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6 May 2009 : Column 235

Mr. Tyrie: Is the hon. Gentleman aware that the examples that he cited are from federal countries, which have an injunction on their relevant states to balance the budget over any calendar year, and therefore a very high proportion of the fiscal stimulus has to come from the centre? It is perfectly sensible and reasonable for America, for example, to run a larger fiscal stimulus, whereas in a country such as ours, where that injunction does not exist because we are centralised, the automatic stabilisers can do all the work.

Stewart Hosie: Automatic stabilisers have an important role to play. Obviously the UK Government are not required to balance their books annually, whereas the Scottish Government have to because they operate within a fixed budget. The real answer is to grant the Scottish Government borrowing powers, while working within a framework that says that over the cycle—and I mean properly over the cycle—the books are balanced so that we do not end up going into a recession with half a trillion pounds-worth of debt.

The Finance Bill contains several important issues to do with fuel and alcohol and some small matters do with bingo that are important to local communities. All the retrospective measures will have to be probed. I hope that the Minister will pick up on some of these points, not least the Government’s attitude to alcohol duty. Will he give us an indication that they are prepared to look again at whether alcohol can be taxed fairly rather than by unfairly attacking the Scotch whisky industry?

4.22 pm

Mr. Robert Syms (Poole) (Con): I declare my interest in the Register of Members’ Interests as a director of a family business.

We are having a very interesting debate that is tending to wander a little bit off tax measures and on to debt, which is the big item on the agenda today. Over a long period, under Labour and Conservative Governments, our debt has tended to be about 40 per cent. of GDP, although we go through brief periods of growth and higher tax revenues. In the mid-1980s, Mrs. Thatcher’s Government paid off some debt, and that happened again in the early years of the Labour Government of 1997, with Conservative spending plans plus the sale of the spectrum. Commentators briefly get excited about that and say that if we carry on we will eventually get rid of our debt completely, but that never quite happens—in this case, the Government were determined to have more public spending. We now have a very large, ballooning public sector deficit, but that always happens in a recession. There are two very large figures, and when one goes up because people lose their jobs and businesses start to get into difficulty, the other goes down because tax revenue is less buoyant and the deficit opens up like a vast chasm. That tends to make people a little pessimistic.

Many commentators have talked about a brave new world and a change in our economy. Much of today’s debate could be determined by whether the debt is cyclical or structural. One’s view on that depends on whether one thinks that in a few years we will see a resurgent City of London with banks making big profits and the housing market booming, or that the world is going to change and we will not rely on the City of London but suddenly find new ways to make a living in
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the world. It would not surprise me if in six years’ time bankers were making big bonuses, profits were going up, and tax revenue was being generated. The problem is that because we are running a large deficit and do not know at what rate we will recover, we are more vulnerable to turbulence in the world economy. As the right hon. Member for Birkenhead (Mr. Field) asked, what is plan B? If the recession is deeper and the recovery slower than expected and unemployment goes over 3 million, we could have a real problem in financing our deficit. We might have to pay a premium, there might have to be more quantitative easing and sterling might come under pressure.

I am old enough to remember 1976, when the noble Lord Healey had to turn around at the airport because the IMF came in, and we are running rather larger figures than we did in ’76. The other interesting thing about 1976 is that the projected figures turned out to be rather benevolent and not as bad as had been thought. Governments can sometimes get projections wrong and predicate policy on them.

Britain seems to survive and prosper because, at root, we have good people who work hard and a pretty good economy. I am sure that we will get through our current problems, but that requires leadership. One thing that has come out in the debate is that we as politicians have to be honest with people about the fact that there are going to be some very tough decisions to be taken, irrespective of who wins the general election next year or, God help us, if we have a hung Parliament. We will have to take tough decisions on the scale of the state and public spending, and indeed on tax.

If we are honest, the only way to raise an awful lot of tax revenue is to raise tax on ordinary working people, not on a particular section of people. High tax rates might make a debating point, but the reality of the Government’s policy of raising the higher tax rates, restricting allowances and restricting what people can do with pensions is that people will look for others ways to recompense themselves. They might forgo salary in the short term or look for other ways, such as capitalising their salary. That is why I said in my intervention on the shadow Chief Secretary that if the Government continue down this path, the next item to come up will be capital gains tax.

Mr. Colin Breed (South-East Cornwall) (LD): Is the hon. Gentleman aware that Treasury officials gave evidence to the Treasury Committee indicating that their figures estimate that they will receive only 31 per cent. of the potential total tax take from the raising of the top band from 40 to 50 per cent.? In other words, 69 per cent. will go elsewhere or be avoided.

Mr. Syms: It is a very sad thing; 20 or 30 years ago our tax rates were so high that people spent an awful lot of time trying to avoid paying tax rather than running their businesses. If we are not careful, we will return to people finding sophisticated ways of avoiding tax. That will mean a more draconian tax system and people will not focus on getting a fair reward and on running businesses efficiently. As we have heard, including national insurance the highest tax rate is 61 per cent., which is very high. What is the point of that if the revenue will not be collected, other than to make a debating point?

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Given that we are probably not talking about a vast section of the electorate, it has surprised me how many ordinary people who have no hope of paying that level of tax have taken exception to the fact that the Government have broken a key promise. It says something about us as a nation if we start to mess about with high tax rates and change the overwhelming philosophy that has been in place for the past 20-odd years.

I am not as pessimistic as some, but there will be some tough decisions to make. I know that my party is not saying very much at the moment about higher rates of tax, but I think that we would like to reduce them, subject to the books. A clear indication from an incoming Government of where they are going on this issue may well determine how much tax is raised, because otherwise we will lose people. The Sir Michael Caine point is relevant, because people who are mobile can use various ways of leaving the country, which will reduce the overall amount raised.

As my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) said, half of all the tax-raising measures in this Budget affect people earning more than £19,000 a year. As a nation, we collect quite a lot of tax at the lower end of the various bands. We tax at too low a rate and then try to make up for it by giving tax credits. It would be better if we got out of the tax credits system and upped the basic rate so that people’s personal finances were in a much better shape.

Harry Cohen: I am interested in the hon. Gentleman’s position. Is he saying that if there were to be tax reductions in future, which is hard to believe in the current economic situation, he would favour making them at the higher end of tax, rather than in ordinary people’s tax rates?

Mr. Syms: We have to have a fair system that affects everybody. The priority in our current economic difficulties is those at the bottom end, particularly in respect of tax allowances and those areas where we want to increase incentives to work. We are going to have the problem of higher unemployment. We want to move people from unemployment into employment, and we can use the tax and benefit systems to encourage that. That must be the priority. I know that the hon. Gentleman is something of an old socialist—dare I mention that in the Chamber these days?—but the reality is that if higher tax rates are not collected, there is no point in having them. In the longer term, the key point must be to get revenue in to pay the debts and to pay for public services.

My hon. Friend the Member for Runnymede and Weybridge made an important point. We have had a massive temporary reduction in VAT, to which I and many other hon. Members are opposed and which I do not think will make much difference, yet the Government are raising national insurance contributions, which is a tax on jobs. That is not a good thing to do. We are going to have a problem maintaining employment. Many workers have said to me that they would like temporary measures, whereby people go on to short-time working. Indeed, there is a big debate about that in manufacturing. However, at a time when we hear trade unionists on the radio demanding more action from the Government, which is understandable, it seems daft that the Government should be putting up the cost of employment for those still in work and for the companies that employ them. That is a particularly bad thing.

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I welcome what the Government are doing on capital allowances. I welcome the fact that companies that have made losses are able to offset them against past profits, but the Government have not managed to stop what has happened since the credit crunch. Essentially, credit is still not flowing to companies. Things have eased since the worst of the current situation, six or seven months ago, but we still hear a lot of anecdotal evidence about banks not lending to businesses, while a lot of other finance companies, particularly those that would loan to companies for hire-purchase, are finding it difficult to get credit. That is causing problems for companies up and down the land.

The Bill will impose a serious tax burden, which will cause a problem for many people who are struggling to make ends meet. The VAT reduction is clearly a means of getting money into people’s pockets, but there is not much point in introducing it if we have negative inflation, if there are already massive price discounts as a result of what retailers are doing and if it will be reversed after a certain period. The Government have announced some goodies, but they have also announced some increases on the radar. People are not stupid: if they think that they will be hit, that may reduce their incentive to go out and spend.

I represent an urban constituency, albeit one in a rural county. We all have to be aware that, for many of our fellow citizens, public transport is not an option. It might be an option in London, but it is not one in Cornwall, in many parts of Scotland or in many other rural counties. If we keep increasing fuel duty, it will have an impact on prices. There is no such thing as a painless tax increase: somebody, somewhere, has to pay. The road haulage industry has been struggling for a number of years, but high increases inevitably make it difficult for many people to stay in business, let alone make a profit.

We have already heard a voluble campaign from pub landlords and from the brewing industry, which is suffering from the increases, with a number of pubs going out of business. The hon. Member for Dundee, East (Stewart Hosie) made a valuable point about the Scotch industry, which has generated hundreds of millions of pounds for our nation in exports over the years. If we keep hitting a particular industry hard, it is bound to have a long-term impact on it. I think it is beholden on us to point out that keeping on raising money in that way can cause difficulties.

Environmental taxes are very much part of the Budget papers before us, and I welcome the fact that the Government are retaining air passenger duty. I think that their other proposal was misjudged, but it must be noted that the proceeds from the duty will go straight back to the Treasury and will not be devoted to environmental concerns. Landfill tax is paid mainly by local authorities—and essentially by council tax payers—and it too goes back to the Treasury and is not spent on environmental matters. If we are serious about green Budgets and the green agenda, green taxes should be related to green outcomes; they should not simply sink into the black holes of the Treasury.

My hon. Friend the Member for Runnymede and Weybridge spoke about naming and shaming tax avoiders or people evading tax under clause 93. The Bill proposes amnesties for people who avoid tax, but I believe that it is more important to try to get people to pay their tax
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than it is to name and shame them. We need revenue, and any sensible tax authority will enter into a negotiation to get money back. In a world where capital can be moved through various accounts and offshore, the sensible thing is to have a very businesslike approach to dealing with people from whom one wants to get tax.

We have a difficult time ahead of us. As always, the Finance Bill will take many hours to consider. As politicians, we have to be honest with people, and it will be an interesting time, but I am still optimistic about our nation.

4.36 pm

Peter Luff (Mid-Worcestershire) (Con): May I begin with an apology, Madam Deputy Speaker? I missed some of the speeches that followed the opening of the debate, but I am afraid that I was receiving the award of an Industry and Parliament Trust fellowship— [ Interruption. ] I am grateful for the approbation of the House, and I commend the organisation heartily. I should add that my fellowship was largely with the Royal Bank of Scotland, although I am not sure whether that amounts to a declaration of interest.

I am a veteran of many Finance Bills, both as Back-Bench Lobby fodder during the previous Conservative Government and as a Whip in opposition. I have been trying to work out what it is that I do not like about this Bill, and I suppose it is that it is nakedly and lamentably political rather than economic in its objectives. That causes me considerable concern, but there may be some poetic justice about it. An old saying in politics has it that a Budget that is well received on the day it is announced will prove to be badly received thereafter, and one that is badly received on the day will be well received thereafter. This Budget breaks that rule spectacularly—it was pretty badly received on the day it was announced, and it has unwound with spectacular speed every day since. It has got steadily more unpopular and discredited with every day that passes, so in that way at least the Chancellor of the Exchequer has rewritten the history books, and that is something.

What will this year’s Budget, and the Finance Bill that flows from it, be remembered for? I have decided that it will be remembered for its four Ds—distraction, deceit, delay and deficit.

I associate “distraction” with the Bill because I am afraid that that is all that I consider the 50 per cent. tax rise and the other changes for higher income earners to be. The proposal is a bit of naked red meat thrown to Labour Members on the Back Benches behind the Chancellor but, even on their own figures, it will make a pathetically small contribution to the scale of the debt and the other problems facing the Government. Other commentators outside the Conservative party, such as the Institute for Fiscal Studies, suggest that the net revenue might be pretty close to zero. I shall return to that later.

The second word of the four—deceit—flows from the distraction I have described. The Budget of a couple of weeks ago suggested that the bill for the problems facing the country would be paid for largely by the rich, but it will be paid for by every man, woman and child in the country, through increased taxation—miraculously,
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higher national insurance contributions are to be delayed until well into the next Parliament—and through the burden of debt that will be repaid by our children for heaven knows how many decades to come. That was profoundly deceitful, and a matter of considerable regret, but I do not think that the British people have fallen for it; they know better than that. This is what happens when people play politics with important matters.

The third D stands for delay. The difficult choices will be delayed until 2011: a funny old year, safely after the next general election. The real pain will not be felt this side of the ballot box, but, again, I think that people know that is going on. If we look at the net figures, including the measures in Budget 2009 and the other measures announced in Budget 2008, we see a net outflow from the Exchequer of £21.26 billion in the financial year that has just begun, a net inflow of plus £4.6 billion in 2010 and, miraculously, a net inflow of plus £12 billion in 2011. The real pain is being delayed for reasons of political expediency. The deficit should be addressed now, not in two years’ time.

That deficit is the underlying concern. It remains unaddressed, and it is out of control. I am struck by yesterday’s report from the National Institute for Economic and Social Research. I shall quote from the report on it in The Daily Telegraph, as I have not seen the NIESR report. It states that the NIESR believes

Terrifyingly, the NIESR also provides the shape of what future Budgets and Finance Bills might have to be, and offers three basic options to solve the problem:

I have been doing the calculations, and I reckon that that would catch me nicely. I shall be 60 in 2015, and 68 in 2023, so it looks like retirement at 70 for me—and for many of us in the House. That illustrates the scale of the problem.

The second option was to raise the basic rate of income tax by 15p in the pound. I accept that these proposals offer a single-club solution, but they give an idea of the scale of the problem.

The final option was to cut Government spending by a tenth, which would be a very serious step indeed.

I am a Select Committee Chairman, which I enjoy, and I know that Select Committees choose their words with great caution. I was struck by the Treasury Committee’s summary for this debate. It was prepared in a great hurry, and we owe the Committee a debt of gratitude for the speed with which it came to its conclusions. Its summary states:

Those are calm, measured words, but they frighten me. I think that the growth forecasts are optimistic, and that they are there to make the debt burden look less frightening. I think that they will prove to be optimistic, and that the debt burden will be much higher than the Government are saying.

Mr. Angus MacNeil (Na h-Eileanan an Iar) (SNP): I hear what the hon. Gentleman is saying about the debt burden. To put that into perspective, in three or four
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years’ time, every household in the UK will owe about £65,000. Two years ago, before the Scottish elections, the scariest figure that Tony Blair could come up with for debt under an SNP Government was £5,000 per household. In essence, therefore, it seems that Scotland is 13 times worse off being ruled from London than we would be if we were independent.

Peter Luff: I will not be led into debating the merits or otherwise of devolution; I am not going to do the SNP’s dirty work for it. I will let what the hon. Gentleman has said speak for itself.

The Treasury Committee’s summary also contained these calm, measured words:

That represents a very long period. Crucially, it goes on to discuss a point raised by a number of my hon. Friends, stating:

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