Finance Bill

Part of Developing Country Debt (Restriction of Recovery) – in the House of Commons at 6:45 pm on 6th May 2009.

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Photo of John Redwood John Redwood Conservative, Wokingham 6:45 pm, 6th May 2009

I am a director of one company and a director and a shareholder of another company, and have declared that in the Register of Members' Interests.

The Budget judgment before us, which we must think about in this Second Reading debate, is the Government's judgment that they need to increase spending at a rapid rate, that they need to make some modest—as they see it—increases in tax revenue, not in the immediate year but in subsequent years, by raising rates for the rich, and that they need to bridge the rest of the gap by very substantial borrowing.

In the opening exchanges, we heard different positions being set up. I am firmly of the view that the Government are running undue risk with the huge gap between spending and revenue not just in the current year but in the years ahead, particularly in the subsequent year, about which the Budget makes a judgment. I would like to see that gap smaller, and I would wish to achieve that by controlling expenditure rather more than we are witnessing under this Government.

This is not primarily a debate about public spending. I have set out at least 17 ways that I immediately see of making reductions, some very big and some quite modest but illustrative. The culture in government needs to be changed so that more is delivered for considerably less. That is not difficult, because the inefficiencies are so gross and the overstaffing on the administrative side is so enormous: The Guardian jobs pages show us that there is no idea of imposing any kind of control on staff numbers and gaining proper value for money for taxpayers.

That is what I would address, but first let us look at the situation in the Government's terms. They have invited us to support a Finance Bill based on two worrying propositions—first that they should spend that much, which I do not think they should, and secondly, that they should raise so little, given the amount of spending that they wish to do. In their own terms, if they wish to do all that spending and, unlike me, think that every pound of that is providing value and is much sought after by taxpayers, they should be prepared to be honest with the House and say, "That's the bill, and we need to raise more in taxes, not next year, the year after or when there may be another Government in place. We need to be honest with the public and raise some more money in taxes this year to meet all those spending bills."

So why, then, do the Government not do that? Obviously, because there is a general election coming up and they know as well as any other elected politician that increasing taxes is very unpopular. As their cover story, they claim that their spending is reflationary, and that it will be good news for jobs and for the economy if this year—by coincidence, a pre-election year—they spend so much more than they raise in taxes.

The economic effects of forcing savings from people are similar to the economic effects of taking taxes from them. If the Government are serious about borrowing all that money from individuals or from companies in the United Kingdom private sector, it has more or less the same effect as if that sum were taken off in tax, because for every pound that they borrow from the UK private sector for this so-called reflationary spending, the private sector has £1 less, so it cannot provide the jobs or buy the goods that it would otherwise use that money to do. It is, instead, providing it to the Government. In their own terms, their argument for under-financing their huge expenditure by such a big margin is unlikely to work.

That is not the only thing that the Government have done in their desperate and belated attempt to turn around the massive recession that their policies, allied to problems throughout the world, have undoubtedly created for Britain. I am strongly of the view that it was policies made in Britain that made the banking crisis so bad here, and that the manic and deliberately perverse monetary policy that the Government and the authorities followed first created a bubble, then created a crash, and is now desperately trying to find a way to reflate and inflate from the crash site rather late in the day.

Monetary policy is an extremely powerful weapon, however, so the heavy lifting to try to turn the economy around will be done not by the Budget, because it will not be nearly as reflationary as the Government suggest, but by having interest rates at almost zero and by gradually nursing the banking system back to strength. I am not a gloom-monger who says that we are going into a 10-year depression and never going to come out of it; monetary policy is very powerful. The reason we are in crash mode is that the monetary authorities got their monetary policy completely wrong by being far too tight in 2007 and at the beginning of 2008. They are now trying to produce a much looser monetary policy, which started last autumn, and in due course that will definitely have a beneficial impact. It will start to lift some of the gloom, slow the rate of decline and in due course, if other things do not get in the way, turn things around from their current very bad position.

I do not believe that the Budget will turn the economy, but nor am I saying that it will always get worse at the current rate, because that argument would be quite obviously untrue and rather foolish. We all live in this country, we want it to do well, we wish to see more of our constituents with jobs and more businesses to flourish, and we wish monetary policy well. We are more worried about the impact of the Budget, because its tax measures will undermine competitiveness, enterprise and job creation at the margin—or in some cases more than at the margin—and that is not what the Government should be doing with a taxing Budget at this stage in a violent and unpleasant cycle.

My right hon. and hon. Friends are naturally very concerned that the Government will not be able to borrow all the money that they need in the next few months to bridge the gap, and my right hon. and hon. Friends therefore say that either taxes need to be higher or expenditure needs to be lower to secure a tighter Budget. They should bear in mind the fact that the Government are trying to load the dice in favour of their getting away with it for a few months, but that their Budget has a time horizon that stretches only until the next election. It is apparently set within the framework of wanting to get the next three or four years right, but nobody really believes the forecasts, and if we look carefully at the tax measures, we see that they take the form of a Tory tax trap. They are political taxes; they do not seriously try to fill the big void in the public accounts, even after the following election. They are in the Budget for illustration, and probably for spite. They are not there to deal with the colossal black hole in the figures.

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