, who presided over the situation in which we now find ourselves. My message to the Conservatives is extremely simple: we need a change of Government, not an imitation of this Government. If the Conservative party regards itself as the "heir to Blair", our party will have to do better.
As we were sailing towards the ruinous position that we were in, did the Conservative party warn of the steps that needed to be taken? What was the Conservative leader saying? He was making speeches about sunshine winning the day and claiming that GDP was no longer important, because we ought to be concerned about GWB, which stood for general well-being. GDP was passé; the new Conservative party was not worried about growth. The leader of the Conservative party identified his main priority for retailers, whom we hear so much about, as being where they should locate chocolate oranges in their stores so as not to encourage obesity in their customers.
As unemployment rises towards 3 million, perhaps the leader of the Conservative party would like to revisit his view that GDP is all in the past. Perhaps he could talk to some of those unemployed people and tell them how old fashioned it is to want the economy to grow. Perhaps he should talk to some retailers, or the former staff of the boarded-up Woolworths stores around the country, about the Conservative party's big priority for retailers, which is not about giving them the opportunity to be competitive, but about politicians micro-managing the exact location of confectionery in stores.
I did not think it possible, but the hon. Gentleman is giving the Chief Secretary a run for her money in distorting and caricaturing the Conservative position. At no point did the Leader of the Opposition say that GDP was not important. He has always known the central importance of the economy, but he quite rightly wanted to show that Conservative Members have always been interested in wider social issues too, and in the country's general well-being. I hope that the hon. Gentleman will not again caricature the Leader of the Opposition or the Conservative party in such an unfounded and unfair way.
On that precise point, I have been reading the Conservatives' "Quality of Life" report, commissioned by the Leader of the Opposition and written by a Conservative candidate. It was designed to tell us what the Conservative party would do in government, and its message on the macro-economy was— [ Interruption. ] Some Conservative Members may not have read the report. It attacked the Government's growth assumptions, but its author said—
On a point of order, Mr. Deputy Speaker. I seek your guidance, but we have moved on to the Conservative party's "Quality of Life" report and we are supposed to be debating the Second Reading of the Finance Bill. Have we wandered off track?
I will, Mr. Deputy Speaker, but I was half way through a quote that is directly relevant to the debate. The report said that
"ever increasing material gain can become not a gift but a burden".
It must be such a drag, darling, to have so much burdensome money. It is all very well the Conservatives brushing the author off as a joke, but he is a Conservative candidate who speaks for the party.
I am not sure what that was all about, but the hon. Gentleman knows that the document to which he has referred is not a Conservative party policy document but a discussion paper prepared by a group of people asked to submit ideas and proposals to the party leader. That is a how a serious opposition party goes about its business.
Order. Perhaps the hon. Gentleman did not hear my earlier remarks. If he did, I ask him to bear them in mind and adjust his speech accordingly.
I am grateful for your guidance, Mr. Deputy Speaker. I will not dwell on the report, and I will drop the section of my speech in which I was going to talk about the Conservative proposals to abolish mortgage market regulation because I recognise that Conservative Members find that difficult. I will also drop the section devoted to the extra spending on the NHS of £28 billion every year that the Conservatives are promising, and on the subject of debt—
Order. The hon. Gentleman is in danger of making the Chair rather exasperated. He is trying to make his remarks tangential, but that is not really what we expect. Perhaps he will now address the Second Reading of the Finance Bill.
No, because I have been asked not to speak about the report that the right hon. Gentleman authored. No doubt he will have opportunities to speak about it later, but I want to speak about debt. I have said throughout that it is the theme of my speech, and it is a great concern for everyone in the country. My party is the only one to have spoken—consistently, perceptively, sensibly and in a measured way—about the huge debt that we face, and our predictions have been accurate. In a debate in this very Chamber on the economy and the housing market initiated by the Liberal Democrats on
"Our expectation, as set out in the Budget, is for sluggish or flat housing price growth this year. The Liberal Democrats do no one favours by scaremongering about 25 per cent. falls."—[ Hansard, 2 April 2008; Vol. 474, c. 827.]
Earlier, she had said:
"According to the motion, we are facing 'an extreme bubble in the housing market' and the 'risk of recession', and we must 'act to prevent mass house repossessions'... Fortunately for all of us, however, that colourful and lurid fiction has no real bearing on the macro-economic reality."—[ Hansard, 2 April 2008; Vol. 474, c. 825.]
In other words, the Liberal Democrats called it right, and the Labour party called it emphatically wrong. On that occasion, I think that the Conservatives were not sure. Of course, if he did not share them himself, the Prime Minister could easily sack the Exchequer Secretary for making those assumptions. However, it is up to her to decide whether she is able to carry on in her post.
As Scottish National party Members and others noted, Britain needs some serious measures to weather the storm. The Conservative party is so hamstrung that it is unable to make the necessary suggestions. Indeed, if Conservative Members had had their way, the deficit would have been even bigger than it is— [ Interruption. ] Does Mr. Hammond want me to give way?
Very well, but I remind the House what the Conservative shadow Chancellor was saying in 2001. The essential question is whether we saved enough money when the economy was growing to afford a recession of the current magnitude. The hon. Gentleman always talks about fixing the roof when the sun shines, and it is a crucial point. The economy was growing very strongly in 2001, and one would have thought that the Conservative shadow Chancellor of the day urged the Government to save more money. Instead, he said:
"Analysts believe the Chancellor has about £5 billion more than he thought. It is perfectly possible to cut the fuel tax this year without any impact on Government spending or public services. Everyone knows that Gordon Brown has a war chest."
That was the Conservatives' position in 2001. Essentially, they were telling the Government to do the precise opposite of fixing the roof while the sun was shining.
Thank you, Madam Deputy Speaker. My point is that we cannot afford to live beyond our means indefinitely. There is a fundamental structural deficit as well as a cyclical deficit. Neither the Labour nor the Conservative party has addressed it, but we must do so because, if we do not, the consequences for public sector spending will be very grave, as will be the impact on people's quality of life and on what they have become accustomed to.
That is why, with the right hon. Member for Birkenhead, my party has tabled our amendment today, and why we have started a national debate on our national priorities. We want to talk about what can be scrapped and what we can no longer afford in the medium term. There has to be greater discipline, because we cannot afford to live way beyond our means. I shall go through some of the cuts that we will have to make—
No, because I keep being told that I am meant to be talking about the Bill.
I do not think that we should go ahead with identity cards. The Labour party is committed to them, and the Conservatives were committed to them although they now say that they are not. I do not believe that we should be committed to them. I think that they are unaffordable. That was the first item.
We should also scrap the baby bond. There are people who will not like that message. They will say—
On a point of order, Madam Deputy Speaker. One of the weaknesses of our scrutiny of taxation and expenditure is that we do not have any effective say on Government spending. This Bill is about taxation and tax raising. It has nothing to do with the distribution of Government spending.
I am grateful to you, Madam Deputy Speaker. As I understand it, the Government have introduced the new tax measures—the 50p top rate of income tax, the abolition of pension relief for high earners and a whole raft of other measures—because of the catastrophic borrowing figures. I have been asked by MPs of all parties what we can do to make those figures less catastrophic. I do not wish to challenge anyone's authority, but that seems to me to be entirely central to the Bill. The right hon. Member for Birkenhead made a speech all about debt, rather than about the specific tax proposals, but these matters are obviously interrelated.
From memory, I think that the baby bond costs about £500 million a year, and we need to ask some hard questions about that. Can we afford such measures? I sat on the recent Statutory Instrument Committee in which Labour and Conservative Members supported it, but I do not think that it is affordable. Can we afford to continue paying tax credits to people earning far higher than average wages? The Government obviously think that we can, otherwise that policy would change. My understanding is that the Conservative party does not dissent from that view. I say to the other two parties that we cannot carry on spending that amount.
We also need to review our military commitments. Some people in the Conservative party think that we should scrap Trident; some think that the fleet should be scaled down from four to three. That is the debate that we should be having. Can 50 per cent. of young people in this country go to university? There are many more questions, but I will move on.
The Labour Government wanted the state to do more with more, but that is in the past. We are not even in a position now to try to do more with less. We are now in an era in which this and subsequent Governments will have to try to do less with less. At the same time, our tax system needs to incorporate greater fairness and greater incentives to work. Labour's recession cannot be used as an excuse to avoid helping low and middle-income earners to make work pay. One of the worst features of the Budget and the Finance Bill is the impact they will have on people on relatively modest incomes. That is why the starting threshold of about £6,000 for income tax is too low—it should be £10,000 a year. We need to come up with ways of rebalancing the tax system that are more ambitious than those in the Budget, in order to give people on low and middle incomes greater opportunities to keep a higher proportion of their household income, and greater incentives to work.
If the starting point for the basic rate of tax went up to £10,000, what would the net cost and revenue be? Can we look forward to an amendment on this next week, or in Committee?
Of course there would be costs attached to that measure, but my party has identified how it would pay for it— [ Interruption. ] Members are being critical, and I hear the Conservative spokesman saying that he does not approve of this suggestion. It has broad support, however. I have here a letter addressed to "The Rt Hon N Clegg MP". It says:
"I was interested to hear what you were saying on Radio 4 today...concerning proposals that should be in the Chancellor's Budget on Wednesday. I was delighted that you proposed a doubling of the annual tax threshold to £10,000. I have been advocating a similar proposal...Until now I have felt a very lonely voice...I am glad that at least one Party is now in agreement!"
That letter was from Norman Tebbit. The point that I am trying to make is that the idea— [ Interruption. ] No, he is not a spokesman for his own party; of course he is not. The idea that this is some sort of fanciful left-wing idea being suggested by the Liberal Democrats and that the Conservatives could not conceivably countenance it simply is not true. They just lack the boldness and ambition—
I will not give way, because the hon. Gentleman spoke for over an hour. He keeps leaping up to try to stop me making all kinds of constructive points, and I am tired of what he has to say. If he cannot get what he has to say into over an hour, perhaps he needs to rewrite his speech.
The Finance Bill—
No, I have already given way to the hon. Gentleman several times as well. Shall we all move on? [Hon. Members: "Yes!"] Okay.
The Finance Bill is the postscript to Labour's 12 years of missed opportunity. For me, the conclusion is that there will be a legacy long after Labour has left office. People expect the general election to be next year, but they will be paying back this debt for years afterwards. The Labour party will be greatly damaged as a result. The proposals in the Bill do not address the scale of the debt, the scale of the income disparities in our society or the disincentives for people on low and middle incomes to work and be rewarded for their work.
The Labour Government have presided over a disastrous unbalancing of the budget, and the legacy will be deep cuts for those whom they purport to represent. At the moment, people say to me, "It's very difficult in the private sector, but the public sector is insulated from the full consequences of this recession." I am afraid that, given another 18 months to two years, the private sector might well be seeing the benefits of the economy returning to growth—albeit at lower figures than the Government estimate—but there will have to be deep cuts in the public sector to make the books balance. That will be the Labour Government's legacy for many years after they have left office. The consequence will be that progressive politics in this country will come to an end unless my party can seize the mantle and resurrect the voice of progressive politics that was brought into disrepute by a Labour Government who ultimately ran out of money.
I am not sure that we would get progressive politics from a Liberal Democrat party that seems intent on massively shrinking the state. Nevertheless, it is important to debate the size of the state, as we did in the Budget debate and as we are doing on the Second Reading of the Finance Bill, and the kind of things that it provides using taxpayers' money, and that it does not provide, and how it pays for those things.
Let me draw on my own past by way of illustration. In my early 20s, I spent several years as a truck driver and a bus driver. Thanks to a strong trade union, the Amalgamated Transit Union, in which I was actively involved when I lived in Canada—I continue to be a member of the Transport and General Workers Union and now Unite—we were the second highest-paid bus drivers in the world. In the early 1980s, I was taking home £10,000 a year. I saved a lot of that money, and I went to the Birmingham polytechnic, as it was then called, to study law. I had two years' study at the polytechnic, followed by two years as what was then called an articled clerk. After I qualified, I was a moderately low-paid solicitor before working my way up into partnership. So it probably took me over 10 years to get back to the economic position that I would have been in had I continued as a bus driver throughout that time. But I did get ahead, so that is an anecdote about investing for the future. I think that that is what we and this Government are faced with. Frankly, if the Conservatives were to win the next general election, they would also be faced with the issue of what the state does for the people who live within its borders: first to invest for their futures, and secondly to assist individual residents in investing for their own futures.
When the Prime Minister was Chancellor of the Exchequer, he talked about abolishing boom and bust. I think we have to be careful about the way in which we use and interpret that phrase. I have to say that I never understood or interpreted the Prime Minister, as he now is, to be saying that through the economic policies of a Labour Government in one country among hundreds, we could abolish the cyclical nature of capitalism. Whether or not one accepts Kondratiev's theory long waves of about 40 years or alternative models, it is clear that capitalism for the last 250 years, in its fairly modern incarnation, we might say, has always been cyclical.
My interpretation of the abolition of boom and bust was that it was more about lessening the troughs and lowering the peaks, if I may put it in that rather graphic—I use the word in its true sense—way. I think that this Government did a pretty good job of that. We did not have a boom and we avoided the two recessions in the early part of the previous century that were evident, for example, in the USA. We were not booming in the way China or India have been, with 10 per cent. growth. Superficially attractive as that sounds, if we had had 10 per cent. growth, it would have created big strains on our economy and society.
In this financial year, we are looking at economic contraction of up to 5 per cent. That is absolutely devastating for people who are losing their jobs, for businesses that are closing and for some people's standards of living, but it does mean that 95 per cent. of those in the work force are carrying on working. In terms of where we are as an advanced western industrial capitalist country, we need to bear in mind how deep the trough of this bust is. [Interruption.]
I hear a sedentary, almost sotto voce, comment from Mr. Browne about what all this has to do with the Second Reading debate of the Finance Bill. Well, we are facing difficult times and there are very worrying figures in the Budget about the massive amount of borrowing that is going on, as the hon. Gentleman himself graphically put it when he mentioned £480 million a day and £175 billion of borrowing for this year and almost the same figure next year.
In examining a proposition, way forward or proposed course of action, however, I was brought up to examine alternative courses of action to test whether the proposed course—whether it was suggested by a parent, a teacher or whoever—was suitable. It is always a question of looking at the alternatives as well as at the proposed course of action.
When it comes to alternatives, what do we find advocated by Mr. Hammond, the shadow Chief Secretary to the Treasury? I have to tell him that he put forward a platitudinous position—transparency and certainty in taxation, simplification, a competitive tax regime, efficiency savings, the shibboleth of "tax neutrality" and so forth. They all sound wonderful, but one needs some flesh on the bones. I did not see much flesh being given straightforwardly, but I did see a "drip, drip, drip" in the hon. Gentleman's speech in respect of tax cuts. That is an understandable proposition to advance when faced with our economic situation. I do not think that it is a very good way forward, however; it may be coherent, but I think it is wrong.
I do not want to be accused of being superficial or platitudinous, so let me mention fuel duty, bingo, corporation tax, inheritance tax for the very wealthy, state aid for venture capital trusts—okay, that is not a tax cut, but a spending commitment—cutting taxes on savers, cutting alcohol duty, not accepting pensions tax relief proposals at the higher rate and not accepting the 50 per cent. top rate of tax, which I agree is not a tax cut; it is a rejection of a tax rise.
I am a Labour Member of Parliament. I am not in a position to estimate the size of what I believe are broadly tax cuts proposed by the Conservative party today. I cannot say what the figures are. We were not told the figures, notwithstanding what the hon. Gentleman implied. I can say, however, that if the proposals were implemented they would reduce Government revenues further. Unless Government spending were cut massively, a deficit that I think we all agree is huge and worrying would be even greater.
There are contradictions in what the Conservatives say we should be doing about taxation and spending. There are the tax cuts to which I have adverted, and there is also the clear implication that the Conservatives would maintain public services. They cannot do that by means of efficiency savings, which is another of the terms that we like to bandy around. I was astounded when the hon. Member for Runnymede and Weybridge belaboured my right hon. Friend the Chief Secretary with the question "Why do you not bring the efficiency savings forward to this year?" That is like saying "Instead of buying a new car next year, why do you not buy one this year?"
Efficiency savings are not like that, particularly in large organisations. I should have thought that the Conservatives would understand that, given that they are constantly trying to impress on the House how much they know about running organisations. They overlook the fact that some Labour Members have also had significant experience in the private sector and in large organisations. Efficiency savings almost always mean changing the ways in which in which individual human beings work, whether it involves different equipment, different work-flow patterns or anything else. Those things take time. It is not possible to say "We will do them tomorrow, because it is convenient and we will save money." Life is not like that.
I have described one of the contradictions in the views of those on the Conservative Front Bench: the tax cuts and rejection of certain revenue-raising measures in the Finance Bill along with the implication that services will be maintained. Another contradiction—of course, we also see it in the other parties; I learned years ago that all of us, as human beings, have a great capacity to live with huge contradictions in our personal lives and political beliefs—is that Conservative Back Benchers are standing up and asking for measures that would cost a Government money. Dealing with child poverty and increasing spending on international development are laudable activities, but they cost money.
While Tory Back Benchers are, in a sense, asking the House and their own Front Benchers for further spending commitments, the Front Benchers, in contradistinction, are at best going for stasis and at worst going for cuts. I think that that is a huge contradiction, which needs to be resolved in the Conservative party before it is fit to run the country.
The situation is even worse than that. Where the Conservatives are in opposition at council level, they also come up with all kinds of uncosted items requiring additional spending. Conservative spokesmen from the House support their local campaigns for extra public spending that is completely unmatched by any extra revenue.
I agree. I am somewhat surprised to agree with a Liberal Democrat about council spending. I can tell the hon. Gentleman that in May 2008, sadly, a Liberal Democrat-Conservative coalition took control of the council in my natal city, Wolverhampton—the city in which I live, and which I represent—and what is it doing? It is cutting all kinds of things all over the place. It is making millions of pounds of cuts. When either the Liberal Democrats or the Conservatives were in opposition, however, they decried Labour for not spending more.
That is what happens when a Tory-Liberal Democrat coalition takes control: big cuts are made. I am talking about what happens at the micro-level, of course. You will know about it, Madam Deputy Speaker, because you represent an area close to Wolverhampton. That is what happens, and it is what I think would happen if we had a Conservative majority Government after the next general election. What I am saying is not simply conjecture. It is to do with what has been said about the Budget, what has been said about the taxation measures in the Finance Bill, and what is being done in my home town.
I do, however, agree with a critique of this Finance Bill which has applied to many other Finance Bills. I say that as one who, as some Members know, has had the great pleasure of being a member of six Finance Bill Standing Committees over the years. It is true that we have experienced too many tax changes—not just under the present Government, although they have probably accelerated the process—and our tax regime is too complicated. Part of the reason for its being too complicated is the fact that the rich keep paying accountants to come up with loopholes that they can then exploit, quite legitimately—if, to my mind, often immorally. Those loopholes have to be closed, and the more that are closed, the more complicated are the avoidance schemes that the well-paid accountants come up with. More complicated measures are then needed to close the additional loopholes. The cycle goes on, and the tax books and the tax legislation become thicker and thicker.
I think that there is more than a grain of truth in the critique that there is too much chopping and changing and the regime is too complicated. I am saying that to my own Government. However, this year's Finance Bill confronts me with a measure that attempts to implement a difficult Budget which was introduced in extremely difficult times. The background to that is the fact that, as I understand it, the accumulated national debt of the United Kingdom doubled between 1992 and 1997, under the last Conservative Government, and under the present Government—my Government—the accumulated national debt will double over the next five years. We have paid off some of it, and the economic expansion took care of some of it, but we are now proposing to double it so that, in round terms, the accumulated national debt will reach an amount equivalent to 80 per cent. of gross domestic product.
There is no doubt that that is a huge increase. No Labour Member has any illusions on that score. We all know that it will be very difficult for our society and very difficult for our economy. However, I think that we also need some figures with which to compare it—the figures for the accumulated national debts of our main competitor economies. I refer not simply to economic competition, but to building the kind of societies in which I think many of us throughout the House would wish to live.
When it entered the current world recession, Italy's accumulated national debt—I must confess that I have been to Italy only once, for a long weekend in Milan, which was very enjoyable; I am not a Chiantishire type—was more than 80 per cent. of GDP, while ours, in round terms, was in the low 40s. I put it in that way because, first, I do not know the exact figure, and secondly it is very difficult to obtain the exact figure. As Members will know, I believe that PFI contracts should be included in the national debt, and I think that there is consensus on the fact that our accumulated national debt was in the low 40s as a percentage of GDP if the Government's PFI liabilities were included. If we double a percentage in the low 40s, we reach 80 per cent.
Again, in round terms—I speak from memory, and I stand to be corrected—the accumulated national debts of both France and Germany were around 60 per cent. of GDP. It is more difficult for me to get a handle on the accumulated national debt of the United States, because it has 51 jurisdictions with tax-raising powers—50 states and one federal Government in the district of Columbia—but I estimate it at 60 per cent.-plus. There are many different ways of calculating the amount: it will depend on whether local government borrowing is included, for instance.
The percentage in my beloved Canada was far lower, although that, too, is slightly difficult to get a handle on, because Canada has about 13 tax jurisdictions. The low figure is due to a Liberal Government, not a Conservative Government. They are engaging in deficit financing and fiscal expansion, albeit from a much better position in terms of accumulated national debt. The percentage in Japan was far higher. Someone may know the exact figure, but I believe it to have been about 90 per cent., if not more. It may even have been more than 100 per cent.
So where is our country going to be in five years' time if the Chancellor's figures pan out? I appreciate that that is a big "if"; people have said that, and I agree with them. We are trying to look five years down the road and no one has a crystal ball, because if they did they would make a fortune at the race track—and I do not think the Chancellor of the Exchequer has done that. We expect to have about 80 per cent. of GDP in accumulated national debt. That is a big burden, but its order of magnitude is lower than the likely figures for all our G7 competitors except Canada. In comparative terms, therefore, I am somewhat less concerned than I might otherwise be about the accumulated national debt.
As always, what the hon. Gentleman is saying is very thoughtful. He is focusing on the national debt and comparisons with competitor countries, but does he not recognise that it is not simply the debt level that is important? The US dollar is a reserve currency, and that changes the dynamics, as does the fact that other countries have balance of trade surpluses. Is it not the case that there was a combination of circumstances in the UK that made going into this recession particularly difficult for us, such as our very high debt levels and massive balance of trade deficit, and the fact that sterling is not a reserve currency?
I am not as expert on the trade deficit as the hon. Gentleman; he takes a greater interest in finance matters than I do—although, as he knows, I do take quite a bit of interest in them. The UK balance of trade deficit has been worrying under Governments of different political colours ever since I studied for an economics A-level in the early 1970s. The balance of payments has been less worrying, partly because of the—arguably overblown, particularly in recent years—finance sector in the UK, and also because of other invisibles such as those to do with my profession of law. He is right that the balance of payments was a factor to take into account going into this recession, but—through choice, not fortune—the UK is not part of Europe in respect of its currency, and there has been a fairly significant devaluation of sterling in the last nine months. That is, of course, partly a reflection on our economy, but partly not; it is also partly a result of whim and speculation, and sterling has recovered a little recently. There is a small safety valve in this, however, although it was vastly overdone by Governments in the '70s and '80s.
The balance of trade deficit for the last two years was £46 billion and £44 billion, so it was basically unchanged even without the devaluation. It is forecast to be £49 billion next year, and the balance of trade deficit in goods is forecast to be in excess of £90 billion, so although there is a safety valve, it might not be all that the hon. Gentleman is imagining it to be.
I will not go down this track much further, because if I did we would stray far from the Second Reading of the Finance Bill. I simply say, as an MP representing a west midlands constituency, that if our Government and society were able to do more for manufacturing, that would address some of the trade issues to which the hon. Gentleman refers.
I support Keynesian counter-cyclical spending—and we are getting that big-time in this Budget and Finance Bill, with their tax measures—because at the end of the day this issue is all about people's lives. I am not talking about the general well-being index; this is about jobs, homes, families and people's feelings of security. I have talked about different courses of action. Do I think that 24 years from now—or when the hon. Member for Taunton is 62 years of age, as he said—our society and our people's well-being will be better than they would have been if we had slashed Government spending, delayed the economic recovery and left people, particularly those who are most vulnerable, without the services they need? I referred to crystal balls earlier. I do not have a crystal ball, but we need to have a sense of history. With the notable exception of Germany, most western Governments did not pursue counter-cyclical spending in the dirty '30s, and we know where that approach led. This is a gamble, but, particularly in terms of vulnerable people's lives, I think the Government are absolutely right to engage in counter-cyclical spending in order to maintain services, invest for the future and build for tomorrow. This Budget and this Finance Bill are good steps in that direction.
Rob Marris made a very thoughtful speech, even if I did not agree with all, or indeed, much of it. The answer to the central point that he makes is that very high levels of deficit and, indeed, very high levels of public spending, are probably unsustainable in the long run. There is no way of getting around that, and those things have had to be addressed. That is the central issue that we are debating today.
Everyone is agreed that the country is in a huge financial and fiscal mess. The question is whether Labour should be entrusted to clean it up after the next election or whether the Conservatives will be. That is really what the Budget and the Finance Bill are all about, and they will be judged on that basis. The Chief Secretary to the Treasury, who is no longer in her place, suggested that no policy but the Government's could be followed. Her speech sounded more like that of an Opposition spokesman than that of a senior Minister; it was, as one Member put it, something of a rant. However, I shall briefly respond, in general terms, to some of the sense of her points about how the Conservatives should, as I hope they would, address the key issue: public expenditure control.
My view, which I am confident is that of my party, is that we have to bring public expenditure back under control if Britain is to avoid relegation to second or third division status as a country. The reasons for that are obvious: we cannot hope to be a leading economy while we are saddled with such huge public debt and the cost of servicing it. While our deficit is so large we are vulnerable to the markets, which may demand a premium to service that debt. The relationship between the debt and the very large deficit is crucial. We cannot remain globally competitive with such high taxes and spending as a proportion of gross domestic product in the long run.
Restraining public expenditure will be tough—some are already suggesting that it is too difficult—but it has to be done, and it can and has been done. In the 1980s, I worked for more than four years on public expenditure control and saw how it was done. It will mean the same things this time as we had last time: a very tight envelope set by the Cabinet at the beginning of a spending round; a return to Star Chambers and, probably, to annual rounds; and a change in the mindset of Whitehall, which has been encouraged to abandon a valuable and difficult-to-construct culture of thrift—sadly, that went with the attempt just a few years ago to get Departments to spend money and to castigate Departments that ended up failing to get rid of their annual quota.
Getting public expenditure under control will also require an enormous amount of determination and will from both the Prime Minister and the Chancellor—whoever wins the next election. Are the Conservative leadership up to it? I believe that they are, and there is some evidence to support my view. First, last November, when the fashionable mantra, followed by the Government, was for a further large fiscal boost on top of the automatic stabilisers, the Leader of the Opposition stood out against it. He said what we all know in our hearts: that we cannot carry on racking up debts indefinitely. It was a courageous economic and political judgment that he made, and it looks now as if he will be proved right. I do not rule out in all circumstances the need for a fiscal stimulus, in addition to the stabilisers that are already working, but the right circumstances are not in place at the moment and the G20 was right to thwart the Prime Minister's attempt to obtain one at this time.
A second sign of courage from the Leader of the Opposition has been his decision to tell the electorate what public expenditure control really means—that is something that the Government have failed to do. He has described it as nothing less than a period of austerity. We did not hear any of that from the Treasury today. When the forces demanding more spending appear so remorseless, that takes considerable guts. We will do that—indeed, we are already doing so—because it is the right thing to do. It is the start of a crucial period in which the electorate will adapt to a more trustworthy and direct style of politics, and to the reality that public expenditure control will not be easy.
I do not intend to linger on the Conservatives' plans, not least because of earlier exchanges with the occupant of the Chair, but we have committed ourselves to all that we can reasonably do at this stage—a year out from the election—in explaining what we will do. We have said that we will get rid of ID cards and abandon big IT projects such as the NHS IT scheme. As the hon. Gentleman has just pointed out, we will also look at quango salaries, the Government advertising budget, the consultancy budgets and many other things. I could go on, but I shall not do so.
The test that the electorate will apply in gauging the relative merits of the two policies on offer is who they can have confidence in when it comes to getting the deficit under control and getting the debt down. I have argued that the Conservatives have been much more straightforward about that, even in opposition, than the Government. I have said that the Conservative leadership is up to the challenge and has been frank about it. Are the Labour Government up to it?
I have listened to the Prime Minister speak about the economy for many years. He considers himself to be an economist, and he is certainly an intelligent man, but I have worried for a long time that some of his remarks on the economy suggest that he is a little detached from reality. That detachment began early and was well entrenched before he came out with his famous recent slip that he was saving the world.
When the Prime Minister was Chancellor, and shortly after Labour's second landslide victory of 2001, he wrote a foreword to a book published by the Treasury and edited by his then loyal lieutenant—I am not sure whether he is still loyal—Ed Balls. In that foreword, the then Chancellor wrote:
"In 1997, as in 1944, a new paradigm was required."
The House will recall that 1944 was the year of perhaps the grandest of all grand economic projects with the creation of what became known as the Bretton Woods project for the complete reconstruction of international economic activity. The Prime Minister, then Chancellor, was saying in effect that he was the man for the hour—he was John Maynard Keynes, Harry Dexter White, FDR and Churchill rolled into one. In the same way as the allied powers set out to prepare the Bretton Woods system, so he had set out in 1997 to reconstruct the global economic architecture. There is no little hubris involved in such a remark. It was not even a flip remark, but one carefully crafted for the foreword to a book published by his Department.
The book gets much more interesting and becomes very pertinent to this debate and to the boom and bust that has led to this crisis. In the same foreword, the Prime Minister went on to say that we needed
"far more effective mechanisms for crisis prevention" and that we needed to pay
"far greater attention to financial stability".
If only he had done so. The introduction to the book—
I would be grateful for the opportunity to give one more quotation, Madam Deputy Speaker. I hope that you will find it of some interest and pertinence. It says that
"in the years to come as the UK experiences various shocks it will be possible to assess in more detail the strengths and weaknesses of the new system".
That is the new system that we are now considering, which is in ruins. We are now trying to find a way of reconstructing it, of which the Finance Bill is playing a part. Let me go on—
The then Chancellor invited people to assess how well he was going to do in years to come—I am paraphrasing what I might have read out. We can now make such an assessment and this Finance Bill gives us part of the answer. That was an economic policy built not on firm foundations but on rhetoric and self-delusion, and it has been completely destroyed by the first recession that tested it.
My hon. Friend has been absolutely right to investigate in depth something that also interested me some years ago—an interest I share with Rob Marris—which is the importance of considering off-balance sheet finance in assessing the overall strains on the economy from the terrible mistakes that have been made. I completely agree with what my hon. Friend has just said.
I have just read out hubristic and delusional stuff from the then Chancellor, who is now Prime Minister and who seems unable to grasp the scale and depth of the crisis with which we are faced. The origins of the calamitous fiscal crisis that we are dealing with—this year's Finance Bill will be only the first step in a decade's worth of Finance Bills that will have to address that crisis—do not lie in the collapse of Lehman Brothers, the sub-prime crisis or even the spending spree in which Labour has engaged in the past few years. The origins lie at the heart of new Labour and its rhetoric and at the translation of this rhetoric into a policy that, in a succession of big spending Budgets starting in 2000, has left the public finances in a parlous state.
It should be recalled that new Labour won the public's confidence in 1997 by promising the country that it would honour Conservative spending plans. That was the origin of "prudence with a purpose". Of course, it was in 2000 that Labour felt finally able to be released from those shackles. The then Chancellor initiated what I think—although I might be contradicted by the Financial Secretary—was the biggest sustained spending binge in peacetime. Public expenditure has risen by a little under 50 per cent. over that period.
In a debate on the 2000 Budget, I said:
"Everybody welcomes increases in public spending, but they are only worth having provided...they are affordable over the cycle and that the higher spending in the long run does not end up lowering the long-run growth rate...Control of public spending is very difficult to manage and easy to lose. It takes only a small flicker over the business cycle...and public spending becomes extremely difficult to control.
The problem is that Labour is in a state of complete denial about the existence of cycles. The Government say that they have put an end to boom and bust and that somehow they are not in a business cycle."—[ Hansard, 27 March 2000; Vol. 347, c. 96.]
What I find so interesting about those remarks is not that I said them, but that I could have read them out for any Labour Budget, more or less over the past decade, and they are as applicable now as they were when I made them in 2000.
Of course, we have not just had a small flicker over the cycle; we have had a massive boom in spending, and we are now faced with an unprecedented squeeze. The question we have to address is whether this Finance Bill goes remotely far enough towards providing it. The Government are still, if the truth be told, in a state of denial about the scale of that needed squeeze and its origins. When, only a few days ago in the Treasury Committee, I asked the Chancellor whether he could confirm that the Red Book announces Labour plans to cut public expenditure in real terms, he seemed in a state of denial about it. He would not answer the question. But the Red Book does indeed confirm real-terms cuts in public expenditure over the planning period if Labour is elected. Still, the Red Book fails to provide the information directly; it requires quite a bit of addition to obtain the total managed expenditure line for the forward years, but it is in the Red Book. The Government have announced cuts in real terms in public spending.
Just to be clear, this Budget and the Finance Bill are not making cuts in previously announced Labour increases; the Red Book is announcing real-terms cuts after taking account of inflation. This is a profound shift in Government economic policy. In fact, I now think it is the biggest U-turn in fiscal policy since the IMF imposed cuts in 1976.
Does my hon. Friend share my concern that these real cuts, about which in many ways the Government seem to be in denial, will not focus on areas where we could save billions of pounds of taxpayers' money, such as ID cards, which the Government seem keen on pursuing, but may well eat into the front-line services that the Government continue to accuse us of cutting into?
That is a very interesting point. I had no idea that my hon. Friend was going to raise it, but if he turns to page 35 of the Red Book, if he has one to hand, he will see bar chart 2.2, in which he will find a row of four white bars—empty. Those empty bars represent a series of spending measures—possibly—or tax rises that are required to balance the cyclically adjusted current Budget, which the Government are not prepared to talk about or provide any flesh for. Indeed, those are the very numbers with which a number of Labour Members have been challenging the Conservatives to come forward as part of this debate.
My hon. Friend is probably reflecting the point I was going to make. I appreciate that we are not allowed to use visual aids, Madam Deputy Speaker, but the empty bars, which anyone can see in the Red Book, perhaps reflect the empty detail with which the Government are pursuing the future cuts that they keep accusing us of—should they ever be re-elected, which I doubt.
The truth is that all the tough stuff is not in this Finance Bill; it has all been put by until after the election, on the grounds that if by some miracle a Labour Government are handling it, they will worry about it when it comes; otherwise they will leave it for some other poor party to sort out, which will be us, I fear. It is very much a repetition of what we had in the period 1974 to 1979.
The cuts in public expenditure implied by what I have just described, the rises in taxation, and the rise in the debt service burden, and the pain that all three will cause, are not wholly Labour's fault, but they are largely Labour's fault. That is quite simply because Labour ran a huge deficit through the boom phase of the cycle. That makes the bust far more painful than it need have been. That is the grim reality behind another statistic, hidden in the Red Book, about which there has already been quite a bit of debate this afternoon: nearly 80 per cent. of the deficit is structural, according to the Government's own figures. That is to say, on the Government's own estimate, as the economy recovers, only 20 per cent. of the deficit will be filled as spare capacity in the economy is taken up. The remainder will have to be accounted for by measures that the Government put in place, and which have turned out, over the cycle, to be unaffordable.
What the country desperately needed from the Budget and its measures was honesty about the scale of the crisis. If the Chancellor had been prepared to admit that the Government underestimated the dangers of coming out with the "end to boom and bust" rhetoric; if he had been straightforward about the size of the structural deficit to which I alluded; and if he had been straightforward about the real-terms cuts in public expenditure that he believes are necessary but was not prepared to talk about after the Budget, he would have begun to rebuild public trust in economic policy. We badly need a dose of the truth if we are to restore public confidence. Without that, there will be no lasting recovery.
The truth is that there never was any substance to the so-called fiscal rules. They collapsed at the first sound of fiscal gunfire. There never was much substance behind "prudence with a purpose"—remember that phrase? The plan in 1997 was probably always for a spending binge at the first opportunity. There never was much substance behind "spending to invest"—remember that phrase? The cuts in capital spending announced in the Budget, and the implications for the Finance Bill, tell their own story on that.
There is no substance to the fig leaf of the so-called temporary operating rule. I hope that you will permit me to quote from the Treasury Committee report produced this morning, Madam Deputy Speaker, since it is flagged as a relevant document to the debate. It is a Committee on which I sit, and the report is unanimous. It is worth the House's hearing what the Committee said about the temporary operating rule in paragraph 56:
"We do not see how the Temporary Operating Rule acts as any kind of constraint at all on the current fiscal decisions made by the Chancellor, and we struggle to imagine any course of action he might have taken in this year's Budget that would have been inconsistent with it...It is clear to us that the only real financial discipline that is currently imposed on the Chancellor is the opinion of the gilt market on the sustainability of the public finances."
That says it all. We are back to the bad old days, in which we are up against the buffers of what we can get away with in the markets, all the time. That is no way to run long-term economic policy.
Fiscal rules, prudence and spending to invest were all largely rhetoric, and they were largely from the realm of gesture politics. We can see that now. Unfortunately, the spending binge was all too real, as is the bust now following it. As the dust settles, we will see that Labour Members may have learned the language of capitalism when they were was last in opposition, but they never understood—that includes the Prime Minister—what it really means to regulate and run a successful market economy.
It is instructive to go back to the debate on the Finance Bill last year. At that point we had the forecasts from the 2008 Budget, which even at that stage demonstrated how little room for manoeuvre the Government had. They forecast a £43 billion deficit last year. The Chancellor actually had to borrow £90 billion. They forecast a national debt approaching £600 billion. The forecast now is for £1.6 trillion. They reported public finance initiative liabilities to 2030-32 of £189 billion. That figure is now £200 billion. They reported a colossal £87 billion deficit in the trade in goods. That is now rising to a £93 billion deficit in the trade in goods. Even with sterling weakened—15 per cent. down against the euro and 25 per cent. down against the dollar since last summer—the overall balance of trade deficit remains at £44 billion, unchanged from the year before, and is forecast to rise by 10 per cent. to £49.5 billion in 2009.
Those forecasts did not inform the Finance Bill. Since the pre-Budget report last winter, we have found out that the Government were out by £12 billion on last year's borrowing, out by £140 billion on the three-year borrowing forecast, and out by £400 billion on the medium-term national debt forecast in five months. That is an extraordinary set of figures. It is clear that there is likely to be a glaring black hole in the public accounts, not least because the revenue yield, which is intended to fund, at least in part, some of the spending commitments in the Finance Bill, is based on growth forecasts believed by no one, except, perhaps, members of the Treasury ministerial team—and I am not sure whether even the more sensible Ministers in the Treasury team take the prediction of 3.5 per cent. seriously.
There is little in the Bill or in the Chief Secretary's opening speech that would convince me that the Government understand, first, that cutting public expenditure in the teeth of a recession risks prolonging it and making it worse, and secondly, that a longer and deeper recession will make the job of balancing the books even more difficult in the medium and long term.
Does the hon. Gentleman share my concern, which I raised with my hon. Friend Mr. Hammond, that the Government, as the hon. Gentleman correctly said, have come up with some fantastical growth projections, saying that growth will be negative only this year—at, say, 3.5 per cent.—up 1.25 per cent. next year and perhaps 3.5 per cent. the next year? If the growth is not that great, a sensitivity analysis would show that tax revenues will drop. If tax revenues drop because the Government do not achieve their growth forecasts, they will have an even bigger black hole to deal with.
That is absolutely right, but even on a more vulgar analysis, a 1 per cent. shortfall in growth probably equates to close to £15 billion in GDP, about 40 per cent. of which would be tax. The revenue yield could be massively down, on even a vulgar analysis of those figures.
The Government are suggesting that the recession will end this year. Notwithstanding the fact that only a few weeks ago, at the time of the Budget, the OECD and Ernst & Young said that there would still be negative growth in 2010, the Government, all of whose major forecasts have been smashed over the past 12 months, are still labouring under the pretence that growth will be 1.25 per cent. next year and 3.5 per cent. the year after that, which I find extraordinary.
Since the OECD and the Ernst & Young forecasts, we have had the European Commission publication this week. It has downgraded its UK forecasts again to minus 3.8 per cent. this year, and a return to growth late in 2010, not by the 1.25 per cent. forecast by the Government, but by 0.1 per cent., if I have read the reports correctly. That would indicate a very long recovery—a shaky recovery. It will not be smooth or steep. It will be long and difficult, yet none of the plans in the Bill seem to take cognisance of any expert opinion at all.
We know that the backdrop to the Bill is the massive rise in unemployment, which is important for our constituents. In February, a record month, 138,000 people were added to the register, and 177,000 in a quarter. That is, in effect, 2,000 people a day added to the unemployment register under Labour in this recession, in the past three months for which figures have been published.
Although there were measures in the Budget speech that may help to create jobs in the future, not least the Chancellor's support for carbon capture and storage, there is not one word in the Finance Bill about carbon capture and storage or carbon sequestration, because, as with so many things, decisions will be taken in the future and implementation will take place years into the future.
The Bill does contain almost 20 retrospective measures, however. I do not intend to go through them today, because there will be time enough for that later, but all of them will have to be probed thoroughly. Some efforts to tackle tax evasion and avoidance may be necessary and welcome, but I am always sceptical on a point of principle about retrospective measures, and they will have to be examined very carefully, indeed.
The Bill also contains confirmation of the further rise in fuel duty, and it is interesting that the national policy chairman of the Federation of Small Businesses describes it in this way:
"Small businesses are the engine room of the economy, but they have been choked by the Budget with increases in fuel and alcohol duty incurring extra costs and little to help small firms struggling with cashflow."
It is instructive that the FSB describes the Budget increases as choking. It is quite extraordinary that the fuel duty increases are viewed that way, even at this time.
That is absolutely right. Returning to last year's Budget and the Finance Bill that followed, I think that the measures introduced only last year took £2.5 billion out of business. I suspect that the £500 million to which the hon. Gentleman referred made a large contribution to that £2.5 billion from business—at a time when it needed the money to invest as we went into the recession a year or so ago.
The Chancellor also said in this year's Budget statement:
"I will continue to monitor oil prices, but I expect that fuel duty will increase by 2p per litre in September, and then by 1p a litre above indexation each April for the next four years."—[ Hansard, 22 April 2009; Vol. 491, c. 244.]
I was pleased that the Road Haulage Association contacted me today. It said:
"At this challenging time, the last thing the haulage industry in Scotland needs is an increase in costs."
It went on to say, and this, I am sure, will please Mr. Hammond, who spoke about the issue earlier:
"The case for a regulator is as strong now as it ever was—there may have been a short lull in fuel price turbulence but this won't last. There are already signs that prices are on their way up again. At this desperate time for Scottish road hauliers—with numerous firms going bust—what is needed is a mechanism to ensure a measure of financial stability in these trying economic times. It must be remembered that fuel accounts for over 30 per cent. of a haulier's operating costs."
That is absolutely right.
The price of oil is relatively stable at $50 a barrel and the price at the pump is relatively stable at 95p a litre, but it is likely that those prices will rise as the world comes out of recession or, indeed, if there are supply-side shocks. The oil price could rise dramatically, so the time is right now, when there is relative stability, to introduce the mechanism and smooth out the price spikes when they occur. I was delighted when the Conservative Front-Bench team U-turned last year and adopted the fair fuel stabiliser proposal. I remind them of what I said then: I do not care whether it is called a fair fuel stabiliser, a fuel duty regulator or what a previous Labour Transport Minister called it; I want to build a coalition around a sensible mechanism to deliver fairness and stability. We have the opportunity to push it forward again this year.
The Budget also contained the predictable rise in alcohol duty, but, again, surely now would have been the time for a more sophisticated approach, taxing all drinks fairly rather than looking to the Scotch whisky industry as a cash cow and building on last year's two damaging rises that amounted to more than 13 per cent. I shall put that point into context, and explain why we need the fair taxation of alcohol, by referring to three drinks with exactly the same alcohol content: a half pint of beer at 4.93 per cent. volume incurs 23.06p in duty; a 125ml glass of wine at 11.2 per cent. volume incurs 26.75 in duty; and a modest 35ml measure of Scotch at 40 per cent. volume incurs 31.7p in duty. I have the speeches from previous debates, and I know that there are European issues in respect of the duty on alcohol. But it strikes me that we need a fairer approach to alcohol duty to prevent the Scotch industry from being seen as a cash cow. Gavin Hewitt, chief executive of the Scotch Whisky Association, said:
"A duty increase during a recession is a real blow and follows last year's duty rises...the largest since the 1970s. The Government should be supporting all UK businesses, including Scotch whisky distillers, who have the potential to help drive the economy out of recession. Instead, our industry is being weakened by the alcohol duty escalator."
Does the hon. Gentleman share my disappointment at the fact that the duty on beer also went up in the Budget, a move that has been incorporated into the Finance Bill? Some 39 pubs in the United Kingdom are closing every week and breweries, such as Marston's in my constituency, are also affected. Does he support an approach that involves a minimum price for alcohol, given that in large parts of the country a man can have his weekly alcohol intake of 21 units for about £2.30 if he buys chemical cider? If he went into a public house, however, he would get only a pint of beer for about that price.
My example is "Frosty Jack's" cider, which costs £3.39 and has 7.5 per cent. alcohol. A bottle holds 22.5 units. For pocket money prices, a man could drink his entire recommended weekly intake from one three-litre bottle of "Frosty Jack's". Minimum pricing in shops and supermarkets is an important and sensible policy. I am not sure whether the duty regime is the mechanism through which to tackle the issue, but the hon. Gentleman has raised a genuine point, which I support. I am sure that he will encourage his colleagues to support the Scottish Government in their drive to address the issue.
In addition, we saw changes to bingo taxation. Bingo is a massively significant sector for many communities. Well run, licensed bingo clubs and halls provide a safe social environment, particularly for women in working class communities. It is deeply unfair that when other forms of gaming—perhaps I should call it "gambling" now—are effectively taxed at 15 per cent., licensed bingo clubs should be singled out for a 22 per cent. rate. I am sure that we will address that issue as the Bill progresses.
What is missing from this Finance Bill is the sting in the Budget's tail—the £15 billion of cuts, and not least the £500 million of cuts confirmed by the Treasury to the Scottish Government for next year. That is the wrong thing to do in the teeth of a recession. The cut to Scotland will lead directly to the loss of 9,000 jobs and it risks the Scottish Government's efforts to protect and preserve jobs.
The hon. Gentleman, a Parliamentary Private Secretary from the Labour Benches, is chuntering. Perhaps he does not care enough about the direct loss of 9,000 jobs because of cuts made by a UK Labour Government to the Scottish Government. [Interruption.]
This is a really important point. We cannot have the Chief Secretary to the Treasury in her opening remarks blaming others for cuts, when this Labour Government are embarking on exactly the same failed measure.
I am not sure that taking more money out of people's pockets would be particularly sensible at this point.
The point about the cuts is that the Government rightly backed the fiscal stimulus. Our view is that the recession was so deep that monetary policy was not enough.
We back the fiscal stimulus, in principle, although there are issues about the VAT cut. We have seen the Prime Minister strut the world stage talking about fiscal stimulus, not least with President Obama at the ExCel centre. However, the state of Maryland, population 5 million, will have £2 billion extra in fiscal stimulus to spend in 2010, while in Australia the state of Victoria will have 8 billion Australian dollars over the same period. It seems extraordinary that even following their own rhetoric, this Government are prepared to cut public expenditure, in the teeth of a recession, when all the serious commentators say that we will still be in negative growth next year.
Is the hon. Gentleman aware that the examples that he cited are from federal countries, which have an injunction on their relevant states to balance the budget over any calendar year, and therefore a very high proportion of the fiscal stimulus has to come from the centre? It is perfectly sensible and reasonable for America, for example, to run a larger fiscal stimulus, whereas in a country such as ours, where that injunction does not exist because we are centralised, the automatic stabilisers can do all the work.
Automatic stabilisers have an important role to play. Obviously the UK Government are not required to balance their books annually, whereas the Scottish Government have to because they operate within a fixed budget. The real answer is to grant the Scottish Government borrowing powers, while working within a framework that says that over the cycle—and I mean properly over the cycle—the books are balanced so that we do not end up going into a recession with half a trillion pounds-worth of debt.
The Finance Bill contains several important issues to do with fuel and alcohol and some small matters do with bingo that are important to local communities. All the retrospective measures will have to be probed. I hope that the Minister will pick up on some of these points, not least the Government's attitude to alcohol duty. Will he give us an indication that they are prepared to look again at whether alcohol can be taxed fairly rather than by unfairly attacking the Scotch whisky industry?
I declare my interest in the Register of Members' Interests as a director of a family business.
We are having a very interesting debate that is tending to wander a little bit off tax measures and on to debt, which is the big item on the agenda today. Over a long period, under Labour and Conservative Governments, our debt has tended to be about 40 per cent. of GDP, although we go through brief periods of growth and higher tax revenues. In the mid-1980s, Mrs. Thatcher's Government paid off some debt, and that happened again in the early years of the Labour Government of 1997, with Conservative spending plans plus the sale of the spectrum. Commentators briefly get excited about that and say that if we carry on we will eventually get rid of our debt completely, but that never quite happens—in this case, the Government were determined to have more public spending. We now have a very large, ballooning public sector deficit, but that always happens in a recession. There are two very large figures, and when one goes up because people lose their jobs and businesses start to get into difficulty, the other goes down because tax revenue is less buoyant and the deficit opens up like a vast chasm. That tends to make people a little pessimistic.
Many commentators have talked about a brave new world and a change in our economy. Much of today's debate could be determined by whether the debt is cyclical or structural. One's view on that depends on whether one thinks that in a few years we will see a resurgent City of London with banks making big profits and the housing market booming, or that the world is going to change and we will not rely on the City of London but suddenly find new ways to make a living in the world. It would not surprise me if in six years' time bankers were making big bonuses, profits were going up, and tax revenue was being generated. The problem is that because we are running a large deficit and do not know at what rate we will recover, we are more vulnerable to turbulence in the world economy. As Mr. Field asked, what is plan B? If the recession is deeper and the recovery slower than expected and unemployment goes over 3 million, we could have a real problem in financing our deficit. We might have to pay a premium, there might have to be more quantitative easing and sterling might come under pressure.
I am old enough to remember 1976, when the noble Lord Healey had to turn around at the airport because the IMF came in, and we are running rather larger figures than we did in '76. The other interesting thing about 1976 is that the projected figures turned out to be rather benevolent and not as bad as had been thought. Governments can sometimes get projections wrong and predicate policy on them.
Britain seems to survive and prosper because, at root, we have good people who work hard and a pretty good economy. I am sure that we will get through our current problems, but that requires leadership. One thing that has come out in the debate is that we as politicians have to be honest with people about the fact that there are going to be some very tough decisions to be taken, irrespective of who wins the general election next year or, God help us, if we have a hung Parliament. We will have to take tough decisions on the scale of the state and public spending, and indeed on tax.
If we are honest, the only way to raise an awful lot of tax revenue is to raise tax on ordinary working people, not on a particular section of people. High tax rates might make a debating point, but the reality of the Government's policy of raising the higher tax rates, restricting allowances and restricting what people can do with pensions is that people will look for others ways to recompense themselves. They might forgo salary in the short term or look for other ways, such as capitalising their salary. That is why I said in my intervention on the shadow Chief Secretary that if the Government continue down this path, the next item to come up will be capital gains tax.
Is the hon. Gentleman aware that Treasury officials gave evidence to the Treasury Committee indicating that their figures estimate that they will receive only 31 per cent. of the potential total tax take from the raising of the top band from 40 to 50 per cent.? In other words, 69 per cent. will go elsewhere or be avoided.
It is a very sad thing; 20 or 30 years ago our tax rates were so high that people spent an awful lot of time trying to avoid paying tax rather than running their businesses. If we are not careful, we will return to people finding sophisticated ways of avoiding tax. That will mean a more draconian tax system and people will not focus on getting a fair reward and on running businesses efficiently. As we have heard, including national insurance the highest tax rate is 61 per cent., which is very high. What is the point of that if the revenue will not be collected, other than to make a debating point?
Given that we are probably not talking about a vast section of the electorate, it has surprised me how many ordinary people who have no hope of paying that level of tax have taken exception to the fact that the Government have broken a key promise. It says something about us as a nation if we start to mess about with high tax rates and change the overwhelming philosophy that has been in place for the past 20-odd years.
I am not as pessimistic as some, but there will be some tough decisions to make. I know that my party is not saying very much at the moment about higher rates of tax, but I think that we would like to reduce them, subject to the books. A clear indication from an incoming Government of where they are going on this issue may well determine how much tax is raised, because otherwise we will lose people. The Sir Michael Caine point is relevant, because people who are mobile can use various ways of leaving the country, which will reduce the overall amount raised.
As my hon. Friend Mr. Hammond said, half of all the tax-raising measures in this Budget affect people earning more than £19,000 a year. As a nation, we collect quite a lot of tax at the lower end of the various bands. We tax at too low a rate and then try to make up for it by giving tax credits. It would be better if we got out of the tax credits system and upped the basic rate so that people's personal finances were in a much better shape.
I am interested in the hon. Gentleman's position. Is he saying that if there were to be tax reductions in future, which is hard to believe in the current economic situation, he would favour making them at the higher end of tax, rather than in ordinary people's tax rates?
We have to have a fair system that affects everybody. The priority in our current economic difficulties is those at the bottom end, particularly in respect of tax allowances and those areas where we want to increase incentives to work. We are going to have the problem of higher unemployment. We want to move people from unemployment into employment, and we can use the tax and benefit systems to encourage that. That must be the priority. I know that the hon. Gentleman is something of an old socialist—dare I mention that in the Chamber these days?—but the reality is that if higher tax rates are not collected, there is no point in having them. In the longer term, the key point must be to get revenue in to pay the debts and to pay for public services.
My hon. Friend the Member for Runnymede and Weybridge made an important point. We have had a massive temporary reduction in VAT, to which I and many other hon. Members are opposed and which I do not think will make much difference, yet the Government are raising national insurance contributions, which is a tax on jobs. That is not a good thing to do. We are going to have a problem maintaining employment. Many workers have said to me that they would like temporary measures, whereby people go on to short-time working. Indeed, there is a big debate about that in manufacturing. However, at a time when we hear trade unionists on the radio demanding more action from the Government, which is understandable, it seems daft that the Government should be putting up the cost of employment for those still in work and for the companies that employ them. That is a particularly bad thing.
I welcome what the Government are doing on capital allowances. I welcome the fact that companies that have made losses are able to offset them against past profits, but the Government have not managed to stop what has happened since the credit crunch. Essentially, credit is still not flowing to companies. Things have eased since the worst of the current situation, six or seven months ago, but we still hear a lot of anecdotal evidence about banks not lending to businesses, while a lot of other finance companies, particularly those that would loan to companies for hire-purchase, are finding it difficult to get credit. That is causing problems for companies up and down the land.
The Bill will impose a serious tax burden, which will cause a problem for many people who are struggling to make ends meet. The VAT reduction is clearly a means of getting money into people's pockets, but there is not much point in introducing it if we have negative inflation, if there are already massive price discounts as a result of what retailers are doing and if it will be reversed after a certain period. The Government have announced some goodies, but they have also announced some increases on the radar. People are not stupid: if they think that they will be hit, that may reduce their incentive to go out and spend.
I represent an urban constituency, albeit one in a rural county. We all have to be aware that, for many of our fellow citizens, public transport is not an option. It might be an option in London, but it is not one in Cornwall, in many parts of Scotland or in many other rural counties. If we keep increasing fuel duty, it will have an impact on prices. There is no such thing as a painless tax increase: somebody, somewhere, has to pay. The road haulage industry has been struggling for a number of years, but high increases inevitably make it difficult for many people to stay in business, let alone make a profit.
We have already heard a voluble campaign from pub landlords and from the brewing industry, which is suffering from the increases, with a number of pubs going out of business. Stewart Hosie made a valuable point about the Scotch industry, which has generated hundreds of millions of pounds for our nation in exports over the years. If we keep hitting a particular industry hard, it is bound to have a long-term impact on it. I think it is beholden on us to point out that keeping on raising money in that way can cause difficulties.
Environmental taxes are very much part of the Budget papers before us, and I welcome the fact that the Government are retaining air passenger duty. I think that their other proposal was misjudged, but it must be noted that the proceeds from the duty will go straight back to the Treasury and will not be devoted to environmental concerns. Landfill tax is paid mainly by local authorities—and essentially by council tax payers—and it too goes back to the Treasury and is not spent on environmental matters. If we are serious about green Budgets and the green agenda, green taxes should be related to green outcomes; they should not simply sink into the black holes of the Treasury.
My hon. Friend the Member for Runnymede and Weybridge spoke about naming and shaming tax avoiders or people evading tax under clause 93. The Bill proposes amnesties for people who avoid tax, but I believe that it is more important to try to get people to pay their tax than it is to name and shame them. We need revenue, and any sensible tax authority will enter into a negotiation to get money back. In a world where capital can be moved through various accounts and offshore, the sensible thing is to have a very businesslike approach to dealing with people from whom one wants to get tax.
We have a difficult time ahead of us. As always, the Finance Bill will take many hours to consider. As politicians, we have to be honest with people, and it will be an interesting time, but I am still optimistic about our nation.
May I begin with an apology, Madam Deputy Speaker? I missed some of the speeches that followed the opening of the debate, but I am afraid that I was receiving the award of an Industry and Parliament Trust fellowship— [ Interruption. ] I am grateful for the approbation of the House, and I commend the organisation heartily. I should add that my fellowship was largely with the Royal Bank of Scotland, although I am not sure whether that amounts to a declaration of interest.
I am a veteran of many Finance Bills, both as Back-Bench Lobby fodder during the previous Conservative Government and as a Whip in opposition. I have been trying to work out what it is that I do not like about this Bill, and I suppose it is that it is nakedly and lamentably political rather than economic in its objectives. That causes me considerable concern, but there may be some poetic justice about it. An old saying in politics has it that a Budget that is well received on the day it is announced will prove to be badly received thereafter, and one that is badly received on the day will be well received thereafter. This Budget breaks that rule spectacularly—it was pretty badly received on the day it was announced, and it has unwound with spectacular speed every day since. It has got steadily more unpopular and discredited with every day that passes, so in that way at least the Chancellor of the Exchequer has rewritten the history books, and that is something.
What will this year's Budget, and the Finance Bill that flows from it, be remembered for? I have decided that it will be remembered for its four Ds—distraction, deceit, delay and deficit.
I associate "distraction" with the Bill because I am afraid that that is all that I consider the 50 per cent. tax rise and the other changes for higher income earners to be. The proposal is a bit of naked red meat thrown to Labour Members on the Back Benches behind the Chancellor but, even on their own figures, it will make a pathetically small contribution to the scale of the debt and the other problems facing the Government. Other commentators outside the Conservative party, such as the Institute for Fiscal Studies, suggest that the net revenue might be pretty close to zero. I shall return to that later.
The second word of the four—deceit—flows from the distraction I have described. The Budget of a couple of weeks ago suggested that the bill for the problems facing the country would be paid for largely by the rich, but it will be paid for by every man, woman and child in the country, through increased taxation—miraculously, higher national insurance contributions are to be delayed until well into the next Parliament—and through the burden of debt that will be repaid by our children for heaven knows how many decades to come. That was profoundly deceitful, and a matter of considerable regret, but I do not think that the British people have fallen for it; they know better than that. This is what happens when people play politics with important matters.
The third D stands for delay. The difficult choices will be delayed until 2011: a funny old year, safely after the next general election. The real pain will not be felt this side of the ballot box, but, again, I think that people know that is going on. If we look at the net figures, including the measures in Budget 2009 and the other measures announced in Budget 2008, we see a net outflow from the Exchequer of £21.26 billion in the financial year that has just begun, a net inflow of plus £4.6 billion in 2010 and, miraculously, a net inflow of plus £12 billion in 2011. The real pain is being delayed for reasons of political expediency. The deficit should be addressed now, not in two years' time.
That deficit is the underlying concern. It remains unaddressed, and it is out of control. I am struck by yesterday's report from the National Institute for Economic and Social Research. I shall quote from the report on it in The Daily Telegraph, as I have not seen the NIESR report. It states that the NIESR believes
"it would be all but impossible for the Government to return Britain's total public debt to 40 per cent. of gross domestic product, currently equivalent to £600 billion, until 2023".
Terrifyingly, the NIESR also provides the shape of what future Budgets and Finance Bills might have to be, and offers three basic options to solve the problem:
"The first was to raise the state pension age, from 60 for women and 65 for men, to 70 between 2013 and 2023."
I have been doing the calculations, and I reckon that that would catch me nicely. I shall be 60 in 2015, and 68 in 2023, so it looks like retirement at 70 for me—and for many of us in the House. That illustrates the scale of the problem.
The second option was to raise the basic rate of income tax by 15p in the pound. I accept that these proposals offer a single-club solution, but they give an idea of the scale of the problem.
The final option was to cut Government spending by a tenth, which would be a very serious step indeed.
I am a Select Committee Chairman, which I enjoy, and I know that Select Committees choose their words with great caution. I was struck by the Treasury Committee's summary for this debate. It was prepared in a great hurry, and we owe the Committee a debt of gratitude for the speed with which it came to its conclusions. Its summary states:
"Whilst it is possible that the Government will meet its growth forecasts, on the available evidence this is an optimistic assumption."
Those are calm, measured words, but they frighten me. I think that the growth forecasts are optimistic, and that they are there to make the debt burden look less frightening. I think that they will prove to be optimistic, and that the debt burden will be much higher than the Government are saying.
I hear what the hon. Gentleman is saying about the debt burden. To put that into perspective, in three or four years' time, every household in the UK will owe about £65,000. Two years ago, before the Scottish elections, the scariest figure that Tony Blair could come up with for debt under an SNP Government was £5,000 per household. In essence, therefore, it seems that Scotland is 13 times worse off being ruled from London than we would be if we were independent.
I will not be led into debating the merits or otherwise of devolution; I am not going to do the SNP's dirty work for it. I will let what the hon. Gentleman has said speak for itself.
The Treasury Committee's summary also contained these calm, measured words:
That represents a very long period. Crucially, it goes on to discuss a point raised by a number of my hon. Friends, stating:
"The credibility of any attempt to restore the public finances will depend on an acceptance that the structural deficit must be addressed as well as the consequences of the current extraordinary circumstances."
It is the very large underlying structural deficit that gives me such cause for concern for future Finance Bills and Budgets.
In his last Budget statement as Chancellor, the Prime Minister predicted public sector net borrowing of about 2 per cent. of GDP for the year we have just entered. This year's Budget revises that figure to about 12 per cent. What a dramatic change! The Chancellor forecast that the UK economy would shrink by 3.5 per cent. this year—I have already alluded to that figure—and that it would grow by 1.25 per cent. next year. The International Monetary Fund says that the figures will be 4.1 per cent. this year and a shrinkage of 0.4 per cent. next year. Even the Government's own figures undermine their Budget forecasts. Within two days, the Office for National Statistics had revealed a still larger reduction in economic activity for the first quarter of 2009.
On the most optimistic assumption, public debt is going to rise to 80 per cent. of GDP within four years. That terrifying figure is twice as high as what we thought was a sustainable level of public borrowing and public debt. In this year's Budget, public net debt was expected to be 39 per cent. of GDP this year but it is now put at 59 per cent., increasing to 79 per cent. by 2013-14. I know that that outcome puts Britain only in the middle of the advanced economies in terms of the percentage debt to GDP ratio—an argument often used by the Government. [Interruption.] I will happily repeat it, as I have an unfortunate habit of speaking too fast. As I have already said, I know that this outcome would put Britain only in the middle of the advanced economies in terms of the percentage debt to GDP ratio, but the tragedy is that if we had not had the spending splurge of the last six, seven or eight years, we could have been in a much stronger position.
To employ the phrase of my hon. Friend the shadow Chancellor, if we had indeed fixed the roof when the sun was shining, we could now be in a uniquely strong position to take the world by storm, yet the spending splurge of the last five, six or seven years enfeebled our position. We could and should have been so strong; this Finance Bill should not have had to face the challenges it seeks to address. We have crippled a golden opportunity. This Government like to take credit for paying off a bit of the national debt: they paid it off when they stuck to Conservative spending plans and it all went wrong when they started following their own.
As we heard earlier this afternoon, when we were not putting enough away during those times when the sun shone, the Opposition did not suggest doing such a thing either, but we received no response from the Conservative Front-Bench team, so perhaps the hon. Gentleman would like to comment on it.
I have to say that my recollection is somewhat different. I cannot remember in which Budget the now Prime Minister announced massive increases in expenditure on schools and hospitals, but I can remember thinking that it was a make-or-break moment for the Government. I thought that if it worked—I did not think it would—the history of the following 10 or 15 years might be very different, but that if it all ended in tears, as I thought it would, we Conservatives would be vindicated. I am afraid to say that I now know that we were vindicated; the decisions the Prime Minister announced at that time proved to be the beginning of the obituary of this new Labour Government. I sincerely wish that when the Prime Minister was Chancellor he had not been so imprudent with the money at his disposal—or the money he was borrowing—in funding that splurge.
Let me repeat the phrase "risible optimism", which was used by The Economist to describe the fundamental premise on which this Finance Bill is based. I have not read the words of Edward Hadas before, and I am not sure whether they appeared in The Daily Telegraph blog or in the main newspaper, but I like his parallel:
"Suppose a triple-A rated company suddenly found that expenses were running at 123 per cent. of revenues. Such a huge loss would cause a financial red alert. Cut back spending, push up revenues, figure out what's going wrong and prepare for even worse times."
That is exactly the situation we face as a nation. I know that there are differences in finances, companies and Governments, but the scale of what we face is truly terrifying. As the article makes clear,
"even governments face limits—and the UK authorities seem to be approaching them. They have engaged in pretty much every imaginable risky policy. Huge fiscal deficits are joined by the central bank's effective zero interest rate and a big experiment in money-printing."
The article goes on to conclude about the risk of default on sovereign debts that
"the government might decide to spare taxpayers some pain by letting inflation erode the real value of the official debts. The rating agencies do not count such depreciation as a default. If they did, the UK's triple-A would probably be history already."
That is a terrifying conclusion.
The most recent estimate that undermines the credibility of the Budget and the Finance Bill came from the European Commission only this week, as it issued its Economic Forecast. It said that
"the UK economy is now clearly experiencing one of its worst recessions in recent history, in the context of the global financial and economic crisis."
It also stated:
"The unemployment rate is likely to rise progressively to around 10 per cent. ... in late 2010".
The consensus out there is now pretty clear: the Government are being too optimistic.
To be fair to the Prime Minister—I always like to be fair; it is in my nature—he probably believed his own propaganda and he might actually have believed that he could end boom and bust. It is an extraordinary thought. I read economics at university many years ago and I have forgotten most of it; I was not even particularly good at it at the time.
I am grateful for my hon. Friend's suggestion, but I do not aspire to that office—certainly not in the next four or five years, anyway!
I do know, however, that it is impossible to end boom and bust. It is part of the capitalist psyche. It is what happens. It is the price that we pay for a free market. It is what delivers the good times. The bad times are essential to blow off the froth and ensure that the good things are delivered.
I do not know how the Prime Minister was able to believe that he could end boom and bust. There have been spectacular busts in the past, such as the South Sea bubble and the Wall street crash, although I accept that the current bust is probably more extreme than we could possibly have expected. The business of the sub-prime mortgages, the poor regulation of banks by both the British and the Americans, and the British over-indebtedness, which has played its own part in contributing to the world economic catastrophe, have combined to make what was always going to be a bust a much sharper bust than it might otherwise have been.
Opening the debate, the Chief Secretary spoke in what I felt were uncharacteristically shrill tones of all the dreadful things that would happen if a Conservative Government came to power, and extolled the virtues of spending money for its own sake. It is the easiest thing in the world to spend money that one does not have. It is easy to say "I would like a better car; I would like a bigger house; I would like nicer clothes; I would like more holidays," but if I do not have the money to buy those things, I do not have them. The tragedy is that for the last eight years or so, we have been spending money that we do not have on things that we cannot afford. That is why we are in such a difficult position now.
The Government's response in the Finance Bill is to make changes that, in my view, threaten Britain's international competitiveness, and that worries me. I am currently engaged in an interesting discussion with the editor of The Mail On Sunday, who criticised my decision to take my Select Committee for what he believed to have been four agreeable days in Dubai. Actually, it was not four agreeable days in Dubai; it was 23 hours in Dubai, a day and a half in Abu Dhabi, and a day and a half in Riyadh and Saudi Arabia.
To see the scale of what is happening even in Dubai, where the froth has blown off the bubble, the even bigger scale of what is happening in Abu Dhabi and the amazing transformation of the Saudi Arabian economy is to understand the scale of the challenge that we face. This is not just happening in India, China and among our other economic competitors such as the United States and countries in mainland Europe; it is happening in Saudi Arabia as well. Five years ago, Saudi Arabia ranked 65th in the World Bank's list of the best places in which to do business. Now, as a result of conscious policy making, it ranks 16th. We still rank sixth—we are doing quite well—but Saudi Arabia's target is to overtake us. It wants to be 10th next year.
The world is changing out there. We cannot arbitrarily increase taxes on entrepreneurs and wealth creators and expect that to be a cost-free option. It will cost us in the battle to maintain our global position. I fear that that is not properly understood. The people to whom I have spoken in banks, businesses and trade associations since the Budget have all said one thing: that approach constitutes a devastating attack on the entrepreneurs and wealth creators, and thus on the country's long-term prosperity. We need to recognise that. We need to move away from a culture of borrowing and debt which has been encouraged not just by the Government but in the corporate sector and, crucially, in the household sector, and return to a culture built on savings and ownership.
A few days ago, I received a thank-you letter from my godson, to whom I had given £20 as a birthday present.
In a rather nice yellow envelope, as I recall, for the birthday card. My godson wrote to me saying "Thank you so much. I am saving up for an iPod." I thought "What a strange phrase." I realised that I had not heard the phrase "saving up" for an extremely long time—certainly from the lips of the current Government. But it is a phrase that we should use rather more as a nation. I commend my godson's wisdom in saving up. I must give him more money to save up for future Christmases and birthdays.
I do not believe that this Finance Bill encourages saving up. That is one of the many things that are wrong with it. Hints were dropped that it might provide such encouragement, but that has not happened. Nevertheless, there are good things in the Bill. I do not want to damn the whole Bill; that would be quite wrong of me. There are clearly good things in the Budget as well. It is a curate's egg with more bad bits than good bits, but there are good bits. For example, I am delighted that, after much agonising, the trade credit insurance scheme is up and running.
It is one of the characteristics of the Government's support both in Finance Bills and in the measures announced in Budgets that they produce a great fanfare at an early stage and then take a very long time to introduce their measures, which subsequently help many fewer people than were expected to benefit. The trade credit insurance scheme should have been introduced earlier, but it is there now, and I will not look a gift horse in the mouth—although we are yet to see how effective it will prove to be.
One of the very good things in the Budget is the capital allowances arrangement. I know that the small business community is very pleased that capital allowances for firms that invest more than £50,000 will double to 40 per cent. That is quite an expensive measure—I believe that it is worth £1.64 billion this year—so well done: that is a good thing in the Budget. The Federation of Small Businesses is particularly grateful for the opportunity to defer tax bills, with loss-making companies able to reclaim tax on profits made in the last three years.
There are good measures in the Bill, therefore, but some measures that I hoped would be included are missing. National non-domestic rates—business rates, as they are colloquially called—are a crucial issue. The Chancellor made a big concession before the Budget in terms of the increase due next year; it is to be phased in, which is very welcome. I hoped that the Budget would address the void rates issue, but it does not do so. I know of people in my constituency who put together a small property portfolio as a pension scheme for their old age. One of them has had to go bankrupt because every property in his portfolio is now empty. The portfolio was supposed to bring in a revenue stream in his old age; instead, it has just brought in void rates bills. Money was supposed to be coming in, but the properties ended up costing him money. As a result, he has gone into personal bankruptcy. The Government should also be taking a much more careful look at the implications of void rates, particularly for retail businesses, but also for manufacturing businesses.
There is one measure that I particularly hoped would be in the Bill. It is only a small measure, but I attach some importance to it as I introduced a private Member's Bill on the subject: automatic rate relief for small businesses. A few years ago, the Government wisely introduced a small business scheme; it is fairly complicated, but the essence is that small businesses put in an application and then get back half their rates. About a month ago, I was persuaded by a very persuasive Minister to withdraw my Bill because it was very likely that the Budget would contain a similar measure. I was building up to making an attack on the Government—perhaps a rather disconsolate and aggressive one—about their failure to keep their promises, but in fact it is not entirely clear to me that they have finally decided not to keep their promise to me; we still have some measure of hope. Let me explain why I am so sad that this measure is not in the Finance Bill. For small businesses in particular, the odd £100, £500 or £1,000 can make a huge difference to the prospects for survival. We sometimes forget that. For micro-businesses, which I hope will be the macro-businesses of the future, small sums matter.
I have received a number of words of encouragement from the Government in recent days. Although this measure is not in the Bill, as I hoped it would be, the Chancellor has kindly written to me. The letter is dated
"I can confirm that the Government is keen to continue to improve the administration of small business rates relief to make it easy to claim and increase its take up. I have therefore asked my officials to work with CLG officials to see what can be done to improve the take up of the scheme and to report back to me."
What the Chancellor does not say in that letter, but which I happen to know is the case, is that the Department for Business, Enterprise and Regulatory Reform is also closely involved, in the noble and impressive persona of Baroness Vadera. When she gets her teeth into a matter, she tends to make sure that things get done, so I am optimistic. I am not suggesting that the two very able and charming Ministers sitting on the Government Front Bench at present do not get things done, of course, but the baroness has a certain reputation in Government for outcomes. I was therefore particularly encouraged by a parliamentary answer I received very recently from the Minister for Local Government, who said:
"The Department for Communities and Local Government has had a number of discussions with the Department for Business Enterprise and Regulatory Reform and Treasury on making small business rate relief automatic.
The Government are keen to explore ways in which we can promote, and improve the administration of, the existing small business rate relief scheme and increase its take up, including through automatic options. CLG officials will work with Treasury officials to see how the take up of the scheme can be improved."—[ Hansard, 5 May 2009; Vol. 492, c. 140W.]
That goes a little further than the Chancellor's letter, and I am extremely encouraged by that.
I understand some of the Treasury's objections, but I believe that I have answers to all them, and I also believe that automaticity, to use a rather ugly word, would be welcome throughout the small business community and the local government world, and would have nothing but positive consequences for this Government and the economic activity of the UK. I therefore hope that, although this measure is not in the Bill as I had hoped, we might hear more about it later.
I have talked sufficiently about the problems of debt and delay in the Budget, but may I emphasise one point? The Government say they are taxing the rich and that that is only fair. Well, we can discuss what rate of taxation on the rich is fair, but it is very important to remember that, on the Government's own figures, less than half of the £5 billion tax rises announced in the Budget are actually taxes on the rich; the majority of them are on the rest of us. Most of the tax rises that the Government are planning are on average earners; they include tax rises such as those on fuel and alcohol and, crucially, the increase in national insurance contributions announced in the pre-Budget report. The sad thing about the PBR is that the Government have got out of the habit of having debates on it. The PBR has become a surrogate Budget and contains Finance Bill-type measures. We had no debate on the increase in national insurance contributions announced in the PBR last year. There was a statement and Members could make one quick comment afterwards, but there was no debate, I believe, for the second or third year running. I say to Ministers that if there is to be at least one more PBR before the election, I hope that this time we will have a debate on it, because the PBR contains important measures that should and could be scrutinised at the time.
We also know that this Budget and Finance Bill enables reductions in capital spending—again, they will take place after the election—including a very large reduction in the capital budget of the health service. I find that interesting coming from a Government who have criticised the Conservatives for wishing to cut expenditure on sensitive areas of public services.
I am particularly disappointed by the Bill's complete lack of activity on savings policy. It contains a rather complicated provision on individual savings accounts and something that I benefit from as someone who is now over 50, but it really is miniscule, footling stuff. Savers have been hit very hard by the consequences of the events of the past year or so; there have been very low interest rates and very low dividends. Of course, many savers are pensioners, who do not want to have to rely on pension credit for their welfare, well-being and survival; they want to have the dignity of relying on their own incomes. Thus, it would have been good to see the Government doing more, as they suggested they would, to help savers in this Budget. I wish to discuss the VAT scheme in a moment, but I should say that helping savers is one very good example of a way in which that £12.5 billion could have been better spent. We can discuss whether it was right to have a fiscal stimulus, but that was the wrong fiscal stimulus, and the money would have been better spent helping pensioners and savers.
I do not think that, technically, the enterprise finance guarantee scheme is covered by the Finance Bill, so I shall simply say that I am looking forward to my Committee's study of the scheme—I believe that we are taking evidence from the banks on
Let us briefly consider the VAT reduction. I am clear about the fact that I would not have done it. Leaving to one side the argument about whether to have the fiscal stimulus, this was a bad way to spend £12.5 billion. There are big questions about the timing of the ending of the VAT reduction—in the middle of the week during the sales period just after Christmas is a ridiculous time to end it. I pressed the Chief Secretary on this point at the beginning of the debate, but I regret to say that she was not flexible. I was chastised by Mr. Love for being hypocritical in some way—I am sure that he did not use that word, because it would be unparliamentary for him to do so, but he said something of that kind. What I am saying is that it would have been much better if the VAT reduction money had been spent in other ways and that I would end the reduction much sooner and use the money saved in other ways. Realistically, the Government are not going to do that, for reasons of realpolitik, so I point out that if they were to give the reduction another three or four weeks—the other alternative—that would help the retail industry considerably. As I say, I would end the reduction now and spend the money differently.
My Committee heard evidence from the small business community about the great cost that the VAT reduction has imposed on it. The reduction has been a problem for small businesses, which have had to invest in new software packages and will have to do so again at the end of the year, when the rate goes back up again. The reduction has not benefited small businesses—quite the opposite; it has been a problem. Many big retailers have also encountered problems with it. I am not talking about the Tescos of this world, which have computerised systems and can adapt easily. Such businesses are not the kind of businesses that need help from a VAT reduction; although such businesses are expanding rapidly into other markets, a large proportion of their products are still VAT exempt. It is not the Tescos of this world that we need to help, but the smaller businesses, and they have not been helped by the VAT reduction.
I would have spent the money on helping savers; on cutting corporate tax for small businesses, as my party suggests; on cutting payroll taxes for small companies—of course, this Government are planning to increase those taxes—on deferring small business VAT bills in a more comprehensive way than the Government have suggested; or on funding prompt payment by local authorities. The Government have a 10-day target on that, and I believe that my local authorities are meeting it. I am pleased about that, and I congratulate Worcestershire county council and Wychavon district council on what they are doing. I do not know what assessment the Government have made of the effectiveness of the target, but it is an expensive thing. I would also have spent the money to pay for the relaxation of void business rates, which should have been included in this Bill. I also might have used it to provide some sort of employment subsidy. I was very struck by the argument by a former Minister, Lord Digby Jones, that we should help when businesses, especially those with highly skilled workers, face a short-term drop in demand—such as in manufacturing businesses in the west midlands in the automotive sector—so that those workers are not lost to other less skilled jobs. With an employment subsidy, those businesses could keep the staff on. Baroness Thatcher's Government did that, so I would have thought that this Government could do so.
I mentioned the 50 per cent. tax increase. It is a political device, used as a political dividing line by the Prime Minister and Chancellor. We are rightly not committing to repealing it as an early priority, because our first priority must be the taxes on everyone—the ordinary, hard-working families—such as the national insurance contribution tax hike that is coming in 2011. That is the right policy. We have said that the 50 per cent. tax must take its place in the queue of tax reductions that we would like to make as a future Conservative Government, but that does not mean that we cannot damn that tax increase for the extraordinary damage that it is doing. The Government just do not understand the impact that it will have on the international community and mobile entrepreneurs.
A fascinating article, "Wringing the Rich", in The Sunday Times this week described that damage clearly. It said:
"The worry is not so much the impact of the tax itself, but the signal it sends out. Entrepreneurs are not welcome anymore".
Whether the Government like it or not, that is how it sounds to business. The Government may not even have meant that—in fact, they meant it as a political device in UK politics—but that is its impact. Miles Templeman of the Institute of Directors has said:
"The increase will have a damaging impact on the wider economy and undermine the UK's attractiveness as a place to invest."
Chris Sanger, UK head of tax policy at Ernst & Young, has said:
"The key risk here is that such extreme rates will deter entrepreneurs and the most successful wealth creators from coming to the UK and encourage those here to leave."
Those are people we cannot afford to lose. If there is one provision in this Bill that is offensive, wrong-headed and ill-judged it is the package of the 50 per cent. tax rate and the changes to pension contributions and thresholds. It will create a bizarre range of marginal rates on higher rate taxpayers that could and should have been avoided—and it will probably not even raise any money.
This was an entirely foreseeable recession. Only the scale might perhaps have surprised us. This Bill does many of the wrong things to address the problems that the recession has created, and does not do many of the right things that it could and should have done. My right hon. Friend the Leader of the Opposition has referred to the new age of austerity. We will hear a lot more of that in the next year or so, because it is what we now face as a result of the mistakes by this Government—not the problems created by the US sub-prime markets. The Government are not being straight with voters about how they will sort out the problem, but the voters have seen through that. The voters have worked out that if they do not have to pay for it until 2011, there is probably a catch. They are not to be taken for fools.
I said that the Bill was characterised by four Ds—distraction, by using the rich as an alternative target; deceit, by pretending that ordinary people will not have to pay the tax bill for this Government's failures; delay, by putting hard choices off until after the election; and a deficit that is out of control. I shall conclude with three further Ds—this is a dishonest Budget from a discredited Government facing defeat, to which the Budget and this Bill will contribute mightily.
Much—indeed, almost all—of the comment in the press at the time of the Budget, and much of this debate, has been about the assumptions and forecasts it contained. I wish to respond to some of that comment and I start from the premise that forecasting is more an art than a science. I know that econometrics is the place to be at the moment, and many different mathematical formulae are used, but the reality is that art plays a much larger part than science.
That is particularly the case at present, because we live in a period of exceptional uncertainty. If I may comment on a point that was made earlier, we are no longer in a period characterised by the chairman of the Federal Reserve as the "great moderation". We all remember those times—they lasted for quite a long period—when the so-called fluctuations in the trade cycle were reduced and when it was thought that economic management of the economy was more effective than it is. All that was cast aside completely in 2007, when we had the unprecedented external shock from the sub-prime fiasco in the USA. The first thing that we must be clear about is that the recession that this Budget reflects is international in both scale and origin.
My first question on the Budget projections is how far into the future is it reasonable for a Budget to forecast. Indeed, Mr. Browne commented that Budget books occasionally give long-term public expenditure projections. Without wishing to hurt the feelings of all the economists who crunch the numbers in the Treasury, I submit that some of the projections that go more than two or three years into the future are almost worthless. Indeed, I shall go on to talk about whether it is appropriate to forecast two years ahead. Although that was done in the Budget—and it has received a lot of criticism—very few of all the other forecasters, including the IMF, forecast for that period.
The hon. Gentleman says that he believes that forecasts for up to two or three years should perhaps be disregarded. Would he go so far as to say that forecasts for six months should also be disregarded, bearing in mind that the Chancellor said at the Dispatch Box six months ago that the economy would be on the mend in June of this year?
The hon. Gentleman says that the forecasts are reasonable considering the times. However, it was two hours after the Chancellor sat down that the IMF disagreed with the growth forecasts for this year, saying that they would not be minus 3.5 per cent., as the Government claimed, but minus 4.1 per cent. That was just two hours later, not six months later.
I am very pleased that the hon. Gentleman has mentioned the IMF, because that is the comparison that I want to make. That was a godsend to the media, who were out to trash the Budget. The fact that the IMF published the figures on the same day meant that the automatic assumption of most of the media comment was that the IMF figures were right and the Treasury figures were wrong. The reality is that the Treasury has a much better record of forecasting the British economy than the IMF.
Let me come to the specific points made by Mr. Ellwood. The Budget book suggests that there is a recession of 3.5 per cent. in the current year. The average of all recent forecasts suggests a negative of 3.7 per cent. The representative of the Scottish National party, Stewart Hosie, said earlier that the OECD had today suggested 3.7 per cent. The IMF is at 4.1 per cent. If we take the average as reasonably accurate in the circumstances—I accept that forecasts for this year can be taken to be reasonably accurate—the Treasury is closer to the reality.
The hon. Gentleman is making a reasonable stab at arguing that arithmetic averages are likely to pray in favour of the Treasury's position. However, surely he must recognise that only two days after the Chancellor made his predictions for this year, the Office for National Statistics published its figures for the first three months of this year, which showed that the Treasury's projections were out by more than 25 per cent. The economy failed by 1.9 per cent. as opposed to the 1.5 per cent. that the Chancellor had identified two days before.
If the hon. Gentleman will be kind enough to give me a few seconds to develop my argument, I will come to that point.
The Budget projection for 2010 of 1¼ per cent. growth was widely ridiculed in the media and compared with the IMF projection of, I believe, negative 0.3 or 0.4 per cent.; according to the IMF, we will still be in recession. If we take the average of all recent forecasts, growth does return to the economy; it is something like 0.3 or 0.4 per cent, which is a good deal closer to what the Treasury is suggesting, although of course still significantly less. That is one reason why the epithet "optimistic" has been used, which was very much at the centre of our debate in the Treasury Committee.
If we then project forward a further year—I would hesitate to take with any great accuracy a projection made that far into the future—the average of forecasts is roughly 2¼ to 2½ per cent. growth. As the Budget figures suggest, the Treasury selects 3½ per cent. I would raise questions about how accurate any such forecasts could be, but let me say why I think that, although the Treasury is veering towards the optimistic side, it may not be an unreasonable forecast.
The first reason is that in previous recessions, such as those of the early '80s or the early '90s, when the recession bottomed out there was spare capacity in the economy, which made it possible for recovery to occur relatively quickly and at an above-trend growth rate. The Treasury has therefore assumed that we will have a relatively faster bounce-back from the end of the recession. Secondly, we have an extraordinary stimulus in the economy—not just the automatic stabilisers, not just the activities of the Bank of England, but a significant depreciation in the value of sterling, which should open opportunities to re-phase our economy to export more into the future.
Perhaps the most important reason, and the one that is being challenged in alternative forecasts, is the assumption in the Budget that agreements made at the G20—international action to stimulate economies across the world—will be honoured. I do not know whether that will happen, but I think it is reasonable to assume that other economies will take similar action. They have all announced that they will, and therefore one can assume that, although those Budget projections are on the optimistic side, they are based on fairly good economic analysis.
I shall now discuss the ONS announcement of a contraction of 1.9 per cent. in GDP in the first quarter. Mr. Dunne, who I know takes a great interest in these matters, will know that those figures were very much initial figures, based on only 50 per cent. of the evidence that will become available. When we asked the Treasury's economic guru about those figures, he said not only that he expected them to change going forward, as they often do, but that he saw no reason to re-evaluate the projections for this year, and I would accept that at this stage we should not do that.
Therefore, my first point—I have laboured the point because of all the press and other comment that there has been—is that, in my view and I think in that of most independent forecasters and economic commentators, the Budget projections are within the realms of possibility. The idea that they should all be entirely rubbished really must be challenged, and that is what I have sought to do.
Let me come on to the public finances. It is amazing that everyone on the Opposition Benches who has commented today has cast doubt on whether we have an honest appraisal of the problem that we will face with our public finances. This Budget is honest about that. Opposition Members have quoted the figures. When you tell us how terrible the situation is, you do not use alternative figures; you use the Budget figures to do so.
Will the hon. Gentleman take this opportunity to rubbish the National Institute of Economic and Social Research report that says that income tax will have to rise by between 8p and 10p in the pound to deal with the economic mess that the Government have got us into?
I thank the hon. Gentleman for that question. I was going to raise the issue with Peter Luff. The director of the NIESR came before the Treasury Committee. He remains one of the few economists in favour of a second fiscal stimulus. He and his organisation believe that even given the additional public expenditure implications of a second fiscal stimulus, it is the correct thing to do. I have no doubt that the figures in the report from which you quote are accurate, as far as a forecast can be, but you should be aware that if we followed that economist's policy prescription, the figures would be even higher.
Order. May I gently remind the hon. Gentleman that he has been using the word "you" quite a lot, thus implying my involvement, of which there is certainly none?
I apologise, Mr. Deputy Speaker; when I begin to enjoy myself, I get somewhat carried away. I hope that I will remember to phrase my speech in the correct manner.
I want to discuss the cyclical and structural nature of the public expenditure deficits, because there is an issue involved that we really have to address for the future if we are to get our public expenditure back to a sensible amount. Members have said that the structural element of the deficit is about four fifths of the total deficit. I do not think that anyone has queried that. We have not really debated in the Chamber today—and I suspect that we will not do so before the general election—what proposals we will bring forward to address that structural part of the deficit. We heard earlier from my right hon. Friend Mr. Field, who suggested a number of proposals; I will come back to them. A lot of the hardy annuals from both main Opposition parties have suggested that we could look at scrapping identity cards. I have opposed, and will continue to oppose, identity cards for all sorts of reasons, but I would not go so far as to say that there is a significant amount of money to be saved—not an amount that will make a substantial difference to the problem of the deficit. That is part of the problem with some of the suggestions made, mostly, dare I say, by members of Her Majesty's loyal Opposition. They do not really address the scale of the problem that we face.
In an earlier response to me, the hon. Gentleman said that the NIESR was interested in a second fiscal stimulus. That may well be so, but it also said today that if Britain's national debt were reduced to 40 per cent. of gross domestic product by 2023, to comply with the golden rule of the then Chancellor—now Prime Minister—even bigger tax rises and/or spending cuts would be needed. What is the hon. Gentleman's view about that statement?
I am not sure why the hon. Gentleman is pressing this. I accept that there are dramatic implications going forward, whether there are tax increases or cuts in public expenditure. Undoubtedly, we will need to address them. I am speaking about those who have had the temerity to raise some of the real issues. As I mentioned, much of the comment that there has been—for example, about publishing the incomes of the chief officers of quangos—does not address the problem that we face.
The hon. Gentleman keeps criticising the Opposition for coming up with suggestions, but the billions allocated to ID cards, the NHS computer system and various quangos add up to a hell of a lot of billions. We are coming up with suggestions, but we still have not had a single one from the hon. Gentleman for addressing these structural problems.
In the next few months, when the Opposition have had a chance to look carefully at all the implications of the Red Book and come forward with a series of proposals, people will take them and the criticisms that they make more seriously.
One of the issues raised by my right hon. Friend the Member for Birkenhead has been reflected in comments from Dr. Cable and has found favour in some parts of the Opposition. I refer to the question of whether action should be taken on public sector pensions and, by implication, on public sector pay. My suspicion is that nothing concrete will be forthcoming from either of the major Opposition parties, because they will not want that to be part of any election campaign that may come this year or next.
Comments were made earlier about how we fund the deficit. As I mentioned in an intervention, a number of members of the Treasury Committee visited the Debt Management Office today. From what we saw and from the discussion that we had with the senior officials there, it was clear that for various reasons there is an appetite out there in the marketplace for Government debt. Whether that is because there is a flight to safety in risk-free products such as gilts, or because of the need of the pension industry for long-dated gilts, there does not seem to be a single serious forecaster or economic commentator who suggests that although the demands of the Debt Management Office to raise money on behalf of the Government are substantial, there is not a willingness out there in the marketplace to deliver that.
Finally in relation to the public finances, we have heard repeatedly from the Opposition that we are building up a 79 or 80 per cent. ratio of debt to GDP. As the hon. Member for Mid-Worcestershire commented, that places us somewhere in the middle of international comparisons. Although that should be taken extremely seriously, we are not some outlier, as has been suggested by some Opposition parties. We are around the average of the economies that could be considered both our competitors and our comparators.
I know the hon. Gentleman is not stupid. I sat with him on the Treasury Committee, and he knows full well that the device that the Prime Minister used when Chancellor was to put as much debt as he could off balance sheet. If one uses equity accounting or consolidation accounting with the banks alone that have been bought by the Government, that is an extra £2 trillion of debt that should be added to the Government accounts. That excludes the £1 trillion of public sector pension liabilities. Debt today could be as high as £4 trillion or more. The hon. Gentleman must acknowledge that there is a huge amount of money held off balance sheet, as well as on balance sheet, by the Government.
I acknowledge the hon. Gentleman's consistency, because that theme runs through his period as a Treasury Committee member and his questions on the Floor of the House. However, his argument is accepted neither by the Government nor, I suspect, by most independent economists, and I return to my earlier point that the Budget is honest in its presentation of our public expenditure problems.
I must move on, because I want to comment briefly on several specifics of the Budget. I cannot understand why people find the 50p tax rate so difficult to accept. It seems entirely reasonable and fair that those who have benefited most from the good times make some contribution during the difficulties that we now experience. As I understand it, that view is shared by the public, and the 50p tax rate reflects it. However, I, like others, have some concerns about the proposal in the Budget and, most of all, about the uncertainty surrounding the yield from the tax.
We were told on the Treasury Committee that only 31 to 32 per cent. of the potential yield will probably be realised. The Government have taken some steps, as was mentioned earlier, to do something about income being moved into pension schemes, and I recognise that that will increase the likely yield of the 50p rate. However, as the hon. Member for Twickenham has said extensively, there are still major opportunities for people to shift income into capital to reduce their tax burden, so one suspects and hopes that the Government will return to those measures to ensure that the people who can afford it, and who have done so well in the past, make a sensible contribution.
I thank the hon. Gentleman for giving way. He has been very generous, and I know that, as a member of the Treasury Committee, he takes a great interest in these affairs. Surely, however, he will concede the argument of Mr. Byers—that the tax rise is essentially a political strategy, that it will not deliver fiscal rewards and that, if someone earns about £112,000 a year, they will effectively pay a marginal tax rate of 61.5 per cent., making it the third highest rate in Europe. In a recession, when we seek to bring in wealth creators, that cannot be good for the UK's economy.
I certainly share the concerns about increased complexity and, albeit in a different way, the likely yield of the change in taxation. However, I hope that, at the pre-Budget report later this year or, if there is another Budget, at the next Budget before the general election, the Government will consider carefully whether the 50p tax rate has raised the amounts that we would wish to see.
I shall make two other brief points before I finish. I was surprised that the hon. Member for Mid-Worcestershire the Chairman of the Select Committee on Business and Enterprise, did not mention the vehicle scrappage scheme.
Technically, the scheme is not in the Finance Bill, so that is why I did not raise it. However, I am very interested to hear what the hon. Gentleman has to say about it.
I welcome the scheme, because there is a great feeling outside the House that the Government have done much for the financial sector, but that we have rather forgotten about manufacturing. It was therefore important to lay down a marker, demonstrating that we are helping manufacturing. We could have taken a narrow, nationalistic view, because it is already evident that the schemes that have been introduced in Germany, France and other European countries have benefited the British car industry, 85 per cent. of whose production is exported to Europe.
However, it was right and proper that we brought forward a scheme. There are some problems of dead-weight costs and there is the issue of whether British manufacturing will benefit. But if we look carefully at the benefit that the scheme will deliver to the retail and component parts of the motor industry, we see that the scheme is well worthy of support.
My biggest regret about the Budget relates to our commitment to halving child poverty by 2010 and eliminating it by 2020. That faced a setback in the Budget—and, it has to be said, in the pre-Budget report; in neither were there substantial measures to address the issue. I regret that, although one has to accept, realistically, that the financial circumstances have changed significantly. I hope that the Government will not forget about their child poverty commitments, which have great public support. Everyone recognises the need to assist the poorest and most vulnerable in our society. Recognising the legislation and maintaining the commitment will do more good and be presented more positively for the Government than almost any of the measures in the Budget.