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In his speech, the hon. Gentleman made a good point about inflation, which corresponded with a point made earlier by the right hon. Member for Fylde (Mr. Jack), who observed that it might be worth having a good look at the composition of inflation. The hon. Gentleman also mentioned business, and he has just mentioned it
again in his intervention. The Chancellor spoke at some length about business, particularly small businesses. He spoke of opening competitive markets, and competitive corporation tax in a stable tax regime. The Government therefore fully understand what is involved in trying to help small and medium-sized enterprises. My right hon. Friend also said that he wanted to simplify their tax calculations and strengthen the concept of small firms’ loan guarantees.
Mr. Mark Hoban (Fareham) (Con): The rate of corporation tax for small companies is to rise by a penny this year and a penny next year. Is this not the wrong time to be imposing extra taxes on small companies?
Sir Stuart Bell: That is an important point, which the hon. Gentleman may wish to make to the Financial Secretary when she sums up the debate. I was simply pointing out to the hon. Member for Dundee, East that the major corporation tax had been reduced in the Budget.
I am sorry that my hon. Friend the Member for Brent, North (Barry Gardiner) has left the Chamber. He made an interesting, erudite speech, although it was on the long side—longer than that of the Leader of the Opposition, to which he kindly referred. I am sure that many of the points he made will read very well in Hansard, and will be taken up by people in various Departments, who will examine them and see what they can make of them. He made some interesting points about the non-doms and the Pandora’s box that might be opened. Back in 1974, tax changes in the United States gave rise to the Eurobond market in London, and I think that one should be careful when making what may appear to be small adjustments that will in fact have major consequences. That was one of the points that my hon. Friend made.
The right hon. Member for Hitchin and Harpenden (Mr. Lilley) has been present for most of the debate, and I am sorry that he is not here now. I shall not pursue the point about Chinese restaurants—I do not want any memories of China to feature in the debate—but he also spoke of Budgets past, and made a number of comparisons. He talked about Northern Rock, which is a fixation with the Conservatives. As my right hon. Friend the Member for West Dunbartonshire (John McFall) pointed out earlier, no guarantee has been called in, no investor has lost any money and no mortgage has been affected—
Sir Stuart Bell: And the business has been kept intact for the future. As for what the hon. Member for Cities of London and Westminster (Mr. Field) has just said from a sedentary position, it reinforces Labour Members’ impression that the Conservatives would like the whole thing to crash—that they would like it all to go wrong. Of course, the impression that they wish to give may well not be the impression that they have themselves.
The right hon. Member for Hitchin and Harpenden also made the interesting, and true, observation that a Parliament cannot bind its successors. The Chancellor was not trying to bind a successor Parliament; he was simply saying that Labour would win the next general election, and that we would therefore have control of all the measures involved.
What the right hon. Gentleman had in common with my hon. Friend the Member for Brent, North was the fact that he spoke for at least half an hour. He produced an erudite exposition of how life was in the 1960s and 1970s. He seemed to think that there was a relationship between the wars in Iraq and Afghanistan and the war in Vietnam. I must say that I do not see that, and I thought his exposition on the so-called sub-prime mortgage and its contagious effect was somewhat erroneous as well.
The right hon. Gentleman drew an analogy with being found to be without a swimming suit when the tide goes out. He might have given credit to Warren Buffett for that simile; it was not original. He also spoke of the gold reserves that the Chancellor sold some years ago, making much of the loss of value without taking account of the value of the investments that we made with the money from the sale. Were he to look at the return on the investments we made, he would see that the sale at that time was opportune.
My hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase) made a fine and important speech on manufacturing. In our country there is an overemphasis on the housing market and less emphasis on our manufacturing industry. My hon. Friend will remember that when we were in opposition we asked for a Cabinet Minister for Trade and we wanted the emphasis to be on the industrial side of our economy. The Government have gone to some lengths to do that, but we have seen the service sector increase as a percentage of our economy to the detriment of manufacturing. Therefore, when there is some dysfunction in the financial markets, it spreads out into the whole of the country. If we were still creating goods and selling them abroad, it would bring fine value to our economy.
I am glad to see the hon. Member for Beckenham (Mrs. Lait) back in her place. She has followed the debate with great assiduity, if I may say so. She made some very important points and called the Budget, somewhat uncharitably, “boring”. I was not here at the time, but that reminded me of the Budgets of Benjamin Disraeli, who would have two little carafes in front of him with clear liquid in them. No one knew whether it was gin in one and water in the other, but as the debate proceeded, they found out pretty quickly. Gladstone spoke for three hours in his Budgets, whereas today the Chancellor spoke for only an hour. Winston Churchill, who was Chancellor for five years, used to have a carafe in front of him filled with part whisky, part water. Perhaps those earlier Budgets were less boring.
The hon. Member for Beckenham made some important points about risk. If she reads the fine report of the Treasury Committee on all aspects of the credit crisis, she will find some fine definitions of risk. She said that we were on the cusp of a deep financial crisis, and referred to the financial difficulties of 1974. Those financial difficulties came about because of the decisions made by Anthony Barber on 17 December 1973. He destabilised our economy to such a point that the Prime Minister Ted Heath called an election for February, which he lost. He left the difficulties that he had created to a Labour Government to deal with.
Mrs. Lait: The hon. Gentleman’s memory and mine clearly are at odds. My memory of what happened in 1974 is closer to the analysis made by my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley). At that time I was trying to do some building works in a flat in Edinburgh, when the whole plaster allocation for Edinburgh was four tonnes for a year. At the same time, the whole of the wood supply for Scotland for a year went up in flames on a wharf in Glasgow. I would suggest to the hon. Gentleman that the 1974 collapse had considerably more to do with the shortage of commodities than with a Budget the previous year. The problem was far too deep.
Mr. Deputy Speaker: Order. In view of the dwindling amount of time, it might be better to come back up to date.
Sir Stuart Bell: All I could understand from what the hon. Lady said was that apparently the roof fell in at that time.
The right hon. Member for Fylde made some interesting points about inflation, and the high interest rates in this country. My answer is that if he wants lower interest rates we should join the euro; the interest rate for the eurozone is much lower. He talked about the cost of commodities in what is a global marketplace. That is one of the reasons why we are experiencing price inflation. The Leader of the Opposition said that it was running at 7 per cent. The price of wheat has gone up, and there is a shortage of wheat in the world.
We are living in a world marketplace—a global economy—so that is affecting our country, and creating price inflation here. Commodity prices are going up. The prices of gas and oil are increasing. That is having an impact on inflation. That is why it is to the Chancellor’s credit that he put low inflation, growth and stability at the centre of today’s Budget. Instructing the Bank of England to keep inflation at 2 per cent.—not 2.5 per cent.—shows that the Government have a firm determination to keep inflation down, to keep our growth rate steady if possible, and to maintain stability in our economy.
Interestingly, the right hon. Member for Fylde also mentioned Merrill Lynch. Because of the nature of the global marketplace, Merrill Lynch is being sued by Adelaide city council over bonds it sold to the council which included some sub-prime mortgage elements. He also mentioned BCCI—the Bank of Credit and Commerce International—but I will not go down the historical road, as you have told me not to, Mr. Deputy Speaker. However, the fact is that all the current perturbations in the financial markets are being dealt with by a pool of banks, which did not exist back then.
I accept that we have strayed somewhat from the subject of the Budget over the past three hours, and I intend now to return to some of its specific points. The former Chancellor—now the Prime Minister—has been criticised for his last Budget. All I remember about it is that he said that we would remove the 10 per cent. rate of income tax, which we will now do; instead of specifically targeting support on pensioners, families and low-income workers, we will move to a simpler two-rate system. Pensioners have been mentioned—for example, by the hon. Member for Dundee, East. We are raising the personal allowances for pensioners by
£1,180, taking the allowance for anyone over 65 to about £9,810 by 2011, and with a further increase to £10,000 for anyone over 75. That seems to me a reasonable record for the former Chancellor to have had as he moved on to become Prime Minister.
Early in the debate, much was said about our child poverty programme—for example, by my right hon. Friends the Members for West Dunbartonshire (John McFall) and for Oxford, East (Mr. Smith) and by the hon. Member for Dundee, East. The Budget will increase child benefit to £20 a week from April 2009. We will disregard child benefit in calculating income for housing and council tax benefit purposes from October 2009, and we will increase the child element of the child tax credit by £50 a year above indexation from April 2009. That is not a bad beginning for an attack on child poverty.
The essence of the Budget is stability, growth and low inflation. I am glad that the hon. Member for Beckenham is present, because she talked about the current crisis. The financial turbulence is linked with rising commodity prices. She also mentioned the financial move of the pool of £10 billion being made available through the Bank of England and the $200 billion coming from the United States, and she wondered whether it was printed money. It is not printed money; it is a circulation of money. That is a difficult concept to explain, but it is not about money being printed.
When the Bank of England got its act together on 12 December—when it allied itself with the Bank of Canada, the European Central Bank and the Swiss National Bank, and expanded the total amount of reserves offered at three-month maturity against a wider range of collateral—it laid the foundations for maintaining stability in the financial markets. That stability is the cushion on which the rest of our economy will grow. Our growth rates will fall to about 1.25 per cent. but we will not fall into a recession. We will not talk ourselves into a recession, either. We will support the Budget with its emphasis on stability, low inflation and growth, and we will steer our way through the difficulties in the financial markets. That is why I congratulate the Chancellor on his Budget. I wish him well—as will the rest of the House, if it has any sense.
Mr. Deputy Speaker: Order. The current average length of Back-Bench speeches is 22 to 23 minutes. We have until 7 o’clock. If all Members who are patiently waiting to speak today wish to achieve that ambition, from now on speeches should be a little shorter.
5.14 pm
Mr. Graham Brady (Altrincham and Sale, West) (Con): I shall certainly be brief and seek to direct my remarks to the Budget, Mr. Deputy Speaker.
I was not able to speak yesterday or in previous debates on the EU treaty, so I thought I would start with the Budget proposals on European expenditure. Such things often escape our attention when they should not. It is worth pointing out that in these straitened economic times and in a Budget where, as the Leader of the Opposition pointed out, the Chancellor has little room for manoeuvre, table C9 in the Red Book sets out
clearly the steady increase in the net transfers of money from the British taxpayer to EC institutions. Such transfers will have risen from £4.7 billion in 2006-07 to £6.7 billion in 2010-11. The increases are even higher if one takes as one’s figures the net contributions to the EC budget, which are given in a footnote to that table. All hon. Members have seen us give yet more powers to the European Union—or seek to do so—through the Lisbon treaty, so it is important that we are aware of the consequences for our constituents, some of which are shown in the Red Book.
This is the first day of these debates, and I am sure that my right hon. and hon. Friends will have an opportunity to examine the real substance of the Budget in much more detail. The Chancellor’s statement gave almost nothing away. The Budgets of the previous Chancellor, who is now Prime Minister, were always a kind of snowstorm—figures and statistics were showered over the Chamber leaving us all snow-blind and none the wiser. This Chancellor took a completely different approach, making his remarks for 53 minutes or so without providing any detail. It leaves us trawling through the books and statistics to find some indication of the facts and of the implications of economic policy
Let us examine what the Government are doing in taxation; the current receipts are set out in table C6 of the Red Book. It appears that some pretty significant increases in taxation are being made: income tax gross of tax credits will increase over two years from £147.8 billion in 2006-07 to some £160.2 billion in 2008-09—an 8 per cent. rise or thereabouts; VAT receipts will increase by £6.4 billion; capital gains tax receipts will increase by £1.2 billion; business rates will increase by £2.7 billion; and council tax receipts will increase by £2.7 billion.
Total current receipts will rise over that two-year period from just under £520 billion to £575 billion, an increase of about 10 per cent. One could say that receipts will increase by roughly 5 per cent. each year. If one accepts the Government’s projections of growth at about 2 per cent., and if we accept that inflation will be about 2 per cent., that leaves us with an increase of about 1 per cent. each year attributable to fiscal drag and the general increase in the tax burden. As people have more time to study these things they will perhaps arrive at a clearer and more detailed picture, but those basic facts about the Budget were simply avoided by the Chancellor. For that reason, we were given no real indication of the overall effect of the Budget.
I want to touch briefly on one or two specific items in the Budget. I had a brief exchange earlier with the hon. Member for Brent, North (Barry Gardiner) about the air movement tax. As with other taxes, we have to ask ourselves what the purpose of it is and what benefit it is intended to achieve. The principal purpose is obviously to raise revenue, but in this instance the stated objective is also to achieve an environmental benefit. The basic logic is that there will be greater benefit if we incentivise airlines to fly their aircraft full, by charging for aircraft movement rather than individual passengers. However, I am concerned that there appears to be no recognition of the degree to which different types of aircraft generate different amounts of pollution. If we are honest about wanting to incentivise better environmental performance, we should try to reflect that consideration.
Before the air movement tax is introduced, we also need to know what the Government propose to do to mitigate the potential effect on the air freight industry, about which I had an exchange at the latest Treasury questions with the Exchequer Secretary, who is in her place. She accepted the need to look into that and see what can be done. Air freight is a mobile and competitive industry, and there will be no environmental benefit at all if we simply divert air freight from UK airports to those in the near continent, from where it is transhipped by road to the UK.
We must also consider carefully the impact of the new tax on the establishment of new routes from regional airports. Obviously, I am particularly concerned about routes from Manchester airport. The tax on aircraft movements could disincentivise the establishment of new routes, particularly long-haul routes, which would damage the regional economy.
The hon. Member for Dundee, East (Stewart Hosie), mentioned road fuel duty. It is welcome that the increase has been deferred, but the purpose of the Government’s policy is still not clear. There is a massive disparity between road fuel duty rates in the UK and in some other countries. The hon. Member for East Antrim (Sammy Wilson) mentioned concerns in Ulster about the position across the border, with the Republic of Ireland charging about half the rate of fuel duty that we charge in the UK, which creates significant problems.
There are also serious problems for road hauliers in England. We see many foreign hauliers on our motorways, operating from all sorts of places around the EU, including Lithuania, where I think the duty is 16.5p a litre, compared with 50.9p in the UK. Again, we must ask what is being achieved by that huge disparity. Are we simply diverting investment and trade to our competitors in other EU countries, or are we achieving anything environmentally or for the UK? We must consider that carefully.
There are to be changes to capital gains tax. Much as I welcome the principle of simplifying the tax, the Chancellor has mishandled the matter woefully in recent months. We need to see details of how the reliefs in the new tax regime will operate. It is unfortunate that the Financial Secretary is not in her place, because I wanted to establish whether I have achieved a minor victory on behalf of a constituent who sold his IT business before the pre-Budget report in exchange for a small shareholding of 1.5 per cent. in a much bigger company, but is locked in and prevented from disposing of it until after the start of the new tax year. I am sure that many people are in comparable positions, so it would be interesting to hear more about the transitional provisions that are referred to in paragraph 6 on page 118 of the Budget notes. I hope that, as is stated, the transitional relief will address such concerns by applying to
“circumstances where gains that have been deferred from disposals made on or before 5 April 2008 become chargeable after that date.”
I hope to hear confirmation from the Treasury that that is a response to the concerns that I raised.
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