Only a few days to go: We’re raising £25,000 to keep TheyWorkForYou running and make sure people across the UK can hold their elected representatives to account.

Donate to our crowdfunder

Finance (No. 3) Bill

Part of the debate – in the House of Commons at 7:16 pm on 12th November 2018.

Alert me about debates like this

Photo of Vincent Cable Vincent Cable Leader of the Liberal Democrats 7:16 pm, 12th November 2018

I wish to say a few words in support of the amendment in my name, about the economic context and specifically on some of the tax measures. Everything we are talking about, whether on the tax side or the spending side, depends on the overall performance of the economy and economic growth. This year, we have had fluctuations from one quarter to another, but the assumption is that growth is about 1.5%. According to the independent OBR, it will continue at about that rate for the next five years. As Kirsty Blackman reminded us, that not terribly optimistic picture is based on optimistic assumptions about the outturn of the Brexit negotiations that may of course not be realised.

There are two underlying reasons why the British economy is growing at just over what it was for the whole of the post-war period up to the financial crisis. One is the serious problem of productivity—a problem that has existed since the financial crisis. A paper was published this morning by analysts from Stanford and Nottingham who looked at why productivity performance is so poor at the moment. After an exhaustive survey, they found that the problem was that high-performing companies in the UK, in productivity terms, had fallen back very badly. The main reason is that those high-performing companies do a lot of a trade, in particular with the single market, and uncertainty has caused their performance to deteriorate. That is reinforced by the second element in the slowing of growth, which is poor business investment—less than half of 1% in terms of fixed business investment last year, and that is clearly a function of the uncertainty that is hanging over the economy because of the Brexit exercise.

I suspect that quite a lot of Members thought that the Finance Bill would be some light relief from the Brexit debate, but unfortunately it hangs over everything. It is the elephant in the room and it explains the economic problems that we face. There was an interesting debate between Conservative Members that, because of the adversarial way we discuss things, was rather glossed over. Sir Edward Leigh and, in the Budget debate, Mr Clarke expressed the strong view that the Chancellor was taking too many risks and the Budget should have been a good deal tighter than it was. Today we heard the exact opposite argument from John Redwood—that it was far too tight and should have been more relaxed. It was an important debate, and it would be interesting to know how Ministers will combat the arguments from those formidable people.

I will highlight one particular aspect of that debate. This is not a party political point—it happened in the coalition—but the Government continue to refer to the deficit as if it is the same as Government borrowing. Well, of course it is not. The Government borrow for different reasons. They borrow to cover the current deficit and they borrow for investment. Just as companies borrow to invest, the Government sensibly do so. The problem with the current trajectory, as I understand from the Red Book, is that we are potentially heading for yet another squeeze in capital spending. Perhaps the Paymaster General can correct this, but my understanding is that CDEL, which is awful Treasury speak for capital spending, is due to fall next year, 2019-20, as a consequence of the attempt to maintain borrowing at moderate levels while at the same time expanding the current Budget. Perhaps he will enlighten us, because if it is true we are doing potentially serious damage to infrastructure that has been starved of capital for many years, as well as to public sector housing and much else.

I would also like clarification on the overall tax burden of the economy. There is a sleight of hand in this Budget. On the one hand, the Government have given tax cuts, but on the other hand—as a consequence of the squeeze on local government spending, which continues unabated and is having a severe impact on local services—council tax will almost certainly have to rise because councils are severely stretched and are providing inadequate services. In some cases, they are approaching bankruptcy and cannot meet their legal obligations. It is not restricted to any one party but, by and large, Conservative county councils are in this position.

Council tax will have to rise, and, in some cases, it probably should have risen earlier. There is nothing in the Red Book that tells us how much revenue local authorities actually get from council tax. That is rather an important figure, and it is important that we see a future projection, which would give us a much clearer picture of what is happening to taxation. On the one hand, the Government are offering direct tax cuts, and on the other they are offering increases in council tax, which at least in income terms is one of the most regressive taxes of all.

The Government have provided substantial additional funding for the national health service for several years ahead, and rightly so, but there is no such guarantee for personal care beyond next year. That matters, because the shortfall in care will fall on the NHS.

Several Conservative Members have been bobbing up and down to ask why we do not take a cross-party approach to this problem. Of course we should—this is a long-term problem—but memories are short, or maybe they are recent Conservative Members, because there have been repeated attempts at cross-party agreement on personal care financing. There was an attempt before 2010, which the then Conservative spokesman, Andrew Lansley, pulled out of on the grounds that it constituted a death tax. We then had another attempt in the coalition, when Andrew Dilnot did an authoritative piece of work for us. We reached a consensus and both sides of the coalition agreed to it, and then, come 2015, the key implementation measures were not introduced, so we are back where we were before. Ten years later, and after several attempts at cross-party consultation, there has been no progress, which is why care funding is in such terrible difficulty.