There is more rejoicing in heaven over one sinner who repenteth than over the 99 who are not in need of repentance, and it has been wonderful to listen to Michael Connarty, because he made a wonderfully Conservative speech, saying that taxation and over-regulation are fundamentally bad things—bad for the economy, bad for business, and bad for Britain. That is absolutely true, but unfortunately it misses the point that when this Government came into office, the coffers were bare. There was no money left, and therefore tough action has needed to be taken on both spending and taxation. I want to see taxes fall in every possible area—I want taxes on income, capital gains, companies and oil companies all to be reduced—but I only want Her Majesty’s Government to do that when it can be afforded.
We need to look back at the seriousness of the situation we inherited, and at what this Government are doing. Gross debt issuance from 2008-09 to 2010-11 is £540.5 billion. That is money that has to come from savers and from foreigners, and a good chunk of it actually came from the Bank of England: some £205.9 billion—getting on for half the total—was just printed by the Bank of England. That is not a way in which any responsible Government could ever have carried on; to have done so would have been desperately inflationary.
I want to come back to the point made so eloquently by the shadow Chief Secretary about Ricardian equivalence, because that is relevant. No one is saying that every £1 in debt is necessarily going to relate to £1 in future taxation, but the broad principle is right. The electorate understand this; they understand it from their own financial affairs and they see it from the Government’s. They understand that if a huge debt is built up, it has to be repaid, and it will be repaid by them out of their earnings or their assets. We already see not far short of £50 billion a year being spent on interest payments. The
British electorate know that that £50 billion is coming out of their taxes, as will the repayments. Indeed, as we get on to the repayments and refinancing, we will have a further gilt issuance of £578 billion between now and 2015. Enormous amounts of money are still being raised on the debt markets even when the Government are implementing a programme of tough cuts and some tax rises, which people do not like, but that is because of the severity of the situation the Government inherited, and if they had not implemented that programme, the confidence of the markets would have evaporated.
That confidence is what allows the Government to finance themselves. This is where the gilt market is so important. The five-year gilt is trading 5% away from its historical real average; that is 500 basis points, which is a gigantic amount in gilt market terms. The five-year gilt is usually at a 2% premium to the retail price index, but it is currently at a 3% discount to RPI. That shows that the financial markets believe that the Government have got it right.
Most economic decision making takes some years to come into effect, and I must confess that in this regard we have heard a lot of nonsense about quarterly growth figures relating to decisions on cuts taken before any of their consequences had actually come through. It takes much longer than that for economic results to happen, and I would therefore say that the figures for this quarter, the last quarter and the one before that are to the credit of the Opposition, and not as yet to Her Majesty’s Government; it will be to the credit of Her Majesty’s Government when we have got 2.5%-plus growth. The gilt market and the currency market are, however, immediate responders to Government policy, and the response that they have given is a vote of confidence. They know that the Government have broadly got it right. The currency has strengthened, and is continuing to strengthen, against the dollar—an indication, perhaps, that the United States has not got its fiscal situation as well sorted out as we have here.
Let us consider some of the specific things that the Government are doing in this Bill. I particularly welcome, as does my hon. Friend Stephen Williams, the increase in the tax threshold. A wonderful pamphlet produced by Lord Saatchi and Peter Warburton a few years ago asked why poor people pay tax and why we have this merry-go-round whereby we take money out of someone’s pocket and put it back into their other pocket having taken some element of it to finance our bureaucracy along the way. The more the Government can raise the tax threshold, the less of that money will be wasted as the machine churns through and the more people will be taken out of tax.
I will add one point that may not be deemed helpful. My hon. Friend mentioned that over a couple of years 2 million people are to be taken out of tax, but Her Majesty’s Government might like to know that the Chinese Government have just succeeded, by increasing the income tax threshold from 2,000 renminbi a month to 3,000 renminbi a month, in taking 76 million people out of tax. That is something for the Treasury to aim for, because that number exceeds the entire population of the United Kingdom.
The increase in the tax threshold is extremely welcome, as is the reduction in corporation tax. Being competitive on corporation tax is something that the Irish were so clever about, and may we wish them well in their fight against the European Union’s attempts to make them increase it. By reducing corporation tax we attract businesses that could otherwise go anywhere in the world. We know that businesses can move and that WPP is thinking of moving back to the United Kingdom because of the right trend in taxation. In that regard, I encourage Her Majesty’s Government to avoid any of this nonsense about a Robin Hood tax. Robin Hood was not as good as he was made out to be—particularly for the sheriff of Nottingham—but even if such a tax were as heroic as the late Robin Hood, it would still be a very bad tax for this country.