When the Chancellor of the Exchequer was appointed to his post nearly six years ago, he was faced with several challenges: a record deficit, an increasing number of welfare claimants, and the fallout from a banking crisis of a scale that had not been seen since the 1930s. Along with each of those challenges, the Chancellor was faced with an opportunity. He could have reformed the tax system, changed the terms of welfare forever, and restored confidence to our banking system. However, he wasted each of the opportunities that accompanied those major challenges.
For a start, the Chancellor failed to tackle the deficit by 2015, although in 2010 he had confidently predicted, at the Dispatch Box, that he would. The plan, we were told then, was to start paying off the national debt by the end of the last Parliament. In the emergency Budget statement that he delivered to the House on
“The formal mandate we set is that the structural current deficit should be in balance in the final year of the five-year forecast period, which is 2015-16 in this Budget.”—[Hansard, 22 June 2010; Vol. 512, c. 167.]
Here we are at the beginning of 2016-17, and the budget deficit stands at £72.2 billion. Now the Chancellor tells us, in all hope, that he will turn that into an absolute surplus of £10.4 billion in 2019-20. It is Cheltenham week, and I wonder who will win the wager that he will achieve that.
The only conclusion that can be reached is that austerity has failed to produce the growth and the tax receipts that we need if we are to end the deficit and begin to pay off the national debt. I believe that there are two solutions. We need tax reform in the short term to ensure that tax is collected efficiently and effectively, and we need to radically increase long-term investment in new and emerging businesses. The Chancellor is intent on cutting public services by £8.1 billion by 2020-21, but what is he doing to ensure that the large multinational companies that do business in our country pay their fair share of tax? Is it fair for a small business to face demands and eventual court action for non-payment of tax while a corporate giant like Google can negotiate with HMRC? Of course it is not.
The cases of Google and Facebook demonstrate that corporation tax has had its day. The UK Government raise about 7% of their revenue from corporation tax, but much of that would be collected as income tax on dividends even if corporation tax did not exist. Taxing companies locally on a fraction of their worldwide income calculated by reference to their domestic activity could be one solution to this issue. Alternatively, the Government could be bold and radical and abolish all tax incentives and other loopholes, making it almost impossible for anyone to avoid paying their fair share of tax.
The Chancellor should look at ways of spreading wealth to the regions that are traditionally reliant on the public sector, such as the north-east, Northern Ireland and, yes, Wales. As someone who travels across the Severn bridge on a weekly basis, it would be churlish of me not to welcome today’s announcement of the halving of the Seven bridge toll. However, I must qualify my welcome by saying that I wish the proposal had been the maintenance-only toll for which my hon. Friend Jessica Morden has been campaigning for years. We look forward to hearing the details, but I really wish that, rather than the cut being introduced in 2018, businesses could benefit from it this evening or tomorrow.
HMRC estimates that in 2015-16 there are 3,000 additional rate taxpayers in Northern Ireland, 4,000 in the north-east and 5,000 in Wales. In Wales, additional rate taxpayers pay £302 million in income tax. I urge the Government to look at regional tax rates tailored to encourage people to start up businesses in areas such as
Northern Ireland, Wales and the north-east. That would also encourage wealth creators to relocate to those areas.
However, tax reform will go only so far towards paying down the deficit. Whether the Government like it or not, they have to put their money where their mouth is. In the future, we will face challenges ranging from ageing to climate change to antibiotic resistance, and it will be our researchers and innovators who are at the forefront of sustaining our way of life, as David Rutley has just mentioned. We have a responsibility to safeguard both the quality and the productivity of our science base to ensure that we are in a position to meet those challenges. In our increasingly knowledge-based economy, the pursuit of excellence in research and innovation will be at the heart of effective strategies for sustainable growth, increased productivity, competitiveness and the creation of high-value jobs. This is the nation that broke the Enigma code and discovered DNA. Our competitors across the world recognise the value of the knowledge economy and are investing heavily in science, technology, research and education. If we want to remain world leaders in tomorrow’s knowledge economy, it will not be enough to ring-fence the science budget. We need to increase it and invest more in it.
I turn now to the final challenge. Despite being given a mandate to reform welfare, the Government have failed to grasp the problem. Focusing on jobseeker’s allowance, they have peddled the myth that most of the money goes on unemployment or incapacity benefits. In fact, 47% of UK benefit spending—£74.22 billion a year—goes on vital state pensions, which is more than the £48.2 billion that the UK spends on servicing its debt. That is followed by expenditure on housing benefit of £16.94 billion and on disability living allowance of £12.57 billion. Jobseeker’s allowance is actually one of the smaller benefits, with £4.91 billion being spent in 2011-12, an increase of 7.6% on the previous year. We can no longer tinker around the edges of welfare reform. The budget is getting too huge. We need a cross-party report that all the major parties can sign up to—a modern-day Beveridge report, if you will—to seek solutions to how benefits can be delivered in a way that reflects the modern world.
Nothing rouses the anger of the British public more than the banks. Following the financial crash of 2008, banking reform was at the top of the agenda. Sadly, this Government have been found wanting. Just this week, HSBC announced plans to close its local branch in Risca in my constituency. Already, hundreds have signed a petition expressing their anger at the closure. On four occasions over the past five years, that bank has threatened the Government that it will leave this country, yet it does not even think it important to consult the local community before closing a branch.
The Financial Conduct Authority launched a review into banking culture, but it has now been scrapped, despite the fact that customers and taxpayers are still paying the price for the failed culture in the banking sector that has been widely attributed as being among the main causes of the crash and the scandals over LIBOR and price fixing. We need to introduce competition into the banking sector to finally challenge the dominance of the big six banks. A start could be made with real-time data sharing to help consumers and promote competition. It is vital that better and more accurate information is shared more quickly and that banks’ current account and credit card account data, which are currently excluded, should be shared if consumers want them to be. Banks have an incentive to stop those improvements. The case is strong for regulation to make safe and effective sharing happen.
As we have seen across the world, such as in the rise of Donald Trump and Bernie Sanders in America, the public desperately want change. The Government’s response, which has been the same since they were elected, is business as usual. To people all over the country, business as usual is just not good enough any more. The system has a sense of inherent unfairness. People who are not on benefits or rich enough to pay their way out of the system are fed up with the same old slogans. They are angry and they want change. This Budget is the latest in a long line of wasted opportunities. In light of all the evidence, it is time for the Government to rip it all up and start again.