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Capital Gains Tax (Rates)

Part of the debate – in the House of Commons at 1:45 pm on 23rd June 2010.

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Photo of Jon Trickett Jon Trickett Labour, Hemsworth 1:45 pm, 23rd June 2010

I am talking about yesterday's Budget and I shall continue to do so. If the hon. Gentleman does not like it, he should think about whether he will vote for it next Monday and Tuesday.

Paul Krugman, the Nobel prize-winning economist, asked how hard it could be to understand that Governments can save economies rather than destroy them. It is not too hard at all, yet as he said:

"All around the world...politicians seem short-change the economy".

A consensus has emerged in the media about the need for cuts, which is infuriating sometimes, because there is a counter-consensus that has not been properly heard, represented by many people on the Opposition Benches and by leading economists, President Obama and others: we are taking a huge risk with the future of our economy.

Two million private sector employees work for companies that are dependent on Government contracts-Sheffield Forgemasters has already been mentioned. Further damage will inevitably be done to the private sector by cuts aimed at the public sector. When we look at the performance of the private sector we see that it, rather than the public sector, has brought about the reduction in gross domestic product, especially in investment. People may not like to use the word, but if there is a strike going on at the moment, it is not the BA strike but the investment strike in the private sector. We can understand why it happened, but none the less, £6 of every £10 of the reduction in GDP is down to one factor alone-the decline in private sector investment. It is not clear to me how cuts now will suddenly lead to growth in private sector investment, nor have the Government explained how that might happen. Furthermore, the Red Book shows a decline in public sector investment from £47 billion in 2008-09 to £21 billion, which is less than half that amount, by 2014.

I am troubled both by the assault on poorer communities, which is what the Budget really amounts to, and by the underlying economic philosophy that by reducing the state the private sector will flourish. The reverse is true, as we know from the great economist Keynes and from what happened in the great depression of the 1930s. Recovery in the United States was not brought about by slashing public expenditure, but above all by the new deal. Roosevelt's great adventure rebuilt the American infrastructure and economy. The private sector was able to revive through expenditure, not cuts.

With those reflections, I turn to the politics of the Budget. The election gave no legitimacy for the course the Government have set. The vast majority of people who voted for the Liberal Democrat party did so on the basis that there would be no further cuts in this financial year, and no increase in VAT. The Conservative party did not achieve a majority and did not significantly increase its vote, in terms of the total numbers of people who voted. On the other hand, it is also clear-I would not claim otherwise-that Labour did not win the election either, but looking at the combined votes for Labour and the Liberal Democrats, for a policy of careful financial management, we see that a vast majority voted for that objective.

My conclusion is that there is no democratic legitimacy for the Budget. When the Secretary of State for Business, Innovation and Skills described his conversion on the road to Damascus on the day after the election, his argument was much less than convincing. It feels as though there has been an attack on middle-class and working-class families and on those dependent on welfare. Inevitably, there will be resistance both in the House and outside. When people reflect on the fact that an extreme Thatcherite Budget has been agreed and will be forced through the House without the legitimacy of an elected parliamentary majority, there will be outrage.

It is for the Labour party, particularly our leadership, to reflect carefully on how we respond to a Budget from a Government who were not elected with a majority, and who propose to impose savage cuts on the living standards of poorer people. Resistance will emerge. The Labour party will want to react responsibly, but we will-at least we should-place ourselves alongside people and communities who are resisting the cuts. I very much hope we shall be doing that in the coming weeks and months.

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