Budget Resolutions and Economic Situation — Capital Gains Tax (Rates)

Part of Ways and Means – in the House of Commons at 2:25 pm on 24th June 2010.

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Photo of David Wright David Wright Labour, Telford 2:25 pm, 24th June 2010

I congratulate Karen Bradley on a genuinely excellent maiden speech. She mentioned 10 pubs that were among some of the highest in Britain. My love of a pint of beer will ensure that I visit her constituency very soon, perhaps over the summer holidays, and avail myself of a pint of bitter-or maybe even two-in each one of them. As a fellow midlands MP, it is a great pleasure for me to welcome her to the House. I was the Government Whip for her predecessor, Charlotte Atkins, to whom she paid worthy tribute. Perhaps I can encourage the hon. Lady to join us in the Lobbies next week, as I used to encourage her predecessor to do, but on the basis of her excellent speech, I think I might have some problems achieving that.

I want to speak about some general issues surrounding the Budget. First, I was struck during the Budget debate over the past couple of days about how the Budget failed to mention the scale of the global downturn over the past three or four years. Anyone listening to the Chancellor would not have believed that the world economy had gone through one of the greatest downturns-indeed, the greatest downturn-since the second world war. This omission amounts to a significant rewriting of history.

I recall visiting the United States when the housing crisis, prompted by the mis-selling of mortgages in the US, was just beginning to take hold. There was real fear on Wall street about the value and confidence of what was then triple A-rated debt. It sent a shockwave around the world, yet we heard no mention of that in what the Chancellor had to say, which I found quite remarkable.

I also found it remarkable that the Chancellor had nothing to say about the decisions taken by the Labour Government to support the economy at the height of the recession. I still believe that those decisions were the right ones to take, supporting the banks during the crisis and cutting VAT-perhaps the Liberal Democrats would like to reflect on that when it comes to the vote next week-to provide a stimulus to the economy. The car scrappage scheme was a particularly successful economic stimulus and was important for companies in my constituency and across the midlands. Quantitative easing was another positive step. During that period, the Conservative party largely got it wrong. It opposed a number of those initiatives, and was particularly slow when it came to supporting bailing out the banks. In large part, it got a number of those decisions wrong.

The crucial question facing us now is the speed at which we pay down the deficit that resulted from the global recession. We are all agreed on that. The risk is that if we take too drastic action, we could find ourselves pushed back into recession. On "Newsnight" last night, which I watched with my cup of tea, an economist, Richard Koo of Nomura Investment in Japan, said that there is a danger that the Budget will take too much cash out of the economy, and made the point that the private sector is deleveraging and might also be tempted to pay down debt. He made the point that, as a result of the Budget, we might find ourselves in a low-growth, low-inflation economic position, as experienced in Japan. At such times, he said, a portion of financial stimulus needs to be sustained, and that should have happened in Japan in the late 1990s. What happened in Japan was that it bumped along the bottom in economic growth. That is a worry.

The Budget envisages a massive shift to private sector investment and exports over the next three years. We should all support that and hope that such a strategy succeeds, but such a significant rise in private sector investment and exports over a three-year period is a tall order, especially if, as the Prime Minister said proudly from the Dispatch Box the other day, economies across Europe are contracting public spending. Several European Governments have withdrawn stimulus from the economy, which is a concern in relation to demand for exports over the coming three to four years. That is why the question of the speed of cuts is crucial.

The Canadian deficit reduction model, which is often cited by commentators in relation to the Budget, was pursued at a time of growth in the economy. I want to see more growth and I want to see the country succeed, as we all should, but my concern is that growth is fragile here. Businesses are concerned about the impact of cuts on levels of demand in the economy. The Shropshire Star, my local paper, did an excellent piece on the Budget-that will get me a good slot in the editorial tonight-and quoted Geoff Parkes, who runs a company in Telford, ASC Finance For Business. I do not know him or pray him in aid of the Labour party's position, but he had this to say about the Budget:

"The big unknown is the effect of public sector cuts, reduction in tax credits, freezing child benefit and critically the rise in VAT to 20% from January 2011".

He said that this

"will have an impact on demand in the economy-this means firms will have to compete harder for their share of the recovery".

He is right: companies will have to compete harder for their share of the recovery. My concern is that we are taking public spending out of the economy too quickly. We need to cushion the impact of the cuts over the next two to three years; otherwise, we might find ourselves in a double-dip recession.

My concern about the Budget is the ideological drive of the Conservative party to reduce the role of the state. This is the kind of Budget that the Conservative party would have introduced whether we had these economic problems or not. The Conservatives have a big society view about the country based on a US small state theme. The headline from the Budget is, "Pain now, more pain later". The massive spending cuts are pushed away to the autumn, when they can be announced by the Chief Secretary to the Treasury, the Chancellor's personal human shield. I would not be surprised if the Prime Minister and Chancellor were well away-probably out of the country-when the Chief Secretary stands at the Dispatch Box to announce the savage cuts later in the year. In the meantime, the Budget can be presented as half the story of what needs to happen in our economy.

The Institute for Fiscal Studies has said clearly that if some Departments are to be protected, with perhaps 10% cuts, others will have to bear cuts of about a third. That is an enormous amount to come out of the budget in the next two to three years. I am extremely concerned about the impact that will have on police services in constituencies such as mine, where we will see fewer police officers on the street, fewer community support officers and fewer front-line services. Telford is heavily reliant on civil service jobs: defence jobs, Department for Work and Pensions jobs, and jobs that are reliant on work from the Treasury. I fear that there will be a significant reduction in the number of civil service jobs in Telford, which will have a consequential impact on our economy. I want us to protect those jobs in Telford, and I will fight to protect them. It is important for us to protect our local economy-an economy that relies so much on public sector jobs.

I was disappointed that the Building Schools for the Future programme was not mentioned in the Budget. A significant amount-more than £200 million-has been invested in the renewal of our schools in Telford, but there is currently no security for head teachers, pupils or parents with regard to the future of those schools. Secondary schools such as Wrockwardine Wood arts college, the Phoenix school, Lord Silkin school and Sutherland Business and Enterprise college are waiting to see whether the Government will proceed with Building Schools for the Future. I shall campaign with local communities to ensure that we complete that programme-a programme that we initiated as a Labour Government, and of which I am incredibly proud.

I believe that the Budget will have a disproportionate impact on the poorest people in the country. The Institute for Fiscal Studies stated clearly today that it believed that it would have a greater impact on the lower paid and the poorest than on anyone else. As our discussion over the past couple of hours has made plain, Labour's last Budget was progressive and this Budget from the Conservatives is regressive. That has been the focus of the debate.

The core tax rise in this Budget is, of course, the increase in VAT. Before the election, both the Conservatives and the Liberal Democrats said that they had no plans to introduce increases in VAT. This VAT rise is a bombshell. We talked about it during the election in Telford, where it will have a significant impact on families. I shall be in the Lobby next week opposing it. Indeed, I shall be in the Lobby opposing the entire Budget package, because it is damaging to communities such as Telford and damaging to the country. We should oppose it because it is non-progressive-in fact, it is regressive-and I look forward to Liberal Democrat Members joining us in the Lobby to oppose it next week.

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