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We must not forget that, as the Chancellor reminded us today, the Government provide immense support for making existing homes more energy efficient, helping people to cut the cost of heating their homes. Warm Front and the predecessor of CERTthe carbon
emissions reduction target, which used to be the energy efficiency commitmenthave already supported work done on more than 2 million homes. CERT alone is estimated as likely to be supporting work on nearly 3 million more homes over the next three years.
The Chancellor reminded us of the historic step that will be taken next year, when alongside the economic Budget will be a carbon budget. For the first time, we will count the tonnes of carbon just as we count the pounds sterling in a Budget statement. The Chancellor also announced that in future we would auction 100 per cent. of the emissions trading scheme allowances for producers of electricity. That will bring in huge amounts of extra income, and I think we should establish the principle that it should be spent on environmental works for the future.
My hon. Friends the Members for Wolverhampton, North-East (Mr. Purchase) and for Wolverhampton, South-West (Rob Marris) both mentioned manufacturing, which performed very strongly last year. Nearly 3 million people are employed in United Kingdom manufacturing, responsible for more than half our exports and accounting for three quarters of the spending on research and development. In its business trend survey, the Engineering Employers Federation describes what is happening in manufacturing as
the best conditions for manufacturing in ten years with rising levels of output and new orders... expanding employment levels. Investment levels... the strongest since 1995.
access of small and growing businesses to finance.
I hope that in the year ahead we will build on the manufacturing successes of the last 10 years. As manufacturing takes its position centre stage, as house buying and selling slows and as consumer spending becomes more subdued, manufacturing has an opportunity to be at the forefront of our efforts. I think that the current world situation will ensure that it has that opportunity. I wish the Chancellor well in his future career as our Chancellor of the Exchequer, but I also wish UK manufacturing well in its position in the world from now on.
Mr. Mark Field (Cities of London and Westminster) (Con): Essentially, this was a paralysis Budget. There was virtually nothing in the Chancellors speech that had not already been announced several times over. It is clear that the Government are hoping that the ever-darkening economic clouds will pass soon, but that might be wishful thinking.
I want to say a little about the tax on non-domiciles. The watering down of the Chancellors earlier ill-advised non-dom tax proposal should be welcomed. Retrospective taxation, which seemed to be proposed last autumn, is invariably unjustified, and the intrusive demands for details of overseas earnings and the uncertainty heralded by the Governments draft legislation risked undermining the UKs international competitiveness. I find it somewhat disappointing, however, that the Treasury is now intent on pressing ahead even with this diluted legislation on non-doms. There should have been a proper, wide-ranging
consultation to allow greater debate, with any recommendations to be implemented in April 2009 rather than in five weeks time. The unintended consequences of the Sarbanes-Oxley legislation on New Yorks dominance of the financial sector demonstrate just how rapidly any citys competitive advantage can be lost through knee-jerk political interference.
Nevertheless, I feel that having seen off the Treasurys set of politically rather than economically motivated proposals, we should return to the wider debate about the desirability of allowing internationally mobile, high-net-worth individuals to avoid making any contribution to domestic tax. Lest we forget, it was the Conservative partys suggestion on non-domsdesigned to fund our policy on inheritance taxthat raised the standard for this entire debate last October. The shadow Treasury plan at that juncture was simple and balanced: non-doms would be charged a flat rate of £25,000, and in return would be entitled to the certainty of not being required to declare their income either on or off shore.
Five months on, the prospect of less clement economic weather, especially in the financial services sphere, has led many commentators to question the wisdom of imposing any tariff on non-doms. We should not forget that the great majority of those in the workplace who are non-domiciled are relatively modestly remunerateda point raised against a background of some hilarity by the hon. Member for Wolverhampton, South-West (Rob Marris). However, a flat rate charge for those people amounts to a substantial imposition on their overall earnings, but it is rarely of course from this quarter that any vocal complaint has been forthcoming.
By contrast, in my role as the Member of Parliament for the Square Mile, I have been feverishly lobbied by leading financial services players, doing their best to convince me that anything beyond the status quo would result in a non-dom exodus of the job-creating super-rich from London to the cosmopolitan delights of Geneva or Frankfurt. I simply do not buy that. For a start, the attraction to high-net-worth non-doms and their families of living in London is probably worth paying an annual tariff of rather more than £25,000.
It also seems to me a rather slippery slope that the cheerleaders for the non-dom community would have us go down. Once the argument is accepted that a sector and its participants are so important to this nation that they should be exempt from paying a share towards the communal income taxation pot, where do we stop? At this point it is worth stressing that even high-net-worth non-doms contribute extensively via council tax, VAT, other sales taxes and employment taxes on their array of staff. They make a substantial contribution to the Treasury and their status exempts them primarily from taxation on their overseas earnings.
Strangely enough, the illogicality of the entire political class on this matter has gone largely without comment. If the levying of lowto the point of zerotaxes is so essential to job creation in the City, why is the case for lower, more internationally competitive tax rates for all not being made much more forcefully? The case for reducing taxation should apply across the economy, not just to a gilded few, whose special pleading can sound like disguised blackmail.
The aggregate sums that stand to be raised by an annual charge along the lines currently proposed, working on the assumption that none is persuaded to return home, are negligible. Meanwhile no one disputes that we cannot, and should not, kill the financial services goose that lays such a golden egg for the UK as a whole. However, even as someone who represents the City of London, I think there is a worrying over-dependence on the sector for the nation's economic well-being that makes some action over non-doms desirable.
As an inner-London MP, I have watched the influx of overseas money that has distorted house prices and the cost of middle-class living to the severe detriment of many indigenous Londoners. It is this group who feel that they are more than paying their way in collective taxation, yet at the same time are witnessing a marked diminution in the quality of their life. This unease is not a throwback to the politics of envy. Far from it; here is an aspirational, meritocratic group whose resentment is being stoked up by a perception of unfairness.
The debate on non-doms follows hot on the heels of that on the preferential tax rates enjoyed by those working in private equity. It is essentially a middle-class revolt over the unequal rewards to labour in the globalised economy. To their surprise, many highly educated professionals working outside the gilded corridors of the financial services sphere see themselves losing out as the world becomes more integrated and interdependent. The perception that the benefits of globalisation are not being spread either equitably or fairly is fast taking hold among an articulate group in our society who in the past instinctively would have regarded themselves as winners in the lottery of life.
The financial services sector is increasingly regarded by a sceptical and bemused general publicI do not necessarily agree with the sentiments, but they are the reality of what is happeningas a one-way bet to untold riches. Only last month, we learned that despite the effects of the credit crunch, overall City bonuses this year will top £7 billion. This is leading to enormous resentment not least from the middle classes, where the material expectations, particularly in London and the south-east, are becoming increasingly bleak. Indeed, the biggest concern I hear from middle-aged constituents is how, short of relying upon inheritance, their children can hope to match, let alone surpass, the standard of living they have taken for granted for decades gone by.
The prospect of non-doms being seen publicly to pay their way will help assuage many of these concerns without careering towards fully fledged protectionism, which would be totally undesirable. The City might be wise to seek some accommodation with the Government on this issue. But the concern of young workers and their ability to match their parents' standard of living also touches on another serious concern of mine, which I have raised in the past, not least at the last Budget. The dividing lines of 20th-century societyat least in the post-war erawere largely defined by class, but I believe that the first half of this century stands to be shaped by the battle between generations. The debt trail of this Government means that the young people of today, as well as those yet to be born, will foot the bill
for both the Governments private finance initiative-funded investments and the unfunded cost of pensions for older people. PFI might well have led to the construction of tremendous new hospitals in many constituencies throughout the country, but that will have to be paid for in the future; it is a case of jam today, and future generations of taxpayers will foot the bill. I worry that those future generations will have to lower their expectations significantly when the time comes for them to retire and benefit in the same way as previous generations from public pensions.
Members on both sides of the House are being neither open nor transparent about this important issue. It is contained in the category of ongoing borrowing requirements. The hon. Member for Wolverhampton, South-West (Rob Marris) referred to Groundhog Day. We entered the House on the same day seven years ago, and public borrowing is another issue to which the term groundhog day could be applied. Every Budget I have seen has referred to borrowing going back into the black in about four yearsand that is the case today, too. There has always been the idea that we are just a few years away from nirvana when everything will have corrected itself. The trouble is, however, that we have an ever larger borrowing requirement going forward.
We politicians are culpable in many respects. There are twice as many voters over 55 as there are under 35, and those voters are twice as likely to vote as younger voters. It is therefore perhaps unrealistic to expect anyone in the political arena to state certain bald facts on this matter. The reason many people well into pensionable age claim they receive so little from the state is that they have failed to pay anything like enough into the system to warrant their receiving what they now believe they are entitled to. Furthermore, the appetite in recent years has been for greater investment in public services, rather than tax cuts.
In reality, too much of this much-vaunted investment in the public sector has not been wholly paid for by the Treasurys current revenue. The Government have in truth been using the mechanism of the private finance initiativenow the public-private partnershipas a form of disguised borrowing with repayment postponed for up to 30 years, removing from the public balance sheet some of the capital costs of Government projects. Admittedly, some £30 billion of the capital value of PFI projects has been included on the current balance sheet, but that leaves more than £120 billion of public sector debt currently unaccounted for. That calculation takes no account, of course, of Northern Rock, much of which is likely to remain under state control well into the next decade.
I fear that this off-balance-sheet financing delays some of the tough decisions that need to be made about the future of public spending, and impedes the debate we must now have about how to manage public services not only in the years ahead, but for decades to come. One of the more depressing prospects in the years ahead is that my 40-something generation will be considered to have lived in the very best of times. We are all consuming what we believe we are entitled to, without much regard to the costs, and we run the risk of serious social unrest in the decades ahead as the evidence of this appalling generational pyramid sales scam becomes evident. It is not right that our young
peopleand many unborn who will have the benefit of British citizenshipwill have to meet the liabilities for our short-sighted, selfish approach. I regret that we have not even begun to address some of these issues in todays safe-pair-of-hands, careful-as-it-goes Budget.
Mr. Austin Mitchell (Great Grimsby) (Lab): My right hon. Friend the Chancellor should be congratulated on a solid, sensible, workmanlike and utterly unexciting Budget, which was exactly what we wanted from him. We should warmly welcome what he has done for children and for education. Had I been Chancellorin a parallel, happy landI would have splashed out more as I am a generous Yorkshireman, not an ungenerous Scot. I would certainly have agreed with the points made by my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) on the tax on strong cider. That retails for about £1.70 a litre in GrimsbyI should know, because I drink a lot of itand threpence a bottle on that will make no difference at all.
The highlight and most interesting part of the Budget was its reception by the Opposition parties. The Conservatives, who have demanded tax cuts and opposed youth training expenditure and much of the expenditure on education for years, suddenly started saying that we should have put aside a nest egg to face a difficult future. They started telling us that we should have built a roof, but they did not tell us exactly what kind of roof. The speech made from the Conservative Front Bench was frankly vacuous, rendered better only by the contrast with the speech made by the leader of the Liberal Democrats, which it was even worse.
The Liberal Democrats have the advantage of retrospective infallibility. The essence of their argument was that what Labour had done was wrong, but what we have taken up from the Liberal Democrats was right and good. They have taken up and discarded a range of ideas in their lifetime, so we are bound eventually to stumble on something that they have advocated some years back. Thank heavens the right hon. Member for Sheffield, Hallam (Mr. Clegg) did not mention the euro and the benefits it would have brought us had we joined.
The hallmark of the speeches by both Front-Bench spokesmen for the Opposition parties was that one can turn abuse into an economic strategy. That is the essence of what was being said. Interestingly, those who have done best out of our Labour Governmentthe wealthy, the City, finance and the richare now the most critical and most demanding of change from our Labour Government.
I thought it was ill advised of my right hon. Friend the Secretary of State for Business, Enterprise and Regulatory Reform to sign the praisesthe Mandelson songof the virtues of wealth and high earnings, because I would certainly complain about obscene wealth. The demand made of wealth is that it fulfils its obligations to society, and it is not doing so on the necessary scale. The TUC booklet The Missing Billions tells us that £12.9 billion of personal tax and
£11.8 billion of corporate tax is not paid to the Treasury because of avoidance schemes. As a result, the burden of taxation presses more heavily on the rest of society, in particular on the personal taxpayers and the lower range of taxpayers.
Tax is now pressing too far down the scale in this country. It is ridiculous that people on the minimum wage are paying income taxthat is clearly wrong. We should make it one of our concerns to relieve the multitude who labour, as they used to be calledit is the multitude who struggle nowbecause income tax is pressing too heavily on them. That tax is coupled with the burden of increased food, fuel and utility prices and increased council tax, and those people need some relief from those burdens. We should either raise the limit at which tax comes in or double the personal allowances to give everybody some relief and some money to spend to boost demand.
We could pay for that next year by increasing the taxation on wealthon earnings of more than £100,000to 50 per cent. We could splash out more money by doubling the winter fuel allowance. We need to put money into peoples pockets to spend and thus boost demand, and we need to direct that money to the less well-off. Above all, we need a cut in interest rates. We have the highest interest rates in the world. Why? It is because we put finance in control of them. When we put the Bank of England in control, it meant that the interests of financehaving dear money and a high and stable exchange ratebecame dominant in our national policy. It would have been far more sensible to have had not just a single rubric for the Bank of England, to keep inflation to 2 per cent, but a second rubric, like the US Fed, to maximise employment too. The result is that I must praise what I call Bushnomicswhat they are doing in the United States, as opposed to what we are doing here. They have suffered from similar problems: the dollar is overvalued, although it is coming down, and they have a balance of payments deficit, as we do. Ours is slightly smaller, but it is now approaching 5 per cent. of GDP.
In that situation, the markets will bring both the dollar and the pound down. The Americans are welcoming that with benign neglect and letting the dollar fall, as they did in the 1980s and again in the 1990s, with beneficial effects on the exporting sector of the American economy. We should do the same, but the Bank of England will feel obliged to keep interest rates highit is already saying thatto stop any slide in the pound. The pound has been the main instrument for defeating inflation, by making imports cheap and compelling manufacturing to discipline itself and cut costs to stay competitive, so the result of the high pound policy is that we have lost more than 1 million jobs in manufacturing. We live by manufacturing, but it is now a much smaller part of the economy.
We may contrast that with the situation in Germany, where there have been far fewer labour-shedding cuts than here. German industry has reinvested, re-equipped and absorbed the skilled labour force from the east, and would have put itself in a very powerful position were it not shackled by the overvaluation of the euro. We need a powerful industrial base, and the Americans will get one as the dollar comes down because they have a much more powerful economy. Unfortunately, we have put all our eggs in the basket of finance.
Finance has flourished under this Government, and indeed under the previous Government, but it cannot provide the jobs. What are we to live on when the oil contribution finally fades away? Finance is the dominant part of our economy now, and it is inherently risky. It takes risks for profit; hence the sub-prime crisis, the special purpose vehicles and the liquidity crisis. Those are the risks implicit in having finance as the dominant sector of the economy.
The Labour party and the Labour Government need growth, because how can we improve the lot of the people except by increasing taxes, public spending and borrowing or by economic growth? Economic growth is the better, more straightforward way, but it is now threatened by contractionary tides both from outside and created in our economy. We are much exposed to those tides, which is why we needed a more expansionary Budget. It was disappointing in that respect. We need a touch of Keynes and a touch of Bushnomics.
We need lower interest rates and a more competitive exchange rate. The high pound is still strangling manufacturing, and we cannot have a revival of production unless producing in this country is made profitable through a competitive exchange rate and an increase in demand. We need to build more houses, and to power through the contractionary forces that are rising in the economy. We cannot rely on the current policies, particularly the high interest rates and the Bank of Englands uncompetitive exchange rate, to do that.
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