4.13 pm
Mr David Lammy (Tottenham) (Lab): This is my first opportunity to speak about a Budget following the spotlight that fell on my constituency in the summer, so I want to begin by supporting some measures in it. Business and shopkeepers on Tottenham high road recovering from the mayhem and violence, burnt shops, broken windows and the loss of business will welcome the simplification of taxes. Many of those small businesses still grumble and talk about the complexity of such regulation.
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There has been a lot of concentration in the House over the past few months on the undeserving poor. There has been heated debate, and I have certainly made my views clear on issues such as housing benefit. I therefore welcome the fact that the Chancellor has concentrated his attention on those who play the system in another way, and that he has looked at unearned income and property taxation. The changes to stamp duty and capital allowances are to be welcomed.
I represent the constituency with the highest unemployment rate in London, and it is right that I ask, on behalf of my constituents, whether the Budget does enough to alleviate that tremendous problem. This is only a week after we discovered that 56% of young black men in Britain are unemployed. That is a huge concern which should be shared across the House. All unemployment, among all members of our population, is a disaster, and long-term unemployment leaves serious scars, but we should be particularly concerned about that statistic.
Much has been said about a feral underclass. I do not like the term. The word “underclass” summons up visions of the caste system in India and we ought to reserve the word “feral” for discussion of rodents. However, those in the House who either grew up on working-class housing estates or have significant housing estates in their constituencies will recognise a workless class—those on housing estates turning from being working class to members of a workless class.
I do not want to be completely partisan about that because there was structural unemployment in our system under Labour. We talked about that largely in the context of those not in education, employment or training. NEETs have remained a long-running sore in this country. However, it should be of huge concern to the House that in a constituency such as Tottenham, 6,000 people are unemployed and 21 are chasing every vacancy.
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op): Does my right hon. Friend share my concern about the particularly high unemployment rate among young black men? It is a scourge that has existed in our society for far too long. The recent figures fill me with dread not hope, but the Government’s policies do nothing to help them.
Mr Lammy: My hon. Friend, like me, recognises that problem and will know, from the history of Hackney, that this is of such concern because in constituencies across the country, in areas as different as Middlesbrough, Hull, Tottenham and Hackney, we are seeing intergenerational worklessness. I hoped that the Budget would make some attempt to deal with that problem.
In my lifetime, there have been serious levels of unemployment twice before. There was huge unemployment in the 1980s, when it was higher than today, and it was even higher as recently as 1996, when more than 10,000 people in the constituency of Tottenham were unemployed. We are talking about a group of young unemployed people, aged 18 or 19, whose parents were unemployed and sometimes whose parents’ parents were unemployed. That is a disaster for our economy. When I looked at the scenes in August with tremendous and deep concern for what was happening on the streets of London, I realised that often some of the children of those who rioted last
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time were causing the same the problems this time. That is how scarring unemployment is and why we needed a Budget that got to the heart of growth.
It would be wrong, of course, if I did not welcome what has been said about the film and games industries, but it is right that in London I reflect on whether that will come to the constituencies that need it and matter. Although I of course welcome the decisions on capital allowances in the royal docks area of the east end of London, I want to make what may feel like a parochial point, but which is in fact a serious point. Are we committed to one London—where there are not inner cities, but just one city—or will we continue to show a preference for certain parts of London? Despite the huge problems that exist in the east end, it has Canary Wharf and the Olympics, and it now has a Mayor committed to a new airport in the Thames estuary. In north London, in a concentrated area of poverty in Tottenham and Edmonton, we have seen nothing like it.
With regeneration coming around the Spurs development, I would hope that we, too, might get those allowances. To deal with the jobs problem—I am talking not about highly skilled jobs, but about semi-skilled jobs and some jobs that do not require skills—we will need to attract private investment to give us those jobs. The danger now is that there is an incentive to go to another part of London, concentrating poverty even more deeply in north-east London in particular.
There is another issue in the Budget: not those without employment, but the working poor. We should remind the House that someone working in a constituency such as mine, here in London, might be a dinner lady at lunchtime and likely a cleaner in the evening, or a minicab driver during the day and a security guard at night. Such is the situation for those who are unable to make a living wage in our capital city. Of course, the changes to the personal allowance are desirable for those who are working. However, I might add that these are the very same families who saw their tax credits taken away in the last Budget, so this really is robbing Peter to pay Paul. As we know, those who will benefit from the changes will largely be middle-class families and those who are really well-off.
The decision to give a further tax break to those earning more than £150,000 a year will seem bizarre to my constituents, who have seen their incomes fall. Anyone travelling into central London on the tube from Seven Sisters station, either to look for a job or go to a job, is looking at spending £6.20 a day, whereas someone who decides to come down into central London on the 341 bus will have to pay £4.20 a day. Fares are up by 12% on the bus and 16% on the tube, under the reign of Boris Johnson. Those costs are huge for families with babies, who have already seen their monthly costs go up by £8.20 in just the last 18 months.
The cost of living is going up for the working poor, and there are huge concerns about worklessness, yet we heard nothing about how we are going to deal with that. We still have to wait for the introduction of the youth contract. We have also seen two thirds of apprenticeships in London go to those who are over 25, and it is not at all clear that we have got apprenticeships in the right areas of the economy
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in our country. What is the growth story? My constituents are still waiting to see what it is. There are huge concerns about equity and fairness in this Budget. I predict there will be further disturbances and concerns until we get a grip and deal with this emerging problem.
4.24 pm
Richard Drax (South Dorset) (Con): Perhaps it is appropriate that I should follow the right hon. Member for Tottenham (Mr Lammy). He certainly made a thought-provoking speech. I would just make the point that what we need to do, surely, is to create the environment for jobs, so that that large percentage of his constituents, the black population, can get a job. Until we create the right environment for jobs to be created, there will not be jobs for anyone in this country, whatever colour they are.
I congratulate the Chancellor on his Budget, which was delivered in quite trying circumstances. It has been pointed out that a lot of it was leaked before his statement in the Chamber. It has been delivered in circumstances in which, due to Labour’s undoubted profligacy and the world banking collapse—which I accept played a part—there is little room for manoeuvre. There is still less room for manoeuvre because we are constrained to a certain degree, whether we like it or not, by our coalition partners.
I therefore warmly welcome the good news. I welcome the reduction in corporation tax and the higher personal tax allowance. I welcome the reduction in the top rate of income tax from 50p to 45p. I particularly welcome the extra investment in our armed forces, and especially in their accommodation. Having served myself, I well recall the abysmal standard of much of the accommodation in the 1980s. I am also mightily relieved that we have left our beleaguered pension system alone. It would have been madness to tread on that particular nest at the moment. The right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) did so, and we all remember the consequences.
The 50p rate has engendered a lot of heat, and I can understand where that heat is coming from. I remind the House, however, that it was introduced in the dying throes of the Labour Government as a political move. It was, in effect, an elephant trap; it was well laid, politically, and it is a nightmare to climb out of. We had hoped to come into power as a Conservative Government, but that did not happen. We need to be bold, and I wish that we had gone further and reduced the top rate in the emergency Budget, but we did not. Yes, everyone should pay their fair share of tax, but the top 1% in this country already pay 28% of all income tax, and the top half pay 90%. Milking them of their rewards for all their hard work and aspiration will hardly encourage endeavour, and spending the money that we take from them on a bloated, runaway welfare state is sheer madness. This is the politics of envy. The Institute for Fiscal Studies estimates that, by the next election, one in four of us will be paying tax at 40%. Not so long ago, that figure was one in 20.
As Tories, we must remember what we stand for: less state, less red tape, less taxation, less government, less public spending, more enterprise, more wealth creation and more support for business. We remain deeply in the
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red, thanks in large part to Labour. Public sector debt is still at £1 trillion, and borrowing will be £120 billion this year. We need that
“forensic, relentless focus on growth”
promised by our Prime Minister. We must encourage that. We should not only cut taxes but slash them. We must release business from all its constraints. We often proclaim that we are open for business but, as Willie Walsh writes in The Daily Telegraph today, the Chinese laugh when they hear that.
The Federation of Small Businesses in the south-west came to see me recently, and begged for more help from the Government. Small businesses are struggling with high fuel costs, as other hon. Members have mentioned, and I regret that we cannot go much, much further in cutting fuel taxes. Small businesses are also struggling with high business rates, with a lack of infrastructure and with banks that are refusing to lend. We have heard those stories repeatedly in the House. The national loan guarantee scheme for small businesses that was announced yesterday will provide credit at a lower rate of interest, but access to that credit is as difficult as it has always been. Indeed, the FSB said yesterday that the scheme is not a “game changer”, yet that is exactly what we need now. We need really radical policies. We must be brave; we simply cannot go on tinkering at the edges.
Most of all, we need to cut state spending; many inroads into it have been made, but in my view we have not gone far enough. We need to take the state out of people’s lives. This is a Conservative philosophy, and, I believe, a right one. The public sector as it currently stands is unaffordable.
I regret that we have made changes to child benefit. At whatever level the “cliff edge”, as it has been called, is set, many hard-pressed, hard-working families will be worse off. I heard my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley) saying—on “Newsnight”, if I recall correctly—that he looked at that from every angle some years ago, but could not see how to alter it. What I say, however, is that it is disingenuous to suggest that poorer families were or are subsidised by the better-off, because the better-off pay a higher rate of tax. There must be other ways to give families with children some help—without the unintended consequences. Perhaps a system of tax allowances rather than benefits could be examined.
We must also admit that much of the pressure on public expenditure is ultimately due to immigration. Immigration in this country is at an unacceptably high level, putting huge pressures on this country and her services, and we are struggling to keep our roads and rails going and to provide enough housing. In the longer term, it is unsustainable. A sudden increase in birth rates means, I am told, that we will need 540,000 new primary places by 2018.
Finally, I cannot leave the European Union out of my speech, because it is inflicting a high price on business in this country. We can say a lot here and we can have aspirations here to release our business and let it fly, but we will never get what we want or the jobs and wealth we need to generate until we are free of the red tape from Brussels. Only then can we break free from the shackle of deficit that hangs around our neck. When we have, the important thing to do is to spend only what we earn.
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4.31 pm
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op): I congratulate my right hon. Friend the Member for Tottenham (Mr Lammy) on the comments he made. For all the Budget figures that we talk about, real people are at the heart. I echo his comments, but I want to talk about the small businesses in my constituency, which I hope, and we all hope, will help to create some of the jobs that my constituents, like my right hon. Friend’s, so desperately need and want.
Hackney is very much a picture of small businesses, with more than 90% of them across the borough as a whole employing fewer than six people—and many of them even fewer than that. The vast bulk of small businesses are located in Shoreditch, in the southern part of my constituency. It is very much the heart of the creative industries and the tech city hub, with nearly 39,000 people employed there. In the Shoreditch town centre area as a whole, there are more than 4,000 in the tech area and more than 5,000 in the creative industries, with about 15,000 people overall. Shoreditch has 77% of the total town centre employment and 93% of all the technical employment.
The growth and dynamism of that area have been going on for some time—before, I have to say, the Prime Minister got interested in it. Of course I welcome any interest shown by the Government in my constituency, but I have to say that some local businesses worry that the increase in rents is partly a result of the talking up in government of the area. Many of the businesses have been there for a long time, as I shall touch on shortly.
Ms Margaret Ritchie (South Down) (SDLP): Does my hon. Friend agree that today’s Budget simply imperils working families and particularly small businesses because it has no measures to mitigate the effects of fuel prices, which are already high in urban and rural areas?
Meg Hillier: My hon. Friend makes an important point. The fuel issue is not such a big one in my constituency because of our public transport links, but it is different in areas such as Northern Ireland. I recall having a conversation with a man in Carlisle. He said, “Tell them back in London”—I thought that was illustrative in itself—“that I spend more on fuel in a month than I do on food.” He was just an ordinary working man. It is important for the Government to understand the pressures on household incomes; there are important issues there.
The economy in Hackney South and Shoreditch is dominated by small businesses. It is very creative; we have a big fashion industry, and a digital industry at silicon roundabout. We are seeking to improve and increase that economy all the time. A lot of the small and micro-businesses are struggling. They are not getting the lending that they need from banks, because banks refuse to understand their business models, which are often innovative. They are not even able to get the working capital through overdrafts. That is a real issue. Overdrafts are treated in the same way as loans on the balance sheet. Many of the businesses that I deal with, especially those that are growing and have got to a certain stable point, simply need that facility; they are not seeking a loan. The interest rate cut makes no difference to them. They are seeking an overdraft facility, not a loan.
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The interest rate cut announced yesterday makes no difference to those seeking a loan, either, if they have a business model that makes banks nervous about lending to them. One person said to me, “We lend only to vanilla companies”—that is, safe bets with well worn business models. We are talking about an area of bursting creativity, an area that is growing enormously and will and does create jobs, so we need a solution. Merlin was a damp squib; the magic wand did not work. I am not hopeful that the Chancellor’s announcement will make any difference to the small local businesses to which I speak.
There is another key issue for small start-ups. We need 600 desk spaces. For those who do not know the area, if they wander around it, they will see, in cafés, hotels and specially designed work hubs, people sitting with their laptop or iPad; they will be doing business in that fashion. Across the area, a few thousand desk spaces are rented out for about £350 a month. That is how a lot of people do business; they grow that way. In the Trampery, a shared desk space area in my constituency, one business has grown to the point of renting 13 desk spaces. It has decided to stay there because of the creative input, but also because it is a big risk to move from that fluid way of working to permanent premises. That is a type of business that Government and this Budget do not really understand.
As I say, rents have gone up enormously, which is a real challenge. As businesses improve and seek to stay in the area—crucially, they may employ local people if they are in the area for a long time—that causes problems. I do not want my constituency to be the nursery of businesses that move elsewhere simply because they cannot afford to stay. If they move elsewhere for good reasons, that is a different matter, but some of them are being forced out.
I want to give examples of what the Budget really means on the ground. Somethin’ Else is a media production company employing about 70 members of staff in Shoreditch. It has an annual turnover of approximately £8 million. Under Project Merlin, it was not able to get the borrowing facility that it wanted. It simply wanted an overdraft, but that was withdrawn from it overnight during the economic crisis. The company is quite interesting, because it produced a film called “somewhere to”, an Olympic-funded project run by Livity. It featured young people performing in No. 10 Downing street. The Prime Minister was so impressed by the work of the company that, as some Government Members will know, the film was played at the Conservative party conference before his speech in October last year. The very company that was paraded by the Conservative party as a success is struggling precisely because of Government policies.
Not Just a Label is an international business, an online fashion promotion platform. It is the only online fashion design platform in the world. It is present in 93 countries and represents 8,000 fashion businesses, including 1,000 in east London alone. It currently employs 15 people in very small offices tucked away in the back streets of Shoreditch. It is looking to expand and develop: it wants a design showroom to complement its virtual presence. That would involve the company doubling in size within six to 12 months, but traditional banks are not willing to fund that expansion, because they simply do not understand that business model. The “vanilla financing” line was used to that group.
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Another business, Image Line, is owned by Sue Terpilowski, who is involved with the Federation of Small Businesses, so she knows a lot about what other businesses are putting up with. She told me that her business rates, for 2,200 square feet, went up by £8,000 this year. Rate increases have a big impact on businesses, and on the face of it, we can see nothing in the Budget on that issue.
There are other pressures on London businesses across the board—I am not talking just about Shoreditch now. London members of the Federation of Small Businesses are taking out loans or overdrafts at interest rates that are very high compared to those available nationally. Some 21% of London members of the FSB have loans or overdrafts at interest rates above 15%, compared with 9% of its members nationally. The 1% in question is merely a drop in the ocean in the context of interest rates that are that high. That issue must be tackled.
Has the Chancellor had any conversations with businesses about more innovative ways of providing working capital, such as the next generation funding models, including funding circles and crowd-funding? Such models might work for the new tech businesses in my constituency, but they need to be regulated. There is a lot of talk of one in and one out, but if we are to have innovative funding models, we need Government support to ensure that they are legitimate forms of funding and that scams do not happen.
The Chancellor has announced his seven short-listed funds. I have my doubts as to whether they will lend to the businesses I am talking about, especially when we consider the much vaunted Green investment bank. We hoped it would support new businesses, but we feel sure that it will be controlled by the Treasury and the available capital will go into some of the bigger known providers.
My constituents want to find work in the job-creating new tech businesses in Hackney, so skills is a key area. We have good support from Hackney community college, which has set up an apprenticeship scheme, working with the tech city hub. Thanks to Government funding, we in Hackney will have a university technical college, under principal Annie Blackmore, opening in September at the HCC. She and Ian Ashman, principal of the HCC, have been working closely to try to ensure that we develop the necessary skills through our schools and colleges so that young people in Hackney can secure these jobs. We must make a link with the people who live just north of Hoxton square and in the rest of my constituency, many of whom do not have access to these jobs because they do not have the necessary skills.
I cautiously support the Sunday trading proposals for the Olympic period, as I recognise that that is a welcome global event coming to my constituency. However, I am also concerned that the move could be a trial run for a permanent change in the law. The leaks about today’s Budget announcements were broadly accurate, and I worry that the leaks about the Sunday trading proposals, suggesting that the Chancellor has a secret mission to take on the low paid and families and to ensure that people will have to work long hours, might also be accurate. My local smaller businesses are also nervous about the proposal. The benefit of longer trading hours is very small for them, but it gives more succour to the big retailers, who are already putting a lot of pressure on such small businesses.
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High broadband speeds are much needed, and Hackney council is already seeking to increase speeds, first in Shoreditch and then in Dalston. I do not know the timetable for that scheme. However, although the Chancellor says he is funding it, I want to know whether it is new funding and how quickly it can be drawn down. We certainly need these developments in Hackney.
The Chancellor has, through sleight of hand, suggested that the Government greatly support business. The small and medium-sized businesses in my constituency have yet to benefit, however, so there is a great deal of scepticism about the Budget. I want the businesses in my constituency to grow and the jobs to be created, but I am very worried that this Budget will not deliver.
4.43 pm
Chris Heaton-Harris (Daventry) (Con): It is a pleasure to speak about the Budget on Budget day itself, and, indeed, to have quite some time in which to speak. The last time I tried to speak in a Budget debate, I was curtailed at three minutes and 52 seconds, just as I was building up a full head of steam. I hope to enjoy the nine minutes and 42 seconds remaining to me today.
I welcome the Budget for many reasons, but, in common with any Back Bencher trying to represent their constituency, I also have some questions and there are some areas on which I want to probe and seek commitments from the Government for future Budgets.
I listened carefully to the contributions on their constituencies of the right hon. Member for Tottenham (Mr Lammy) and the hon. Member for Hackney South and Shoreditch (Meg Hillier), who serves with me on the Public Accounts Committee. For the first eight minutes of the right hon. Gentleman’s speech, I did not disagree with a single word he said. It was a fantastic speech. I know his constituency very well. A friend of mine has set up a boxing club on White Hart lane, and he takes in young people from the Broadwater Farm estate. The right hon. Gentleman has led his community in a highly commendable way since last year’s riots.
Let me set out what I think we all want, and what I certainly want as a former small business man. Before going into the European Parliament, I ran my own business wholesaling fruit and veg in New Covent Garden market, working nights for 11 years. My second language at the time was Cockney, and the sort of people I used to work with were keen on trying not to pay any tax. These were cash businesses and people tried to keep it that way. They wanted to generate wealth and then to choose how they spent it. There is a delicate balance to be struck in government between encouraging as many people as possible to create wealth and ensuring the bit that is taken in tax is spent well, so that people feel they are getting value for their money. I would like to think that everyone in this House welcomed elements of this Budget, and certainly those dealing with small businesses.
I know that the threshold is set at only £77,000 of cash passing through someone’s small business, but some of the paperwork associated with their return to Her Majesty’s Revenue and Customs goes overboard—it is way too much. These people are normally one-man bands, although perhaps they have a partner, so reducing and simplifying their paperwork is fantastic for them. We are giving people who want to set up a chance to know that they are not going to be hammered by the
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taxman, because they will understand the form that they are filling in and will not be fearful of getting it terribly wrong.
The Budget contains lots of other good things. I am sure that the whole House welcomes the £36 billion that is being saved as a result of interest that we are not paying because of the low interest rates engendered by this Government’s economic policy. Some Opposition Front Benchers have been suggesting ways of dismantling this fantastic set-up that enables us to borrow at low interest rates, but, realistically, everyone has to welcome the fact that we are paying less for our debt at the moment.
Neil Carmichael (Stroud) (Con): I am thoroughly enjoying my hon. Friend’s speech and he is hitting on the important issue of interest rates. Does he agree that smaller businesses, too, are going to benefit enormously from low interest rates, both now and in the future, because they mean long-term investment for those businesses?
Chris Heaton-Harris: I thank my hon. Friend for his intervention, and of course I agree with what he says. The more we can spread lower interest rates, the better it is. As hon. Members from across the House will know, it has been difficult getting the banks to lend to all sorts of small businesses in the past two years. Any measure we take that strengthens lending to small businesses is a thoroughly good thing, because these businesses are the acorns from which big businesses grow. The Labour Government had this fantastic policy of how to manufacture small businesses: they took a big business, taxed it and added loads of regulation, and a few months or years later they had a small business. We are doing exactly the opposite.
Mr Adrian Bailey (West Bromwich West) (Lab/Co-op): The hon. Gentleman has been extolling the virtues of low interest rates. I would certainly agree with the thrust of his argument, but what has he got to say about, and would he condemn, those financial institutions that have started to raise interest rates for mortgage holders?
Chris Heaton-Harris: I would not necessarily condemn them, but I would very much like them to answer the case on why they are doing that. I understand their business case, and people find it interesting when they start to talk to them. I like to think that the measures we have taken in the Budget, whereby we are trying to allow the flow of low interest rate money through our business sector in bigger and better ways—I think, for example, of the seven partners that the Chancellor is now looking at to do that in the future—are a valid way of proceeding.
I also welcome the broadband investment. My constituency is in the heart of England and could not be more different from that of the hon. Member for Hackney South and Shoreditch. My constituency is largely rural with lots of dynamic businesses, including lots of small businesses, based in it. However, we have awful broadband connection. When hon. Members talk about trying to get regular download speeds of 2 megabits, I look at them in awe, because my area is at the end of a copper exchange and we barely get speeds of 1 megabit. Where I live, I still watch my e-mails download, and
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plenty of hon. Members from across the country find themselves in exactly the same position. If we want proper inclusion across the whole country, we have to have fast broadband. I would settle for fast broadband, although superfast broadband would be a delight, and I very much welcome the measures we are taking on that.
I welcome—not because I am a Tory, but because I was in business—the fact that corporation tax is being lowered. We want to encourage businesses to invest. One way of doing that is by lowering corporation tax and I welcome the trajectory in which we are travelling.
I welcomed the waving of Order Papers when it was announced that this Government are lifting 2 million people out of paying tax, but—
Meg Hillier: Before the hon. Gentleman moves from the issue of small businesses, may I ask whether he has spoken to business people in his area about the possibility of a cross-Government body looking at small business administration to make sure that different Government policies do not have perverse outcomes, which Governments of all parties ought to consider?
Chris Heaton-Harris: As the hon. Lady knows from the Public Accounts Committee, where we have often talked about such matters, it would be lovely if Government Departments had a holistic approach to any area of policy. If we could start with small business, that would be fantastic, but I do not think we are quite there yet. That is something we would all support across the political spectrum and without political point-scoring.
I was speaking about the waving of Order Papers and the 2 million people being lifted out of paying tax altogether—a thoroughly good thing, which I would like to think is welcomed in all parts of the House. It benefits everyone who is working—people who are trying hard for themselves, have got on the job ladder and are moving forward. I benefit. From what I see on Twitter and other media sources, if people are earning around £60,000, have children and drive a car, they are not in a great place after the Budget. That includes most Members here. We have managed to produce a Budget that penalises MPs, which I am sure our constituents will be relatively happy with. Most people want to see the lowest paid in society not paying tax, and long may that continue.
I have one or two concerns and plenty of suggestions. The Treasury Minister will know of my long-running love affair with onshore wind turbines and what they do to my constituency. Although there was not much about renewables or the subsidy levels, I welcome the words spoken by the Chancellor in his speech. An investment in gas and in nuclear is proposed. If we chose that method to hit our 2020 carbon target, we would save more than £35 billion, compared with the route that we are currently choosing to go down, which involves other types of renewables that cost an awful lot more. The subsidy that is given to landowners and energy companies makes energy cost more, increasing fuel poverty at the other end of the cycle. I suggest wholeheartedly that we look carefully at the policy choices we are making when we talk about energy, green taxes and fuel poverty in the future.
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Personally, I do not mind consumption taxes. I know that Labour Members take issue with that, so let me give an example. I would love to see the end of vehicle excise duty. Fuel prices are too high, as we all know because we all regularly fill up our fuel tanks. Getting rid of vehicle excise duty would add, I believe, roughly 1.5p to the cost of a litre of unleaded petrol and diesel. But we would not have to pay vehicle excise duty and we would pay as we drove, so if we drove a gas-guzzler we would pay a lot more. The old lady who drives hardly at all would pay a lot less. There would be a huge simplification of the tax system. That might not work, but I would like us to think outside the box and consider areas where we could simplify taxes.
Andrew Bridgen (North West Leicestershire) (Con): Is my hon. Friend aware of the millions of vehicles that are not paying vehicle excise duty? Putting the tax on fuel would catch them all and bring them within the scope of taxation.
Chris Heaton-Harris: I am aware of that; it is one of the reasons I moot the idea at this point.
I would like to finish by talking about personal taxation and the general excitement across the House about the reduction in the top rate of tax from 50p to 45p, based on the Laffer curve. I have been reading the document that the Treasury has produced and note that the comparison has been made on the changes to the additional rate of income tax and the money that we might have expected to get in, or not to get in, as a result of increasing taxes. I humbly suggest that that completely underestimates the value of reducing taxes, because reducing taxes means that there is more of an incentive to pay and not to try to divert or put off paying them for a certain amount of time. I would love to see more work done in the Treasury on what those figures would end up like, because we want to encourage the creators of wealth, and one way of doing so is by saying to them, “You can keep more of the income you generate.” We want people to take a chance and a risk and to set up their own businesses, and this is one way of encouraging them to do so.
4.55 pm
John Healey (Wentworth and Dearne) (Lab): It is a pleasure to follow the hon. Member for Daventry (Chris Heaton-Harris), and I think that the whole House is glad that he had more than three minutes and 52 seconds in which to speak today, because that allowed us to hear for the first time about his days as a fruit and veg man in Covent Garden and the speed of his e-mail downloads in Daventry. I have to say that we did not hear much that was new from the Chancellor, who spent an hour telling us what we have been reading in the newspapers for the past week. It makes me think how times have changed since Hugh Dalton was required to resign in 1947 over the leak of a single duty rate change. Nevertheless, in my experience announcements that look clever on Budget day often look less certain and more complex in the days that follow, and what often follows is that the economics behind the politics becomes much clearer. It seems valuable to recall the warning that Winston Churchill gave:
“We shall not be judged by the criticisms of our opponents, but by the consequences of our actions.”
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Barry Gardiner: Does my right hon. Friend agree that one of the things that might look a little shakier later is the granny tax and the fact that 4.1 million people will be worse off in real terms, with an average loss of £83, and as a result of which 230,000 people will be brought into income tax?
John Healey: My hon. Friend is right. This might well become a Budget in which the closer people look, the less they like. That might apply to the granny tax, as he suggests, but it might also apply to the threshold for the 40p top rate of income tax, which many people might find themselves hit by over the next few years, rather than benefiting from the raised threshold for payment in the first place.
The consequences of the Government’s actions at a national level are already becoming clear. The UK economy grew by 3% in the year before the Chancellor stood up and delivered his spending review in 2010. In the 12 months that followed it grew by just 0.5%. That is because he took the decision to cut too far, too fast and choked off growth. Based on the economic projections we heard today, this country is still set for feeble growth in the coming year and the year after. It seems to me that a credible economic plan to deal with the deficit must be supported by a successful plan for jobs and growth alongside it. At present, the Chancellor is condemning Britain to being a one-legged man in a three-legged race. The International Monetary Fund has made a similar point, stating that
“growth is necessary for fiscal credibility.”
We have to look harder at what we earn as a country, not just what we spend. The UK’s GDP last year was still nearly 4% lower than it was before the global financial crisis hit in 2007-08. In other words, our economy was smaller and our national income was lower. If we draw a comparison with the US or with Germany, we find that both countries have a more balanced approach to dealing with their deficit, both countries are growing more strongly than Britain and both countries now have economies that have regained the loss of productive capacity which everybody in the modern, developed world suffered during the global financial downturn of 2008.
Austin Mitchell: That is a very important point. My right hon. Friend will know that the Institute for Fiscal Studies Budget forecast makes the point that that 4% now lost is lost for ever: it is 4% lost every year into the future.
John Healey: Indeed, and that is one reason why Britain is so far off the economic pace, and why so much more must be done than has been so far to boost jobs and growth in this country.
To use the household income analogy, well loved of the Tory party, I note that if a household looks to pay down its debts at the same time as reducing its earnings, the spending cuts that it must make to do the job have inevitably to be more savage and to last for longer in order to be successful. That is the position this country is in.
If I look at the consequences of the Government’s action locally, I have to say that in south Yorkshire, our area, it is hurting but not working: flat growth, higher unemployment, higher bills, lower confidence. In our
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area, more than 12 people are now competing for every single job that becomes vacant, and the number of young people without a job for more than six months has more than doubled in the past 12 months alone.
At a time when courts, hospitals, councils, civil service, police and fire service are all cutting public service jobs, any difference that there may be in south Yorkshire between public sector and private sector pay rates is simply not the reason why growth is being held back; it is the loss of jobs, of pay and of support through working tax credits that is sapping demand and confidence.
The Chancellor this afternoon singled out for special treatment those earning more than £150,000 a year, cutting their 50p income tax rate and giving them a tax break that is worth more to those people than many in Rotherham or Barnsley can earn in a year. With more than 800 households and families in Barnsley and more than 1,000 families in Rotherham—working hard, working part-time—faced next month with the total loss of their working tax credit, which could amount to almost £4,000 a year or £70 a week, the Chancellor’s decision to cut the top rate of tax at this point will simply not be accepted or understood.
Let me turn to several of the Budget measures. Any performance report on the Government would be hard put to place the Department for Business, Innovation and Skills anywhere other than close to the bottom, and any judgment on policies would be hard put to say that business support policies have been anything other than close to failure. The Merlin project was supposed to lead to a 15% increase in lending this year; in fact there was a net reduction of £11 billion in net lending to small firms. There was a similar failure of the regional growth fund, of the business growth fund and of the national insurance holiday for small firms.
I look in this Budget with a degree of welcome, however, to the new credit scheme for lending to small firms, and to the new managed funds for lending to mid-sized firms. Those may be small in scale, but they are a start. The margins to make lending more affordable may be modest, but the design and concept, at least, are innovative. Interestingly, the schemes signify that the Government recognise that they were wrong when first elected to say that there was no role for active government and that the private sector would pick up the slack if the public sector stepped back.
The schemes are interesting because they help to reduce risk and cost by using the power of the Government to stand behind them rather than support being funded up front. I say to my hon. Friend the Member for West Bromwich West (Mr Bailey), who chairs the Business, Innovation and Skills Committee, and the hon. Member for Chichester (Mr Tyrie), who chairs the Treasury Committee, that I hope that the Select Committees will make sure that those schemes do not fail as the other business support schemes have and that they provide more lending and lead to more economic activity and support for business in every region of the country.
International experience and all the data underline the fact that, in the long run, high levels of business investment are at the heart of strong economic growth. It seems to me that the case is clear, and has been so since the global financial crash and the requirement for Government to step in and provide big public support to commercial banks, that now must be the time to set up a British investment bank—the sort of industrial
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investment bank that Germany, Singapore and India have, which can offer strong support to indigenous research and development, domestic manufacturing and regional economies.
The Chancellor told us this afternoon that, taken together, the anti-avoidance measures in this year’s Finance Bill would increase tax revenue over the next five years by about £1 billion. It is interesting that table 2.1 in the Red Book indicates only about a quarter of that over the five years, and that is about half what we did in our first year in government. You, Madam Deputy Speaker, will recognise in the proposal for a general anti-avoidance rule, which I welcome, the same approach that we took and you fought for, against Tory opposition, in respect of the disclosure rules in the Finance Act 2004.
This Chancellor’s Budget was a rich man’s Budget. He chose to cut the top rate of tax and give a kick-back for the rich—and at a time when the deficit is getting bigger, not smaller, when the national minimum wage for young people has been frozen and when the working families tax credit and public services are being cut across the country. This is not a Budget for working people, and the Government are not working for working people. It is not now, and never was, a question, as the Government claimed, of the richest bearing the biggest burden; this Budget proves that the richest are getting the biggest benefit.
5.8 pm
Gavin Williamson (South Staffordshire) (Con): It is a privilege to speak in today’s Budget debate. There has been an interesting contrast in the two speeches made from the Dispatch Box today. One, made by the Chancellor, set out his vision and ideas about bringing growth to our economy, supporting business and families and making things happen in this country. The other speech, by the Leader of the Opposition, had one interest solely—making sure that he stayed the leader of the Labour party. It was not about the national interest or trying to help the country to go forward, but about remaining leader.
Those on the Government side of the House, Conservatives and Liberal Democrats, are here to try to do what is best for our nation. Those on the Opposition side cannot say the same about themselves. If they can—and I hope that they are of that mind—they will march through the Lobbies with us when the Budget vote comes, supporting us and making sure that the country is growing once more.
The Budget helps two principal areas—business and families. Already, this Government have done more for my constituents in our almost two years in power than the previous Government did in 13 years. This Government are already delivering jobs for South Staffordshire, with the £350 million investment by Jaguar Land Rover on the i54 business park, bringing 750 jobs directly into the constituency. I remember Labour Members deriding enterprise zones and saying that they would not work. Well, I am rather proud to have an enterprise zone in my constituency, because it helped to bring in those 750 jobs. I am sure that many Labour Members will now want enterprise zones right across the country, even in the devolved regions.
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Mr Marcus Jones (Nuneaton) (Con): Does my hon. Friend agree that the current situation, with enterprise zones, the regional growth fund and the support that is being given to industry, particularly motor manufacturers in the west midlands, is a complete contrast with what happened with the failed regional development agencies during the period of the Labour Government, when private sector employment in the west midlands fell?
Gavin Williamson: My hon. Friend makes a pertinent point. Although there has been recovery in the automotive sector, unfortunately the supply chain that supports those manufacturing companies was hollowed out over the course of 13 years. I hope that Members on both sides of the House recognise that that is a serious problem. I pay tribute to the previous Government for taking some action at the tail end of their period in office in setting up Automotive Council UK, which has been carried on and strengthened by this Government. That is a positive move, but we need to be doing so much more to support not only manufacturing companies, which I am most passionate about, but many more service companies and other companies across the length and breadth of the country.
The Budget included an announcement on reducing corporation tax. A lot of people say, “That does not matter; it will not make a difference to business.” If that were the case, one might ask why the Republic of Ireland is so determined always to make sure that it keeps its low corporation taxes, but we know that it does that because it knows that it makes a difference in bringing in inward investment. Companies that want to invest in Europe are trying to make sure that they invest in the right place, which, in my view, is the United Kingdom. The moves to reduce corporation tax will have an enormous effect on bringing jobs to the UK—not only to my constituency or the constituencies of Government Members, but to every single constituency in the country.
We must also welcome the moves to simplify our tax system. We see so many people setting up small businesses, giving it a go, and trying to make a difference and do well for themselves, but then being faced with a barrage of bureaucracy and complex regulations that they have to master. It is a shame that anyone could not welcome the moves to make sure that all businesses with a turnover of under £77,000 will be free of many of those regulations. I hope that Labour Members will join us in the Lobby in support of that measure, because it will have an enormous impact on every business.
Another development that we must welcome is enterprise loans for young people. Far too often, young people with great ideas and great ambition do not have the finance to build their own businesses. I think of a constituent of mine, Louis Barnett, who decided against all the odds to set up a business, to go out there and to make a success of it. Finance is not always easy to find, but despite everything being against him, he did it. He has set up an incredibly successful chocolate company, which exports to Mexico, Ireland, China and Korea. He is making a success of it. We need to encourage many more young people to set up businesses across Britain. That is what the Chancellor has done and we should all support it. We need to give our businesses every possible chance.
Some Opposition Members are pouring scorn on somebody who wants to make a successful business by
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making and selling chocolate and exporting it around the world. Perhaps that is why the previous Government made such a dreadful mess of our manufacturing base and brought this country to its knees.
Mr Marcus Jones: My hon. Friend’s argument is being given a bit of harsh treatment from Opposition Members, who seem to think that all was rosy in manufacturing under the Labour Government. Is it not the case that 1.7 million jobs were lost in manufacturing during the period of the Labour Government?
Gavin Williamson: My hon. Friend makes a valid point. Manufacturing was destroyed under the Labour Government. When the Conservatives were last in power during the 1990s, there was growth in manufacturing. We saw the same amount of gross value added in manufacturing and the industrial sector in the United Kingdom—
Mr Bailey: Will the hon. Gentleman give way?
Gavin Williamson: No I will not. In the 1990s, there was the same amount of gross value added in manufacturing and the industrial sector in the UK as in Germany. That has now been halved. That is down to the incompetence and neglect of the last Labour Government. I happily give way to the hon. Gentleman.
Mr Bailey: I thank the hon. Gentleman for giving way belatedly. As a fellow west midlands MP, I am slightly surprised by his comments about the record of the previous Conservative Government on manufacturing in the west midlands. Will he list the major employers—employers of thousands of people—that failed during the period of the previous Conservative Government in the black country and the west midlands?
Gavin Williamson: I will happily talk about what happened under the previous Conservative Government, although it is going a little way back. Between 1992 and 1997, exports from the manufacturing base in this country grew and gross value added grew, because we created an environment in which manufacturers could grow. That did not happen under the last Labour Government, when jobs and businesses were destroyed. The Chancellor is committed to reversing that. I can give many examples of businesses that failed under the Labour Administration. This Government are committed to helping businesses grow, which is to be welcomed.
Geraint Davies (Swansea West) (Lab/Co-op): The hon. Gentleman is being gracious in giving way. I should say that my background is in multi-national companies and in starting my own businesses successfully. Does he accept that after his Government came to office, the growth forecasts reduced massively between the first and the second year? According to the Office for Budget Responsibility, the size of the economy will be down by £50 billion a year for ever because of his Government’s policies.
Gavin Williamson:
I thank the hon. Gentleman for making those comments. It is fascinating that the International Monetary Fund has predicted that Britain will grow faster than Germany and France. It is true that the eurozone has had a negative impact on this country, but people see us as a country that is well run,
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with a Chancellor who is committed to making business growth happen. That is why we will grow faster than Germany and France. I am sure that the hon. Gentleman will welcome that.
I will move on briefly to families. It is often said that raising the personal allowance is a Liberal Democrat idea. Members will be shocked to hear that the matter was raised with me many times during the general election campaign. I told people that if I was elected as their Member of Parliament, I would do all that I could to ensure that personal allowances increased so that the lowest-paid—
Stephen Lloyd (Eastbourne) (LD): Will the hon. Gentleman give way?
Gavin Williamson: I will make some progress, thank you. I told people that I would try to ensure that we made progress on raising the personal allowances for everyone in this country, including the lowest-paid. I am particularly proud to see that the Chancellor has done that, and I am quite sure that every coalition Member will warmly welcome it.
I wish briefly to touch on one thing I would very much have liked the Chancellor to do, which is to tackle the issue of the beer duty escalator. In the Strangers Bar, one of the finest ales, Enville ale, is currently on sale as one of the guest ales. I encourage everyone to ensure that they have a pint of Enville ale, a fine beer but one from which I am quite sure we would raise just as much duty if we got rid of the beer duty escalator. I put in a plea for that, and it would be very much appreciated.
I welcome the news that we are going to have a national centre for aerodynamics. Again, that will support manufacturing, but let us ensure that it is in South Staffordshire. We have an aerospace industry that is highly dynamic and—
Madam Deputy Speaker (Dawn Primarolo): Order.
5.21 pm
Naomi Long (Belfast East) (Alliance): I start by confessing that I find the Budget quite disappointing, not because I had huge expectations of it at the beginning but more because some of the more disappointing things that have been widely trailed in recent days are indeed in it.
I start with a partial welcome, however, for the increase in the personal allowance, because I believe that it will lift a significant number of low-income families out of paying tax. I qualify my welcome only because, as a means of tackling in-work poverty, it is a broad-brush measure that will benefit the wealthy as well as the poor.
When I consider the changes to tax credits and other in-work benefits that have been announced in recent weeks, I believe that all may not be as it seems when it comes to who will be most affected. Other Members have highlighted that point by referring to those on the lowest incomes, such as those in part-time, minimum-wage employment.
Beyond that, I look to what will create employment for people in Northern Ireland. Although it is a good thing to lift people in low-income employment out of paying taxes, it is a better thing to lift people into higher-wage, better-paid jobs and give them opportunities to succeed.
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A couple of measures that would help the Northern Ireland economy significantly have been talked about for some time, and I want to consider them briefly. My concern is that the Budget lacks what I would call regional sensitivity, for want of a better phrase. One of the significant burdens that businesses in Northern Ireland face, and which has an impact on leisure and tourism as well as on business travel within the UK, is air passenger duty. We have raised that many times with the Government, and to be fair and give credit where it is due, there have been some significant and positive interventions in the case of long-haul flights.
The Minister of State, Northern Ireland Office (Mr Hugo Swire) indicated assent .
Naomi Long: I see the Minister of State nodding vigorously and looking bemused that I should raise the matter today, but I do so for this reason: although the intervention on long-haul flights was welcome and positive, and although I know the Government have recommitted to the devolution of the matter to the Northern Ireland Assembly, which is welcome, I confess that I hoped the Treasury might take some action on the level of short-haul APD. That has an impact on what we pay for regional flights within the UK and places a premium on our connectivity, particularly with the south-east, which the Government reinforced in today’s Budget as the primary income generator for the UK.
In addition, businesses in Northern Ireland and local consumers are challenged by the double payment of APD on flights to other short-haul destinations. That occurs when people have to pass through one of the hub airports here in London but not on a through connection, owing to limited access to direct flights and through carriers. I hoped that the Government would take the opportunity to attract new tourism and grow business, but it appears that APD is simply to rise as planned in April.
Many Members have highlighted the impact of fuel costs on both families and businesses, and the distortion that it causes in the cost environment for businesses in regions such as the one that I represent. Fuel prices there are high, and transport costs make up a higher proportion of business costs than elsewhere because businesses are more rural and remote. Today, there has been little new for those businesses and families, beyond the reiteration of a promise about the fuel duty stabiliser. I hope that it is possible to implement that as a matter of urgency, but I also hoped for something slightly more on fuel duty.
I want to consider corporation tax, which we have been discussing at length and for some time from a Northern Ireland perspective. That has been mentioned today in the context of the main corporation tax rate. I listened carefully to the Chancellor when he extolled the virtues of the changes he would make. He mentioned all those he foresaw as our significant competitors, but not the nearest competitor—which will still have a significant advantage over us even at the end of the period when the main rate of corporation tax reduces to 22%—of those of us who reside in Northern Ireland: the Irish Republic. It has significantly lower corporation tax and is a direct competitor with businesses in my region,
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particularly those around the border. The announcement on corporation tax will affect very few businesses in Northern Ireland. Most pay the lower rate of around 20% and I do not believe that they will be affected, although I am prepared to be corrected if my assessment is wrong.
I want briefly to reflect on regionalisation of civil service pay and national agreements, which is more for deliberation in Committee than a formal part of decision making at this point, but it nevertheless causes me some concern. I believe that it could be a slippery slope. It presents risks through a brain drain from the Northern Ireland economy, and that is a significant challenge. It is also contrary to the stated UK Government policy of rebalancing the UK economy and reflecting the importance of the regions. Only three regions contribute positively to the UK economy; the other nine are essentially net recipients from the Treasury. As someone who lives in one of those regions, I would like the economy to be rebalanced so that we no longer rely on subvention but can make our way, and, as the Chancellor described, work our way out of the situation. However, it is difficult to do that if the general direction of travel inhibits wage increases and competition and has a negative impact. It is as though people in Northern Ireland doing the same job as people elsewhere are somehow worth less. That is a very bad place to start.
Although it is true that public sector salaries in some areas can rise above private sector pay, particularly in the current climate during a recession, we must remember that, not so long ago, private sector salaries well outstripped the public sector in the same regions. Indeed, the public sector had to pay a premium to attract talented individuals during the boom. We need to be cautious about making decisions based on current circumstances that could have long-term consequences. The policy could also reduce work incentives. People say that it may create competition and attract people into the private sector, and I understand that, but the difficulty is that, with a contracting public sector, there is no competition for jobs in that sense. We therefore need to be cautious.
I have to say that I see the reduction of the 50p rate of tax as simply a major giveaway to the wealthiest in our society. I understand the points that have made about property tax, but if the Government want to simplify taxation, there are better ways of doing it than through that reduction. It sends out the wrong message to people who are suffering and finding it difficult to make ends meet. Tax avoidance has also in effect been simplified because for someone who earns a lot and does not invest it in property, it has been a good day.
I want to highlight some positive aspects briefly. I welcome the fact that Belfast has been included among the cities that will benefit from ultra-fast broadband and wi-fi connectivity. That electronic connectivity is hugely important for us, particularly in the light of the issues that I raised about APD and transport costs. I hope that, when it comes to other cities bidding to gain from that pot, Northern Ireland will get its fair share. I want to share my pleasure at the notion of support for the creative industries. Film and television, for example, are growth industries in Northern Ireland. I would welcome their expansion, particularly in my constituency—“Game of Thrones” was filmed in the Paint Hall in Belfast.
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Finally, I make a plea to the Treasury in respect of creating a UK centre for aerodynamics to open in 2012-13. I hope that it will be a genuinely UK centre. We have a number of aeronautical industries in my constituency, including Bombardier, Thales and others. Based on those and the neighbouring aeronautical engineering department in Queen’s university in Belfast South, I hope that Belfast can be competitively considered as a potential home for that UK centre.
My concern is that the Budget will be viewed by many as a Budget mainly for the rich, and perhaps mainly for the south-east. I urge the Treasury to look at how it can ensure that that is not the outworking for individuals’ lives. The Chancellor needs to be seen as a Chancellor for all of the UK, and not a Chancellor just for those who are wealthy or who live in the south-east.
5.31 pm
Neil Carmichael (Stroud) (Con): It is a great honour to speak in this debate because it is an important one, given that the Budget is of decisive importance in terms of our economic future. It is also a great honour to follow the hon. Member for Belfast East (Naomi Long).
There are several reasons why this Budget is a good Budget, the first of which is that it reaffirms the need to tackle the deficit, and demonstrates that the efforts to do so have been successful. That is critical to this country’s interests, because it is about the price of money—interest—and we must secure a long-term, sustainable rate of interest for small businesses, mortgage payers and so on.
Chris Heaton-Harris: My hon. Friend will be interested to hear the views of John Cridland of the CBI, who said in the reaction to the Budget that
“the best news for businesses is that he”—
“stuck to his guns and delivered a fiscally neutral programme…by putting more money in the pockets of ordinary people, the Chancellor has provided a much-needed confidence boost.”
Neil Carmichael: I thank my hon. Friend for that intervention and helpful quotation, because it underlines my point, which all hon. Members should have firmly in their minds, because it is the key issue.
Sensible debt management goes on to secure lending at a reasonable price. We have seen how that has worked in Italy to some extent and it certainly works here. It is the real test of good government, and I am delighted that the Chancellor is pursuing it so determinedly.
The second thing I am pleased to welcome is the actions on tax avoidance. It is important that we demonstrate that we will not stand for people deliberately avoiding tax using inappropriate routes. That the new stamp duty mechanism and the mechanism to prevent tax avoidance in stamp duty are scheduled to recoup some £300 million is absolutely excellent news. That will lead to a total of £600 million, which is well worth having. We are therefore sending the right signal and getting some useful money. It is a good thing that the Chancellor has underlined that. There is annoyance in my constituency at tax avoidance, and I am pleased to be able to say that we are taking robust action. The general anti-abuse rule will be extraordinarily useful and a final threat to anybody who goes down that route in future.
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Thirdly, I welcome the lifting of personal allowances, which the Liberal Democrats were right to promote. I am not going to argue about who promoted it first, but it is a useful policy for us to have and we should celebrate it.
The final thing I want to celebrate from the headline announcements is the action taken on child benefits. I received a lot of pressure in my constituency about them, right up until the last moment. One person came to visit me in Stroud tourist office while I was doing a stint to promote tourism week. In fact, he was one of many to talk about child benefit instead of buying tickets for various excellent shows and so forth. The fact remains that we have taken action, and I celebrate that fact. The Government have done a good thing.
In my constituency, I am having a festival for manufacturing and engineering next month. I am doing so to celebrate the successes in Stroud, and there are two key messages I want to get across. First, we need to invest in our small and medium-sized sectors, particularly in manufacturing and engineering, and the Chancellor has signalled that that is the direction of travel for the Budget and the Government. Secondly, I want to signal the importance of young people getting involved in manufacturing and engineering, because they need to think about manufacturing and engineering as a career. Again, he has signalled that that is a key part of the Government’s economic strategy. He has signalled many things, but those are certainly the two that matter most to my constituency.
Chris Heaton-Harris: I appreciate my hon. Friend for giving way a second time. I rise to help him with yet another quote, this time from Paul Everitt of the Society of Motor Manufacturers and Traders, who says that these Budget measures
“will trigger substantial extra business investment in the years ahead.”
That is obviously a solidly good thing.
Neil Carmichael: That is another first-class quote from my hon. Friend. He and I agree about many things, and certainly about this. I thank him very much for underlining my point again.
I want to canter through various critical measures announced in the Budget. One concerns infrastructure. It is absolutely right that we invest in infrastructure. The national infrastructure plan is a first-class document that signals the Government’s commitment to taking these measures. The recent announcement, confirmed in the Budget, about the possibility of private firms taking over roads is absolutely right. I would say, however, that although the Government are rightly reviewing the private finance initiative—it is far too cumbersome, has left us with a lot of debt and has created difficulties with procurement and so forth—we have to enable the private sector to invest more easily in infrastructure. Whatever the outcome of the review—I hope it is a robust review in terms of changing the PFI—we must still encourage the private and public sectors to work together to leverage in the money that we desperately need to improve our infrastructure.
On technology, it is great news that we will have a centre for aviation. I hope that it is in Stroud—it would be very convenient for Airbus just down the road—but wherever it is, it is important that we give that platform
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for development and technology. Technology matters, so I will throw in a comment about broadband, because it, too, is part of this story of ensuring that we are technologically advanced. I visited a firm called Jatech in my constituency last week. It is producing some excellent products for data management, and lots of different industries and firms are accessing that information. That means good technology in the computer and broadband industry. We need to celebrate those things too.
We had a great debate last week in Westminster Hall on UK Trade & Investment. We need to ensure that this organisation continues to do a lot of good work, so I am pleased that the Government are talking sensibly and robustly about encouraging exports and helping firms find office space and so forth. These measures in the Budget draw our attention to the need to export, because we certainly need to do that. At the end of the day, it is no good looking at Germany and saying, “Well, they’re doing better than us,” and putting our heads in the sand. We have to do as well as Germany and then better still. That is this country’s main mission on economics and growth. Let us ensure that we can promote that.
Energy is a critical issue. Again, the Government are right to talk robustly about investment in energy. The Chancellor is absolutely right to talk about supporting the oil and gas industry. That is great news for firms in my constituency supplying those sectors, notably in Brazil. For example, a firm in Eastington, Arc, is doing extraordinarily well. However, we need to provide a market opportunity for new forms of energy and even new forms of storing electricity. We need to think about that. If we can create market conditions where firms feel comfortable about investing in new technology that has not yet properly taken off, but which can add value to our energy infrastructure and provide that platform, so much the better.
Lord Heseltine will be talking about bringing the private sector and Government together—absolutely, and it is great that he is looking at implementing an industrial strategy, as it were, and how that could best be done. There are some good examples of what can be done in countries such as Germany—I mention Germany again, but it is worth looking at other countries, especially when they are doing so well. I remind the House of Germany’s market penetration in countries where we might not normally expect it, such as China and India, and so forth. We have to understand how the Germans do that and learn a few lessons from them. That is something that the Treasury, the Department for Business, Innovation and Skills and other agencies of Government would do well to consider.
The Chancellor quite properly referred to education and training, which we really have to focus on. I am absolutely delighted that, in the Budget and elsewhere, the Government have made a lot of the importance of skills training and education. The Chancellor said that we could put all the fiscal measures in place, but we really need the people to make it work—he did not use those words exactly, but that is the point he was trying to get at. We therefore have to do it. We have to ensure that the resource we have in this country—our people, all of them—have access to decent education, which will enable them to adapt and develop in their
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careers. It is no longer the case that people just turn up, do a job and then retire; this is about a process of development.
I want to talk a bit about banking. It is essential that we manage to get more money into the right places. One of the things about monetarism in the ’70s and ’80s is that it was quite a blunt instrument, as is quantitative easing, so we have to ensure that we get money into the right places. The issue of banking constantly recurs. The Government have mentioned a large number of measures that they intend to take, not least the national loan guarantee scheme. That is absolutely brilliant and good news, and I look forward to that. However, we need more banks, with a greater variety of offerings and more specialisms in appropriate sectors, and more competition in the banking sector. We also need to be alert to new ways of financing firms and encourage them to think about new ways of doing that. It is not just about the banks, although they need to improve their lending; it is also about firms themselves and the cultural change we need to bring about to encourage small and medium-sized businesses to think out of the box when it comes to borrowing money.
I finish with a comment about the business finance partnership, which is a great scheme. Indeed, the Chancellor mentioned it today, with £100 million in the Budget for non-traditional lending, which is exactly the sort of thing I am thinking about. It is also important that we continue to recognise, understand and promote the development of supply chains, because they are critical in the SME sector—they really do matter. Interpreting how supply chains will develop, recognising where the blockages are and understanding them as part of the export issue to which I referred will enable growth to take place, because the component parts of the chain will understand that process and be ready to support and buy from each other.
This is a good Budget, but there is a lot still to do.
5.43 pm
Mr Adrian Bailey (West Bromwich West) (Lab/Co-op): The Chancellor opened his statement by promising us that this is a Budget that “rewards work”, “backs business” and “is on the side of aspiration”. Fine words, but I remember the last Budget, which he said would
“put fuel into the tank of the British economy.”—[Official Report, 23 March 2011; Vol. 525, c. 966.]
I have an uncomfortable feeling that in one year’s time, I will be looking back on the Chancellor’s opening words today with the same scepticism and cynicism with which I look back on the words that he used to describe his previous Budget. The fact remains that this Budget is set against a background of increasing unemployment, a squeeze on living standards and flatlining economic growth. It was significant that Government Members were so enthusiastic about the revised Office for Budget Responsibility projection which showed that the economy could grow by an extra 0.1%, given the fact that the economy is performing way below the Chancellor’s original projections. I sensed a hopeless clutching of straws.
Andrew Bridgen: Is the hon. Gentleman aware of recent predictions that the UK economy will grow twice as fast as the German economy and three times as fast as the French economy this year?
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Mr Bailey: I am afraid I do not read comics such as The Dandy, and I have not come across any such predictions at all. I do not think that they are in the OBR’s projection, either.
From the moment the Chancellor came into office, he has ruled out any intelligent debate on the right balance of supply-side and demand-side measures that would achieve a level of economic growth that would eliminate the deficit and provide employment. When the Labour Government left office, the economy was growing, unemployment and inflation were falling and our public sector deficit was declining, but the Chancellor seemed to think that that was all wrong, and that the only recipe was austerity. His justification for that was the perceived threat that a credit rating agency would downgrade Britain’s triple A status, with all the horrors that that would entail. I congratulate the Chancellor on one thing: he has transformed credit rating agencies from being the most anonymous part of our financial services infrastructure into bedroom monsters that he conjures out of the wardrobe to frighten anyone who has the temerity to question the underlying philosophy behind the measures that he is taking. We have to suffer job losses, cuts to our public services and pay freezes, because if we do not, Moody’s and Fitch will get us. That is the Chancellor’s underlying approach.
Barry Gardiner: Could they possibly be the same Moody’s and Fitch that gave Lehman Brothers its triple A rating?
Mr Bailey: I think they probably were.
After we have endured two years of pain since the Government came into office, Moody’s and Fitch have rewarded the Chancellor for all his efforts by putting Britain’s triple A rating on negative outlook. The monsters have turned on their master. The pain has been in vain, and the Chancellor should acknowledge that and start genuinely to consider a more balanced approach that would enable us to implement the changes that we need to grow our way out of the deficit.
I remind Members that it was only last August when the Chancellor sneered at the American model and told us that the American economy was growing more slowly than Britain’s. Now, however, America has taken a balanced approach. Its economy grew 3% in the last quarter of 2011, and is predicted to grow further. Its deficit is predicted to drop next year, as is its unemployment. The fact is that the model that the Chancellor sneered at is actually delivering, while his is not. Last week, when I saw the Prime Minister having his cosy discussions with President Obama, I wondered whether he might have taken him aside and said, “Mr President, how is it that you have got your economic strategy so right and my Chancellor has got his so wrong?” But perhaps that was just a fantasy.
Parts of the Budget are good, and they might help, even though they deal with the supply side, when the demand side needs to be addressed. The national loan guarantee scheme is obviously a welcome measure, and some companies will benefit from it. However—this might be a good thing for those companies—some companies that use it would have invested anyway, while companies on the margins will not be able to access it: they will run up against the same problems as before. One cannot help but think that if more were done to
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inflate the economy and improve the demand side, more companies would become more viable in the future and more companies would be able to access the scheme.
The fact remains that while access to finance is still a barrier for many sound companies, this is not the only issue. Many companies are not going to the banks because their future market projections are such that they do not have enough confidence to invest any more. Although there has been a very modest improvement in business confidence, it is still very fragile overall, and this measure alone is not likely to counteract it.
The Institute for Fiscal Studies projections show that we are only a quarter of the way through the public sector cuts. If future public sector cuts designed to deliver on the Government’s objectives result in further unemployment, I foresee only a further squeeze on the financial situation of individuals and a further decline in the domestic market needed to give those companies the sort of confidence they need.
An earlier speaker mentioned the national insurance holiday that was introduced in a previous Budget. No mention of that whatever was made in this Budget; it has been a colossal flop. However, small businesses are campaigning up and down the country, arguing that if this were reshaped and if the money that has not been used were ploughed into it, all small businesses could qualify, provided that they employ more people. That would be a relatively minor tweaking to the Government’s Budget strategy, yet it could result in a significant increase in employment and a significant increase in demand. I am disappointed that the Government did not look at that.
On construction, much has been said about the national infrastructure plan. Fine, it is a great plan, but it is being projected as if having a plan results in delivery. So far, what has been conspicuously absent is any sort of funding mechanism to achieve this. We have heard about using pension funds, which may be a great idea, and we have heard about private investment, which may also be a great idea—we will see. The key point is that until there is a model for the financing of the delivery of these infrastructure plans, these are really pie-in-the-sky ideas. I have an uncomfortable feeling that these so-called plans are being used as a substitute for doing something.
The construction industry needs action on this level. Having enjoyed a revival in 2010 and early 2011—largely as a result of contracts initiated under the previous Labour Government—it is now shrinking. As of this moment, employment is predicted to drop by 45,000, with a further 3% in output in 2012. If the Government really want an infrastructure-led revival in our economy, they need to move quickly. We have the companies capable of delivering it, and we have the skills within those companies; what we need is Government action. Let me make one qualifying point. About 60% of the projects in the national infrastructure plan are based in London, but the greatest unemployment in the construction industry is outside in the regions, so the plan needs to be revamped to take that into consideration.
The Government are certainly making all the right noises about exports. What the Chancellor did not mention is that if we are to expand our exports to the BRIC countries—Brazil, Russia, India and China—reducing UK Trade & Investment’s budget by 17% is perhaps not the best way of doing it. Also, he did not
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mention that two of the most significant growing markets that we need to access, India and China—other Members have talked about this—are, as a result of the visa regime, hugely concerned about whether Britain is open to business. There is considerable evidence that that is damaging our economic relations with them.
My last point is very much a personal one. As a long-standing co-operator and as a believer in mutuality and employee share ownership, I believe that measures should be taken to foster and develop employee share ownership in this country. There is a huge body of evidence demonstrating that it leads to greater employee and consumer satisfaction, and greater productivity. The tax allowable savings rate for members who wish to invest in their companies has not been increased for donkey’s years. The Government have said that they will review it. Given the commitment made by both the Prime Minister and the Deputy Prime Minister, I would have wished for something a little more solid than that, and I hope that the review will deliver it.
Madam Deputy Speaker (Dawn Primarolo): Order. Eight speakers have indicated that they wish to speak, so I am taking the time limit down to eight minutes. I hope that Members will be courteous to everyone else in the Chamber, so that we can ensure that everybody who has applied to speak today gets in this evening.
5.56 pm
Mr Edward Leigh (Gainsborough) (Con): It is a pleasure to follow the hon. Member for West Bromwich West (Mr Bailey), who always makes his arguments well. I apologise for the fact that I cannot stay for the whole of the rest of the debate; I wish to attend the memorial service downstairs for David Atkinson. I will take this opportunity to pay tribute to him on the Floor of the House. He served the House with tremendous distinction for many years, particularly in the Council of Europe. He was particularly hard-working on promoting democracy throughout Europe.
I see my neighbour, the hon. Member for Great Grimsby (Austin Mitchell), on the Opposition Benches. We have been in the House together for a long time, and we have heard many Budgets. I said to my wife this morning, “We have heard so many Budgets. Will this be just another Budget that takes with one hand and gives with the other?” but I think it is a very courageous Budget that is rather different from many that I have heard. I have sat through so many—from Nigel Lawson, John Major and the previous leader of the Labour party.
The Budget is courageous for two reasons. First, my right hon. Friend the Chancellor is persevering with dealing with the deficit, which is the greatest problem that we face. Politically, it is in the interests of the Labour party to claim that we are indulging in a tremendous campaign of cutting everything in sight. One of the problems that it faces is that it knows perfectly well—as do the public—that, if it had remained in power, as it very nearly did, it would have done much the same as us. It is also politically convenient for the Government, of course, to proclaim that they are taking difficult
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decisions, but we are probably not cutting public expenditure enough to keep interest rates low. We are cutting what would otherwise have been a runaway increase in the deficit, and that is very different indeed.
The decisions that the Chancellor faces are extraordinarily difficult, and he is conducting himself very well. I have watched him ever since he was a freshman Member of Parliament, serving on the Public Accounts Committee. What he is achieving, both on the deficit and on many other things, is important and courageous. The other brave thing that he has done today is deal with the issue of the 50p top rate of tax. I know that that is not necessarily populist. I listened to the speech by the Leader of the Opposition, which was very good, and afterwards I congratulated him on it. It was good politics, and it appealed to his people, but the question that the Labour party has to ask itself is: does it want its leader to give a speech that appeals to his core supporters, or a speech that addresses the real problems of the country? This is the problem in respect of the top rate income tax payers: the top 1% of taxpayers pay about 28% of total taxes and they are highly mobile in the way that they conduct their lives and their businesses, and simply imposing a 50p tax—which Tony Blair and Mandelson resisted year after year—does not actually achieve anything for the economy. It may be good Labour politics, but it does not achieve anything for the economy. As we heard from the Chancellor today, it is only giving us about £100 million. Therefore, although this measure may not be popular, it has to be taken if we are to revive entrepreneurship.
The task facing the Chancellor is very difficult and complex, but he has set about it in the right way. He is trying to close many of the tax loopholes. The difficulty here, however, is that we do not want the very rich just to bury their money in the ground. Instead, we want them to be “white knights”, to set up businesses and to become entrepreneurs. Indeed, many of the so-called tax avoidance schemes were designed by previous Governments to encourage the rich to invest in business.
The Chancellor has also taken a brave decision on child benefit. I was critical of his original proposals, although I understand why he suggested them. There was the overriding need to deal with the deficit, and his child benefit reforms were going to save £2.5 billion. There was also a desire to “detoxify” the Tory brand, and to attack higher income tax payers. There may have been some pressures within the coalition, too. However, we all know that the Chancellor’s original proposal would, as it were, have created a cliff edge and would have been fundamentally unfair, because the situation would have been very different for a family with one higher tax earner than for a family with two taxpayers whose earnings are just below the £41,000 limit.
The Chancellor has taken the courageous and right decision to try to deal with that problem, but we still have a long way to go, and I believe that a better way forward would be to have a tax allowance. That would solve the problem of the higher income tax payer family. In France, instead of getting child benefit, couples are given a family tax allowance, which is spread between themselves and their children, irrespective of their income. An adult counts as one unit of tax allowance, and children count as half units. Therefore, a married couple with two children are given three units-worth of tax allowance. As a result, the level of income at which they
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start to pay tax is higher than it would be in Britain. That system has the added advantage of addressing the perverse incentives against family life and couples staying together.
I will continue to argue that the Government must fulfil their pledge to recognise marriage in the tax system. Critics of my arguments often say, “Just a little tax break isn’t going to make people get married or stay married.” That is perfectly true, but what we currently have is almost a perverse incentive against family life. A married couple where one parent stays at home to look after the children are hugely more taxed than almost any other taxpayer. We do not want to create a tax break for marriage because we think that that alone will deal with the wider problems; we just want to right an injustice.
The Chancellor has remained true to the overriding need to have a fiscally neutral Budget and to attack the deficit, has demonstrated a determination to promote entrepreneurship even if that means taking unpopular decisions, and has courageously recognised that he may have made a mistake on child benefit and that he should try to reform the system in a more equitable way. Although the Budget may not be popular with everybody, it is certainly a good Budget, and the right Budget for the nation.
6.4 pm
Austin Mitchell (Great Grimsby) (Lab): I cannot agree with my neighbour, the hon. Member for Gainsborough (Mr Leigh), on this Budget, because from both a Labour and an objective point of view it is a pathetic Budget. It is justified by a lot of bravado and bluff, but it does nothing about the major problem of an economy that is nearing recession and needs drastically to boost growth if we are to get out of it. The Budget even fails the five tests for a successful Budget that Anatole Kaletsky proposes in The Times today. The three most important of those are that the Budget should be fair to all—this one is not; that it should be pragmatic, which this one is not, because it is ideological; and that it should be relevant to the problems of the day, which this one is not.
What this Budget does is prolong the failed policies of the past two years of cut, freeze and squeeze, which are not working and need to be ended. The Budget is a disastrous prospect for the Government, because this is the hinge point of power and this Budget means that, instead of strolling to a tax-cutting election victory in 2015, they are faced with flatlining. The huskies pulling the sledge are going to have to pull even harder to get it moving at all. We have already lost 4% of GDP—the economy is that much smaller, according to the Institute for Fiscal Studies—and that will never be made good. We face flatlining, as Japan did in its wasted decade.
The Liberal Democrats have made a desperate attempt to distract attention from that failure. They argue that the rich have been taxed to show that they have got something out of the coalition. They were trying to stop the reduction from 50 to 45%, proposing a mansion tax, a tycoon tax—perhaps it was a Typhoo tax—or something to tax wealth. Well, we have got the cut in the 50% rate, which the HMRC study did not prove brought in big revenues. However, it did not wait for the deferred taxation to come into play—it would do so only with a
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longer period of running that tax. The public did not want the cut in that tax, which demonstrated that we are all in it together, but it has been cut and the Liberals have got very little in return.
I am not sure what the Liberals were expecting, because what is the Tory party about but helping the rich? After all, this is a Government of millionaires, for millionaires, by millionaires, so we would not expect them, as the Liberals seem to have done, to be giving a tax increase to the rich. What they have given is a couple of symbolic pecks at wealth, but they are more like love bites than serious damage. It does not help that the Government have raised tax allowances in the way that the Liberals wanted. It was a good idea to raise them, but I must point out that that does not really help the poor who do not pay tax, or pensioners—it does not compensate for the VAT increase, for the loss of tax credits and for the child benefit cut. The main benefit goes to the second highest decile of taxpayers, rather than to those at the bottom. So that is the only crumb they have got out of it. The coalition Government are beginning to look like Downton avenue, with the millionaires living upstairs—[Interruption.] Sorry, I meant Downton Abbey. I was thinking about Coronation Street. We have a Government of millionaires living upstairs and the domestic servants are downstairs grumbling, because the only prospect they have now is to go hawking their consciences round television studios to explain why they are getting nothing out of this coalition.
Not only is the Budget not fair—it is certainly not fair to the north and to the area I represent—but it has failed Kaletsky’s second requirement, because it is not pragmatic. It is an ideological Budget because it is obsessed—still crazy over Thatcherism, after all these years—with debt. The problem of this country is not debt. If there is growth, debt can be paid off easily, as the Labour Government did between 1997 and 2000. The problem facing us is a lack of demand. That is why shops are closing in the high street and chains are going bust. Firms are not growing, investing and expanding because they cannot see a demand for their products. As long as that remains the case and as long as there is that uncertainty, we shall not get economic growth. People are being given more hours in which to shop with money that they have not got. Demand is crucial to this economy. It is far too low and it needs to be boosted, but it is not being boosted. There must be a boost to demand.
That brings me to the third failure in the Kaletsky tests. The Budget is not relevant to the economy as it is today. We are an economy verging on recession. We have had a massive loss of growth. We need growth and there are only two ways of getting it. The first is by monetary means. The Bank of England is doing its best with quantitative easing, but that is going into the banks, which are not lending it. It is building up their reserves, rather than going out to the people who spend and generate demand. Secondly, there is the fiscal weapon, which the Chancellor obstinately refuses to use. Only growth will pay off debt. Unless we get growth in the economy, there is no chance of paying off the debt in the way that the Chancellor wants. The only way we will get growth is to borrow, to spend and to let the multiplier work its magic, as Keynes told us it would. That would work, but these policies will not.
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Simon Jenkins suggests helicopter money—putting the money in a helicopter and dropping it out on the people, who will spend it. If it drops out on Grimsby, I will be very grateful, but a more sensible way would be to use the money from quantitative easing to sign contracts for a big house building programme to create public housing for rent, which is badly needed in this country, and for big public work contracts. Some of the money should be put in a national investment bank, with an industrial policy to invest in manufacturing and expansion. That is the way to spend the money from quantitative easing.
The Bank of England cannot do that. All it can do is buy debt and give the money to the banks, which stash it away in their reserves. The Chancellor can decide that the money printed by quantitative easing should be used for those benign purposes, and he should, because that would give us growth. Also, there should be municipal bonds for house building, as we used to have, to boost the finance for house building.
The Budget is a failure which foretells three years of bumping along, not on the bottom, but flatlining for an economy which desperately needs to grow to compete with the Americans, whose economy is growing, and to benefit from their growth. The economy should be stimulated by public spending and projects such as house building to get us out of the mess we are in, and I do not see any symptom of that following this Budget.
6.12 pm
Andrew Bridgen (North West Leicestershire) (Con): I draw Members’ attention to my declaration in the Register of Members’ Financial Interests.
The Budget is set in the context of continued uncertainty in the global economy, but it is a Budget that binds many threads of Government policy as we seek to reward work and enterprise and to rebalance our economy. The House would do well to remember that it is only by virtue of the deficit reduction plan set out by my right hon. Friend the Chancellor in June 2010 that the UK has managed to achieve a relative safe haven status and achieve record low interest rates, which will save the taxpayer a projected £36 billion over this Parliament.
The Chancellor today announced measures that will allow companies and individuals further to share in the benefits of these low interest rates, achieved no doubt by international acceptance of the fiscal competence of this Government’s policies. The deficit reduction plan, however, is not just about reducing the size of the increase in Government spending; it is also dependent on achieving growth. Although the eurozone crisis has damaged economic growth rates across the continent and globally, it is a testament to this Chancellor and this Government’s handling of the public finances that the deficit reduction figure was ahead of target this year, while at the same time achieving a growth rate in the economy of 0.8%.
As we have heard during the debate, the Opposition try to argue that deficit reduction is being pursued at the expense of growth, and America has been mentioned. They should look at the International Monetary Fund’s fiscal monitor, which shows that fiscal policy in America was tightened by 0.8% of gross domestic product last
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year, at the same time as a growth rate of 1.7% was achieved. This fact completely contradicts the inaccurate claims of the Leader of the Opposition in his Budget response and those in the Labour party who still cling to the misguided mantra that the only way to obtain economic growth is through fiscal stimulus. When will they learn that they cannot borrow their way out of a debt crisis?
There is, however, no room for complacency and the economy needs to start growing at a faster rate. I welcome the measures outlined today that will stimulate the economy and see taxes cut for 24 million taxpayers through the increase in the tax threshold. That is another example of the Government’s commitment to the lowest-paid and stands in stark contrast to the actions of the previous Prime Minister, who removed the 10p starting rate of tax in his final Budget, hitting the lowest-paid the hardest. The increase in the personal allowance to £9,205 is very welcome and will lift an additional 66,000 people in the east midlands alone out of income tax and benefit more than 1.7 million individuals nationally. The Government will have lifted a total of 148,000 people in the east midlands out of tax at this rate.
Another damaging legacy of the previous Prime Minister was the 50p rate of tax—a purely political and cynical attempt to lay a bear trap for the Conservative party. As my right hon. Friend the Chancellor explained, it is raising little or no money and damaging the competitiveness of our economy. It was a Trojan horse of a tax. It raised no money and at the same time damaged our economy.
Mr Stewart Jackson (Peterborough) (Con): Is it not the case that the Opposition have no credibility on this issue, because even though the shadow Chancellor knows that the 50p rate damaged entrepreneurship and collected very little revenue, he still refuses, even this afternoon, to confirm that the Labour party, if in office, would bring it back?
Andrew Bridgen: My hon. Friend is absolutely right; they have no credibility and will not confirm whether they would bring the rate back. I remind the House of the comments of their former leader, Tony Blair, who stated:
“I wanted to preserve, in terms of competitive tax rates, the essential Thatcher/Howe/Lawson legacy. I wanted wealthy people to feel at home and welcomed in the UK so that they could bring more business, create jobs and spread some of that wealth around.”
Whatever happened to new Labour? Even Mr Blair accepted that the top 1% of earners pay almost 30% of the taxes in this country, and many other countries certainly feel the same, but our top rate of tax was the highest in the 10 largest economies in the world.
Mr Marcus Jones: While my hon. Friend is on the subject of tax, will he join me in welcoming the comments of the Birmingham chamber of commerce today that the Chancellor’s tax reforms are a recipe for growth?
Andrew Bridgen:
I certainly will. As my constituency is only 22 miles from Birmingham, I always listen to what its chamber of commerce has to say. I am sure that it also welcomes another signal that this country is open for business: the acceleration in the cuts to corporation tax. These changes will encourage business investment, support growth and create jobs. My only regret about
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the announced cut in corporation tax is that Ken Livingstone stands to gain from the devious arranging of his tax affairs. I also welcome the announcement of loans for young entrepreneurs, which displays a commitment, not always shown by the previous Government, to open up opportunities for young people who choose not to go to university.
We are all well aware of the over-complicated and incomprehensible tax system left by the previous Government. The Chartered Institute of Taxation stated shortly after the election:
“The UK now has the longest primary tax code, and one of the most complicated, in the world.”
We all know that this is stunts growth, and I welcome the tax simplification measures announced today in the Red Book, which abolish 28 reliefs and will make the tax affairs of small businesses, the lifeblood of our economy, much simpler. However, this Budget needs to be the beginning of the work on tax simplification, not the end. We have all become aware of the stamp duty loopholes that have been ruthlessly exploited through schemes such as subsale relief and individuals, through companies, avoiding stamp duty on multi-million pound houses. I welcome the action the Chancellor has taken to close this embarrassing loophole.
I welcome also the announcement on regional pay bargaining. The Opposition will argue that it widens the north-south divide, but I argue that the north-south divide is being perpetuated: areas have become so hooked and reliant on public sector jobs that the private sector, which cannot compete with the pay and conditions agreed nationally by the public sector, is stifled. We need more of our brightest and best to enter the private sector, which in many parts of the country struggles to compete with the pay and conditions on offer in the public sector.
I welcome the measures announced to help military personnel, particularly doubling the rate of council tax rebate and doubling the rate of family welfare grant. That is another example and extension of this Government’s commitment to the armed forces, and, although the announcement of £100 million of investment in military accommodation is long overdue, it will be welcomed by all service families.
We cannot tax our way into prosperity any more than we can borrow our way out of a debt crisis. This is a Budget that is symbolic of this Government’s principles—to promote fairness and to reward work and enterprise so that we can start to earn our way back to prosperity.
6.20 pm
Barry Gardiner (Brent North) (Lab): The trouble with Budgets is that they tend to operate on a five-year cycle that has no relation to the actual cycles of the resources that we profess to manage. The immediacy of the political triumphs over the requirements of the actual.
The focal point of this Budget is 2016-17, when the Government hope that the hole in the public finances will have been filled, but interestingly four fifths—more than £90 billion—of that filler comes from cuts in services and benefits, while only one fifth comes from rises in tax. Yet 73% of the tax rises have already been put in place, and less than 20% of the cuts in services and benefits have happened.
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The Government might think it prudent to delay the pain, but Government Back Benchers might care to reflect on what that has done to their electoral prospects.
Mr Robin Walker (Worcester) (Con): The hon. Gentleman mentions the figure of £90 billion, but will he acknowledge that the £36 billion reduction in interest payments, which we have already seen, makes a substantial contribution to that?
Barry Gardiner: The hon. Gentleman refers to interest payments, but he knows that on that score this Government are paying out £150 billion more than they predicted, so his argument does not hold up.
A Budget is a mechanism for the distribution and allocation of scarce resources, so let us examine what this Budget means for a child born today. A child born in my constituency today brings us this message: “By the time I reach my 18th birthday, the world will require 30% more fresh water, 45% more energy and 50% more food.” This child is part of the generation that will see the global population move from 7 billion to 10 billion people. How do we respond to this child? Do we become the most selfish generation of the most selfish species in our planet’s history? Or do we become the generation that understood that justice and sustainability are essentially the same thing? If you want peace in the world, create justice. If you want justice, live sustainably.
We must get away from both sides of the political divide arguing that they uniquely possess the key to growth. We listen to the stale arguments about whether more spending now will raise growth and reduce the deficit more quickly, or whether less borrowing now will ultimately be a surer path to bring our economy back into GDP growth. But what both sides are talking about is yesterday’s economics: Hayek pitted against Keynes.
The Chancellor wants to set markets free and insists that we cannot spend our way out of debt, but he wilfully ignores Hayek’s equal insistence that the boom gets started with an expansion of credit—the very liquidity that the Chancellor has told the banks they must provide for business. Hayek would have been appalled to find his theories invoked by a Chancellor literally printing money through quantitative easing. In Hayek’s view, that leads only to unrealistically low interest rates and to the cycle of boom and bust starting all over again.
Keynes of course believed in consumption-led growth as an economic stimulus, but he did not live in a world of 7 billion people. He assumed that growth was sustainable and natural resource was, for practical purposes, infinite. We know that it is not. As a result, we have an obligation to make sure that growth is sustainable, not simply to assume that it will be.
Mr Jackson: The hon. Gentleman is making a cogent and interesting argument. We all agree that we should give 0.7% of our GDP to international development. Surely he will concede that unless we grow our GDP, the absolute amount of cash that we have to give to good causes across the world, in supporting sustainability, will not be enough to do the things that he wants to do.
Barry Gardiner:
The hon. Gentleman precisely misconstrues my point; the issue is not about the amount of aid given to developing countries, but about understanding the valuation of natural capital and
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incorporating that into the Government’s accounting framework. That is in the natural environment White Paper, if he cares to read it.
In a world of 7 billion people, growth can be sustainable only if it is predicated on advances that bring increased productivity and greater efficiency in the use of resources. That is what Hayek would have called a sound capital structure and proper allocation of capital. For the world to continue to achieve a 3% per annum growth target, and to maintain a trajectory that keeps carbon emissions below the 2°C threshold of dangerous climate change, we must increase our productivity per tonne of carbon emitted 15 times over.
The Budget simply does not address that technological challenge. It was extraordinary to see the Secretary of State for Energy and Climate Change join forces with the Treasury last Friday evening and issue a press release at 6 pm, embargoed until midnight, to exempt gas-fired power stations from the emissions controls set out in the fourth carbon budget by the Committee on Climate Change. Those emissions reductions were, in the Committee’s view, part of the necessary regulatory framework for achieving our target of at least 80% emissions reductions by 2050.
The press release set out no alternative mechanisms that would be adopted to keep to those targets and no Minister has sought to expand on the issue since last week. It is a measure of the shame that the Government felt on reneging on the fourth carbon budget that they issued their press release in such a furtive manner. What is worse, what happened shows that the new Energy Secretary has no command over his brief and has been fingered by the Treasury as a weak Secretary of State.
Since William Ewart Gladstone instituted the modern accounting and budgetary processes of the House of Commons 150 years ago, modern economics has come a long way in its understanding of capital. In Gladstone’s day, the notion of capital was very simple; it represented money and machinery. Gradually, we have come to realise that capital is not just money and plant. We have developed sophisticated concepts of social and intellectual capital. We know that a well functioning legal system is very much a part of the wealth of a society, inviting commerce and trade to practise where certainty and redress prevail. That is certainly a form of capital different from a bridge, printing press or motorway, but we now measure them all in our assessment of the national wealth of a country.
Resource economists now point out that we have left out of our economic calculations perhaps the most important capital of all: natural capital. We have left it out for a very simple reason—we always took it for granted. We thought that it was a free good. It cost us nothing and we assumed the supply was infinite. In the language of classical economics, natural capital was a mere externality, “as free as the air you breathe”.
What we have now begun to realise is that the air we breathe is not actually free—at least, it is not without a quantifiable value. Any sound cost-benefit analysis of public policy must take that value into account. The Environmental Audit Committee report on air pollution estimated that the costs from air pollution are up to
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£20.2 billion. That is the cost of respiratory and other diseases associated with poor air quality, both in treatment and lost productivity.
The natural environment provides not just a physical stock of resources—forests and fish, minerals and fresh water that human beings depend on—but a network of services essential for human life. The pollination of our crops by insects, the stabilisation of our soil by trees and the regulation of our watershed by peat bogs are just some of the ecosystem services that a new economic model must begin to incorporate into our Government’s accounting framework. That new accounting renders inadequate the concept of GDP growth because it reveals one of the central conundrums of classical economics: that a country can become poorer while increasing its GDP.
The Chancellor said nothing today that showed that he understood that. Another important consideration is that those wider benefits, although immensely valuable, do not accrue to an individual private property owner; they are experienced by a community at large. They are regarded as free goods by the wider community, and in classical economics as externalities, and because they are not directly captured by a landowner they rarely feature in a landowner’s decision on how or whether to dispose of them. That is why the exercise of private property rights can often be to the public detriment. It is also why the role of the state in regulating the disposal of land is so important. Today we have heard much talk of stamp duty and how to raise revenue from the rich. It therefore seems quaint that no one has commented on the fact that the land registry for England, which was established in 1928, still accounts for only some 64% of the land in England, while in the registry for Scotland the figure drops to a mere 21%.
Of course, there is a reason why almost a century later we have not yet been able properly to map the title of land in the UK—it is that so much of it has never been sold but has been passed down in families, from parent to child, in enormous estates. If the Government genuinely want to raise tax from the very wealthy, they should examine not only houses sold for over £2 million but the vast tracts of our country that have been accumulated in great estates for centuries and are still owned and managed not for the benefit of the population at large but to maximise the income and pleasure of a very few private individuals. I do not claim that all hereditary estates are badly managed in respect of the environment, but I do claim that good management comes not only as a result of inheritance. Land tax reform is long overdue. If we wish to become a more equal society, then we need to consider the taxation of land and land use in different and more imaginative ways, for the benefit of society as a whole.
The Chancellor sought in his Budget to bury another important piece of environmental news. Next Tuesday, the new national planning policy framework is published. That deserves our attention not least because we know that the Chancellor takes the view that the planning system is a blockage to economic growth. The NPPF will cause havoc up and down the country as planning uncertainty and ambiguity filters down to local communities. Fundamental to the new framework is the presumption in favour of sustainable development. In practice, this means—
Mr Deputy Speaker (Mr Nigel Evans): Order.
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6.31 pm
David Mowat (Warrington South) (Con): I will talk about four areas: tax avoidance; the effectiveness of the Budget in terms of pension tax relief; regional policy; and some aspects of green policy, which may not be entirely coincidental given the speech by the hon. Member for Brent North (Barry Gardiner).
On tax relief, I am pleased that the Chancellor announced that the Aaronson review is to be taken forward and that we are to have a general anti-abuse rule. Sometimes Government Members express concern about retrospective legislation as though it were all about Magna Carta and attacking the rights of the individual. In this case, however, we are talking about predatory and abusive tax practices. About a week ago, I received an e-mail from a firm of accountants telling me about a tax scheme based around film tax credits—it was presumably perfectly legal—and suggesting that there was a way for me to pay no income tax. If I am getting such e-mails, others are getting them too. It is high time that these schemes were put away for ever. I am pleased that the Government are going to move forward on that, although they may wish to consider some kind of de minimis limit as regards how the measure would work in order to avoid over-zealous tax inspectors getting in the way.
I am particularly pleased about the Government’s announcement on stamp duty. For the past three months, we have known that this measure was coming and that the loophole would be closed on 21 March, and I have been concerned about that, given what often happens in such cases. I assumed, rightly I think, that across London in particular estate agents and solicitors were putting houses into companies in order to avoid the measure. I was therefore delighted when I saw the detail of the proposed legislation, which, as far as I can see, fixes this practice. The Government are going to consult on a proposal that will force people to take their houses out of such companies and, presumably, pay tax at the new higher rate. I commend whichever civil servant thought of that. Tax avoidance matters; it strikes at the heart of the notion that we are all in this together.
Before I leave the subject, I would like to discuss it in the context of the BBC. Members on both sides of the House will remember the “Newsnight” exclusive about the head of the Student Loans Company who was not having tax deducted at source even though he was, to all intents and purposes, a full-time employee. The Government have correctly agreed to fix that and to undertake a review of the rest of the public sector. I sent a freedom of information request to the BBC, asking it how many of its employees did not have tax deducted at source. The answer was that 320 non-talent based employees—in other words, administration employees—earning more than £50,000 a year were not having tax and national insurance deducted at source through pay-as-you-earn. The review that is being conducted across Government to ensure that that is not happening explicitly excludes the BBC. I ask Ministers to reconsider that. I will repeat the statistic: 320 non-talent based BBC employees earning more than £50,000 a year do not have tax or national insurance deducted at source through PAYE. That is not acceptable.
I will talk briefly about pension tax relief. I know that this is a complex area, but I am concerned that the Government are not making the progress on private sector pensions that is needed. In broad terms, the
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industry is failing. There is market failure in the pension fund management industry and the annuity industry. There is a massive asymmetry of information between the industry and the people it purports to serve. Charges are out of control. I am delighted that the National Employment Savings Trust is coming in. There are limits on who NEST can serve and how it can serve them, which were forced on the Government by the industry.
It is time to look again at the whole area of pensions. In particular, we should look at what the Government spend on tax relief. They spend £8 billion on higher rate tax relief and £30 billion on tax relief in total. If that tax relief was going into people’s pension pots towards their retirement prosperity, that would be one thing. The truth is that 31% of pension pots go on charges. It is possible that that rises to 50% of pension pots when churn costs and the rest of it are taken into account.
I would have liked the Government to remove higher rate tax relief in the Budget, because frankly it is a subsidy for a chunk of the investment management industry in the City. At the same time, I would have liked them to reverse the raid on pensions undertaken by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown). That could have been done easily with the money, and they might have been able to increase the overall rate of old-age pensions with what was left over. Indeed, if we removed all tax relief on pensions from this failing industry, we could increase the old-age pension by 60%. That model would put us much closer to how continental Europe deals with this matter, and we could still encourage savings through individual savings accounts and the like.
My hon. Friend the Member for North West Leicestershire (Andrew Bridgen) said that he was in favour of the regional pay policy. Anything that the Government do in that regard must be evidence-based. Taking money out of the regions is not, on the face of it, the easiest or best way of changing the north-south divide. In the last year of the previous Government, London had double the gross value added per head of the English regions. We must tread carefully. The Government must make fixing that statistic a priority. In no other country in the world—not in Germany, France or Italy—does that sort of discrepancy between the capital city and the regions exist. We must be circumspect about the regional pay policy.
I was pleased with the announcements in the Budget on the northern hub and the Manchester earn-back model. However, I was disappointed that of the £30 billion of infrastructure spending that the Chancellor announced before Christmas, 84% was for London and the south-east. We need to fix that.
Unfortunately, I do not have time to talk about green policies, so the hon. Member for Brent North will not hear my thoughts on his speech. I will at least leave the three areas that I have discussed with Ministers.
6.39 pm
Mr David Hanson (Delyn) (Lab):
It is a pleasure to speak on the first day of the Budget debate. I feel a slight sense of déjà vu, because although the debate has been going for about six hours since the Chancellor began his statement, I feel that I have known for a little longer than that about Sunday trading, the regional pay
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cap, the 50p tax rate, stamp duty and other matters in the Budget. Perhaps it is because I am from the north and we are in a different time zone up there, but those measures seem to have been around since at least Sunday, probably Saturday or before. Hugh Dalton resigned as Labour Chancellor for less, and I hope that Mr Speaker and you, Mr Deputy Speaker, will make a really serious examination of the issue in future.
The Deeside industrial park enterprise zone that the Chancellor announced today was in fact announced by the Labour Welsh Government before Christmas. It was brought to us today as a brand-new initiative, but it is one of a range of issues in the Budget that have been around for much longer than just today.
The devil is in the detail, and the difficulty on day one of the Budget debate is examining that detail and deciding which are the important matters. I know that the devil is in the detail because I shared many a Finance Bill debate with the Exchequer Secretary, who is in his place, until I moved to a different position as a shadow Home Office Minister at the end of last year.
The details of today’s Budget are worth focusing on. We have already seen that among them is the fact that 14,000 people who earn £1 million or more will get a £40,000 tax cut. Whatever the arguments for or against that, at a time when the Government are asking people to tighten their belts, giving a £40,000 tax cut to the richest people in our communities strikes me as the wrong priority. Much has been made of stamp duty compensating for that, but I remind the Exchequer Secretary that a £40,000 tax cut is a year-on-year measure whereas people do not move house every year. If they do, perhaps they deserve to pay the higher level of stamp duty, but mostly it is a one-off payment.
At the same time, families earning £20,000 stand to lose £253 this year, along with the rise in VAT that the Opposition voted against, which will cost them about £450 a year. Whatever pleasures the Liberals have brought to the debate, they have said the rise in the income tax threshold means that there will be a tax cut. However, there will not be a tax cut overall, because there will still be rises in indirect taxation.
The devil is also in the details of a £3 billion tax raid on 4.41 million pensioners, who will lose about £83 in 2013-14 through the changes to the higher allowances. I am sure that will come back and bite the Government in Committee and beyond. Also, 65-year-olds will lose £314 next year, which is another devil in the details.
I have noticed only during the debate—the Chancellor did not mention it in his speech—a major issue for me and my constituents in the details of the tax on holiday caravans. I represent a constituency in north Wales where holiday caravans are part of the local economy. Unbeknown to us from the Chancellor’s speech, he has announced on page A101 of the “Overview of Tax Legislation and Rates” that VAT will be levied on static holiday caravans from 1 October. According to the Treasury’s own figures, that will have an impact on some 50,000 individuals a year and, crucially, reduce demand by about 30% if the VAT change is fully passed on. The document states:
“This change is likely to adversely impact on all businesses that manufacture, buy or sell static caravans, from the very smallest to the very largest.”
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Only two weeks ago, I opened a brand-new caravan park extension in my constituency, providing 12 new caravans manufactured by Willerby, near the constituency of my hon. Friend the Member for Kingston upon Hull North (Diana Johnson). It is creating jobs and tourism spending in the community. People who come to north Wales do not just stay in the caravan: they go by car to buy food and drink and go to restaurants. The caravans will now be taxed at 20%, which will have an impact on manufacturers. How will that help to grow the economy, given that the impact assessment shows a 30% fall in manufacturing and selling capacity? How will it help when we have 2.67 million people unemployed; when the number of people unemployed in my constituency rose by 34 last month to a figure 169 higher than last year; when youth unemployment is at its highest ever; when my constituency has its highest level of youth unemployment since 1992; and when 49,000 young people have been unemployed for more than a year?
The priorities are wrong when a 45p tax rate is introduced to benefit 14,000 millionaires, but the Government’s changes to working families tax credit will affect part-time workers to the tune of £3,870 if they cannot increase their hours from 16 to 24. My trade union, USDAW, and the Child Poverty Action Group recently indicated that around 200,000 couples will lose nearly £4,000 a year, and a further 35,000, with 80,000 children, will fall below the poverty line if they cannot find extra work. Again, that is a wrong priority from a Government who are concerned more about giving money back to millionaires than helping people who are working hard, trying to increase their hours and facing unemployment challenges.
On top of that, the Government propose to introduce regional pay in areas such as mine in north Wales, thereby affecting the north-west and north Wales economy. It has already been estimated that £1.25 billion will be lost to the Welsh economy if regional pay is introduced. That strikes me as an invitation to people to do the same job for poorer pay. It will drive down those poorer regions, which, by chance elect Labour Members of Parliament and have lower pay. The changes will have a dramatic impact on Northern Ireland, Wales, Scotland and the north.
There is an alternative. We believe that there should be investment in tax breaks for small firms and a VAT cut, which would have an impact on fuel and goods and services. There should be a guarantee for young people who are out of work for more than a year.
I want to end on a positive note because I like to be positive with the Government and the Treasury. I welcome the tax break in the Budget for the video games industry. I particularly welcome it because it mirrors exactly an amendment that we tabled to last year’s Finance Bill. It was discussed on the Floor of the House and the Government voted against it. They argued that it was not practical then. I am pleased that they have seen sense and followed the Labour party’s lead. I now hope that they will look again at the National Insurance Contributions Act 2011. The Exchequer Secretary and I sat through the proceedings, and the Opposition argued that the measure would fail. The 97% failure of take-up vindicates what we said at the time. I hope that he will consider changing the regime for the future.
As a Member of Parliament representing the north, I will oppose the Budget because it is unfair, helps the rich and does nothing for working families in this country.
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6.47 pm
Andrew Selous (South West Bedfordshire) (Con): The Budget continues policies to deal with massive issues of intergenerational fairness so that we do not leave this generation’s collective credit card bill to our children and grandchildren. The OBR’s prediction of 1 million extra jobs in the next five years is one of the aspects of the Budget about which I am most pleased. We must also remember what the Prime Minister said in the Chamber today: fewer people are on out-of-work benefits now than at the time of the general election.
The Budget has put a significant tax cut for 24 million lower and middle-income earners at centre stage. Many are women and many work part time. That is a significant move by the Government and shows that our values are to help those at the lowest end of the income scale. It is a huge move in the right direction.
Opposition Members do not seem to realise that the 50p tax rate was doing real damage to our economy. Like it or not, there are some very rich entrepreneurs around the world who can choose the economy in which they set up their businesses. Given that that rate of tax was higher than it was in every other country in the G20, it is surely right to try to attract those people back to the United Kingdom to create the jobs to get our constituents out of poverty. Cutting that rate was therefore the right thing to do. Of course, the Chancellor also told the House that other increases on rich people mean that they will end up paying five times more tax than they would have done if we kept the 50p tax rate. I hope that Ken Livingstone will start paying the income tax that he should pay now, instead of doing it only if he becomes Mayor of London.
The Budget is pro-business, as it should be. It introduces the above-the-line R and D tax credit that all the business groups have been calling for, and a reduction in corporation tax this year, heading down to the 22% rate to make the UK an extremely competitive place to do business.
I was particularly pleased to see the pro-gas strategy, which will help us to create cleaner energy in future, which is vital given that we neglected to build the infrastructure that we need in this country.
There are lots of other practical measures in the Budget, including the Government’s wish to introduce duty stamps for alcohol. That is important, because there is a battle with the smugglers and a massive loss of income to the Exchequer, because the tax that should be paid is not paid on a lot of alcohol. It is absolutely correct that the Government are moving to capture that source of income for the Exchequer.
I welcome the extra focus on enterprise zones around the country. It is absolutely right. It simply cannot be acceptable that an area such as the west midlands experienced jobs shrinkage during the boom years.
We quite properly help young people to go to university in this country through the loans system, which we introduced, and is it not incredibly welcome that we will now help young people to set up their own businesses through the enterprise loan scheme introduced in the Budget?
I very much welcome the national loan guarantee scheme. The £20 billion-worth of guarantees that the Government will give to businesses will mean that they
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can borrow at a lower rate of interest—it will sometimes be 1% lower. That will be rolled out over the next few months and it is extremely welcome for businesses in all constituencies.
The announcements on the single-tier pension are excellent news for pensioners. Moving to a single-tier £140 a week pension is fantastic news for them. We should remember that very many of the poorest pensioners fail to receive the extra income to which they are entitled in pension credit because of the complicated means-testing system introduced by the previous Government. Single-tier is fairer and more just, it will deal with pensioner poverty much more effectively, and it is hugely to be welcomed.
I like the Government’s vision for addressing our infrastructure needs on a massive scale. This Government are committed to building the new roads that this country needs, as I have seen in my constituency, where an innovative public-private partnership deal will get a new bypass built. I waited in vain for the previous Government to build that, but it will be built under this Government. It is not only roads: we have a vision comparable with that of the Victorians for railways, and we are doing something about our water infrastructure and our energy infrastructure, which is incredibly important if we do not want the lights to go out in a few years.
What we are doing to improve the accommodation for our servicemen and women—increasing the families welfare grant and doubling council tax relief—is vital given the considerable burdens that they continue to bear on our behalf.
I am proud to be a member of a governing party that aims to double our exports in the next decade. It is shameful that this country has in the past exported more to Ireland than to Brazil, Russia, India and China combined. At a time when Germany is increasing its exports, we can, must and will—under this Government—do better.
It is right that we will tell taxpayers what their tax is going on. All our constituents will become much more engaged with tax issues when they see how much they are paying in total and where it goes. I welcome that further move for transparency by this Government.
The Chancellor summed up the Budget very well when he concluded his speech and said that we borrowed our way into trouble, and we are going to earn our way out of it.