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“We are committed to steering a path of stability based on a stable monetary framework and sound public finances.”
Today, that statement seems ridiculous to all of us. Again, when we pick up the Red Book, what do we see? We see that in 2013-14 the debt-to-GDP ratio in borrowing—on-balance-sheet borrowing, that is—will be 79 or 80 per cent. The Government keep repeating that that is within the realm of what we see in other G20 countries, but none of us are fooled. I have spent the first four years since entering Parliament trying to dig a little deeper. One of the things that scared me when Enron collapsed was the thought that occurred to me: “Gee, I wonder how much the Chancellor”—the Chancellor of the day—“has put off balance sheet.” After I began digging, about two and a half years ago I wrote a paper for the Centre for Policy Studies called “Simply Red.” That paper showed that for every £1 that the Chancellor was putting on balance sheet, he was putting £2 off balance sheet.
Mrs. Lait: I do not want to interrupt my hon. Friend’s flow, but what is his view of the reports from the National Audit Office and the Audit Commission, both of which recommended that all of these off-balance-sheet items should go on balance sheet? It is my recollection that the Chancellor, as the Prime Minister then was, said it would be done under some obscure European legislation.
Mr. Newmark:
My hon. Friend makes an important point. As my right hon. Friend the Member for Wokingham said, the debt figures could be as high as £4 trillion or
£4.5 trillion. The point I made in my paper, and which I have always argued, is regardless of whether they are on balance sheet or off balance sheet, what we need is greater transparency. That is what is most important.
Mr. Cash: I am sure my hon. Friend is aware of the ONS statistics—many of us have been studying them—that demonstrate that there are matters that can be included and matters that can be excluded. Does he not, however, agree that in terms of public sector pensions it would be a brave Chancellor or Prime Minister who would get up and say, “I’m going to regard those as off balance sheet—and, by the way, we are not going to pay them after all”? The cost of public sector pensions amounts to £1 trillion.
Mr. Newmark: My hon. Friend makes a very important point, which has to do with the health of the country’s finances. This is another case of, “Do as I say, not as I do.” The then Chancellor, who is now Prime Minister, always said that corporations must put their figures on balance sheet and we must see what are the real state of companies, but for some reason the Government were an exception to that. Regardless of whether the sums are on balance sheet or off balance sheet, it is important that somewhere in the Red Book, even if only in the footnotes, we see the true state of the public finances.
We see in the Red Book that we will finally get some sort of a balanced Budget in 2018; that is when the public finances will begin to become balanced again. However, we must fast forward even further to 2023—I have an 11-year-old son, and he will be 25 in 2023—before we will finally achieve the Prime Minister’s golden rule of 40 per cent. of GDP. That is completely unacceptable. This Budget and Finance Bill do nothing to try to accelerate our journey along that path.
My second point is on growth. The growth figures seem to have been underestimated all the way through—the economy shrinking by 3.5 per cent., rising to growth of 1.5 per cent. next year, and then a fantastical growth rate of 3.5 per cent. the year after that. Have the Government conducted any sensitivity analysis of those figures, however? What happens if the growth figure for next year is not negative 3.5 per cent. but, let us say, negative 4.2 per cent.? What happens if growth is not 1.5 per cent. next year, but is only 0.25 per cent. or flat? What happens if we do not achieve that magical, mythical 3.5 per cent. growth in two years’ time? What will happen is that we will have a larger black hole, and how will the Government set about fixing that?
Mr. Redwood: My hon. Friend is making a very important point. The Government issued a Treasury paper some time ago suggesting that miraculously the trend rate of growth had increased from 2.5 per cent. per annum to 2.75 per cent. per annum. I have tried to adjust this for the straitened circumstances in which we find ourselves, where there is less migration in, less financial sector activity and a huge debt overhang that will have a big impact on the country’s economy, and I concluded that the trend rate of growth could now be about 1.5 per cent. That is the context in which one must examine these rather bizarre forecasts.
Mr. Newmark: Again, my right hon. Friend demonstrates his knowledge. Perhaps the Minister might like to reflect on what he says and think about what sensitivity analysis the Government might do on that particular issue before the Bill goes into Committee.
The hon. Member for Edmonton (Mr. Love), who is no longer in his place, challenged Conservative Members to come up with the areas in which we would make savings, and during this debate we have put forward at least three ideas: the very expensive national health service computer scheme, which is costing tens of billions of pounds; the identity cards scheme, which the Government are still pursuing despite its not being welcomed by anyone in this country; and the expensive quangos that the Government have set up over the past decade. He has asked us what else there is, but as I have pointed out, every few billion pounds adds up to a hell of a lot of billion pounds.
I see nothing in the Government’s Red Book—again I draw hon. Members’ attention to chart 2.2 on page 35, on which we see four empty white boxes—to suggest that they have any idea as to how they will fix the structural problems that they will face. The hon. Gentleman made great stock of that matter, rightly pointing out the Institute for Fiscal Studies’ observation that four fifths of upcoming borrowing has to do with structural issues and is therefore impervious to the economic recovery. We have heard nothing from the Government or from Labour Back Benchers as to how they will address that issue.
We have heard in this debate about the unemployment problem that we face, but nobody has mentioned a meeting that was chaired by the Chair of the Treasury Committee, the right hon. Member for West Dunbartonshire (John McFall), in which Danny Blanchflower, who is a very respected member of the Monetary Policy Committee, pointed out that come June another 600,000 people will enter the unemployment rolls, because as our children finish school and graduate college they will find that there is no job for them. Thus, the unemployment figure will bounce up pretty quickly from 2 million or 2.1 million to 2.6 million, 2.7 million or 2.8 million. The economy moves slowly, so even if we were to believe any of the statistics, projections and facts presented by the Government, we will find that in 12 months’ time, when the next 600,000 young men and women graduate from school and college, we will have a huge unemployment problem that far exceeds having 3 million unemployed. This was the view of a member of the MPC—it was not my view—who said that the figure might not simply be 3 million or 3.1 million, but could reach a staggering 4 million by the end of next year.
Mr. Binley: My hon. Friend is making a powerful case, to which I hope the Minister is listening. I wish to return to the question of confidence. My hon. Friend makes the point that the number of unemployed will rise, but does he take into account the fact that for every one person who becomes employed, two people are worried about being employed? That has a dramatic impact on confidence and is another drag on a recovery that the Government do not appear to take into account.
Mr. Newmark: My hon. Friend makes a vital point about the importance of confidence in trying to rebuild the economy. Indeed, I was coming to the view of David Kern, the chief economist of the British Chambers of Commerce, who has said that
“it is doubtful if the measures announced today”
“will alleviate significantly the jobless situation.”
I would be interested to know what the Minister’s response is to Mr. Kern’s observation.
Mr. Redwood: I do not recall on previous occasions of the Second Reading of the Finance Bill having no Labour Back Benchers present to hear or join in the debate apart from the Minister’s personal helper. It is extraordinary, when there is so much unemployment and so many tax rises.
Mr. Newmark: My right hon. Friend makes an excellent observation. It is a sad reflection on the Government that their own Back Benchers have no confidence in their Budget or their Finance Bill, and do not wish to make any contribution to the debate or come to the Chamber to defend it. That is the shameful state of the Government today. As a Whip, I sit through many debates, not only on the economy and finance, so I know that Labour Members often hardly bother to turn up.
Part 1, clauses 1 to 6 contain the provisions on income tax. I was taken by a headline that I saw on economist.com which said it all:
“Gordon Brown’s budget is a dishonest piece of pre-election politicking”.
That is from The Economist, a well-respected magazine, and it is especially symbolised by the Government’s approach to taxation. We have heard much today about the new 50p band. The Institute for Fiscal Studies, another respected body, predicts that that tax will generate “almost nothing”. That is because many high tax earners, especially those who work in the financial services sector—not in manufacturing, because that sector has shrunk to below 15 per cent. of GDP, perhaps even as low as 13 per cent.—are mobile and they will leave. It is a competitive world and people will move where tax rates are more competitive. With one move, the Chancellor has said to those people—to entrepreneurs and those who want to build up their businesses—that he is taking away the welcome mat from UK plc. Those people are no longer welcome here and they will feel that they may as well go elsewhere.
The Government often claim that the Tories are for the few, not the many. But when one peels back the layers of the onion on the Finance Bill, the reality is that the majority of people who will be hurt by it are those earning around £19,500 to £20,000 plus. They will be hurt particularly badly and punished the most by this Bill. So it will hurt the many, not the few, because the few can leave the country.
At the beginning of the debate, the Chief Secretary was pressed on several issues to do with child poverty reduction. She gave no answer on how close we were to achieving the Government’s target of halving child poverty by 2010, but she threw back at us the allegation that we do not support the Government’s aspiration to eradicate child poverty by 2020. I want to say here and now that of course we do. We absolutely support the Government’s aspiration to eradicate child poverty by 2020, and I suspect that after next year we will go a long way towards achieving that goal.
I turn now to clauses 11 and 12 on alcohol and tobacco duties. As I mentioned to my right hon. Friend the Member for Wokingham, these taxes on alcohol
and tobacco are highly regressive. Unfortunately, the poorer members of our society—the less well-off—spend a higher proportion of their income, their wealth or their benefits on smoking, driving, alcohol and other such activities.
The Conservatives have come up with what I hope is a more creative way of targeting this, which involves targeting alcopops. I believe that my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) talked about that at the beginning of the debate. The Government seem to be using a blunt instrument with this tax on alcohol, rather than being sharp about it and focusing on the real issues, such as alcopops, which teenagers tend to drink and which tend to cause the problems that we all see in our constituencies on a Friday or Saturday night.
Equally importantly, the tax is another nail in the coffin of many of our pubs. I live in a semi-rural constituency and I know that many of my publicans are feeling incredibly hard-pressed after the change in the rules on smoking. They are now being taxed more and more on alcohol. I feel that we will see many more of our pubs—particularly those in our rural constituencies—fall by the wayside.
Mr. Binley: My hon. Friend has touched on a very important point, which is the impact on our rural society. There are three elements to a village: the pub, the post office and the school. If we get rid of the pub, we begin to see the demise of the village. Is that a fair point that the Government ought to take into account, but have failed to?
Mr. Newmark: Yes. On top of the demise of our post offices, which the Government have gone about destroying by taking away business from the local post offices in our villages, the pub is another great centre of activity that will, unfortunately, continue to decline. I say that as someone who is pretty much a teetotaller.
Let me turn to clause 9. We have heard much about VAT. We have all seen that the VAT decrease has done very little to change people’s behaviour. I have not found that any retailers to whom I have spoken have been jumping up and down saying, “Yippee, the 2.5 per cent. cut has meant that we have seen a huge amount of business coming our way.”
I want to reflect on one point that was made by my hon. Friend the Member for Bournemouth, East (Mr. Ellwood), when he pushed the Chief Secretary on her focus on the important date of 31 December. He asked her—she did not answer, but perhaps the Minister could when he winds up—whether they would consider moving that date two or three days to perhaps 3 January. As we have heard from my hon. Friend, who is probably more of an expert on this issue than I am, 31 December is clearly an important date for retailers. I hope that the Minister will answer that question when he winds up.
Again, we see sleight of hand when we look at the detail of clauses 19 to 22, which deal with bingo duty. The Government are giving with one hand and taking away with the other. Bingo operators were shocked to hear the Financial Secretary say that the increase in bingo duty and the abolition of VAT on stakes was “welcome to the industry”. Does he expect us to believe that the industry welcomed a 46 per cent. duty hike? I find it astonishing that he would say that. Instead of
whacking the industry with a 46 per cent. tax hike, will he at least agree to consider measures that the Conservatives have suggested to support bingo halls? For months, we have been proposing a modest increase in the permitted stakes for category B3 machines alongside a proportionate increase in the number of machines allowed in each establishment. Would that not give a real help to an industry that is finding life particularly challenging?
Finally, I shall mention clauses 15 and 16, on fuel duty. When the hon. Member for Dundee, East (Stewart Hosie) was talking about that, I pointed out that the previous two fuel duty increases had already cost hard-pressed businesses half a billion pounds—£533 million. Does the Minister fear that our proposal of a fair fuel stabiliser, as proposed early in the debate by my hon. Friend the Member for Runnymede and Weybridge, would be a more appropriate way to address this issue? It would make life easier for consumers and also for the Treasury, because it would lead to greater predictability of what it receives over a cycle and help it to manage its Budget going forward.
It has been a long afternoon already—I have been here for at least six hours—so I shall wrap up now. The devil is always in the detail, so I hope to have an opportunity to spend a little more time on the Bill when it is in Committee of the House, going over some other issues, but I shall conclude now by saying that the Prime Minister has indeed taken Britain from boom to bust. The Budget was more political than economic; it was a Budget of tax, borrowing and spend and has failed to put UK plc on a course that would balance the books and put us on the road to recovery.
7.56 pm
Mrs. Jacqui Lait (Beckenham) (Con): It is indeed an honour and a pleasure to follow my hon. Friend the Member for Braintree (Mr. Newmark) in his expert exposition, and demolition, of both the Budget and this Finance Bill. If one conclusion has emerged from the debate this afternoon—I have listened to many of the contributions, despite not being able to be in the Chamber, for which I apologise—it is that every contribution has revealed a remarkable level of expertise. I commend the Members who have contributed.
In my view the Government’s answer to the recession that, fundamentally, they have created in this country should be in both the Budget statement and the Finance Bill, but both are sadly lacking in the measures that are required to set this country back on to the recovery path. The Government have fallen into the trap that opened up in the South sea bubble, or before the great crash of ’29. When we say that this is the worst recession since the second world war, I would point out that what immediately preceded the second world war was the great depression, so in essence we are comparing 1929 and 2009. I do not think that the Government have grasped that, and the scale of the problem that they face, given the proposals in the Bill.
My belief is that the Government are still—I say this politely—in cloud cuckoo land or even never never land, but I actually suspect that, as many have said, they are still in denial. Or perhaps No. 10 and the Treasury are surrounded by an impregnable wall of arrogance, and nothing anyone says about the problems that our country faces can get through to them.
The other problem that we face, which has also emerged time and again from the contributions, is that this Finance Bill has been written very hastily. The Budget was written hastily, as a response to the G20. It was meant to be a financial triumph. It has turned into a mish-mash of proposals that were a reaction to what happened at the G20 meeting and in the events leading up to it. The Finance Bill was produced very rapidly—uncharacteristically rapidly—thereafter.
Sadly, as a result of the measures that the Government have taken in the past 12 years on how the House examines legislation, this Finance Bill will not get the scrutiny that it deserves, and which it needs if it is to deliver the sort of recovery that our people deserve and need. It was a dereliction of duty on the part of the Government to have put in place the forms of examination that they did.
As my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) pointed out, the Finance Bill should be setting us on the path to competitiveness for when we move out of the recession. We should also be building in improvements in productivity. Sadly, without those two bases, we will not even begin to be able to recover our position in the world—the position to which Margaret Thatcher and the Conservative Government of the ’80s restored us after the calamitous ’70s. The challenge that any incoming Government will face is to get us back up the competitiveness and productivity tables, so that we can deliver a better lifestyle for our people.
Mr. Graham Stuart: Does my hon. Friend agree that those who will pay the highest price for the Labour Government’s failures with the economy are those who depend on public services? Whoever is in power will see a limitation in funds in coming years. If the Government had maintained fiscal prudence, that limitation would not have been necessary, and we could have continued the investment in our public services for which Members in all parts of the House devoutly wish.
Mrs. Lait: I agree with the general thrust of my hon. Friend’s comments. It is absolutely crucial that the principal public services be maintained. I believe that they can be maintained if we strip out the unnecessary bureaucracy and the target-driven culture that the Government have put in place. My hon. Friend the Member for Bournemouth, East (Mr. Ellwood) referred to the interesting debate that we had in Westminster Hall this morning about the Learning and Skills Council and its sheer incompetence when it comes to delivering the money for sixth-form education for this coming year.
Madam Deputy Speaker (Sylvia Heal): Order. Will the hon. Lady relate her comments to the principles of taxation in the Finance Bill?
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