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Before I comment on the Budget proper, I have a question for Members on the Treasury Bench about the bank levy. The Chancellor said it would apply to the balance sheets of banks and building societies, and to the UK operations of banks from abroad. He sensibly
said that there would be deductions for tier 1 capital and insured retail deposits, and a lower rate for longer maturity funding. However, we already have the financial services compensation scheme and some banks are also paying considerable amounts towards insurance premiums for the asset protection scheme for non-performing distressed assets.
Furthermore, the European Banking Authority proposed both a European deposit guarantee fund and a European bank stability fund. Will the levy be discounted, or deductions made, on the basis that funds are going to those schemes too? I make the point not because I do not want the banks to take their full share, but because for every £1 billion in bank levy, there is £20 billion less to lend in the real economy. A little understanding of the relationship between the bank levy and other draws on banks' cash would be helpful.
The Chancellor clearly confirmed the position of the economy. There is a deficit of £149 billion-10.1% of gross domestic product-and national debt is still about £1 trillion. Using the treaty calculation, we know that it is due to hit £1.3 trillion by 2015-16, which is still about 80% of GDP. In the real economy, our balance of trade position last year was £32 billion in the red and there was a catastrophic £82 billion deficit for trade in goods, which was no doubt a consequence of Labour's managing to lose a million manufacturing jobs between 1997 and the start of the recession. Notwithstanding what was in the Budget statement, I found it heartening that in so many maiden speeches, particularly during the debates on the Gracious Speech, Members spoke about rebalancing the economy and supporting manufacturing in their constituencies. We certainly need to do that.
The economic backdrop to the Budget-the mess left by Labour-is clear, and demonstrates many of the irresponsible decisions taken by the Labour Government. However, I shall concentrate on the implications for Scotland and the UK economy of the solutions proposed by the Chancellor. To summarise, he said there would be an additional £32 billion reduction in spending by 2014-15, as part of an additional £40 billion in so-called fiscal tightening by the same year. That is an extraordinary additional amount to take from the economy.
It is worth repeating how much the UK economy has been supported over recent years by Government spending. At the time of last year's Budget, Government consumption was up 2% on the year, which helped keep the economy afloat when household consumption was down 1.9%, business investment was down 24% and gross fixed capital formation was down 14%. That was investment in productive assets for the future.
Household consumption is now 0.5% lower than last year, while business investment is still down 11% and gross fixed capital is down 5.7%. Government consumption was up 3% on the year, to support the gap and keep the economy going. I hope the Government are right about their plans, but I have a serious question about the Office for Budget Responsibility forecast that from 2011 onwards business investment would rise at rates between 8% and 11%. I very much hope that the OBR is right, but they seem to be heroic growth figures. I hope that we are not in the same position with the new Government's business investment figures as we were with the old Government's raw, vulgar growth figures-overstated-and I hope that the OBR is correct. We are certainly not out of the woods yet economically.
Although Labour cut the Scottish budget and the UK budget in real terms in this financial year and Labour ensured that the UK was one of only two countries in the G20 without a fiscal stimulus package this year, the new coalition Government appear to be ignoring much of the evidence that only Government consumption shored up and supported the economy when private spending and investment had fallen through the floor. I hope that the Government are not blind to the fact that such support is still necessary.
Given that the Chancellor's comments today on accelerating the attack on the structural deficit confirm the presumption that most of the savings will come from cuts, he runs the very real risk of pulling the rug from under what remains fragile growth and risks undermining economic recovery. Given that the ratio of cuts to tax increases has gone from 2:1 to 4:1, his comments certainly confirm that we are pointing in the direction of a 25% reduction in unprotected departmental spending-an extraordinary reduction in many Departments' budgets.
The OBR has downgraded growth forecasts-this was published today-from the 3.2% growth figure published by the previous Government for four of the next five years and the 2.1% to 2.35% average trend growth figures that it published on 14 June to 2.3% for 2011 and 2.7% to 2.9% thereafter. The implications are massive real-terms cuts affecting both Scotland and the rest of the UK. Although a £400 million real-terms cut to Scotland this year was announced in Labour's last Budget, this Budget will deliver further billions of pounds in real-terms cuts on top of the £330 million in cuts that come from the £6 billion cuts announced earlier this year but deferred until next year by the Scottish Parliament.
The problem is that we were all critics of the last Government for not holding a comprehensive spending review, but, of course, the departmental expenditure limits in the Red Book today give no clarity, as they do not go past 2010-11. Although the Chancellor offered a deal of information, those figures were not-unless I have missed them completely-in the Red Book today.
Steve Baker: This emergency Budget is much needed, and I hope that we can forgive my right hon. Friend the Chancellor if it is missing some of the detail that the hon. Gentleman wants.
Stewart Hosie: I appreciate that this is an emergency Budget. The emergency has been going on for some years. It was foretold by this Government, who said in opposition that they would introduce this Budget. They have had plenty of time to prepare, and they have done so as well as they possibly could. My criticism is that, if the Labour party did not have a comprehensive spending review with the pre-Budget report last autumn and if it did not have one with the Fiscal Responsibility Act 2010, in which it set out £57 billion of cuts in a single year, and if it did not have a CSR with the March Budget, which imposed real-terms cuts on the UK and Scotland this year-that criticism was made by the Tories in opposition, as well as by the Scottish National party, having heard the Chief Secretary's announcement of £6 billion in early cuts a month ago-perhaps we could have had one with this Budget, but I take the hon. Gentleman's point that the Government have been in power for only a few weeks.
Given the cuts that we have seen and the growth forecasts that have been laid out by the OBR, my assessment is that they can only add to the cumulative £25 billion shortfall in available public expenditure in Scotland over the next 13 years that is a consequence of the previous Government's plans. With an accelerated attack on the structural deficit, I fear that that cumulative figure may become worse.
The Chartered Institute of Personnel and Development has warned of overall UK unemployment pushing past 3 million. I genuinely hope that the OBR is right and that unemployment will peak this year at 8.1%. Time will tell, but I suspect that the cuts that we are likely to see will mean that that figure is optimistic. Of course, we hope that those who are in jobs will stay in jobs and that unemployment will not push beyond the forecast peak of 8.1%, because if it does, there will be a reduced tax yield, higher benefit costs and less spending in local economies. In short, today's plans, like Labour's at the previous Budget, might make the task of tackling the deficit and debt more difficult.
I suppose that my criticism of this Government is similar to that of the previous Government. We needed a credible deficit consolidation plan that took account of all economic circumstances, rather than a high-risk assault on public sector spending. Given that market confidence is based on the credibility of the deficit consolidation plan, rather than simply the speed of the cuts, I do not understand why the Government chose to use the Canadian model of perhaps 20% reductions over three years, rather than the New Zealand model over the medium term. The New Zealand model was equally successful, and such an approach would have allowed the UK Government to choose to take advantage of £50 billion of medium-term savings by cancelling Trident and its replacement.
The hon. Member for Great Grimsby (Austin Mitchell) made the point that sustained, above-trend growth in the economy is the real solution to the deficit and the debt. Given the tough situation that we are in, we need a proper, serious and sensible discussion about actions that have been taken, and indeed those that have not. Although I recognise that the Budget includes cuts in business tax and I welcome the move to reduce corporation tax, the decrease in capital allowances and the annual investment allowance will take £7 billion from business over the next four years. I wonder whether that approach will have a disproportionate impact on growing businesses that use the investment allowances, while benefiting firms that get on with their business and enjoy the corporation tax benefits but do not necessarily invest and recruit more people.
When the Government took the appalling decision to scrap video games tax relief, why did they not take their own advice, which was published only this month in the spending review framework, to
"Protect, as far as possible, the spending that generates high economic returns"?
One would have thought that we should be protecting and growing investment in that field, because it is exactly the kind of area that could generate the high economic returns demanded in the framework. When the money from the fossil fuel levy is sitting in an Ofgem account, why did the Government not decide to free it up for investment in Scotland's green future, instead of simply reviewing the position? Why, given that it was
Conservative party policy, did the Government not move to introduce quickly a fuel duty regulator that would deliver fairness to business and stability to allow them to plan transport and haulage costs, instead of punting the proposal into the long grass?
It is clear that ordinary people will pay the price for the recession, as we see from today's announcements on VAT and benefits. The jobs and necessary spending power of ordinary people in the public sector will be lost. Many in the private sector might come under huge pressure when the public sector contracts awarded to the private sector dry up or end.
Much of the Budget might represent short-term thinking. The Public and Commercial Services Union estimates that there is some £123 billion in uncollected tax, yet this Government's plans, like those of Labour before them, could well lead to a reduction in the head count at Her Majesty's Revenue and Customs just when such people are needed most to maximise the revenue yield. Although I hope that I am wrong, there is a clear risk that the plan set out in the Budget will lead to a stagnation of growth. Perhaps Lord Mandelson's threat of 10 years of austerity under Labour will come true, albeit with different parties at the helm.
Whoever is in charge, it is obvious that Scotland can no longer afford to be tied to an economic policy set out in successive UK Budgets that could undermine public services when we need them most, lead to the loss of spending power as public sector employees lose their jobs, and result in public sector contracts in the private sector drying up, and still also be tied to a fiscal regime that, at least under this Budget, fails to deliver the agenda for long-term growth that Scotland and the Scottish economy desperately need.
It is time to take full fiscal responsibility for reshaping and growing the Scottish economy, with the transfer of fiscal powers and responsibility from Westminster to Holyrood; to give the games industry a chance to grow and prosper; to use the fossil fuel levy to invest in our green future; to ensure both that the deficit is tackled properly over the medium term and that we do not take risks with a short-term consolidation. My great fear about the Budget, as was the case with Labour's plans, is that while recovery is fragile, to suck out consumption, clearly in excess of 3%, 4% or, indeed, 5% of GDP in single years, almost certainly runs the serious risk of tipping the economy back into recession and, as I have said, of making tackling the deficit and the debt, which is important, more difficult rather than more straightforward.
5.35 pm
Neil Carmichael (Stroud) (Con): First, I pay tribute to my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) for an excellent speech on an important subject-regulation and competition in banking-that was worth while and useful to hear. I should like to refer, too, to a comment by the hon. Member for Great Grimsby (Austin Mitchell), about his love of borrowing. Borrowing is not exactly always a bad thing, but there is simply too much borrowing now, and that is what we have to address. We have to remember that £1 in every £4 that we spend is borrowed, which is ridiculous.
The hon. Member for Nottingham East (Chris Leslie) has disappeared, but I want to make two points about his observations. First, he said that we would cut capital expenditure. Actually, we are not doing so. The Chancellor made that perfectly clear, and we must repeat it often, so that people understand that capital expenditure is not going to be cut. Secondly, the hon. Gentleman discussed cuts in Nottingham East in local government and the health service. If he had been in Gloucestershire before the general election, when Labour was in power, he would have noticed that it was subject to cuts, too, in the number of beds in our hospitals. Those cuts, and his cuts, are all about the fact that the Government are facing a situation summed up neatly by the former Chief Secretary to the Treasury, the right hon. Member for Birmingham, Hodge Hill (Mr Byrne), who observed that
"there's no money left."
Whichever party, or set of parties, won the general election, there were going to be changes, and I am afraid that we have to face up to the consequences. This is not just a Budget about cuts; it is not just a Budget about being responsible in dealing with those cuts; it is not just a Budget about being fair to everybody, although it certainly is-we are being fair across the board in the amount of expenditure being cut and the changes in taxation; but it is a Budget about growth, and we must remember that. It includes useful tools to encourage small and medium-sized businesses to begin growing again.
Bill Esterson: The hon. Gentleman makes the point that we need a Budget for growth, and has just begun to discuss small and medium-sized businesses, and the important role that they have to play. However, does he agree that if we take the stimulus out too fast, it will prevent those businesses from playing the role they need to play in growing the economy again?
Neil Carmichael: The point I am making is that we are providing stimulus for small and medium-sized businesses to get going. We are not going to increase national insurance, for example, as the Labour Government would have done, which is a significant step in the right direction. We are introducing a green investment bank, to make sure that small businesses can develop new technology, which is good news and a stimulus. We are going to ensure that there is more business rate relief for small businesses.
All those steps will help small businesses to progress, and it is important that we help them to do so, because, if we are really to protect our economy, we must not just deal with the deficit, although that is important, but ensure that we have growth. That growth will come in large part from small and medium-sized businesses. I know that from my constituency, because I keep being told, "We would like to have a simplified taxation system," and that is what we will introduce through the Budget; I keep being told, "We would like to see lower corporation tax levels," and that is what we will introduce through the Budget; and I keep being told, "We would like simpler ways of employing people," and that is what we will introduce. Those measures will help small businesses to deliver the growth that we need and, through that growth, the increased tax receipts that will further help to reduce the deficit.
It is important to emphasise that aspect of the Budget and, indeed, our whole economic plan, but we are going to go further, with the banking levy, which we have briefly discussed. That will be useful, too, because it sends a signal to banks that they must act more responsibly, and obviously as a levy it is also a money-raising measure. I must emphasise that, if we want to create an economy that can cope with the deficit, we must recognise that the ingredients for growth are important, and that the Budget provides them. It is important also to recognise that, throughout the entire time that I have been in the Chamber this afternoon, Labour Members have not talked about that; they have always talked about cuts. Yes, cuts are here; yes, they are quite serious; and yes, they are going to be painful for some. But, it is better to tackle that problem now in a responsible and planned way than effectively to back off and ignore it, because unless or until we start reducing the deficit significantly we will not be able to produce the growth that this country needs.
5.42 pm
Bill Esterson (Sefton Central) (Lab): I have registered in the appropriate place my interest as the director of a small business.
I congratulate the hon. Member for South Northamptonshire (Andrea Leadsom) on her maiden speech. She made some interesting points about the banking system and the need to break up the bigger banks into small banks. Perhaps she will agree that no bank should be too big to fail, as that was one cause of the many problems that we have seen recently.
I should like to discuss the Budget's likely impact on jobs, businesses and, in particular, my constituency. The Chancellor said that he had a plan to reduce the deficit, yet the Office for Budget Responsibility said that the deficit would have been halved under Labour's plans. Our plan was to cut spending, but only when the economy was strong enough, and Tory and Lib Dem Members seem to have forgotten a simple rule of economics: the role of government is to intervene in a recession when the private sector is struggling. The evidence from history shows that that works time and again. The time to cut the deficit is once the recovery is strong enough, not when the private sector is still on its knees after the deepest recession since 1931, apart from the one following the war.
The OBR, by the way, is staffed by the same people who wrote the Treasury forecasts. The Tories and Lib Dems have made much of the lower growth rate predicted by the OBR had Labour's approach continued, but in reality the OBR prediction factored in the market's reactions on interest rates, which in turn allowed for the £6 billion of spending cuts that the coalition planned. The Financial Times commented that the OBR did not note any fundamental skeletons in the Treasury, so it had taken account of the changes since March's Budget.
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