Finance Bill

Part of the debate – in the House of Commons at 6:49 pm on 27th April 2020.

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Photo of Steven Baker Steven Baker Conservative, Wycombe 6:49 pm, 27th April 2020

“Unprecedented measures for unprecedented times”—that is how my right hon. Friend the Financial Secretary introduced the Bill at the Dispatch Box, and of course he was absolutely right. I believe that, across this House and the country, there is overwhelming support for the necessity of these measures.

I wish to make a speech that will touch on some subjects that I think would otherwise not be touched on in the debate. I apologise in advance to my constituents. This is in no way to neglect the cracks through which many people have fallen, but we will simply pick those up through the Treasury Committee in future, as we have been doing over the past few weeks.

I will make three points in the short time available. First, I will say a little more about the context of the Bill. The threat of disease and death on a mass scale has dramatically rolled forward the state in a way that I never thought I would see in this country, let alone under a Conservative Government. It has been necessary for all the reasons that are common territory, but it fills me with a little horror. It is not the consummation of all my worst fears because, of course, my right hon. and hon. Friends on the Front Bench do not wish to nationalise the means of production. They are not dramatically hiking taxes, so things could have been worse had we lost in December. [Interruption.] I hope that Opposition Members will forgive me, but we cannot take interventions.

Taxes are not being dramatically driven up by the Finance Bill, and thank goodness for that, because I believe that the economy is already at or near its taxable capacity. I am working with economists to set that out shortly. I am not surprised that the Bill has to fiddle around at the edges with such things as IR35, because we are at or beyond the taxable capacity of the British economy. The Government are having to go where in other times they might not; they might simply raise other rates. Who, though, could imagine going up from 20% VAT? The very idea is an absurdity, as that tax hits the poorest hardest.

I wish, of course, to turn to borrowing and monetary policy, because the Debt Management Office has announced that it will borrow—that the Government will borrow—an extra £180 billion, which is an absolutely extraordinary sum. Still more extraordinary is the reality that the Bank of England is going to buy bonds faster than the Debt Management Office is selling them. We are in the most extraordinary situation. Quantitative easing will go up to a total of £645 billion. I should say, in passing, that I am going to guard my remarks, because I wish to have regard to the need for monetary stability.

QE is going up by an extra £200 billion. If that were not enough, the countercyclical capital buffer is being released, which releases £190 billion of extra lending capacity for the banks. Many Members may not know this, but I recommend that they Google “Money creation in the modern economy” by the Bank of England. They will see that that £190 billion will be loaned into existence. That is where most of our money is created.

We have the borrowing of the DMO, bought through QE, and the countercyclical capital buffer. Though it is a technical point, the Treasury Committee has just had it put on the record that an accounting change in relation to loan loss provisioning is as important as the countercyclical capital buffer, because it would undo the benefits—the additional lending—that one gets by releasing that capital buffer.

These are enormous times. We are talking about loan loss provisioning being changed in order to massively add to the stock of money through new lending. In the past, I have talked about the covid corporate financing facility, which I think I heard the Minister say is adding £13 billion—it is in the order of teens of billions of pounds—to the money stock. Then, of course, there is the ways and means facility of the Bank of England: a kind of overdraft facility.

I put those things on the record in this place not because I want things to go wrong, but because I want to highlight the sheer scale of the extraordinary measures and the extraordinary times through which we are living. Were all that to go wrong, and I pray to God that it does not, we need to have understood what was being done at the time. When the spending, interventions, borrowing and monetary policy is all unwound, it will be really important to have some ideological keel to get us through difficult times.

No one could say that this is an ideological Government, but times will be difficult and we will need to aim very firmly at a free market economy. As we do so, we will need to understand monetary policy as well as other factors. That is why I have put it on the table today. Far too often—I hope that the Minister will forgive me for saying so—Ministers say, “That’s a matter for the Bank of England.” The Bank of England is not above the law. It operates within a framework of law that this House sets, and I believe that we shall need to revisit that.