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“As the Chancellor champions enterprise and acknowledges the importance of small business to the UK economy, many of our members will feel let down”.
At the time of his 1998 Budget, the Chancellor proclaimed:
“This is a Government which does not simply talk about cutting the cost of bureaucracy and red tape but takes the decisive action necessary to achieve it.”
Then perhaps the Economic Secretary can explain why Tolley’s Tax Guide has grown from 5,952 pages in 2001 to almost 10,200 pages in 2007. The bottom line is that the Chancellor has shown that he knows nothing at all about wealth creation and those who create the wealth for our country.
Moving on to rising personal taxation, the total tax take is up by more than 100 per cent., from £287 billion in 1997 to £586 billion in 2008, rising to a whopping £682 billion in 2011. Table C9 on page 285 of the Red Book indicates that we now have the highest tax burden on record. The Institute for Fiscal Studies has found that up to 3.5 million families will be worse off. How does that square with the Chancellor’s statement that the purpose of this year’s Budget is to ensure that working families are better off? Furthermore, the families and individuals most affected are some of the poorest—those earning under £18,000. I thought that I would see the Economic Secretary perk up at this stage and point out that the Chancellor would say in reply, as he told the BBC:
“For people who are low earners the tax credit wipes out the income liability and that’s why lower income workers are better off now as a result of what we have done as a Government.”
But tax credits are not tax cuts.
I therefore turn to tax credits. The most recent figures from the Treasury for the tax year 2004-05 show that nearly £4 billion in working tax credits and child tax credits went unclaimed. Robin Williamson, technical director of the Low Incomes Tax Reform Group, said:
“There are plenty of reasons why people don’t claim tax credits. Some people do not know they are entitled to claim, while others are put off by hearing about other people’s bad experiences.
Those who do take the plunge face a 12-page form and a 60-page explanatory note that might even challenge the hon. Member for Wolverhampton, South-West (Rob Marris), were he here. That may have something to do with the problem. It should not be at all surprising that four out of 10 people end up not claiming their entitlements. Surely the Economic Secretary must recognise that this is a problem. With 3 million out of 5 million people either receiving overpayments or underpayments, I wonder whether he would agree with the hon. Member for Newcastle upon Tyne, Central (Jim Cousins), who said in the Treasury Sub-Committee that such widespread
“under or overpayments of tax credits is a shocking, devastating damage to the whole welfare reform policy.”
Although I welcome the increase in capital allowance for pensioners, it is disappointing that the Chancellor has, once again, preferred means-testing to index-linking pensions. Gordon Lishman, director general of Age Concern, said:
“Without quick intervention, the real value of the basic state pension will fall to a pitiful £75 by 2012 and today’s pensioners will fail to benefit from any of the good measures proposed in the Pensions Bill.”
Mervyn Kohler, head of public affairs at Help the Aged, said:
“This Budget was a missed opportunity to address the wider needs of our pensioner population.”
I am sorry that the Secretary of State for Environment, Food and Rural Affairs is not present, because I should like to ask him whether, following last week’s Budget, he would change the prediction that he recently offered on BBC’s “Question Time” that
“when I come back on this programme in six months’ or a year’s time, people will be saying, ‘Wouldn’t it be great to have that Blair back because we can’t stand that Gordon Brown?’”
Or does he agree with the shadow Chancellor’s remarks on Thursday that:
“With his last Budget, the Chancellor has shown us that he cannot be the change the country wants—that he is part of the problem, not part of the solution... if people... want... to restore trust in the political process, we do not just need a change of Prime Minister—we need a change of Government”?—[ Official Report, 22 March 2007; Vol. 458, c. 971.]
8.46 pm
Mr. Stephen Crabb (Preseli Pembrokeshire) (Con): I apologise for not being present for the whole debate. I was chairing a meeting of the Conservative party’s human rights commission.
Many hon. Members with an interest in energy policy and environmental policy would have welcomed the reference in the Budget to the announcement on the same day by the Secretary of State for Trade and Industry of the competition that will be launched for going ahead with Britain’s first full-scale carbon
capture and storage demonstration project. The UK, with its history of being a coal producer and a key oil and gas producer, is especially well placed to lead the world in developing carbon capture and storage technology. We also have a world-class skills base in geo-engineering, which makes Britain uniquely well placed to take advantage of the emerging technology.
Let me inject a few words of caution into the proceedings. As my hon. Friend the Member for Braintree (Mr. Newmark) said, a pretty large subsidy is required to make the full-scale demonstration project a success. The private sector on its own will not fund a full-scale carbon capture and storage project. I understand that the Department of Trade and Industry has made available some capital grants to support demonstrations of capture-ready plant and CO2 storage. However, it has always been acknowledged that a full-scale demonstration of the complete CCS chain would require a much larger financial support package from the Treasury.
The Science and Technology Committee in its report on CCS referred to such a package as being of the order of hundreds of millions of pounds. The Government, in their response to the report, did not dispute the figure, stating:
“the scale of support that might be required from taxpayers and/or consumers is very large”.
Unless I missed something in the Budget, I do not recall any announcement of specific funding to help a full-scale CCS project come into being. We must watch this space closely to ascertain whether the funding gap will be closed to an extent that enables a full-scale demonstration project.
Mr. Newmark: Is not another ancillary benefit of CCS that we have more than 200 years’ supply of coal in the UK? Would not it be good to try to revive our coal industry so that we are secure in our energy supplies?
Mr. Crabb: I welcome my hon. Friend’s intervention, but I am more sceptical about whether CCS will enable a revitalisation of the UK domestic coal industry. I shall deal with that later.
Mr. Walker: Will my hon. Friend explain to the uninitiated the mechanics of carbon capture? Is it captured and put into a substrate of porous stone or is it solidified?
Mr. Crabb: My layman’s understanding is that it is not solidified, but injected back into porous rock, and I gather that disused North sea oil and gas fields are particularly well suited geologically for that sort of use.
Secondly, the emphasis on this being a demonstration project is exactly right. Specifically, it is a demonstration project that can be applied in an overseas context where new coal-fired power stations are being built at a tremendous pace. I think that hon. Members who believe that CCS somehow throws a new lifeline to the domestic coal industry may be disappointed. Some Members believe that the domestic coal industry offers one solution to our energy security challenges in the decades ahead, but I beg to differ. Coal has an important part to play in the energy mix
and will continue to be significant for several decades to come, but it will be increasingly foreign coal rather than domestically produced coal that keeps—
Sir Nicholas Winterton (Macclesfield) (Con): I am slightly surprised at my hon. Friend’s argument. Does he not believe that there is huge potential in clean coal technology, in which the UK actually leads the way? Surely it could enable us to utilise the 300-plus years’ stock of coal in this country. Will he speculate about investment in biofuels, which generate far fewer emissions into the environment? Should not the Government proceed in that way rather than penalising people as they are currently doing through the taxation system?
Mr. Crabb: I agree with my hon. Friend that incentivising new environmental technology perhaps represents a better way forward for tackling carbon emissions than reliance on blunt green taxes. I regard biofuels as an exciting development in the field of environmental technology. In my constituency, a planning application will shortly be made by a large Irish company to develop a large biofuels plant at the port of Milford Haven—one of the UK’s leading energy ports, as my hon. Friend will be aware. It has specialised in oil refining, but liquefied natural gas terminals will be coming on stream at the end of this year. Now added to the mix will be a biofuels plant, which is an exciting development as well.
Returning to coal, it will be increasingly foreign rather than domestically produced coal that will keep the UK’s coal-fired generating capacity burning. There are many reasons why domestic coal production will continue to decline, but they are quite unrelated to demand. Indeed, during last winter, which saw a significant upswing in demand for coal as gas prices spiked, the additional demand was met entirely by imports rather than any increase in domestic supply. I believe that our coal will come increasingly from Russia, South Africa, Australia and south America. To my mind, that creates the conditions for enhanced energy security rather than a return to reliance on domestic coal production. Hon. Members should not forget that the only time that the lights went out in the UK’s recent history was when we relied almost entirely on domestic coal.
Mr. Walker: Given the need to reduce this country’s carbon emissions and the fact that clean coal technology may or may not be viable in the short to medium term, does my hon. Friend see a role for expanding our nuclear generation in the next five, 10 or 15 years?
Mr. Crabb: My belief is that in future decades we are going to need a basket of different energy supplies. I reject the football supporter approach whereby we have to be in favour of nuclear or coal or biofuels when the truth is that the UK is going to need a whole different spread of energy sources in the decades ahead. My belief is that nuclear will still feature in the mix, though it may have less of a share than it does now.
Returning to carbon capture and storage, which was referred to in the Chancellor’s Budget statement, it is not clear to me what contribution CCS can make to cleaning up the UK’s coal-fired power stations. The Science and Technology Committee produced an excellent report on this subject in February last year, in which it noted that there were significant technical difficulties associated with retrofitting capture technology on to Britain’s ageing fleet of coal-fired stations. Even if those difficulties could be overcome, it might not be economically viable to do so.
The value of the CCS demonstration project surely lies in its application overseas, particularly in countries such as India and China, which are adding huge amounts of coal-fired generating capacity each month. At the beginning of February, I was in India and saw a news report in the Hindustan Times, which referred to the previous day’s announcement by the Indian Prime Minister that India will need 56,000 MW of coal-fired generating capacity just for the next five years. Given the lifetime of those coal-fired plants and the associated carbon emissions, it is clear that countries such as Brazil, India and China—without downplaying the moral obligation on this country to do its bit to tackle climate change—are where the serious potential lies for cutting carbon emissions. The focus of the UK’s demonstration project must surely be on showing how it can work across different countries with different electricity-generating systems.
Like other environmental technologies, carbon capture and storage represents a significant export opportunity for the UK. As I have said, the UK is a world leader in geosciences and the oil and gas sectors, and there is no reason why that expertise cannot be extended to carbon capture and storage so that it becomes an export opportunity. The barrier to that lies less in the technical skills involved in the process than in our abilities as an exporting nation. In the remainder of my contribution, I should like to focus on trade and exports.
Exports are an extremely important component of GDP growth. Those of us who have been concerned about the over-reliance in recent years on household consumption as a driver of GDP growth believe that exports have not been sufficiently strong. In comparison with other Organisation for Economic Co-operation and Development competitors, our export performance is simply not good enough. The UK has a smaller share of total world exports than many of its key competitors, with the exception of Italy. In the export of goods alone, the UK lags well behind Italy. In part, that reflects the UK economy’s specialisation in services, which make up a small percentage of total global trade, but we should not hide behind that argument to excuse our poor performance as an exporter.
For example, if we read across from the UK figures to the German figures for exports in the past 10 years, we will see immediately that Germany is competing as an export nation in the new globalised world far better than we are. When our exports were flat between 2001 and 2003, Germany posted increases of 7 per cent., 4 per cent. and 3 per cent. While the export growth rates registered by the UK in the past two years have been much more impressive, we now know that soaring
VAT fraud had the effect of inflating those figures. Professor Peter Spencer, chief economic adviser to the ITEM Club, noted:
“It appears that the recent revival in UK exports largely reflects the activities of fraudsters rather than genuine business. When seen against the background of the boom in world markets, it’s actually very disappointing.”
In this year’s Budget statement, the Chancellor forecast growth and exports of 5.5 per cent. and 5 per cent. going down to 4.5 per cent. in three years’ time. Those figures are hardly stellar or ambitious. In last year’s statement, he had rather more to say about foreign trade. He seemed to be on the verge of announcing a major new Government initiative for boosting our trade with key industrialising nations such as India and China. He said:
“Alongside a new City of London taskforce to promote British financial services globally, and backed by a new British advisory board and council, the Foreign Secretary and the Secretary of State for Trade and Industry are announcing a revamped UK Trade and Investment, which will set new targets for expanding trade with China, India and emerging economies, and for making Britain the location of choice for international business.”—[ Official Report, 22 March 2006; Vol. 444, c. 291.]
That all sounded great, and a number of right hon. and hon. Members, and many UK business organisations, have made the case for a number of years for a concerted effort by the DTI and Foreign Office to help UK exporters take advantage of the huge investment and trade opportunities on offer in places such as China and India. For some time, concern has been growing that the UK is not capturing a large enough share of that huge increase in international trade.
Sir Nicholas Winterton: My hon. Friend may or may not be aware of my long-standing interest in manufacturing, which, in my view, is the only source of long-term, sustainable, non-inflationary economic growth. How does he respond to the fact that manufacturing jobs in this country are being lost at a rapid rate? How can we capture opportunities overseas other than in financial services, in which we are highly qualified, if our manufacturing base is shrinking year by year because it is less competitive? The chief executive of a major pharmaceutical company told me that we are one of the least attractive countries in which to invest. Ireland and the Netherlands are far more attractive in that regard.
Mr. Crabb: My hon. Friend is exactly right. A key component of the great narrative around the 10 years in which the Chancellor has been in place is the consistent erosion of the UK’s competitive position. My hon. Friend talked about the loss of manufacturing jobs. He will be aware that, back home in Wales, the loss of a great many high-quality manufacturing jobs in the past year or two has been hugely sad. Excellent companies, some of which came to Wales in the 1980s because they were attracted by the UK’s competitive position, are now vacating the country.
My hon. Friend rightly talked about the loss of this country’s competitiveness. It has been amusing to see the number of Labour Welsh Assembly Members and MPs who have been tripping over themselves to have their photographs taken outside the Burberry manufacturing plant in Treorchy, which has, sadly, announced that it is shutting down. Anyone who has
grown up in a household in which there is worklessness will know just what a tragedy that is. We feel for the workers who have been made redundant, but if those Labour politicians were serious about protecting those jobs and were genuinely concerned about the future of manufacturing workers in south Wales, they would not be issuing press releases accusing Burberry of corporate greed, but be getting into the Chancellor’s face and talking to him about the erosion of our skills base and of our competitive position as a manufacturing economy.
Mr. Newmark: Is not it key that those who seek employment in this country have a good education? One of the tragedies of the Budget is that the growth of spending on education is being slashed in half, to 2.5 per cent. We have heard much from the Chancellor about how he wants to spur on science and technology, but if he does not invest in education, we will not be able to produce employable people.
Mr. Crabb: My hon. Friend is exactly right. The key to success in a globalised world is to have innovation, a skills base and investment in an education system that will help the country to stay competitive in the years ahead, especially at a time when countries such as India and China are pouring out tens of thousands of extremely well-motivated, highly educated engineers and scientists.
Mr. Newmark: My hon. Friend makes an excellent point. I am a member of the Select Committee on Science and Technology. We have some brilliant scientists in this country, but, unfortunately, the interest of students in our primary and secondary schools in being scientists or going into jobs in which science is applicable is declining. That problem is compounded by the closure of chemistry departments in universities such as Exeter. We should be asking what the Government are doing to stimulate interest in the sciences and to support science in our great universities.
Mr. Crabb: That is an excellent intervention. In Wales, sadly, the chemistry department of Swansea university has also closed. A big concern of the Royal Society of Chemistry is the number of hours of science teaching in schools that is being done by teachers who have no science degree. As a result, the subjects are not interesting and are not being taught from a well-informed position. That is leading to a lack of interest at A-level and feeding through to the decline in demand at university level, thus making it difficult to maintain and make viable expensive university science departments.
Mr. Hands: Will my hon. Friend say a little about language learning? He and I share something in common: we are both married to people from other EU countries who do not have English as a first language. The learning of languages in our schools is crucial as well.
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