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7.35 pm
Mr. Bernard Jenkin (North Essex) (Con): It is not an unalloyed pleasure to follow the right hon. Member for Oldham, West and Royton (Mr. Meacher), although it does present me with an opportunity to thank him for sponsoring my private Member’s Bill to deal with the problem of fly-tipping, which was introduced under the ten-minute rule. I fear that his speech was a return to the fantasy land of 1970s extreme socialism, when Anthony Wedgwood Benn used to say, “The Government should grab the pension funds from the City and invest them in industry,” as if those vast pension funds were somehow the plaything of the rich.
The right hon. Gentleman truly misunderstands the mobility of modern capital and of individuals in the global economy. He talks about billions of pounds being raised by dealing with tax avoidance, but those billions of pounds will simply disappear from the UK’s jurisdiction. I do not apologise for one moment for the fact that we have made London and the United Kingdom a tax haven for a great many rich people, who come here and pay modest taxes in this country instead of higher taxes elsewhere. Hundreds—if not thousands, or tens of thousands—of individuals bring their talent and wealth to London and this country not just because it is a great country to live in, but because it is worth their while financially to do so. We will be casting them out.
It must be placed on the record that the mooted alterations to the status of the so-called non-doms have already done great damage to the UK’s reputation for stable tax policy. Stable tax policy—predictability in terms of the tax burden—is vital for businessmen to be able to plan and invest for the long term. If the right hon. Gentleman’s proposed amendment were to pass, he would effectively be creating probably the most unstable tax regime in the whole of the OECD, which would be guaranteed to drive a lot of inward investment and talent away from the UK, at great cost to the Exchequer. We should have learned over the past 10, 15 or 20 years that lower tax rates in fact yield higher tax revenues, and a benign tax regime is good for economic growth, for tax revenues and for the very public services that he and I both believe in.
Mr. Meacher: The hon. Gentleman has just repeated the theory of the Arthur Laffer curve, for which there is not the slightest supporting evidence. On non-doms, is he aware that the Treasury has estimated that of the 120,000 persons with that tax status probably only about 3,000 would seriously think about leaving? Moreover, how far is it justified to build the wealth of a country on the extreme wealth of a tiny number of people, at the expense of manufacturing industry and the general prosperity of the rest of the country, and of poorer people who have to pay far more in order to compensate?
Mr. Jenkin: The right hon. Gentleman made three points in what was a rather long intervention, and I shall try to deal with all of them. First, it is impossible for the Treasury or anyone to predict how tax changes—on the non-doms, for example—will affect people’s behaviour. Tax changes very often create unintended consequences, which, had we understood at the time, might have changed our view of the changes. Treasury officials and Ministers tend to take a rosy view of how much revenue tax changes will yield. They rarely underestimate how much extra tax revenue will be gained by a tax increase, but there is a tendency to underestimate by how much tax revenues will rise when we cut taxes.
That brings me to the right hon. Gentleman’s second point—we will just have to disagree about the Laffer curve. It is an extremely logical and provable relationship that lower tax rates increase economic growth and tax revenues. His final argument about there being a trade-off between a low tax regime that attracts talent from around the world and manufacturing is completely fallacious. The fact that the UK is responsible for 90 per cent. of the currency and bond trading in the European Union although we are outside the euro, and that the Sarbanes-Oxley Act has resulted in our attracting much of the equities and derivatives trading to London seems to pass him by. The idea that if we clobbered the City, closed it down as the world’s premier financial centre and drove all that offshore, there would then be an instant revival in traditional manufacturing is fantasy—it bears no relation to the real world in which we live.
Mr. Jeremy Browne: This is an interesting ideological discussion. Does the hon. Gentleman share my dismay that in the whole of his 20-minute speech, the right hon. Member for Oldham, West and Royton (Mr. Meacher) concentrated all his attention on a relatively small number of people earning a large amount of money and said precisely nothing about the millions of people in this country on very low earnings who are paying marginal rates of income tax of about 70p in the pound?
Mr. Jenkin:
I would like to pick up on a point made about the abolition of the 10 per cent rate. Only last week, my surgery received a visit from a pensioner couple who could not understand how they have been caught by a grievously punishing tax increase. The lady is a non-taxpayer on a modest pension; the gentleman did pay 10 per cent. tax but will now pay 20 per cent. tax, and there is nothing that they can do about it. It is monstrous for this Government to claim that they are eradicating poverty when they treat categories of
pensioner in that way. I hope that the Chief Secretary to the Treasury will take heed of the point that the hon. Member for Taunton (Mr. Browne) and I have made in this debate and respond to it, because I cannot for the life of me see how that policy can be greeted as fair.
The main burden of my comments centres on whether the Government are properly prepared for the economic downturn. I listened to the comments made by the right hon. Member for Oldham, West and Royton, and I should like to make a correction: no one is blaming this Government for the sub-prime crisis in the United States—I am happy to put that on the record and I am sure that my Conservative colleagues would assent to that. We cannot pin that one on the Government. What we can point out, however, is that over the years people have warned about a forthcoming credit crunch. For example, in evidence to the House of Lords Select Committee on Economic Affairs on 7 November 2006, Professor Tim Congdon said that
“the current high rate of money growth is largely responsible for the buoyancy of asset prices and mini-boom conditions in the UK’s service industries...asset price weakness, including falls in house prices, is a probable feature of the adjustment to slower money and demand growth in late 2007 and 2008.”
He did not foresee a credit crisis, but he certainly foresaw a correction that would be reflected in falling asset prices or lower growth in those prices.
An even earlier piece of evidence, published in 2005, was a book entitled “Crunch Time for Credit?”, by Edward Chancellor, the financial historian. That book noted:
“The credit bubble that has developed in the UK and US economies over recent years is unsustainable and has ‘badly corrupted’ the economies of the two countries, with potentially serious destabilising results, says a major new study of the economic and investment implications of the build-up of debt in the two countries.”
The book refers to the great depression of the 1930s and the recent experience in Japan and Korea as examples of what could be happening in the United States and the United Kingdom. He wrote:
“The growth of credit has created an illusory prosperity”.
The Government have to take their responsibility for that. He continued:
“It may well end in either an extraordinary deflation...or an extraordinary inflation.”
When discussing the UK economy in particular, he said:
“The UK economy has become ‘increasingly vulnerable’ to a credit crunch”.
So this particular crisis did not come out of the blue as a bit of bad weather. Anybody who knows anything about economics knows that straight lines do not continue for ever.
The hon. Member for Dundee, East (Stewart Hosie), who was briefly in his place on behalf of the Scottish nationalists, discussed the words used in the voluminous book that we still call the Red Book although it has been disguised as a sort of pamphlet that puts the argument for all the Government’s polices. It contains pictures of schoolchildren, a dear old lady, somebody building a house, somebody recycling their rubbish and somebody carrying a bicycle, but it is meant to be a serious document.
Budgets have become increasingly unintelligible; they talk about, “Sustainable growth and prosperity” but it is difficult to find a Government table illustrating debt, borrowing and spending, given the chapter heading:
“Fairness and opportunity for all”.
I wish we would get back to more intelligible Budget documentation. Nowhere does the book refer to the end of boom and bust, which is what we were promised. No matter how many times the Prime Minister promised an end to boom and bust when he was Chancellor of the Exchequer, any sensible person knew that no Government could promise that. Thus, in the good times one is meant to prepare for the bad times. One thought that that was what the golden rule was all about—it was meant to be about building up the capital in the good times so that we could weather the bad times, but that did not happen.
What has happened over the past 10 years is that the Government have substantially increased public expenditure. It has risen from 37 to 42 per cent. of gross domestic product, which is a 40 per cent. real terms increase over seven years and has the effect of overcalculating GDP. A useful table produced by Reform shows that GDP is inflated by about 7 per cent. merely by increasing public expenditure.
As the right hon. Member for Holborn and St. Pancras (Frank Dobson) said, nurses and doctors create wealth too. If more money is spent on nurses, doctors and teachers, that contributes to the GDP. Unfortunately, the large increases given to health and education over the years have not produced the commensurate increase in output and productivity—in fact, productivity in the health service has collapsed. That is one of the reasons why some of us prefer the private sector over the public sector when it comes to deciding how to modernise public services. Interestingly, even this Government are importing all kinds — [Interruption.] The Chief Secretary is looking suspicious, but she might ask herself why treatment centres are to be run by private companies. She supports bringing the private sector into the health service, and that is one of the policies that we will need to examine.
Peter Bottomley (Worthing, West) (Con): My hon. Friend is referring to the growth of public spending. I hope that he will remind the House that we must wait until the last two pages of the Red Book—pages 203 and 204—before we discover table C14, on the historical series of public sector balances, receipts and debt, and table C15, on the historical series of Government expenditure. It is all laid out, but, surprisingly, Ministers did not include it earlier in the book.
Mr. Jenkin: Those tables used to be what Budgets were about; now they are about all the rhetoric and guff at the front. One must wait two or three days before the real truth of the Chancellor’s Budget emerges. I do not intend to waste any more time anatomising the Chancellor’s Budget statement.
The big increases in public spending have not produced the transformation of public services for which many had hoped. They have produced a rising tax burden—I understand that we are talking about an extra £1,250 per person in this country over a 10-year
period. Of course, taxation has lagged behind the increase in spending. Taxation has only grown from 35 per cent. to 37.5 per cent. of GDP, which means that we have moved from a fiscal surplus of 1.7 per cent. at the beginning of the period to a fiscal deficit of 2.7 per cent. That is at a time when we should have been paying off our public debt, not increasing it. When we compare those figures to other countries, we see that Australia’s 3.7 per cent. deficit during that growth period is now a surplus of 1.3 per cent. In New Zealand a 0.2 per cent. deficit in 1999 is now a 3.3 per cent. surplus. Whereas other countries have been building up their funds for the inevitable correction in the markets that takes place after any period of sustained economic growth, our Government have been storing up economic problems for the future, so that we are in the worst position to deal with whatever crisis the international markets throw at us.
It is worth pointing out that the increase in taxation and spending, and the lost productivity that tends to happen in the private sector, has led to a consistent overestimate of tax revenues. In each of the last seven years, as the Taxpayers’ Alliance demonstrates, tax revenues have come in substantially below forecast and Government spending has overshot. The Government have shown very little discipline with public spending, even overshooting their own forecasts. Substantial increases in spending of 4.3 per cent. per annum on average over 10 years have outstripped economic growth. Consequently, the debt to GDP ratio has risen from 30 per cent. to 37 per cent.
Now we have the credit crunch, which was entirely predictable. The Library has kindly provided me with figures for household debt in relation to GDP for the US and the UK. In the US, where the sub-prime mortgage crisis has occurred and triggered everything else, household debt was 66 per cent. of GDP in 2005 and rose to just under 100 per cent. of GDP in 2006. It has continued to worsen in the last two years so that it is now more than 100 per cent. geared to GDP. We keep hearing how irresponsible the US financial system is, but precisely the same has happened in the UK. It is an extraordinary coincidence, but in 1995 household debt was 66 per cent. of GDP and in 2006 it had gone up to £1.3 trillion, equivalent to 100 per cent. of GDP. It has continued to get worse and the Government have done nothing about it. They are responsible for monetary policy through the Bank of England, and it is no good disclaiming responsibility for it.
Monetary growth has fed the credit boom, and excessive monetary growth will now suffer from the correction. There are only three ways to deal with accumulated debt. The Government can inflate their way out of the debt, so that everybody’s debt is devalued by inflation. People can work to pay their debt off, but the markets have decided that there is so much debt out there that defaults are likely. It is not surprising that we now have a crisis in the banking system. Of course, I share the cynicism of some Labour Members about why some of those people in those institutions make those decisions. I should declare an interest in that I used to work in the City in the venture capital markets, but the responsibility of investors is to make good and sound investment decisions and to walk away from the deal when it becomes too expensive. Markets behave like herds in
such instances, and it is the responsibility of the Government and the regulators to ensure that such excesses do not occur.
What should the Budget have been about? It should have been about stability. We heard the word “stability”, but it was an invocation with remarkably little power behind it. Public expenditure will be on a tighter rein in future years, but it will only stabilise at around 42 per cent. of GDP, which displays a continuing upward trend. That is assuming that economic growth and tax revenues match the Government’s anticipated figures, which is unlikely. It also assumes that we meet the tighter spending targets, also unlikely under this Government.
The Budget has put off the fiscal responsibility that is required to stabilise our public finances. The national debt will continue to rise. The Budget has not been about addressing the economic crisis or competitiveness: it has been about increasing taxation on ordinary people in this country. It has been about hoping that something will come up between now and the next election to bail out the Government and prevent them from having to face the consequences of being a tax and spend Government, as all Labour Governments turn out to be. The Government have squandered the economic inheritance that they received from the Conservatives; failed to reform the public services as many sincerely hoped that they would do; and failed the British people.
7.56 pm
Mr. David Anderson (Blaydon) (Lab): Several hon. Members have spoken about the technicalities of the Budget, but I want to talk about the impact it will have on people and how we can address some of the problems facing those who will feel the impact of the decisions that will be made by the House tonight.
I welcome some aspects of the Budget. First and foremost, as a former apprentice mechanic, I was pleased to hear that we will continue to support the development of apprenticeships, which should be welcomed by every hon. Member as a way to address the problems of our young people and provide them with better and different types of education. The lowest number of apprenticeships ever was 25,000 in 1992. Many of the industries that many of us had grown up with had been destroyed, and there was no one to provide apprenticeships. Thankfully, that has been turned round.
We have also done well in supporting 250,000 children who have been taken out of poverty, although there is clearly much more to do. I also want to focus on pensioners. It is noticeable that Age Concern and other groups have welcomed the fact that 600,000 pensioners will no longer pay tax, through the changes made last year, and the increase of the minimum income guarantee to £124. The positive moves on the heating allowance are also welcome, but they would have been a bit more positive if they had been made last year—2006-07—when some of us were arguing for a £100 increase in the heating allowance for people aged over 60. It is a shame that that has not been followed through this year.
The biggest impact on pensioners, especially those aged between 60 and 64, will be the removal of the 10p tax band. That is the one issue that pensioners and
low-paid workers raise with me, and we must address it in the coming months and years. The £50 on the heating allowance for those aged between 60 and 64 will be more than eaten up, because they will pay at least £2 a week more in tax, according to letters I have received from the Treasury. They will get £50 in one hand and have £100 taken from the other. That is not the way to make progress.
I come back to the issue of the reinstatement of the link between earnings and pensions, which has been discussed before and forms part of the Pensions Bill. We must stop debating whether it will happen, and the time that it will happen should be brought forward, because by 2012 many people will be out of the loop as they will no longer be with us. The other aspect to that is that once the link is restored, it will not be enough to leave it at that, because 15 or 16 per cent. of the average salary in 2012 will be much less in 2020 in cash terms. Although the percentage might be the same, the National Pensioners Convention estimates that in 2012 the link will be worth 15 or 16 per cent. but that the gap will be about £500. Ten years beyond that, if there is not an uprating mechanism, the gap will be nearer to £1,000, and that is not acceptable. I have suggested to the Treasury that when the link is restored we should put in place a commission such as the one that monitors the national minimum wage, which would consider all the factors that impact on pensioners’ lives and say that we should uprate pensions above and beyond the current link.
Another positive move, which has not quite gone far enough, is the good news about smart meters. Smart meters are the way ahead for the energy companies, for the green agenda and to help people in this country save money. Reports out this weekend have estimated that, in the north-east alone, if every household had a smart meter put in it would save people £50 million and reduce carbon emissions by 300,000 tonnes. That could be replicated across the country, but we need some impetus. The small discussion in the Budget, although it is welcome, is not enough. We should have the same mental attitude as we had in the 1960s, when we converted every house with gas from ordinary gas to North sea gas. We did not let anything stand in our way. We should say to the utility companies, “If you want to carry on making money in this country, you must work with the Government and put in smart meters as a matter of urgency.” I suggest that the utility companies would be up for that; we should be up for it, too.
We must also do something about prepayment meters, because people are being robbed by them. I am glad that the Budget has made moves in that direction, but an Energywatch report this year showed that people were being charged up to £300 more for the same amount of electricity as others simply because they cannot afford or have access to direct debits. That is out of order.
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