Budget Resolutions and Economic Situation
Debate between Jim Shannon and Chris Philp
Chris Philp
My hon. Friend is right to draw attention to the success that the Labour Government enjoyed while sticking to the economic plans of my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke).
Let us return to the legacy with which the Chancellor came to office. GDP had contracted, employment had fallen, the number of housing starts had fallen dramatically —we have heard a lot about housing today—and the deficit had mushroomed to a gigantic 10% of GDP, partly because we were already running a deficit when the recession hit. All those matters were tremendously difficult to deal with.
Let us now look at what the Chancellor has achieved. Over the last five years, we have seen an impressive turnaround. Last year, GDP grew at a rate of 3%, the highest rate in any G7 country. Employment grew by a staggering 2 million over the last Parliament, a greater increase than was achieved in all the other European Union countries put together. As I mentioned in the House yesterday, the county of Yorkshire alone created more jobs than France. That is a record, and I note that the Under-Secretary of State for Transport, my hon. Friend the Member for Harrogate and Knaresborough (Andrew Jones), is particularly pleased to hear about it. The deficit came down from 10% to 5% of GDP, and even the cost of living issues experienced in the last Parliament have begun to ease. Wages are now rising at 3% but inflation is zero, so there has been tremendous progress over the last five years, and I am delighted to have heard today that the Chancellor has resolved to finish the job.
Jim Shannon (Strangford) (DUP)
I do not think anyone in the House would disagree with the hon. Gentleman’s interpretation of how the economy has boomed with job opportunities and with unemployment decreasing. We in Northern Ireland have seen the advantages of that as well. However, does he share my concerns about how the changes to welfare reform, tax credits and benefits will impact on economic growth over the next few years? Rushing forward too fast, as the Chancellor said today, would be detrimental to the economy of the whole of the United Kingdom of Great Britain and Northern Ireland.
Chris Philp
I thank the hon. Gentleman for raising that point. I am afraid I disagree with his concerns and I will address these matters in more detail shortly.
I was endorsing the Chancellor’s plan to continue deficit reduction and to eliminate the deficit by the end of this Parliament. If this country is to have a stable economic future, and if we are to be in a position where we can weather anything the future throws at us—there may well be further economic turbulence from overseas in the years ahead—it is essential that we have a balanced budget, and the Chancellor is right to aim to achieve that.
I note, however, that the Red Book tables C.3 and C.5 forecast significant increases in tax revenue over the next five years, which are essential if we are going to balance the books. Revenue over the next five years is forecast to increase by £168 billion, an increase of 26% from today. At the same time, expenditure is going to increase by £69 billion, an increase of 9% from today. If for any reason that 26% increase in revenue does not materialise, the Government will have to look again at their expenditure plans. I am sure Members will watch very carefully to make sure that those revenue assumptions do indeed come to pass over the coming five years.
I commend the Chancellor for his work on fairness over the past five years and in this Budget. He has taken action to make sure that the wealthiest in our society pay their fair share and the poorest are given the most help. The top 1% of earners pay as much into the system as the 9 million poorest people in our society. If any Member suggests that the richest are getting an easy ride, they are quite wrong; the richest are indeed paying their fair share. Measures were announced today to clamp down on corporate tax avoidance, which have been welcomed from all parts of this House, and to limit the scope of people using non-dom status to avoid paying their fair share of taxes. I am sure Members on both sides of the House will be quick to welcome that, too.
There has also been a continuation of measures designed to help the poorest in our society, such as further increases in tax allowances, which disproportionately benefit the poorest; and one of the heaviest taxes of all, the tax on fuel, which bears down proportionately most heavily on small businesses and people on low incomes, has once again been frozen. Had that freeze not started some years ago and been continued, each time we filled up our car the petrol tax would be about £10 to £11 higher. We should thank the Chancellor for alleviating that heavy burden that falls on the shoulders of those who can least afford it. This is therefore a Budget that has fairness at its heart, with the richest paying their fair share while those on lower incomes are protected, which is right.
I shall now turn to the issue raised in the last intervention: the reform of benefits, and in particular the reductions in tax credits. We had an Opposition day debate yesterday on tax credits, when many Conservative Members pointed out how staggeringly expensive tax credits are, at a cost of £30 billion a year, and how they often serve to— [Interruption.] Sorry, my voice is going a bit; I was cheering so loudly earlier that it is not as clear as normal—I hope the Chief Secretary’s Parliamentary Private Secretary takes note of that.
Tax credits reduce incentives to work, so it was right that the Chancellor today moved to reduce the cost of tax credits to the Exchequer, but it was equally important that that reduction was accompanied by such a significant increase in the minimum wage, introducing the new concept of a living wage—it will rise to £7.20 an hour next April and will continue up to £9 an hour by 2020.
Chris Philp
The benefits of people who are not working are unaffected, and people who are working will have the opportunity, via higher wages, to more than recoup the effects of the tax credit move that the hon. Lady just described. I strongly welcome the fact that the increase in the minimum wage will more than offset the effect of the tax credit reductions.
Jim Shannon
Again, the issue of tax credits worries me greatly, as my constituents have contacted me over the past few days intimating their concerns. In Northern Ireland, the figures from charities show that many children will be pushed into poverty as a result of the changes to tax credits. No matter what way the hon. Gentleman may put this forward, that is what the experts and the charities are saying. How can he answer that point?
Chris Philp
I thank the hon. Gentleman for his intervention. The number of children in relative poverty—this was before the definition was changed—was reduced by 300,000 over the course of the last Parliament. As I mentioned in response to the previous intervention, although families on low incomes will receive less in tax credits than they currently do, that will be more than made up for by the increase in the minimum wage, and it will, therefore, be fair to people on low incomes. I do not think that the issues the hon. Gentleman just raised will come to pass in the way he described, although I am sure that further analysis will be done on this topic.
Ultimately, tax credits are a subsidy paid to employers who underpay their staff, and Members on both sides of the House will deplore employers who pay their staff less than is required to live on. A combination of reducing tax credits while increasing the minimum wage will end this abuse by some employers who do not pay their staff properly. A reform such as this is long overdue. For far too long, the general taxpayer has been subsidising employers who underpay their staff, and I am delighted that today’s Budget has taken a step towards ending that.
We have heard a great deal from Opposition Members about productivity, and it is right to say that productivity in this country needs to improve. I am delighted that somebody as distinguished as Jim O’Neill will be leading on that. I say to Labour Members who have raised this issue that the biggest fall in productivity in recent history—2.6% in a single year—occurred in 2009, on the Labour Government’s watch. They should therefore be a little careful when they seek to lay the blame for the productivity level on Conservative Members.
One contributory factor to low productivity is low wages, which are fuelled by tax credits: if employers can pay their staff very low wages, there is very little incentive to invest in IT, training, equipment or machinery because they can simply hire very low-paid staff. One side-effect of today’s increase in the minimum wage may be to increase productivity, because companies will be paying higher wages and so will be further incentivised to make sure that their workers, who will be costing them more, really are productive.
A second reason behind the relatively flat productivity figures is the relative decline of the oil and gas sector and the financial services sector after the recession. Both sectors had very high productivity, so if their participation in the economy is reduced, there will naturally be a bit of a drag on productivity. I am sure that the productivity plan, which will be published shortly, will go a long way towards addressing many of the issues.
The Chancellor mentioned aggressive claims management companies, which I do not think anyone has picked up on so far. He said that those companies are targeting people who have been involved in accidents and inducing them to make fraudulent claims. I had that experience a year ago, when my wife and I—I do not wish to pin the blame on either of us—had a small bump on the motorway. [Hon. Members: “Ah!”] It was nothing too serious. But in the year after that, my wife and I were inundated with phone calls on an almost weekly basis. Goodness knows how these people got our phone numbers. The insurance company or the accident pick-up company must have given them to this ambulance-chasing law firm. The firm phoned us up on a weekly basis, trying to persuade us to pretend that we had some sort of injury, such as whiplash or backache. No matter how many times we told them that we had no injury of any sort, they continued to try to persuade us fraudulently and falsely to claim that we were injured, which we obviously did not do. Some people may be tempted, and that would be outright fraud. Anything the Chancellor can do to stop this outrageous abuse is very welcome. Personally, I advocate an outright ban on payment protection insurance—PPI—or personal injury cold calls because people are being induced to make fraudulent claims, which act as a drag on the entire economy. I welcome the fact that the Chancellor made reference to this in his Budget statement.
Finally, I wish to touch briefly on housing. The timing is appropriate as the Minister of State for Housing and Planning is now in his place. I congratulate the Government and him on the national planning policy framework, which was launched in the previous Parliament, under which housing starts have significantly increased. In fact, the number of housing starts per year is around 50% higher than it was in 2009 and 2010. The Government can be very proud of the action they have taken so far to encourage house building. In my borough of Croydon, the number of housing starts increased fourfold in 2014 compared with 2013—they went up from 500 a year to about 2,000 a year. The Government have a good track record of making progress in this area. I have every confidence that the housing Bill, to be introduced in Parliament in October by the Minister of State, will put in place further measures that will increase house building even further. As we increase supply, affordability will improve as well.
On the subject of council housing, to which a previous speaker referred, we should note that over five years the coalition Government started more council houses than Labour did in the previous 13 years put together. That is a record of which the Government can be proud.