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The hon. Member for Taunton (Mr. Browne)—who has returned to the Chamber just in time to hear my next remarks—made an excellent speech. He described the Budget as a Budget with a hole, because the most important measures—the income tax changes—were not in it. He pointed to a lack of purpose or any sense of vision in the Budget, and he contrasted it with the Budgets and speeches of the big beasts who have occupied No. 11 in the past, comparing what they did with this Chancellor’s focus on the possibility of introducing a plastic bag tax at some time in the future. He described the Budget as a humiliation for the Chancellor—a series of micro-announcements that he was forced to make to pad out the allotted 50 minutes, with £1 million here and £1 million there. He also gave a highly entertaining, but completely inaccurate, list of supposed Conservative policies, and I am thinking of seeing whether we can book him as an after-dinner cabaret turn for a future Conservative party conference.
The right hon. Member for Darlington (Mr. Milburn) observed, with what might be described as classic understatement, that mid-term Budgets are never easy. He also described the Chancellor’s approach as calm, which is perhaps the friendly-fire version of the description of it as soporific by the hon. Member for Taunton. However, the right hon. Gentleman made a thoughtful speech, in which he focused on the need to support wealth creators—although when he did so, not all Opposition Members were quite sure that he was taking along with him on his journey the right hon. Member for Holborn and St. Pancras (Frank Dobson), who was sitting next to him. The right hon. Member for Darlington also confirmed candidly that the relationship between business and the Government had been sorely tested over the past six months, and he called for a renewed focus on social mobility, which certainly all Conservative Members would agree with. He pleaded with those on his Front Bench to ensure that the Government focus on being an empowering Government, rather than a controlling one. I am sure that the Secretary of State would be happy to accede to that, but I am not so sure whether the Prime Minister will have any truck with it.
My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) made an excellent speech, agreeing with the right hon. Member for Darlington, but he described the Budget as a mini-Budget that did not move us any nearer to achieving any of the laudable goals that the right hon. Gentleman aspired to. My right hon. and learned Friend also set out a critique of the complacency in the Chancellor’s analysis of the strengths of the UK economy. He also contrasted the rapid resolution at Bear Stearns over the past 72 hours with the prolonged agony of dithering indecision that we have been forced to ensure as the Chancellor faced the Northern Rock crisis. He left us with an enduring and charming cameo image of the Chancellor presenting his Budget as the boy stood on the burning deck whistling the tunes of his predecessor.
Sadly, the Chancellor is not here. He would probably be interested to hear the prediction made by the right hon. Member for Coatbridge, Chryston and Bellshill (Mr. Clarke) that we face a “winter of discontent” ahead. The Chairman of the Public Accounts Committee, my hon. Friend the Member for Gainsborough (Mr. Leigh), reminded the House that
efficiency savings are easy to predict but difficult to deliver, and pledged his Committee’s continued pursuit of auditable efficiency gains.
The prescription of the right hon. Member for Holborn and St. Pancras—more regulation—was predictable. He wanted that applied to banks, markets, credit and mortgages. He took us on a trip down memory lane, describing himself as old-fashioned old Labour—and coining an elegant new description of himself as “heritage Labour”. Perhaps he thinks he will be preserved for eternity under that label. All in all, it was a nostalgic performance, reminding not a few of us of his speech in last week’s Northern Rock debate.
The right hon. Member for Oldham, West and Royton (Mr. Meacher) made a wonderfully old Labour speech that made the right hon. Member for Holborn and St. Pancras look like a dangerous moderniser. He took us on a tour of Monaco, Liechtenstein and the Canary islands, and he suggested an easy remedy for the Government Front-Bench team. Parroting the TUC line, he told us that the Chancellor could easily collect £40 billion of avoided tax, and lambasted him for not doing so. He helpfully confirmed that, as we have argued, there has never been a time when the Treasury needed big benefits as much as it does now, and he attacked the Chancellor and his predecessor, the Prime Minister, for turning the City into a tax haven, assuring the House that the financial services sector and, as he put it, the so-called knowledge economy, could never replace manufacturing as the mainstay of the British economy.
The right hon. Gentleman very effectively headed off what I believe he thought was going to be an intervention by me by citing to aid his case Winston Churchill’s words as Chancellor of the Exchequer in 1929. I suspect that some of my hon. Friends heard the unmistakable sound of flapping white coats as we reached the end of the speech—but that is for them to say, not me.
My hon. Friend the Member for North Essex (Mr. Jenkin) had a high-level economic debate with the right hon. Member for Oldham, West and Royton, after which he spoke about the pernicious effect of the doubling of the 10p rate on some of the poorest pensioners in his constituency. He also pointed out that the Government were repeatedly warned of a coming credit crunch threatening an economy that is increasingly built on debt, both public and private. I apologise if time does not permit me to recall the contributions of all other hon. Members.
I welcome the Chancellor to his place. When the present Prime Minister was Chancellor, he was fond of recounting an old Treasury adage that there are only two types of Chancellor—those who fail and those who get out early enough. He has gone, and the jury is out as to whether he got out early enough. So last Wednesday, it was this Chancellor who had to stand up to admit that at the end of a decade and a half of economic growth, his cupboard was bare, and he had no room for fiscal manoeuvre at a time when our competitors are responding to the economic slow-down by reducing taxes and boosting spending in a classic counter-cyclical response.
It was the Prime Minister who was responsible for the mismanagement of the economy that left the Chancellor with that empty cupboard. The Prime Minister was
responsible for the piling up of public debt through the good years while our neighbours and competitors were fixing the roof while the sun shone, paying down debt and reducing deficits—some of them even set aside something for more difficult times to come.
Back in 1995, the Prime Minister wrote:
“Nobody should doubt my iron resolve for stability and fiscal prudence”.
Yet it is thanks to his policies that while Ireland and Australia have paid off all their net public debt, and a third of OECD countries are entering the downturn with a fiscal surplus, Britain has the highest fiscal deficit of any country in the world bar Egypt, Pakistan and Hungary, and the highest peacetime non-North sea tax burden.
There is therefore no room for manoeuvre. As a result, when the cost of regulation is rising and the corporation tax rate has gone from being the third most competitive in the EU to the 17th, the Chancellor is imposing an 80 per cent. tax increase on business gains. At a time when his own figures show that business investment is set to fall by two thirds, this Chancellor slaps a tax on it. When families are reeling from the effect of two years of falling real average earnings, rising mortgage costs and soaring prices, they are being hit with a total of £2.8 billion of additional tax burden in this year’s Budget, on top of the impact of the doubling of the 10p rate bequeathed to the Chancellor from the Prime Minister’s last Budget. Taken with all the other income tax changes announced in the Budget, and even after the tax credit changes, that will leave 5.3 million low-income British households worse off and, as the right hon. Member for North Tyneside (Mr. Byers) pointed out in the debate last week, will also drag another 145,000 people into marginal tax and benefit withdrawal rates in excess of 60 per cent.
Stability, I have to tell the Chancellor, is not only about sound fiscal policy. Stability is also about fostering balanced economic growth. One big problem that we face as we enter this economic slow-down is that our economy is seriously unbalanced, and consequently extremely vulnerable, because of an over-reliance since the beginning of the new century on three key drivers that have delivered between them effectively all of the net economic growth over the past few years. We have had rising public spending financed on the back of mounting fiscal deficits; a soaring housing market that has in turn underpinned a surge in borrowing and fuelled an unsustainable consumer spending boom, on the back of the £1.4 trillion of personal debt that has been piled up; and the dramatic growth of the financial services sector on the back of innovative new financial products.
The Prime Minister could see—and I suspect has been able to see for some time—that the party would have to come to an end. That is why he was so desperate to move next door at the earliest possible date. He will not have foreseen the scale of the credit crunch, leading to the collapse of mighty financial institutions and bringing the boom in financial services to a shuddering halt. But he will have well understood that the debt-fuelled spending boom of British consumers on the back of spiralling house prices had to come to an end. And he knew, too, that his “blank cheque” approach to public spending could not endure,
as the current comprehensive spending review demonstrates, with a halving of the growth rate of public sector spending next year.
So Britain enters this period of economic slow-down uniquely vulnerable, with all of the principal drivers of economic growth slowing and the public finances in disarray. Last October, the Chancellor revised upwards his projection of how much he would need to borrow in the coming year to £36 billion, and last week he admitted that in the space of just five months, his estimate had risen by another £7 billion. Even that is almost certainly an underestimate. As my right hon. and learned Friend the Member for Rushcliffe reminded us, for seven years the Government have predicted that the public finances would move into surplus two years hence. Every year, that two years is put off by another year, so like the carrot on the stick dangling in front of the donkey, it is always tantalisingly in the future.
When the Chancellor says that Britain is well prepared for tougher economic conditions ahead because inflation is low, our constituents will wonder what planet he lives on. Does he ever go into a supermarket or fill up a car with petrol? Does someone else write the cheques for his gas and electricity bills? Because in the real world that the rest of us inhabit, inflation is not low and stable; the cost of living is soaring. Bread is up 15 per cent. in a year, eggs 30 per cent., petrol 20 per cent., mortgage interest 12 per cent., butter 36 per cent., and gas and electricity up by double digits in the single month of February—and that is all before the Budget. Of course, the Government are not responsible for the world economic slow-down or the acceleration in global inflation. No one is claiming that they are, although they were quick enough to claim credit when benign world economic conditions delivered steady growth and low inflation powered by the expansion of far-eastern economies over the past decade.
The Chancellor’s predecessor, the Prime Minister, is responsible for the woeful lack of preparedness of the British economy after a decade and a half of economic growth. He inherited a strong economy from my right hon. and learned Friend the Member for Rushcliffe, and his stewardship of it coincided with 10 years of sustained low-inflation world growth. Instead of leaving the economy lean and mean, the Prime Minister bequeathed the Chancellor nothing in the cupboard. There is no legacy from the 15 years of economic growth and nothing put by for the rainy day that threatens. The Prime Minister, as Chancellor, did not fix public services, close the skills gap or the productivity gap, or fix the welfare system.
If the backdrop to the Budget looked gloomy last Wednesday, it has darkened significantly over the past 72 hours. There are those outside who thought that the Chancellor’s downgrade of his economic growth forecast looked optimistic last week. Today they will be thinking that it looks like dangerous complacency.
I want to put a specific proposal to the Chief Secretary. In normal times, the Treasury, rightly in our view, sticks to the mantra that it makes forecasts of economic growth and fiscal projections only twice a year, in the pre-Budget report and the Budget. Given the scale and speed of the events that are developing around us, and the size of the change in the
Chancellor’s estimate of the fiscal problem he faces, which he announced last Wednesday, will the Chief Secretary consult the Chancellor and see whether she can assure the House tonight that if the Treasury’s internal modelling significantly downgrades his estimate of economic growth, or upgrades his expectation of public sector borrowing, between now and the PBR in November, he will make an interim statement to the House so that Parliament is not kept in the dark on those most crucial issues for the best part of nine months?
Let me turn to the measures in the Budget that the Chancellor delivered. Most have already been well-debated. I detected a familiar pattern. As in previous years, after the Chancellor sat down the facts caught up with the rhetoric and the Budget unravelled. As many of my hon. Friends pointed out, the new tax on gas-guzzling cars, which was painted as an environmental measure, turns out to be a tax increase on seven out of 10 cars on the road—just another burden on hard-pressed families. It is a stealth tax, not a green tax, and there is a bigger percentage increase in the tax on a Nissan Micra than in the tax on a six-litre Hummer.
The pre-Budget spin of a fiscal assault on binge drinking turned out not to be a precision weapon aimed at problem drinking but a carpet-bombing of ordinary moderate drinkers. The tax rises that we heard about, it seems, are permanent, yet the increase in the winter fuel payment is for one year only, echoing the one-year pre-election council tax bonus paid to pensioners in 2005. The education spending announcements came with no new money. The rhetorical commitment to extra money for our fighting troops in Iraq and Afghanistan turned out to be a mere accountant’s note, transferring money that is already spent from the contingency reserve to the defence budget. The rest was a rehash of the Chancellor’s predecessor’s Budget announcement and the flotsam that survived the storm provoked by the PBR with a climbdown on non-dom tax, a U-turn on capital gains tax on business and a merciful postponement of the income shifting proposals. The only things that survived intact were the watered-down Conservative policies on inheritance tax and air passenger duty.
For 10 years, the Prime Minister has traded on a carefully cultivated reputation for having delivered economic stability that was actually the product of a benign world economy. But now that the world economy is slowing and inflationary pressure gathering, his chickens are coming home to roost. The public have spotted his squandering of the legacy that he inherited, and how he has wasted the window of opportunity presented by the decade of Chinese-fuelled, low-inflation world growth. Instead of preparing Britain for the future, as other countries have prepared themselves, instead of turning it into the lean, skilled, competitive and productive economy of his early rhetoric, the Prime Minister blew the lot, and some more.
Last Wednesday, we witnessed the miserable spectacle of the Prime Minister’s successor as Chancellor being left to pick up the pieces as we enter this economic slow-down less prepared and fit, and more vulnerable, than almost any other country in the developed world. That is Labour’s economic legacy for Britain. We are left steering into stormy economic waters, with a deficit that makes Italy look positively parsimonious and a
Chancellor who has been forced to increase taxes when all his counterparts around the world are lowering theirs.
This is a bad Budget for Britain. It burdens millions of hard-pressed families and businesses just as the economy is slowing. It is a Budget that has been dictated not by economic logic but by fiscal necessity. The words and figures of the Red Book projections set out for all to see the economic incompetence of this Government and this Prime Minister in failing to prepare Britain for the challenges ahead.
9.41 pm
The Chief Secretary to the Treasury (Yvette Cooper): We have had a good debate, with generally thoughtful contributions from Members in all parties. I congratulate the hon. Member for Taunton (Mr. Browne) on his speech, and I agree with the hon. Member for Runnymede and Weybridge (Mr. Hammond)—for possibly the only time—that it was probably the most entertaining one to be made today.
I listened carefully to the speech made by the hon. Member for Rutland and Melton (Alan Duncan), who had much to complain about. I listened really hard, but I did not hear him put forward a single alternative policy, or even defend his party’s tax plans. However, that may be because the hon. Gentleman—like me and, I suspect, like the shadow Chancellor—is struggling to keep up with what those plans are.
The right hon. and learned Member for Rushcliffe (Mr. Clarke) made some substantive points, and I shall respond to them in due course. In his indomitable style, he lamented what he described as the “puritan” spirit that he said was pervading both public and media. Interestingly, he also called for an end to any pre-Budget consultation and said that measures should be announced and implemented straight away, with none of what I am sure he would call “fashionable” consultation.
My hon. Friend the Member for Selby (Mr. Grogan) made some important points about alcohol and fuel prices. My right hon. Friend the Member for Coatbridge, Chryston and Bellshill (Mr. Clarke) and my hon. Friend the Member for Blaydon (Mr. Anderson) also raised their concern about the impact of rising world energy prices on fuel bills. They welcomed this year’s introduction of the additional winter fuel payments for pensioners, but they also made some important points about the energy companies.
In respect of the matters raised by my hon. Friend the Member for Selby, I can tell the House that we have made it clear that we expect energy companies to reduce the differential between prepayment meters and standard tariffs and that we will use Government powers if they do not do so. We also expect them to do more on the social tariff. It is worth about £50 million at the moment, but we believe that it should be closer to £150 million. In addition, I can tell my hon. Friend that, if necessary, we will legislate to underpin the tariff.
My right hon. Friend the Member for Darlington (Mr. Milburn) articulated the importance of global markets, describing both the immense economic opportunities that they offer and the considerable risks that they can pose. He also made clear why it is so important that we work with countries across the world
to get greater transparency about the risks involved in global markets so that we can respond to some of the challenges that we face.
The hon. Member for Gainsborough (Mr. Leigh) questioned the proposed efficiency savings. However, I can tell him that the Government have made £20 billion in savings already as a result of a previous comprehensive spending review, and that there have also been tangible net reductions of nearly 80,000 in the civil service work force. That has enabled resources to be redirected to improving services instead.
My right hon. Friends the Members for Holborn and St. Pancras (Frank Dobson) and for Oldham, West and Royton (Mr. Meacher) raised concerns about the impact of decisions in the City on the real economy. The hon. Members for North Essex (Mr. Jenkin) and for Hertford and Stortford (Mr. Prisk) merely complained about pretty much everything the Government have ever done. As my right hon. Friend the Secretary of State for Business, Enterprise and Regulatory Reform pointed out in response to their concerns, there has already been a significant increase in small and medium-sized enterprises since 1997 and the Budget sets out more help to support them in future.
Mr. Prisk: The Secretary of State could not answer my question, but perhaps the Chief Secretary can: if small businesses are so important to the Government, why are the Government increasing taxes on them by £1,000 million over the coming year? In a downturn, what is the economic logic for that?
Yvette Cooper: As Members are aware, we have set out long-term reductions in the tax burden through corporation tax. It is right that there should not be incentives for people to avoid tax and it is right, too, that we should support SMEs, for example through additional work in the public sector, through procurement. The consequences of our decisions are a big and significant increase in the number of SMEs, with a strong boost to enterprise as a result.
As my hon. Friend the Member for Wrexham (Ian Lucas) pointed out in his contribution, businesses have moved to Wrexham, where the result has been economic growth. I pay tribute to him and his constituent, Mrs. Harrison, for their campaign on the child benefit disregard, which alone will help more than 150,000 children out of poverty as well as improving work incentives.
Mr. Jenkin: Can the right hon. Lady explain what effect abolition of the 10 per cent. tax rate will have on the households that pay it? If the rate goes up to 20 per cent. does it not amount to a very large tax increase indeed?
Yvette Cooper: As Members are aware, our changes to the personal tax package, which comes in this year, include reduction of the basic rate to its lowest for 75 years. In addition, we have introduced the national minimum wage, which has raised the wages of people on low incomes, and the tax credit system, which has provided important support. Four in 10 families make no net tax contributions at all as a result of the reforms we have made to help people out of poverty and to become better off.
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