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Although the British people are wearying of their growing tax burden, they want the real thing when it comes to tax cuts, not deception. They know that the Chancellor had already increased taxes by £2.5 billion since the last Budget, so it was never going to be a day of announcing bad news—he had £2.5 billion in the bank. Those tax increases, which would normally have been part of this Budget, were announced in the autumn statement, and included a massive increase in air passenger duty that is already being paid by hard-working people without the traditional legislative scrutiny or authority. That is really stealthy—a tax that was imposed in February and not mentioned in the Budget will get legislative authority only tomorrow night.
Conservatives should not be worried about the Budget in relation to tax cuts; the real danger is that the Chancellor has adopted our fundamental economic policy, as my right hon. Friend the Leader of the Opposition made clear in his response to the Budget. The Chancellor has done that cautiously, but he has adopted it, and it is called sharing the proceeds of growth. The same right-wing commentator whom I mentioned described that policy as a “silly little catchphrase”, but he is badly, dangerously wrong. It is not a catchphrase; it is a very good idea.
Let me try to explain this simple concept to the clever people who seem to find it elusive. There are, in essence, only three things that a Chancellor can do. He can steadily increase the share of the national wealth that is taken by the state, he can keep it broadly stable, or he can reduce it. The Conservatives believe that he should reduce it. Then comes the choice about the rate at which to reduce it. The route that we have chosen would mean that some of the growth would be used to provide improved public services in real terms and some to reduce taxes. That is the prudent route. It is prudent politically because we know that the British people rightly value public services such as health, education, the police force and defence. It is an economically prudent route because it offers the best guarantee of economic stability and of increasing competitiveness. The Chancellor plans to increase public spending in each of the next three years by less than the growth rate of the economy as a whole, but he could have gone further. He has planned for a gap of only about 0.5 per cent. in his sums—increasing public expenditure by 2 to 2.5 per cent. a year while the economy grows by 2.5 to 3 per cent. However, it is a step in the right direction. He is sharing the proceeds of growth timidly, but he is doing it.
Kelvin Hopkins: Does the hon. Gentleman accept that his thesis that an economy with low taxes and low public expenditure is a strong economy is fatally flawed? Last year’s Organisation for Economic Co-operation and Development figures show that Sweden spent 57.1 per cent. of its gross domestic product on public services, while Denmark spent 53.8 per cent., Finland spent 50.6 per cent. and the UK spent 45.4 per cent., so we are at the bottom of that league table. However, the highest growth figures are in the countries with the highest public spending figures, such as Sweden. We are also at the bottom of that list. Does he accept, therefore, that his argument is entirely wrong?
Peter Luff:
No; by adopting in moderate and tentative form this fundamental part of Conservative policy, the Chancellor is likely to make the economy
rather stronger than would otherwise have been the case—again, I deny the hon. Gentleman’s point. That is the real danger of this Budget for my party, but it is good news for the country. Our economic competitiveness has been slowly declining under this Government, but the planned reduction in the share of national wealth, to be taken by the state, could begin modestly to correct that, although the Chancellor’s borrowing plans in table C5 of the Red Book remain a cause for real concern.
David Howarth: I am following the hon. Gentleman’s argument, but given that the state spends money mainly on benefits and salaries, there are only three ways in which to achieve what he and the Chancellor propose. They are to reduce benefits, to ensure that public sector pay stays behind the national average or to choose different Budget priorities. Is not that the case? Which of those three options does he advocate?
Peter Luff: My hon. Friend the Member for Beverley and Holderness (Mr. Stuart) just helpfully said, “Zero-sum economics”, and I deny the hon. Gentleman’s point on that ground as well. If expenditure on public services continues to increase in real terms, that choice is nowhere near as acute as he maintains.
Other than in the early years, when the Chancellor stuck to Conservative spending plans, the Government steadily but surely eroded our competitiveness. In the past 10 years, our economic growth has been sustained for three reasons, and I hate to disappoint the hon. Member for Islington, South and Finsbury, but I disagreed profoundly with one of her remarks. The first reason is the golden economic inheritance, including significant supply side reforms, that the Chancellor had from the previous, Conservative Government. The second reason is the decision to give the Bank of England independence. The third reason is the decision not to join the euro. I salute the Chancellor for making the latter two decisions, which were positive, if one can call a decision not to join something positive. If I were Chancellor, and the Bank of England were not independent, I might have tried to use my influence to persuade it not to remove Elgar from the £20 note in the year of the 150th anniversary of his birth, but that is another matter.
Sadly, all the Chancellor’s other decisions have worked to undermine our competitiveness. In the uniquely benign world environment of the past 10 years, it would have been a scandal if the British economy had not flourished. Things have got better, but they should have been much better still. That is the real scandal. The Chancellor has nothing to boast about except for those two crucial decisions on the Bank of England and the euro. He was simply in the right place at the right time, and is a lucky Chancellor. Even the Government’s supporters are beginning to realise that the clunking fist might have been clutching at straws. Derek Scott, the Prime Minister’s former economic guru said:
“When you an inherit an economy in good nick, as we did, it takes a long time to foul it up...We’re clearly going the wrong way and I don’t think Gordon’s reputation is going to look nearly as good in 10 years time.”
Let us look at some of the specifics. On business taxation, I am happy to reassure the right hon. Member for Oldham, West and Royton that taxes on business will rise as a result of the Budget, not go down. There will be an extra £1 billion in 2008-09 and £1.8 billion in the following year, despite the apparent headline cut in corporation tax. I welcome the cut in corporate tax: the embodiment of the Conservative policy was that the corporate tax regime should be simplified and the simplification used to reduce the headline rate. That is a good idea. Bizarrely, however, the Chancellor then behaved exactly as the Red Queen would have him behave by not simply wishing to do two flatly contradictory things, but actually doing them. He simplified the main corporate tax system and used the simplification to cut the headline rate, but he also made the small business scheme more complex and used the complexity to increase the headline rate. Make sense of that if you can, Madam Deputy Speaker.
The clunking fist has been clunking all over our nation’s smaller businesses. The Chancellor is raising corporation tax by 3 per cent. for some companies, thus taking from them a further £820 million by 2009-10. Considering that the small business sector employs nearly 60 per cent. of the private sector work force and contributes half of the national GDP, the Chancellor should realise how angry people—not anonymous businesses, but real voting people—will feel about that. The British Chambers of Commerce surveyed its members and found that 71 per cent. of UK businesses believe that the rise will harm them. The BCC commented that, as the Chancellor
“champions enterprise and acknowledges the importance of small business to the UK economy,”
“members feel let down and are dismayed by the measures taken which will hit their competitiveness and increase their tax burden.”
It adds, most worryingly, that it will especially harm those that are looking to grow their business. It is a pleasure to reassure the right hon. Member for Oldham, West and Royton again by saying that that comes on top of the massive £50 billion tax increases on British businesses since Labour came to power and the roughly similar cost of regulation that the Government have added to the cost of doing business.
I am indebted to my constituent who gave me a copy of the excellent Shropshire, Hereford and Worcester edition of the Federation of Small Businesses newsletter, which I suspect is simply the national newsletter with a different wrapper. On eight pages headed, “Business information No. 134”, Alan Roxborough enumerates the 57 varieties—literally— of Government actions that demand the attention of small business in this two-month period, some of which are very important, such as the first provisions of the Companies Act 2006 about the changes that they will have to make to their websites and letterheads. Others include the working restrictions on Bulgarian and Romanian nationals, the new rules for cutting waste crime, the implementation of the waste electrical and electronic equipment directive, the new money laundering regulations, access to good quality pensions
and the penalties for incorrect tax returns. Another variety concerns streetworks permits, which are an important matter for small businesses when roads outside their front doors are dug up without any notice. I am sure that all those changes are worthy and necessary, but 57 in a two-month period? No wonder small businesses are hurting so much.
Such a hostile attitude towards business is not unsurprising. A CBI poll suggested that 22 per cent. of British-based businesses have relocated one or more of their assets abroad, and that a further 17 per cent. are thinking of doing so. In the majority of cases, tax was the reason for that. There is another answer for the right hon. Gentleman. Indeed, 70 per cent. of the UK’s business leaders believe that the UK’s tax regime has got worse and more complex.
Mr. Newmark: Does my hon. Friend agree that the bigger issue is the complexity of the tax system itself? Tolley’s Tax Guide has increased from just under 4,000 pages when the Chancellor came into office to more than 10,000 pages today?
Peter Luff: As it happens, my next remarks are on Tolley’s Tax Guide, and I can give my hon. Friend the precise figures. He slightly overstates his case, but he does not ruin it in the process. In 1997, Tolley’s Tax Guide had 4,555 pages. It currently has more than 9,000 pages and it is projected that it will increase to 10,200 pages as a result of this Budget. It has more than doubled. No wonder that the Engineering Employers Federation joins the Federation of Small Businesses, the CBI and the British Chambers of Commerce in arguing for simplification of the cumbersome tax system.
The Chancellor has made much of having lowered corporate tax rates. It is true that he did that, but I am indebted to Liam Halligan, who wrote in yesterday’s Sunday Telegraph:
“The cut in corporation tax is too little, too late. In 2003 Britain had the fourth lowest rate of corporation tax in the European Union. As new members have joined, and others have cut their rates, we now have the 19th lowest.
And given recent announcements elsewhere, the forthcoming reduction means we will remain only in 19th place in 2008.”
That does not advance our competitive cause at all. It just means that we can barely manage to stand still. It is strangling our economy and affecting our competitiveness. According to the World Economic Forum, we have slipped from fourth to tenth in the international competitiveness league.
Mr. Newmark: I know that my hon. Friend has examined the case of the Republic of Ireland, which shows us that it is possible to create a more competitive tax economy—that is, a lower-tax economy—while collecting more tax revenues.
Peter Luff: I am grateful to my hon. Friend for making that point, although it is rather depressing to have to keep on making it. It is blindingly obvious, but it seems that some people simply will not listen to that crucial message.
Martin Horwood:
Will the hon. Gentleman give way?
Peter Luff: I am going on for a bit longer than I intended, but I will give way.
Martin Horwood: Is the hon. Gentleman seriously suggesting that we follow the example of Ireland, which would require us more or less to halve our rate of corporate income tax?
Peter Luff: Over time, yes. It would generate more wealth for the country, and there would be more money to be spent on vital public services. The hon. Gentleman’s intervention shows that, despite their best efforts, the Liberal Democrats still do not understand the way in which a modern economy works.
Let me draw the attention of those seeking more details of our economic freedom to a survey carried out by the Heritage Foundation. I do so with some trepidation, as I know that mention of that organisation sends a certain shiver of apprehension up many people’s spines, but it has done a very good and detailed job of work on economic competitiveness and similar issues. Among other things, the survey provides a vital measure of our economic freedom from Government, which shows that we are doing particularly badly. If anyone wants to know what “economic freedom” means, I will happily define it. I obtained a detailed definition from the website, which I commend to Members on both sides of the House: it is really interesting.
We are worryingly behind our major competitors. We are the 31st least free of the 157 countries that the foundation examined. In other words, 126 countries are freer from the state in economic terms. We are just one place ahead of Lesotho, and one place behind Botswana. We lag far behind Canada, New Zealand, Australia, the United States, Singapore, China, India, Hong Kong, Japan and Ireland. Unsurprisingly, we score better than many European countries, but given their bureaucratic, interventionist approach, we should draw little comfort from that.
The Chancellor talks about globalisation. I wonder whether he understands the real scale of the challenge we face. This “clunking fist” has a contradictory quality: it loves to tinker, too. Here we are again, back with the Red Queen. It is no surprise that industries as diverse as hotels, film production businesses, casinos and stairlift manufacturers are angry about changes tucked away in the details of last week’s Budget.
I had hoped to say something about the Lyons inquiry, but in view of the time I shall confine myself to asking—reinforcing the point that I made to the Secretary of State in an intervention—why people should take pride in the environment and invest in environmentally friendly things such as double glazing and solar panels if they are to be more highly taxed as a result. Council tax really must be more intelligent than that.
I had also hoped to say rather more about some of the green taxation measures to be introduced by the Chancellor—I mean the Secretary of State. He may become Chancellor under the next Prime Minister, but I doubt it. However, I only have time to say something about vehicle excise duty. The Chancellor’s VED proposals do not look as though they have gone through the rural proofing mechanism. I was interested by what was said about this by my hon. Friends the
Members for Lancaster and Wyre (Mr. Wallace) and for South-East Cambridgeshire (Mr. Paice).
The proposed tax on “Chelsea tractors”—the increase in VED—is actually a tax on the countryside. The rich drivers of the largest 4X4s can shrug off £400: it means nothing to them, and will not alter their behaviour. But what about the poor farmers? The forester in Scotland, the shepherd in Yorkshire, the arable farmer in Norfolk and the grower in Worcestershire need their 4X4s, and the increase will be a serious blow to them.
The hon. Member for Islington, South and Finsbury (Emily Thornberry) rather misleadingly—but I must not say that; she rather unfortunately—compared Land Rover to Toyota in terms of environmental sustainability. I tried to persuade her to give way on that point. She obviously does not know that Land Rover, a very important British manufacturer, offsets carbon in both the construction and the use of its vehicles. There is no known way of recycling many elements of Toyota cars at present, and they are nowhere near as green as Land Rovers if the offsetting claim is true, as I believe it to be. The hon. Lady could have chosen a happier parallel.
Emily Thornberry: Will the hon. Gentleman give way?
Peter Luff: The hon. Lady would not give way to me, so I will not give way to her. Such blanket taxes are a further indication that the Government have forgotten rural communities.
I would have liked to say something about carbon capture and storage. I think that the Government are moving in the right direction, but using the wrong mechanisms. I would also have liked to say something about science funding in the Budget, which I welcome, although I worry about the extent to which science is being translated into practical innovation and adding value to British business. I would have liked to say many other things, but I will conclude with just two more comments.
The measures on spectrum mentioned in the Budget statement are a detail, but an interesting one. For a fleeting moment I woke up and heard the Chancellor use the word “spectrum”, and refer to the sale of assets. The House will know that Ofcom is currently planning to auction spectrum as the nation moves towards digital switchover. As I have argued many times—for instance, in an Adjournment debate in the House—the planned auction could have serious adverse consequences for many users of the spectrum: churches, theatres, concert halls, sporting stadiums, news reporters and a host of others.
I wanted to know the extent to which that sale of spectrum was being driven by financial considerations, so I tabled a parliamentary question asking the Chancellor what estimate he had made of the likely income to his department from the sale of spectrum resulting from the digital dividend. The answer was:
“HM Treasury has made no estimate of the likely income from the sale of spectrum.”— [Official Report, 8 March 2007; Vol. 457, c.2225W.]
The Budget statement, however, included a figure indicating a massive increase in income from the sale of public assets, which incorporated the sale of spectrum.
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