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“a budget on a wing and a prayer”
“a hugely irresponsible missed opportunity”.
Remarkably, given that that was its initial view, its opinion actually hardened over the following days. On Thursday, its conclusion was that
“the capital’s taxpayers will bear the brunt of paying off the country's massive debts”
“this 50 per cent. is a tax on London.”
Respected commentator Tony Travers implored:
“Don’t push London too far or you will kill off your golden goose.”
Perhaps the Government have already written off London politically—today’s Standard reports a 9.5 per cent. swing against Labour since 2005—but they cannot afford to write off the capital economically.
Changing tack completely, I wish to ask the Financial Secretary to the Treasury about bingo, which was also mentioned by the hon. Member for Barnsley, Central. The Financial Secretary told us on Thursday that
“the announcements in the Budget on the taxation of bingo are welcome to the industry.”—[ Official Report, 23 April 2009; Vol. 491, c. 434.]
However, Investec, for one, is calling his raising of bingo duty from 14 to 22 per cent. a “Budget hit” on the industry, as the offsetting cut in VAT is on parts of the industry that may not be subject to VAT in any case. I would be grateful for a clarification of those comments.
To conclude, I wish to take the House back to the start of the current financial crisis in Autumn 2007, when Ministers attacked Northern Rock for having a so-called “flawed business model”. We were told that Northern Rock was excessively dependent on the continuation of strong growth in credit, and in the associated strength of the financial and property sectors. It is clear to all of us, 18 months later, that the UK’s public finances shared precisely that same weakness. I agree with The Wall Street Journal, which said on the day after the Budget:
“’Building Britain’s future’ is the optimistic title of the UK Government's latest budget. ‘Burying Britain’s future’ would have been more accurate.”
This awful Budget can be summarised as follows: we are in the longest recession since world war two; we have the fastest-rising unemployment on record; the economy is shrinking at the fastest rate in 30 years; and we have the worst public finances in the G20. This Government’s management of our public finances has been lamentable. They seem to be unwilling or incapable of taking charge, and it is about time that they gave way to others who can and will sort this mess out.
9.44 pm
The Financial Secretary to the Treasury (Mr. Stephen Timms): We have had a good debate, on the whole. The backdrop, of course, is the worst crisis in the world economy since the 1930s. The world economy is forecast to shrink this year for the first time since the second world war. No one is under any illusion that this will be easy, but the economy is now benefiting from a great deal of support—the lowest interest rates ever, whereby many people are paying less for their mortgages, and additional support from quantitative easing. Indeed, I agreed with some of the points made by the hon. Member for Poole (Mr. Syms) about the extent of support for the economy and the stimulus measures in the pre-Budget report before Christmas, including the cut to VAT, which several hon. Members mentioned.
I draw the House’s attention to a report two weeks ago by Doug McWilliams of the Centre for Business and Economic Research, who used to be described as an adviser to the Conservative party—he may well still be, for all I know—and its headline:
“Credit where credit’s due—the VAT cut is working.”
The report points out that retail sales have been remarkably resilient, unlike in previous recessions. In his lively speech, the right hon. and learned Member for Rushcliffe (Mr. Clarke) reaffirmed his view that if we are to have a fiscal stimulus, a VAT cut is the one to go for. The report says:
“The figures are clear; the VAT cut is working. There was an immediate boost to the volume of retail sales after the cut was introduced on 1 December.”
It goes into some detail about how it reaches that conclusion and estimates the net cost of the VAT cut to the Exchequer, and the likely boost to retail sales, and concludes that the VAT cut is
“good value for the taxpayer”.
The VAT cut will continue to work throughout this year. Indeed, as the National Institute for Economic and Social Research has pointed out, the cut’s stimulus impact will increase as the date for the return to the original rate approaches at the end of the year.
Support for the UK economy has been co-ordinated with others. We have learned the lesson of the 1930s. Co-ordination then was too little and too late, and the result was a catastrophic depression. Through our presidency of the G20, and this month’s London summit, we have ensured co-ordination that is substantial and effective. It has delivered the biggest macro-economic boost that the world has ever seen—across the G20, an additional $5 trillion will be put into the economy by the end of next year, raising output by perhaps 4 per cent. and saving or creating millions of jobs.
The Budget builds on that support. It will give businesses and households the temporary support that they need in the short term, and it reaffirms the Government’s commitment to taking action that will support the economy and help it to emerge sooner and stronger from the downturn. The Budget maintains the support that we have already provided, for example, to ease the cash flows of UK businesses, and builds on it in a carefully targeted way.
The Budget is not just about delivering support through the downturn; it starts to look beyond current problems. The next few months will clearly be very difficult, but in preparing the Budget it was very important to ensure that we are in a position to make the most of new opportunities that will come with the recovery.
Mr. Salmond: What is the Financial Secretary’s estimate of the fiscal stimulus in 2010?
Mr. Timms: The right hon. Gentleman is right: we are preparing for a consolidation once the upturn is in place. That has to be done. It is right at the moment to support the economy with additional borrowing, as we have repeatedly made clear, through the stimulus measures that I have outlined and through the application of the automatic stabilisers, but beyond that a consolidation will be necessary, and we have set out clearly in the Red Book how we will achieve that and put the public finances on a sustainable track.
At the heart of this year’s Budget is our ambition to build for the future. The Budget sets out a framework for major investment in infrastructure to support long-term success in the UK economy, including a £750 million fund to achieve the strategic approach to industry policy announced by Lord Mandelson last week. We have ambitious targets for broadband, which I very much welcome, that look towards the deployment of new higher speed services. There will be investments in further education, transport and funding for housing projects, as well as support for low-carbon energy efficiency referred to by my hon. Friend the Member for Islington, South and Finsbury (Emily Thornberry). Those measures will all give an important boost to the economy, protecting thousands of jobs and acting as catalysts for the changes to the economy that we will need in the years ahead.
Mr. Jenkin: How much do the Government now regret massaging their fiscal rules in order to carry on borrowing through the years of growth rather than paying down much more debt during the good years? That is why when an economic downturn came, as might have always been inevitable, the public finances were not better prepared than they are today.
Mr. Timms: Of course, a very strong feature of our position coming into the recession was that the levels of debt and borrowing as a proportion of GDP were the second lowest in the whole of the G7. That was a consequence of the decisions that we took in government. The fact that we had a low level of debt has given us room to manoeuvre that others have not had. It is one of the reasons we are in such a strong position to take the right actions.
Mr. Jenkin: Will the Financial Secretary give way?
Mr. Timms: No, I need to make a little more progress. I will gladly give way later in my speech.
The Budget also focused, in a very difficult time, on ensuring that we live within our means over the next few years. It includes higher tax contributions from the highest earners—the 1 or 2 per cent. who are best able to contribute—which will help return the public finances to balance in the medium term. My right hon. Friend the Member for North Tyneside (Mr. Byers), who, I am glad to say, welcomed a number of aspects of the Budget, strongly opposed that measure. He was right, I think, to accept the principle that those who can afford to do so should contribute more. I would say to him that the world has changed very dramatically over the past 18 months. The economic outlook now is quite unrecognisable from the one that applied two years—or certainly four years—ago. It was absolutely right that in making decisions on this Budget we should have reflected that change.
The hon. Member for Bristol, West (Stephen Williams) asked what the £260 million for the job guarantee scheme would buy. The answer is 70,000 extra training places, the cost of training allowances to support young people while they learn, and recruitment subsidies attached to young people as they join their new employer. He will recognise that in previous recessions thousands of young people have been allowed to become detached from the prospect of work, with devastating economic and social consequences. We announced an overall package of £1.2 billion that will mean that from next January every 18 to 24-year-old who has been claiming jobseeker’s allowance for 12 months will be offered at least six months of activity—a job, a work placement or work-related skills training. We will provide funding for local authorities and voluntary sector organisations to take forward the creation of 100,000 new jobs in socially useful activities, 10 per cent. of which will be green jobs.
The guarantee will also offer new training courses and community work placements. Specifically, the “care first” initiative will offer 50,000 traineeships for young people in the care sector. Providers will receive a subsidy for sustained employment and training for young people who have been out of work for 12 months, giving them the skills and experience they need for a career in that growing sector. We are determined to ensure that we do not repeat the mistakes of the Tory years, when, twice round, a generation of young people was left and abandoned to become completely detached from the labour market. We are still dealing with the problems that resulted from that neglect. We are putting that right with the guarantee that is in place.
Mr. Graham Stuart: There are more NEETs now than there were in 1997. I want to press the Financial Secretary not on his tax on the rich, which he likes to emphasise, but on the taxes that are falling on those on normal incomes, such as the increased national insurance payments for those earning just £20,000 a year. May I also press him on bingo? Will he answer the question that he was asked? Some £105 million more will come from bingo players over the next three years—how much of that is offset by the VAT reduction?
Mr. Timms: I am delighted to respond to both the hon. Gentleman’s points. First, he is not taking into account the increase in personal allowance for income tax, which has led to a tax cut for basic rate taxpayers of £145 this year. If he compares this year with a couple of years ago, he will see that that more than offsets the increase in national insurance to which he refers. Secondly, as well as the change in bingo duty to which the hon. Gentleman referred, the Budget removes VAT on participation fees. That reduces the overall rate of tax on bingo from 25 to 22 per cent., thus providing support.
As we heard in the debate, one of the biggest obstacles facing UK businesses is lack of accessible credit. The initiatives we have put in place over the past six months to improve the availability of finance to credit-worthy businesses are delivering, as the right hon. and learned Member for Rushcliffe, the shadow Business Secretary acknowledged—I think his phrase was “beginning to deliver”.
We have introduced a range of measures to support cash flow and capital. The HMRC business payment support service allows businesses to spread tax payments over a period they can afford. Last week, I spoke to the executive chairman of one medium-sized chemicals
business; he told me that the service was “brilliant”. His worry was that it was about to be withdrawn, but I reassured him that it certainly was not. In fact, we extended it in the Budget so that companies can offset expected future losses against tax bills due now on past profits. In the five months to 19 April, the service had taken 175,000 calls and agreed 112,000 time-to-pay arrangements for the deferral of tax worth almost £2 billion with more than 100,000 businesses collectively employing more than 600,000 people. We are providing the support the economy needs.
The debate has made clear once again the utter vacuity of the Conservatives’ position, which is that it is a bad thing there are problems in the economy—what to do about it, however, not a clue. Last month, we were told that their No. 1 priority—I think it is still their only firm commitment on tax—was to raise the inheritance tax threshold to £1 million, or £2 million for a couple. That would be an average tax cut of £200,000 for just 3,000 of the richest estates, giving no benefit at all to the remaining 96 per cent: a tax cut not just for the few, but for the infinitesimal few. That is the Conservatives’ only firm commitment on tax. Beyond that, the public have been told absolutely nothing.
Where would the £5 billion spending cuts this year fall? There is not a word from those on the Opposition Benches. Would levels of spending, tax and borrowing under the Conservatives be more or less than those set out in the Red Book? We have no idea at all. Is it that they do not know, or just that they will not say? Whichever it is, the time has now come for them to level with the British people and to recognise that their do nothing approach to the economic downturn would, if put into effect, have catastrophic consequences, just as it did when they applied it in the ’80s and ’90s.
We are certainly in the grip of the worst global economic conditions for decades. Developed economies everywhere are seeing dramatically reduced growth, lower levels of trade and investment, and unemployment on the rise. The Government will not sit back and do nothing. We will take the action that is needed to secure financial stability, to safeguard jobs and to rebuild
growth. We are determined to help businesses and households through these difficult times. The Budget provided the right foundation for the future—supporting households and businesses through the recession, putting in place additional targeted help to provide the support businesses need at this particularly difficult time, returning the public finances to balance in the medium term, setting out the measures and the trajectory that will secure that objective, and preparing to make the most of the new opportunities ahead. I commend the Budget to the House.
Ordered, That the debate be now adjourned.— ( Ms Diana R. Johnson.)
Debate to be resumed tomorrow.
Business without Debate
Draft Bribery Bill (Joint Committee)
That this House concurs with the Lords Message of 30 March, that it is expedient that a Joint Committee of Lords and Commons be appointed to consider and report on any draft Bribery Bill presented to both Houses.
That a Select Committee of twelve Members be appointed to join with the Committee appointed by the Lords to consider the draft Bribery Bill (Cm 7570).
That the Committee should report by 21 July 2009.
That the Committee shall have power—
(i) to send for persons, papers and records;
(ii) to sit notwithstanding any adjournment of the House;
(iii) to report from time to time;
(iv) to appoint specialist advisers;
(v) to adjourn from place to place within the United Kingdom; and
That Mr David S. Borrow, Mr Alistair Carmichael, Mr Geoffrey Cox, Mary Creagh, Mr Jonathan Djanogly, Mr Bruce George, Linda Gilroy, Dr Brian Iddon, Martin Linton, Mr Virendra Sharma, Dr Desmond Turner and Jeremy Wright be members of the Committee. —(Ms Diana R. Johnson.)
Pedestrian Crossing Installations
Motion made, and Question proposed, That this House do now adjourn. —(Ms Diana R. Johnson.)
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