Amendment of the Law

Barry Gardiner Excerpts

Wednesday 21st March 2012 Commons Chamber

[Mr John Redwood (Wokingham) (Con)]

I fully support the Government’s aim. We need to earn our way out of the fiscal crisis, the massive over-borrowing and the large deficits. I also fully support their aim to get more money from taxing the rich, and we need a tax break for everybody else. We need a stimulus to demand and growth in this country and it is welcome that, given the difficult figures before the Chancellor today and the situation he inherited, he has managed to find a way of cutting tax for most people. That will be welcome relief from the relentless pressures on private budgets that hon. Members and their constituents have been experiencing as we try to climb out of the crisis.

It would be helpful to remind the House of the general shape of the five-year programme to try to get the deficit down. We want to get to a position in which we are adding less to the new borrowing. It is not that we are paying off the debt or dealing with the nation’s mortgage and credit card; we are just not flexing them quite as much as before. The Government have said that, over the five-year period of the planned coalition Government, they wish to increase current public spending by £90 billion and tax revenues by £174 billion a year by the fifth year of the programme, compared with the last Labour year. The House can see that, on most normal ways of looking at the situation, the plan is for the heavy lifting of getting the deficit down to be done by a very large increase in tax revenues.

Those tax revenues best roll in if the economy grows reasonably rapidly. The more quickly the economy grows, the easier and less hurtful it is to get money out of people; the less the economy grows, the more the choices become difficult.

[Barry Gardiner (Brent North) (Lab)]

The right hon. Gentleman says that the heavy lifting will be done by the rise in tax, but does he accept that there is a ratio of 4:1 in the amount that will come from cuts in public spending and benefits to the amount that will come from tax rises?

[Mr Redwood]

I have just given the figures—they are taken from past and current Red Books—and the hon. Gentleman must make his judgment. I am giving the House my interpretation. Most people who see spending going up by £90 billion and revenue going up by £174 billion will say that the increase in revenue is doing the job of bringing the deficit down. If he compares that with Labour’s plans for even bigger increases in public spending, he can make a case. He may also have in mind—we have debated this in the House before—whether the cuts are real or not. Some programmes will experience real cuts. We know that because there is a much slower rate of growth in cash spending than anything this country has been used to for a very long time.

If debt interest takes too much of the extra money, and if welfare benefits take too much, other things will obviously be squeezed more, which could lead to very unpleasant consequences. That is even more reason why the Government are right to try to get the deficit down, so that we do not keep on increasing the debt at such a huge rate, and why they are right to keep official interest rates low—that helps with the cost of the deficit. It is also why they are right that we need to earn our way out of the situation by getting many more people back into decent jobs, so that they are paid more in work than they are paid on benefit. Surely the whole House can agree on that and share that aspiration.

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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.

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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 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 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.

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[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.

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 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 £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.