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“needs a new law or piece of regulation.”
He went on to say that to survive the credit crunch, we must change the rules. Which is it? Does he say that all is well, or does he think that there ought to be intervention of the sort mentioned earlier by my right hon. Friend the Chief Secretary?
Following that article, the hon. Member for Tatton made a speech at the Policy Exchange on 14 April attacking my right hon. Friend the Prime Minister, saying that his economic legacy had collapsed. He referred to the “three pillars” of my right hon. Friend’s economic policy collapsing. That would be a damning indictment if it were accepted by serious commentators in the economic field. When I heard the hon. Gentleman make his speech, I asked myself where this idea of three pillars collapsing came from. Lo and behold, the day before, Lord Lamont had also written an article, for The Daily Telegraph. No doubt the right hon. Member for Witney—who advised Lord Lamont at a particular time in the life of the previous Government—and the hon. Member for Tatton had got their heads together on the Policy Exchange speech, because Lord Lamont said in his piece of 13 April:
“Contrary to what the Government have been saying, the UK is not well positioned to withstand this crisis. Whether it be the rise in house prices, mortgage debt...or personal indebtedness”.
That is the line that many papers have run, probably for a month or more. If those were the facts, they would be quite worrying to my constituents.
I have set out how what the Opposition are saying is opportunistic and contradictory, but it is also wrong. The case made by Lord Lamont is simply wrong. Why do I say that? Ruth Lea, a well-respected economist, but no friend of the Labour party—she never has been and never will be—used to be the finance director for the Institute of Directors, and she contradicted Lord Lamont and the hon. Member for Tatton when she said, very recently, that the British economy was very well placed to withstand the credit crunch in terms of stability. She said that that was the case for three
reasons: low interest rates, in contradistinction to circumstances when other credit crunches caused severe recession, pain, negative equity and so on; low inflation; and high and improving levels of employment, a point made earlier by my hon. Friend the Member for Middlesbrough (Sir Stuart Bell)—we now have record employment. Those three factors were completely absent in 1991, 1992 and previous recessions.
As for other economic commentators, in case there were any doubt about whether the economy is in good shape to withstand the credit crunch, David Smith said last week in The Sunday Times:
“If you are in America, with barely any growth, or Italy, with today’s election being fought in an economy predicted to grow by only 0.3 per cent., things feel grim...As for Britain, the IMF’s forecast of 1.6 per cent. growth for this year and next is stronger than America, plainly, but also outstrips Germany, France, Italy and Japan.”
“It may not be a great prize to win, but over the next two years Britain will vie with Canada to be the strongest-growing economy in the G7.”
That does not fit the description of a country that is acutely vulnerable to the credit crisis.
David Smith’s final point shoots the fox that some newspapers and Opposition Members have been trailing for the past month or so. He comments on the circumstances of credit crunches and squeezes in the past, and analyses three or four previous examples. In summary, he says that, on each and every one of those occasions, the credit crunch lasted for a certain period and was then over, with the economy back on an even keel. He measured three previous credit squeezes as lasting between six and 18 months. He said that we are already seven months into the current credit squeeze, which began roughly in August last year, and, unless those previous historical circumstances—I am talking not about pre-history but about events in the 1990s, 1980s and 1970s—are completely different from our position now, he guesstimates that we will get through it very soon or a little later.
David Smith therefore says that there are two sets of circumstances. First, the economy is in good enough shape to withstand whatever the credit crunch throws at us, contrary to what Opposition Members argue. Secondly, even if we are more vulnerable, only some months are left, hopefully. [Interruption.] The hon. Member for Northampton, South laughs. Does he wish to intervene?
Mr. Binley: I would love to. I thank the hon. Gentleman but, with respect, “hopefully” is simply not good enough for the many people who are considering starting businesses, those who will make investment decisions about developing such businesses and those whom banks will tell that they cannot have the money to start a business. “Hopefully” is not good enough.
Stephen Hesford:
Of course it is uncomfortable, but a Lord Lamont-style rant, which talks down the situation for political gain and makes it appear worse, for political purposes, than it is, will not help. I exempted the hon. Gentleman from my opening remarks, because he has a genuine interest in the small businesses about which he spoke. However, it does not
help those small businesses to talk up the credit crunch or talk down the economy—the real economy. David Smith also says that some of the conversations about the credit crunch are divorced from the way in which the real economy works. The small businesses about which the hon. Member for Northampton, South speaks can prosper in and take succour from the stable economy, unbroken since before 1997. The business people whom he forcefully represents want that sort of climate and will prosper in it.
When considering the removal of the 10p tax rate, we must examine both the proposal itself and the global circumstances in which it is being discussed. Members of all parties refer to the Institute for Fiscal Studies. One of its leading economists said that there are basically three solutions and that, in simple terms, two are simply not affordable. The one that is left is to mitigate the effect on the so-called 5.3 million. The effect cannot be reversed, as the Opposition suggest, but mitigated. Labour Members have pointed out the problem with mitigation, but we have received no help from Opposition Members, who refuse to say what they would do instead. The problem is that several separate components of the electorate are differently affected by the removal of the 10p tax rate, so that mitigation for one sector might not assist another. The House must consider that seriously. My right hon. Friend and neighbour the Member for Birkenhead (Mr. Field) may table an amendment to try to address the mitigation aspect, but could fall into the trap of not dealing with the matter for every one of the 5.3 million. We should not, as the hon. Member for Tatton said about a different matter, rush to judgment.
What is to be done? My right hon. Friend the Chief Secretary said that the matter would be considered. The Treasury Committee suggested that that could be done in conjunction with it. That may well be a sensible option. However, the matter is much more complicated and serious for the people whom we are considering than we have explored with Opposition Members— unless the hon. Member for Fareham can tell us what he would do in place of removing the 10p tax rate.
8.28 pm
Stewart Hosie (Dundee, East) (SNP): I am pleased to follow the hon. Member for Wirral, West (Stephen Hesford), who provided a cheery, upbeat assessment of the economy. I would hate to hear him when he was miserable. However, let me get rid of the delusion that he presented—the denial in his speech and the making light of the credit crunch. The Chancellor told us earlier that he would give the banks £50 billion in Treasury bills in return, at least in part, for US credit card debt; there are tens of billions of Treasury bills in Northern Rock now; there will be £581 billion of cumulative deficit next year—that is in the Red Book, as is next year’s £43 billion of debt, and there will be £189 billion of private finance initiative liability, most of it off balance sheet. When the hon. Gentleman talks about the “real economy”, he should remember that we have lost a million manufacturing jobs since Labour came to power, and that there is an £87 billion balance of trade deficit in goods and £1.3 trillion of personal debt. We all want to talk up the economy, but let us do it on the basis of—he is a Labour Member and will understand—objective reality. His speech contained no reality.
On Budget day, I described the Chancellor’s speech as a speech from
“a Chancellor who had no room to manoeuvre.”—[ Official Report, 12 March 2008; Vol. 473, c. 345.]
The clearest indication that we have had of that limited room for manoeuvre is the detail in the Bill, which is another smash-and-grab raid. The Government will take £2 billion extra from business, including £200 million extra from business in Scotland, in the next three years. I will come to the detail of that, but there is also the abolition of the 10p rate. I do not want to claim credit for being the first person to notice that in last year’s Budget, but I should like to put it on the record that I mentioned it in my speech on Budget day.
The Finance Bill sees the Government scrambling around for every penny that they can get from business and people’s pockets to plug the holes in the books. I have outlined some of those holes to the hon. Gentleman and will return to them later. The Bill also takes its lead from policy decisions in the previous Budget and the pre-Budget report, which the CBI estimated would take some £5 billion from business, straight into the black hole of the Exchequer. That is the clearest indication that, after 10 years of relatively benign international conditions, relatively stable if unspectacular growth and reasonable inflation, there is nothing left in the tank. Debt levels are far too high and there is no cash reserve to allow the Government to do what is necessary to stimulate the economy when the downturn comes.
Ministers have said that there is stuff in the Budget and the Finance Bill for business, but where are the measures genuinely to increase investment in research and development? We know that such investment is relatively low in the UK, at about 1.8 per cent. of GDP, as I have said before. Our main competitors have a higher rate, and in Scotland the figure is very low indeed. The Government have done little in the Budget or the Finance Bill to assist R and D. Ministers may point to the small and medium-sized enterprise R and D tax credit increases, as well as the general R and D tax credit increases, from previous Budget measures. That will cost the Exchequer some £70 million this year, and that goes to business; however, that is taken away from business, in yield to the Exchequer, either by the changes to the integral fixtures capital allowances, which will bring in £70 million, or the first year of the phased abolition of the industrial buildings allowance, which brings in £75 million. There is therefore no net gain for business from doing the R and D that they want, and they will have to find the cash to pay for those outgoings.
By increasing taxes—the small companies rate of corporation tax in particular—and refusing to reconsider proposed changes to capital gains tax, the Government are taking more tax from business at a time when they are making it potentially more difficult to secure investment. I am certain that those measures will worsen the situation in manufacturing, which has seen 1 million jobs lost in the UK since 1997, including 100,000 lost in Scotland and 34,000 lost since 2002.
Making it more difficult to raise capital and increasing taxes for growing companies, particularly when they are struggling to meet spiralling energy,
transportation and raw material costs, will worsen the balance of trade problem. We are talking about an £87 billion deficit in our trade in goods and a £70 billion deficit in our overall balance of trade, which is up £10 billion from £77 billion in the past full year. That deficit affects our ability to grow GDP. Since 2000, we have seen a suppression of GDP of around 0.25 to 0.5 per cent. every year. That means that UK GDP has grown by £30 billion less than it would have, had trade been in balance, which equates to about £1,000 per household. That is another matter that should have been addressed in the Budget and the Finance Bill, but which has not been.
The Chief Secretary also argued that the Finance Bill was a Finance Bill for the environment—that was when she was actually talking about the Bill. I am not sure whether the Government are right about that. The Bill will defer the April rise in fuel duty until the autumn, which is to be welcomed, but from next year there will be a 1.84p per litre rise and a 0.5p per litre rise above indexation from 2010, as well as a swingeing new vehicle excise duty regime.
My hon. Friends and I have no objection to using price to discourage unnecessary journeys, to encourage public transport or to encourage freight off the roads, which everyone in the House agrees is sensible. However, many of the Government’s measures ignore the fact that so many journeys, of both people and freight, are wholly necessary and that in many areas there is often no alternative. With the Government already taking in excess of 60 per cent. of the price of a litre of fuel in duty and VAT, it remains outrageous that, when there is a windfall, particularly in VAT, and when there is spiking of prices at the pump, that money is not used to moderate the price of fuel.
I hope at some stage to be able to table amendments to the Bill to do a number of things. The first would be to introduce a fuel tax regulator, in order to use the VAT windfall, first to help generally, secondly to assist remote rural areas, and thirdly and most importantly —I hope that this will command support—to assist the road haulage industry, which is being hammered and is even contractually unable to pass on the fuel prices it is having to pay.
The second thing that I would like is for the Government to reconsider possible exemptions for working 4x4 vehicles from the new high rates of VED. The Chief Secretary said that growth is continuing, but at a much lower rate than previously forecast. The impact of the lower growth is that Government receipts are forecast to be down £1.2 billion from the pre-Budget report. That did not stop the Chancellor, like his predecessor, boasting about growth in the UK economy. However, it is worth reminding ourselves —particularly the hon. Member for Wirral, West, who believes that this is the best of all possible worlds—that average growth in the OECD has outshone that of the UK in half of the past 10 years and that low-tax economies such as Ireland’s have outshone the UK every year since Labour came to power.
As ever, the Chancellor, like his predecessors, ignored the quarterly downturns in the Scottish economy and the many low and flat growth quarters under the Government’s watch. Indeed, average growth in Scotland has been 30 per cent. lower than in the UK over the past 25 years, yet there was nothing in either the Budget or the Finance Bill to assist.
One of the few areas where the Budget indicated revenue growth was from the North sea. There was an increased tax yield from the North sea, which was based on an average price at the Budget of $83.60 a barrel of oil, which is an increase on the $68 a barrel forecast in the pre-Budget report. As I pointed out at the time, four out of the five closing prices for oil in the week running up to the Budget were record closing prices. The price on Budget day was $94 a barrel, but it has now smashed through the $100 a barrel price. It is worth noting that the Budget forecast £56 billion in revenues over the next six years, as compared with £38 billion over the previous six-year forecast. That massive windfall alone should act as an encouragement for the Government to consider how we might deploy some of the extra revenue generated for a fuel tax regulator, to help people in remote rural areas in particular and the road haulage industry.
Many Ministers and Government Back Benchers—the ones loyal to the Government, that is—have argued that the Finance Bill was a Bill for stability. Obviously the Budget was so dull and the Bill so appalling that the only watchword that they could come up with was “stability”. However, the Bill and the Budget will not provide stability. They are designed to do one thing: to fill the holes in the UK books. There was £37.6 billion of debt, with £43 billion forecast for next year. There was a cumulative debt of £541 billion last year, with a debt of £581 billion forecast this year. The PFI liability last year was £179 billion, with £189 billion of PFI liability this year, for—from memory—only £60 billion of capital projects. That is why our First Minister, my right hon. Friend the Member for Banff and Buchan (Mr. Salmond), described PFI as hyper-expensive and a hyper-waste of money. We need to do something about that, and very quickly.
Michael Jabez Foster (Hastings and Rye) (Lab): The hon. Gentleman may or may not be right about the current level of borrowing. He has already listed a number of ways in which the Government could spend more or collect less. However, he has not set out how they could spend less in order to balance the books more accurately. What are the cuts that he would suggest in order to achieve the balance that he seeks?
Stewart Hosie: May I remind the hon. Gentleman, who has only just come into the Chamber, that the cumulative debt has been built up not by the Scottish National party, the Conservative party, the Liberal party, the Social Democratic and Labour party, the Ulster Unionist party or the Democratic Unionist party? It has been built up, over a decade, almost exclusively by the British Labour party. I say to the hon. Gentleman with the greatest of respect that we are picking holes in the Finance Bill and finding the things that will not work, and it is for Ministers and for the Government to find solutions to the problems that they have created. [Hon. Members: “Answer!”] There is absolutely no point in their making a meal of things, then expecting someone else to sweep up the rubbish.
In regard to business, it is interesting that the Government have failed to listen—not to me or to the Tories but to the people on the outside. They have failed to listen to the British Chambers of Commerce on scrapping the plans to raise the small companies
rate; they have not done that. They could also have looked again at the plans on capital gains tax, but they have not done so. The Finance Bill will take more money from business. Ministers will say that the baseline capital gains tax rate has been reduced, and that is absolutely correct. That will save business about £5.5 billion. However, almost every penny of that will be clawed back by the changes to general plant and machinery capital allowances. Indeed, this year and next year, the changes to those allowances will outstrip the benefit of the 2p reduction in the basic rate of corporation tax. Businesses will gain no net benefit by investing in their business or their people or, most importantly at this time, by absorbing the increases in the cost of fuel, energy, transportation and raw materials.
Mr. Binley: Does the hon. Gentleman agree that, while UK plc will gain from those investment benefits, most small businesses will not, because they do not borrow or invest a sufficient amount of money to get the benefit back?
Stewart Hosie: That is absolutely right, and the same argument applies to the new annual allowance. That is why we in Scotland are delighted that the Scottish National party Government have either slashed or removed the business rates for 150,000 small companies. That is something that we wish could be done down here to benefit similar businesses.
The Finance Bill also offers us the extraordinary decision to put 59p on a bottle of whisky. That decision has the potential to damage one of the most successful industries at home. It is an industry that generates £2.5 billion surplus for the UK balance of trade. It is one of the few success stories in terms of real exports and real balance of trade surplus. The decision might also damage the industry abroad. When whisky manufacturers, companies, marketers and wholesalers go abroad to argue the case that another country has a discriminatory regime against Scotch, those other countries could turn round and say, “So what? Your Government are doing the same thing.”
I hope that the Government will consider undertaking a proper review of this matter, not necessarily to exempt Scotch from the duty rises this year—although that would be most welcome—but to look again at whether alcohol could be taxed on an equitable basis across the board. The tax, whether it be on wine, beer, cider or spirits, should be levied on the basis of the alcohol content. That would create an absolutely level playing field, irrespective of the type of alcoholic drink.
Michael Connarty (Linlithgow and East Falkirk) (Lab): I think that the hon. Gentleman will be pleased that he has given way to me, because I entirely support what he is saying. The latest research shows that a lot of binge drinking involves people being served supersized measures of wine in wine bars. They are deliberately given larger measures in order to make more profit, and the profit is greater because the wine is not taxed in the same way as beer and spirits. Might not the hon. Gentleman’s proposal for more equitable taxation also be of benefit in that regard?
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