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4.26 pm
Sir Michael Spicer (West Worcestershire): The hon. Member for Barnsley, Central (Mr. Illsley) said that raising taxes is not enough. I agree.
I declare my interests as set out in the register.
It is highly appropriate that we should be debating today the work and pensions implications of a Budget that has produced the highest tax rise on jobs since Labour introduced the selective employment tax in 1966—and this on top of a substantial tax on pensions in a previous Budget.
The proclaimed essence of the Budget is a massive £8.5 billion tax increase on jobs to pay for more health spending. If we are to go down the crude tax-and-spend route, the first question to ask is, will it do the trick? Are taxes set to go even higher? What about other expenditure requirements, such as defence, education, transport and indeed pensions?
Liberal spokesmen have popped up throughout the afternoon demanding more discretionary tax increases. One of them asked for more to be spent on education, and another wanted more money for social services, and now the hon. Member for Northavon (Mr. Webb), in his line of questioning to the Minister, seemed to be asking for yet more discretionary taxation.
The Wanless report, published yesterday, argues that if all the extra funding for the NHS is to be found through taxation, tax may have to rise by an average of £5 billion every year for the next 22 years. To put that in perspective, if the whole amount of the extra revenue were placed on income tax, it would rise by 2p in the pound each year, reaching a maximum of 66p in the pound, just to cover health funding alone, never mind extra spending on pensions, education and the rest—the mind boggles.
The Chancellor seems to be contenting himself with a massive one-off tax rise of almost £9 billion next year, and an implicit claim that the Government will match future expenditure to economic growth. A critical issue, therefore, is whether the target for economic growth— 2.5 per cent. in this Budget—is likely to be met. So far, the Government have had luck on their side. In part because of the strong economy inherited from the Conservatives, and in part because of a massive expansion of imports into our economy, we have had reasonable economic growth over the past few years.
That is unlikely to continue in future. On the contrary, genuine investment-led growth is grinding to a halt.
The one word that the Budget dare not speak is productivity. Even the Government's recent White Paper did not include a table showing productivity rates over the past 10 years. That is strange and does not follow precedent. Table 1.1 on page 3 of the White Paper "Productivity in the UK" published in November 2000 shows that the average productivity rate was 2.1 per cent. between 1990 and 1997, declined to 1.6 per cent. between 1997 and 1999 and has been 1.9 per cent. thereafter. Since its publication in that report, table 1.1 has never been seen again. It has been airbrushed from all subsequent publications on productivity.
Despite this censorship, the secular decline in the rate of productivity ever since the Government took office remains a fact of life. We know this to be true because the Chancellor of the Exchequer admitted as much in a recent interview on the "Today" programme. The issue is not whether productivity rates have fallen, but why. That question is absolutely critical to a proper assessment of the Budget.
The rate of productivity is the performance measure of the structural changes occurring in the economy. The figures tell us that the rate at which the competitiveness and efficiency of the British economy was catching up and even overtaking other countries under the Conservative Government has now slowed down and gone into reverse under Labour. This is why, from being the sixth most competitive country in the world in 1997, we have crashed to 14th place and the plummet shows no signs of slowing down. The rate of investment has crashed from a peak of 13 per cent. in 1998 to 2 per cent. in 2001. Last week's figures show that inward investment fell by more than one third last year and that our European Union share fell from 26 per cent. to 19 per cent.
Not surprisingly, as a result, old ailments are beginning to recur. Since 1998 there has been a dramatically steep rise in our balance of payments deficit from an annual average of around £5 billion in the first half of the 1990s to nearly £20 billion in the second half. If that reversal of the fundamentals of our economic fortunes had been unavoidable it might at least have been forgivable. It might also have been insolvable. It was avoidable, is unforgivable and remains unsolvable. It requires, above all, a change of Government.
There are at least four reasons why the necessary investment to improve productivity and competitiveness will never be forthcoming under a Labour Government. Special circumstances apply to the present Labour Government, but the general rule persists: in the end a free-enterprise economy always comes unstuck under a Labour Government, even one as fortunate as the present Government in their inheritance from the Conservatives.
Mr. Mark Hendrick (Preston): I thank the hon. Gentleman for giving way. Does he accept that the reduction in inward investment is to some extent due to the fact that Britain remains undecided on the euro and many inward investors would like us to take a decision on that? Does he also accept that his party's position, which is for Britain never to join the euro, would lead to an even bigger drying up of inward investment?
Sir Michael Spicer: I shall turn to the euro in a moment. However, in the past the rate of inward investment has been high and it is still higher than that in most euro countries. So that argument does not wash. Indeed, in a moment I shall argue that the Government's commitment to enter the euro is one of the problems currently affecting confidence.
The first reason why the Government's economic policy will end in tears is that Labour does not understand capitalism and free enterprise. Many Labour Members do not even try to understand capitalism because the basis of their ideology and motivation into politics is antithetical to it.
One might say that the dividing line between old and new Labour is between those who try to comprehend the ways of competition and free enterprise and those who contemptuously do not. In practice, the distinction does not matter very much because it all comes down to the same thing in the end: free enterprise never works very well under Labour. The reason is that free enterprise, especially the incentive to invest, requires confidence, particularly confidence that the rules of enterprise will not be changed meretriciously as they were twice for Railtrack investors and as they were for investors in power stations faced with a sudden moratorium on gas.
Helen Jones: I am grateful to the hon. Gentleman for giving way. If free enterprise worked so well under the Conservative Government and people were so motivated to invest, can he explain why nearly 20 per cent. of the manufacturing industry in my constituency was destroyed?
Sir Michael Spicer: I cannot speak for the companies in the hon. Lady's constituency; perhaps they were not very efficient. I have no idea. However, I can refer to the massive growth in the late 1980s and early 1990s which the Government inherited. They had managed to keep the momentum going, but it is now on the brink of slowing down. The hon. Lady must accept that productivity and investment rates are so low compared to what they were five or six years ago that Britain is on the brink of a severe economic problem which is reflected in the volume of imports and other factors that I have mentioned. I certainly cannot speak for the hon. Lady's constituency as I do not know the circumstances there, but there is a dramatic change in the structure and the fortunes of the British economy.
Mr. Connarty: As we are talking about capitalism which I studied long and hard when I took my degree in
economics, is it not the case that the great capitalist economy of the USA has a much larger balance of payments problem than the UK yet, despite the events of 11 September, it has strong growth and is fundamentally a thriving capitalist economy apart from the fact that it imports more than it exports?
Sir Michael Spicer: In recent years, because of the strength of the dollar and the fact that US companies would pay in US paper—a commodity which reflects the strong internal economy—the US has imported more than it has exported. That is a matter for the US economy to put right. I accept entirely what the hon. Gentleman says. The US cannot continue using paper to pay its way in the world, at least without depreciating that commodity. The hon. Gentleman makes a good point but I am talking about the UK economy, which in many respects is unlike that of the US. The Americans make almost a conscious decision to use their paper to buy in goods. Our economy is increasingly being forced to buy goods because it is not sufficiently competitive to pay its way. There is a fundamental difference between the American economy, which is highly competitive in most sectors, and the British economy.
The fundamental point is that Labour does not really understand how capitalism and free enterprise works. This is illustrated by its chopping and changing on Railtrack, the sudden moratoriums on power stations and financiers being faced with dramatically changing rules for the funding of London Underground.
At best, new Labour sees the private sector as providing a reserve of funds to be turned on and off at the will of the Government. Capital markets simply do not work in that way. Investors cannot be ordered around, otherwise they take their capital away, and there are signs that they are beginning to do precisely that.
The second reason for falling confidence under Labour is regulation, which has been mentioned today. It is partly a matter of the sheer quantity and the burden of the new rules, but it is more significantly a matter of their quality and direction. Together, the new regulatory regimes add up to socialism by stealth, and investors do not like it.
The Labour Government have contorted and perverted a regulatory structure laid out by the Conservatives to ensure maximum competition when they privatise utilities and certain state monopolies. The Utilities Act 2000 gives powers and roles to the regulatory bodies that have nothing to do with improving economic performance, let alone competition, and everything to do with socialist ideology, specifically the redistribution of income.
The gas and electricity regulator is empowered to relieve fuel poverty. The telecommunications regulator sets out to ensure universal coverage, the Financial Services Authority must achieve social banking as a priority, the water regulator must ensure fair investment, and the rail regulator must provide a total transport strategy. Ofgem has even been used to try to protect jobs in the mining industry through its implementation of the gas moratorium. It would seem that the prospect even exists of regulators coming together to agree a total strategy for governing the commanding heights of the economy. As I say, this is socialism by stealth and investors do not like it.
As the hon. Member for Preston (Mr. Hendrick) said, the question also exists of the Government's commitment to entering the single European currency. Investors know
that we would either enter at a rate that would be a permanent and artificial handicap for British sales to the continent of Europe, or that the Government would be forced to take action through interest rates to lower the value of the pound, which would prove inflationary and further undermine British competitiveness. Indeed, if they were carrying out the rules of the Monetary Policy Committee—assuming, as we were discussing earlier, that it were still an independent body—they would have to raise interest rates at that point, which would itself prove counter-productive. Contrary to the hon. Gentleman's suggestion, the whole process of commitment to entry is a destabilising factor.
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