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I repeat that the message that I want to get across to those on the Treasury Bench today is that we are not yet doing enough; more needs to be done. We can see from the industry’s productivity gains that it is responding
magnificently, but its general output is still falling behind that of the service sector. That is not a sustainable policy for the long term. We must move back to a more vigorous, growing manufacturing industry. There is not a country in the world that is successful in the way in which we want to be successful that does not have a strong, well-performing manufacturing sector.
Jim Sheridan (Paisley and Renfrewshire, North) (Lab): I share my hon. Friend’s passion for manufacturing. Does he welcome the Chancellor’s statement today that Government Departments will be doing all they can to coach tendering propositions from companies in this country, and to procure goods from this country?
Mr. Purchase: Yes, and may I also point out that many of our local authorities have a long and honourable record of putting together trade fairs especially for the benefit of local manufacturers, and traders in goods and services, in order to create a virtuous circle of economic growth within their districts? I want to see those practices expanded and made best use of, as they make a positive contribution to the overall effort.
It is important to look at exports, and I shall come to UK Trade and Investment—UKTI—in a moment. We now have perhaps the most favourable exchange rates for manufacturing that we have seen in a considerable time. We have seen a fall in the pound against the euro of 12 or 13 per cent. since last summer, which is extremely helpful to our exporters. We have also seen a growth in the strength of the pound against the dollar, which is helpful in so far as many of the raw materials that we import come from outside the euro area, from the dollar areas. We then sell our manufactured goods into the euro area. That provides an ideal opportunity for the Government to redouble their efforts to give more encouragement to exporters to take advantage of these circumstances, which could last for another 12 months or just until tomorrow—who knows? We just do not know, but we must recognise that we have that advantage.
In my constituency, some years ago, Goodyear—a world-famous company—was buying rubber in the dollar markets and selling its products overwhelmingly into Europe. It was facing a reverse premium on currency of about 15 per cent. Thank goodness that has gone. The advantage that we now have is extremely helpful. Exchange rates are creating very favourable conditions, and this is an ideal opportunity for the Government to look really hard at how we might assist our manufacturing and export industries.
The UK has the second largest aerospace industry in the world, outside the USA. In 2006, its sales reached almost £20 billion, and two thirds of that went into exports. The aerospace manufacturing community has responded magnificently to the challenges of global competition. It employs—directly and indirectly—about 275,000 people, and an additional 50,000 are employed abroad by the aerospace industry, mainly in the USA. It invests about £2.5 billion every year in research and development. Such investment certainly fell during the Tory years, but it has grown and stabilised since then, and it is still improving. That is to be welcomed. The aerospace industry remains very important to the future of our manufacturing industries. The technology base that it brings is invaluable, and must be nurtured. We
have to cherish it, to ensure that the spin-off from the investment in R and D spreads out and benefits the whole country.
In the auto industry—manufacturing, distribution and servicing—the business sales are about £200 billion per annum. It has 200,000 direct employees and 500,000 people employed in distribution, sales, servicing and maintenance who are supported by the auto industry. The industry represents 5 to 6 per cent. of our total manufacturing output. It, too, must be cherished, and our people are responding.
Lorely Burt: The hon. Gentleman comes from the same region as I do. I have Land Rover in my constituency, and Jaguar is close by. Ford has invested £700 million in research and development technology to make the vehicles more carbon efficient. The vast majority of the vehicles manufactured by Land Rover in the UK go abroad, which enhances our export performance.
Mr. Evans: Those are the vehicles that the Chancellor has announced the extra taxes on.
Mr. Purchase: Thank you very much.
I endorse the remarks of the hon. Member for Solihull (Lorely Burt). We share a common interest in the success of the auto industry, not least because, although manufacturing employment in the west midlands has fallen from about 92,000 people 10 years ago to about 71,000 now, our region still massively outdoes any other region in auto industry employment. Our auto industry’s exports in 2006 were almost double what they were in 2005, but imports of autos have risen even faster. We now have a trade imbalance of £6 billion- plus, compared with only £3 billion in 1995.
So there we are. Manufacturing industry in aerospace, in autos and in other areas has, without question, responded magnificently to the challenge of global competition by rapidly improving its productivity figures, and that is to be applauded. I am not saying that the Government have done nothing; I know very well that they have taken action, and I have been cheering along many of the initiatives that have been taken. However, we must also consider the kind of support that is being provided in France, Germany and Japan.
This brings me to the point raised by the hon. Member for Ribble Valley (Mr. Evans) about trade fairs. Frankly, we are pretty abysmal at all that. We set up an organisation—UKTI—under this Government in 1999, and we promised that it would do the job of ensuring that Britain’s voice in trade was heard far and wide. The truth is, however, that we have under-resourced it ever since. A proper review of the needs of UKTI must take place without delay, so that it can fund the trade missions that make such a difference, especially to small and medium-sized companies. The bigger companies can look after themselves in the world market in most cases, as long as their own Governments are providing the right framework.
Our local chambers of trade and the regional agencies are anxious to promote the worldwide opportunities for export that the smaller companies often do not take advantage of, simply because they lack the support to
take them abroad to do the business. I ask those on the Treasury Bench, again, please to recognise that in UKTI, whatever faults have been found and criticisms have been made, there are the tools to do the job—but as ever, we need to ensure that it has the resources to back up the work that it can do and the expertise that it has developed over these years. We need to recognise that we must stop fiddling with it—with name changes, different duties, sectionalising what can be done, and targeting this and that. For goodness’ sake, let us recognise that in many ways one export product is as good as any other, and give that general support to the exporting effort that I know would be extremely welcome.
There you have it. We are doing good but, in the words of the advert, “We’re no’ doing great.” The way to do that is to support our manufacturing and exporting industries and to ensure that the heart of this country and its wealth creation is in good shape for the future.
3.29 pm
Mr. Peter Lilley (Hitchin and Harpenden) (Con): It is a pleasure to follow the hon. Member for Wolverhampton, North-East (Mr. Purchase), who rightly reminded us of the importance of manufacturing industry. When I was Secretary of State for Trade and Industry, my mantra was that we could not have a healthy economy without a strong manufacturing sector, which, as he emphasised, is increasingly higher value-added and high tech.
Of course, Governments cannot always decide the proportion of economic activity in manufacturing and in services—they want both to be strong and good. As an economy, we have benefited from a strong service sector and a strong financial services sector over the past couple of decades because the relative demand for those services has risen. I fear that in a period of economic difficulty focused on the financial services sector we will have greater difficulties than some countries that rely less on that sector than we do. We need to be careful about that and we are jolly glad that we have a manufacturing sector such as that described by the hon. Member for Wolverhampton, North-East.
My right hon. Friend the Member for Fylde (Mr. Jack) described this Budget as a Chinese meal—soon eaten and even sooner forgotten. That is a fair description of the Budget, but a very unfair description of a Chinese meal. I invite him to join me for a meal in the Oriental Garden in the village of Offley, from which I come. He will have a very memorable meal.
Mr. Jack: May I immediately reciprocate my right hon. Friend’s generosity? I look forward to getting our diaries together.
Mr. Lilley: I would like to enter that on the Register of Members’ Interests.
A disgraceful feature of this Budget—it has, I am afraid, been a feature of Budgets in recent years—was the lack of transparency and the tendency to exclude from the speech important measures or any details that make comprehensible the measures that appear in it. I can remember, as I am sure my right hon. Friend can—we were both Financial Secretaries to the Treasury,
and I was Economic Secretary before that—that when we drew up Budgets, officials would sometimes say, “You’ve got to include that measure. It might be boring, but it’s important. It raises revenue.” Invariably, we would say yes. There was a presumption that anything important or significant had to be included and explained and the cost made apparent. The tendency in recent years has been to do exactly the reverse and say that anything important, anything that will be painful or anything that imposes burdens of taxation on people will be hidden in the small print of some press release and barely mentioned in the speech.
We had the extraordinary experience of the Chancellor giving a Budget speech shortly after taking £100 billion of additional liabilities on to our balance sheet without mentioning that he had nationalised a dodgy bank or that he had included the extra loans on the nation’s balance sheet. I find that disgraceful. It is not treating the House or the nation fairly. I understood that the Office for National Statistics had said that that would be on the balance sheet. The figures should be included in the nation’s assets. The fact that the provision does not come in until the first day of the new financial year is not an excuse for not including it in today’s Budget.
Closer inspection of the book leads us to discover that the lollipop in the speech—the offer of an increase in the winter heating allowance that the Chancellor announced—will be financed for only one year. It is a one-year increase. Will it disappear next year? If it will, that is fair enough, because no money has been set aside for it. However, if the Chancellor is giving the impression that it will be extended this year, no money has been set aside and there is some dodgy financing going on there, too.
We were not reminded that the most significant change that will occur in the tax system as of 6 April is the abolition of the 10 per cent. rate band: 5.3 million of the least well-paid people in this country will pay more tax. The Chancellor did not mention it, let alone point out its impact on those people’s standard of living. He also failed to remind us, of course, that it was introduced in an attempt to create the impression that he was cutting the basic rate of income tax by using the money in his last Budget to announce a 10 per cent. basic rate cut while eliminating the 10 per cent. rate so that most people actually end up paying more.
The Chancellor accidentally said that he was cutting corporation tax from 38 per cent. to 28 per cent., when the actual cut is from 30 per cent. to 28 per cent. I think that that was just a slip of the tongue; I make no complaint about it, as we all make such mistakes and I am guilty of them from time to time. What the Chancellor did not mention, however, was that the corporation tax rate for small companies is going up as of the beginning of this financial year. That matters to millions of small companies, which are, above all, the job and wealth creators of the future—and hopefully the big companies of the future. They are enraged by that prospective increase and the fact that it is being made at these particularly uncertain times in the economy.
The Chancellor was remarkably opaque about what he is doing with non-doms—non-domiciled residents who work here, but do not necessarily pay tax on overseas income. They pay tax on their income in this
country and it would have been interesting to hear from the Chancellor exactly how much tax they pay on the incomes they generate in this country. It appeared to me that the Chancellor was backing off in his proposals and reverting more to those made by my hon. Friend the Member for Tatton (Mr. Osborne), the shadow Chancellor, to pay a flat £25,000. Of course, the Chancellor charges more—unsurprisingly, as Labour always charges more—but once the non-doms have paid, no further inquiries are made about their foreign revenues.
In fact, when the Chancellor said that he was going beyond that and was not only going to charge the non-doms that sum, but start chasing their overseas income and investments as well, he produced an absolute uproar among the non-dom community resident in this country.
A friend of mine, who is not a non-dom in this country and is not even resident here, has a business in central Europe. He lives in Zurich. He told me that he was delighted by what the Chancellor proposed because the outflow of non-doms from this country to Switzerland—to the fashionable suburb of Zurich where such people live—has been such as to treble the value of his house since the announcement was made. The idea that this is just a brouhaha is not the case; people are physically upping sticks and moving, and we are losing not just the £25,000 or £30,000 that they might pay, but the hundreds of thousands in tax revenues that they are paying on their incomes in this country, generated in this country, and, of course, the prospect of moneys being returned from abroad to this country—not to mention the contribution they make to arts and charities.
Lorely Burt: Will the right hon. Gentleman clear something up for me? Was not a £30,000 tax for non-doms initially a Conservative proposal?
Mr. Lilley: I am sorry that the young lady—I mean hon. young Lady—has not been listening. I said that I hoped that the Chancellor was reverting more to the proposal that my hon. Friend the shadow Chancellor made for a flat licence costing £25,000 a year. The idea was that if a non-dom paid that, no further inquiries would be made into foreign income. The Chancellor then went much further by saying that in addition to paying the flat fee, investigations would be made into foreign trusts and related financial matters. As I was saying, the non-doms were not prepared to tolerate that, hence the outflow from this country.
The Chancellor seems to be moving from that position, but it is very hard to tell even from the press release—it is simply impossible to tell from his speech—whether he has done a complete U-turn. I very much hope that he has and that he has adopted the shadow Chancellor’s more sensible proposal, as a result of which some of those who have moved to Zurich may think again. The press release says that the Chancellor is not going to charge for people’s children. It has always struck me as an extraordinary idea that one should have to pay £30,000 a child, although £35,000 is still going to be payable for a wife. How that applies in a system of independent taxation, I do not know.
Mr. Lilley: I should say spouse, yes. Wealthy wives will have to pay for their non-earning husbands and vice-versa.
Mr. Austin Mitchell: It must be admitted that although the formulation has changed, it is clear that the Conservatives were proposing to raise a far larger sum through their taxation of non-doms than will be raised by the present system. Did that trebling of house prices in Zurich begin at the Conservative party conference, when the Conservatives first announced their intention to hit their friends, or did it begin when the Government followed suit?
Mr. Lilley: I think it began the day the Chancellor started announcing proposals to investigate overseas earnings and bring them into the United Kingdom tax regime, on top of charging £30,000 per member of a household. I am pretty sure that concerns will be lowered if he has indeed performed a complete U-turn.
The one thing that we do know about the Chancellor’s proposals is that he has committed the next Parliament not to change them. But, as the hon. Member for Great Grimsby (Mr. Mitchell) will know, one cannot commit a future Parliament to anything. One can commit one’s party for a future Parliament, but one cannot rely on its being in government. I certainly hope that we cannot rely on the Chancellor’s party remaining in Government. I think he should at least have made it clear that he was speaking only for his own party. I am sure that my party will do all in its power to alleviate the problems that he has created, but the next Parliament cannot be bound by anything that he has announced today.
The central issue underlying the Budget was how prepared we are in this country for a potential slowdown in the British and world economies. It is not the job of Members of Parliament to forecast the future. When it was my job and I was a forecaster, I enunciated Lilley’s rule, which was “Never make a forecast except about the very distant future or the immediate past”. That is the safe thing to do, because one cannot be found out, but one can claim to have forecast what has just happened.
I do, however, remember the distant past. One of the advantages of having reached my stage in life but having, before arriving in the House, had a career in the real world is that I observed what happened in the 1960s and 1970s, and I have a sense of déjà vu. Then as now, America was fighting an unpopular war. Then as now, it was financing its unpopular war without raising taxes. Then as now, that produced a huge deficit in the American Budget. Then as now, that Budget deficit produced a corresponding deficit in the balance of payments and a big outflow of dollars across the world, which was absorbed in the foreign exchange reserves—then those of Germany and Japan, now those of China and other countries.
For quite a long while—the best part of a decade—that outflow of dollars across the world produced an unparalleled period of prosperity and strong growth combined with low inflation. We seemed to have the best of all possible worlds, much as we have had for the last decade or more in the western world. But, then as now, the outflow of dollars began to drive up commodity and oil prices. We are in roughly that position at the moment. We know what happened next then: for a while the rising commodity prices seemed to be absorbed by, for instance, the squeezing of margins of companies and a burst of productivity increases, but after a while
that could not be maintained. Rising commodity prices showed up in rising prices of goods and services, and inflation began to accelerate. When Governments tried to slow that inflation by putting on the brakes, they were landed with stagnation with no reduction in inflation. Stagflation was the phenomenon of the future.
The only question that we need ask is “Why should it be different this time?” Why should history not repeat itself now? But our history does not always repeat itself.
Stephen Hesford: I am obliged to the right hon. Gentleman, who will have an active memory of those times. I was still at school but have read since that, yes, the UK had stagflation, but stagflation was not universal. There were economies that survived and prospered but, unfortunately, not the UK’s. Is not the position the other way around this time? The UK is in a position to survive, but other economies are not.
Mr. Lilley: That was very much the question that I intended to address and I am grateful to the hon. Gentleman for prompting me. It is the important question; not merely, “Will it be the same this time?” It may not. Marx said:
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