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Mr. Derek Foster (Bishop Auckland):
To interrupt the hon. Gentleman's catalogue of doom and gloom for a moment, in the broad sweep of economic history of the 60s, 70s, 80s and 90s, can he tell me of another Government of any complexion who achieved low inflation and, simultaneously, low unemployment and continuous economic growth for six years?
It is precisely because the Government are enjoying, as other countries are, unprecedentedly benign inflationary conditions that the facts that I have just referred to are so alarming. If this country cannot take advantage of those extraordinarily favourable conditions and if, despite low inflation, investment and manufacturing jobs are falling, productivity growth is slowing down, trade is getting worse and all the other indicators point in the wrong direction, that suggests that something is very wrong at the heart of the Government's economic policies.
A Chancellor who has downgraded his forecasts twice in four and a half months is in the position of a finance director who has been forced to issue one profit warning in November and another one only four and a half months laterand we know what happens to finance directors with a record like that. Perhaps it is not only the shareholders who are getting restlessperhaps the chief executive himself is starting to have doubts as well. Even if the finance director does not get his cards from the boss next door, he may run into trouble with the Financial Reporting Council, because he is no slouch at massaging the accounts, either. His boasts about how he has cut the level of public debt conveniently ignore the huge off-balance-sheet liabilities that he is piling updebt that he does not like to admit to but which taxpayers directly or indirectly will have to service sooner or later: debt that now amounts to tens of billions of pounds.
This Budget has been called a "hope for the best" Budget by the Institute for Fiscal Studies. The Chancellor looks more and more like Mr. Micawber. Business people might call it "a penny in the pound Budget" because the net effect of the Budget measures will be to reduce the tax burden on business by £55 million, compared with the £4.5 billion hit that employers and self-employed people suffered last year when national insurance contributions were raised. Far from being the Budget for business, as the Chancellor's spin doctors claim, the Budget's most obvious feature, from business's point of view, is its complete failure to reverse the damage done in his previous Budgets. There is no action on national insurance contribution increases, which, a British Chambers of Commerce survey warned, will lead one firm in five to cut jobs; one firm in six to cut investment; and one firm in seven to cut pay. There is no action on the climate change levy, rightly described by the Engineering Employers Federation as
"a levy which punishes competitiveness and initiative by world-class UK manufacturing companies... one of the most badly designed and ill-conceived economic instruments of recent times, a device for raising revenue rather than a serious attempt to encourage energy efficiency."
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There is no action on the pensions tax, which is draining occupational pension funds of £5 billion a year, forcing companies to find an extra £4 billion a year in pension contributionsmoney that is no longer available for investment in the productivity-related job-creating improvements that would make Britain more competitive. That tax is now costing 12 million people an average £400 a year; has contributed to the collapse of the stock market; and is systematically destroying what was once the jewel in Britain's savings crown, our occupational pensions schemes. After the Chancellor has done his worst, a typical personal pensions saver would enjoy a pension, if he retired today, that is only half what he would have got five years ago.
: From what the hon. Gentleman has just said, can we conclude that he is committing his party to reversing the 1p increase in national insurance, to abolishing the climate change levy, and to reversing what he calls the pensions tax?
I am glad that the hon. Gentleman has raised that, because I agree with what a shadow Chancellor said:
"You are asking questions that no shadow Chancellor without seeing the books, without being in a position to know what the true state of the public finances is, without having all the information about the economic circumstances, should answer. I will only make promises that I can deliverI will not make promises I am not in a position to deliver."
That was said not by the present shadow Chancellor, my right hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard), but the last Labour shadow Chancellor, the present Chancellor of the Exchequer. He said that not three years before a possible general election, but three months before the 1997 election. I agree with him, especially because the clearest single message from the Budget is that we cannot trust the Government to get their sums right. We will need to see the books before we can be sure how and when we will deliver our commitment to be a lower tax party than Labour.
The problems that I referred to with national insurance contributions, the climate change levy and pensions stats were created by the Chancellor in previous Budgets. Those are the problems that he should have addressed in this Budget, as they are making Britain a worse place in which to do business. As Martin Temple, the director general of the Engineering Employers Federation, put it:
"Just because the Chancellor has stopped hitting us over the head, doesn't mean we should suddenly be grateful."
David Bishop of the Federation of Small Businesses said:
"This blend of rehashed announcements and tax freezes is not good enough."
Ernst and Young described the Budget as "utterly uninspiring" for companies with 250 employees. The tragedy is that this is happening after a decade and a half in the 1980s and early 1990s when our competitive position was transformed for the better under the previous Government. At a time when investment and hence jobs are more internationally mobile than ever, investment that might once have been made in Britain is now as likely to go abroad. Industries in which Britain led the world in the 20th century may now migrate to
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China in the 21st. Those are precisely the circumstances in which the Government should seek to lighten the burden of tax and regulation that they have placed on business.
So what message would the hon. Gentleman give a small business man in my constituency, a painter and decorator who recently told me that his business had never been so buoyant? However, he could remember struggling in the mid-80s and early 90s even to buy the petrol to put in the van to get to a job.
I would tell him to vote for a Member of Parliament who would truly reflect the concerns of small business, instead of one who spouts the line given them by the Government Whips.
Business is worried not only about the damage that the Government have already done, but about future damage. As the Financial Times put it in the "Lex" column on Thursday, the Chancellor
"has just placed a large bet on a rapid rebound in the economy next year."
His sums are based on the assumption that economic growth will bounce back to an above-trend growth rate from 2004 onwards, but that view is not shared by many independent forecasters.
To balance the books, the Chancellor is relying on a combination of further unsustainable rises in consumer spending, despite the fact that personal debt has already soared and the savings ratio is only half what it was when Labour took office. He also expects a big rise in corporation tax receipts over the next two years. Even businesses do not expect a big rise in profits, and the Budget changes have done nothing to make such a possibility more likely.
The Secretary of State made much of the micro-measures in the Budget, and I suppose that we should be thankful for small mercies such as the modest simplification of VAT and the slightly more generous treatment of research and development expenditure, but those proposals are tiny in their impact compared with the extra £15 billion a year that the CBI estimates Labour's new tax and regulations are costing business. Stephen Alambritis of the Federation of Small Businesses said:
"What businesses were really looking for were targeted tax cuts on insurance premium tax. But instead there was a lot that was rehashed and had already been announced."
Indeed, there are, in addition, new burdens on business resulting from the Budget. Under a typical new Labour heading, "Modernising stamp duty", the Red Book unveils the Chancellor's proposal to raise stamp duty on leasehold commercial properties. As the CBI says:
"These proposals will seriously increase the cost of leased business properties for many companies. The increases could be devastating for high street businesses."
The Chancellor has also taken a gratuitous swipe at the beleaguered agriculture sector through a hike in the tax on red diesel, which between now and March 2005, the Treasury estimates, will raise revenue 38 times more than the value of the cut on bioethanol. If the Secretary of State were doing her job properly, she would be
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fighting the proposals coming out of the Treasury and elsewhere, which are making Britain a worse place to do business. Instead, she is busy endorsing the Higgs proposals lock, stock and barrelproposals that threaten to impose a "one size fits all" approach to the corporate governance of every one of the huge and diverse range of quoted companies; an approach that ignores the estimated £200 million price tag and the concerns of many experienced business people over potentially divisive aspects.