David Gauke
Main Page: David Gauke (Independent - South West Hertfordshire)Department Debates - View all David Gauke's debates with the HM Treasury
(13 years, 10 months ago)
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Helen Goodman
In order to achieve that difference in the debt to GDP ratio four years hence, we will see cuts of 25% across most Departments, four times greater than those that Geoffrey Howe tried to impose on the country in the early 1980s. Even so, the tax burden will also rise by £33 billion. We have to question the judgment of a Government who are taking that amount of money out of the British economy.
Another issue is whether the Budget will promote growth. It is clear that in overall terms it will not do so. That is clear from the revisions to the forecasts made by the OBR, which show that growth is down and unemployment is up. Given the huge cuts proposed in the public sector—we heard about the first slice yesterday to the Building Schools for the Future programme—not only will the number of public sector jobs be reduced, but the knock-on effect will be significant increases in job losses in the private sector. The Government’s contention that 2 million private sector jobs can be created is just not credible. That is far more than was achieved in the 1990s when interest rates were cut aggressively and the pound depreciated by 25%. In those years, it took seven years for employment to grow by 1 million. Obviously, interest rates cannot be cut aggressively in the current situation, and it is highly unlikely we will see a depreciation of the pound against the euro, given that the European economies—our largest market—are in the state they are in. Under the Labour Government, 2.5 million jobs were created over 13 years, but that included extra jobs in the public sector, a housing boom and huge increases in financial services. The Government are now putting forward a prospectus that is simply not tenable. The argument that we have to attend to the level of the deficit because private sector investment is being crowded out by the public sector is also not credible, given that the economy has 4% spare capacity.
I turn to the measures in the Bill. On corporation tax, the coalition Government are cutting the rates—this is a long-standing pattern with the Tories—while cutting the allowances. What will that do for growth? How will that enable the economy to be rebalanced in the way the Secretary of State for Business, Innovation and Skills says is so important? Cutting allowances for investment is bad for manufacturing. The small and medium-sized firms in my constituency, where there is a lot of engineering and small manufacturing, provide several examples demonstrating what the problems are. Over the past month, I have visited two firms that make packaging, which means they supply the retail industry. Obviously, if shops are not doing very well, those firms are not doing very well. Clearly, they need a lot of big machinery to make the packaging, and if they are to continue to have the new, up-to-date machinery to do that, they need investment allowances.
Not so long ago, I visited a building and joinery firm that also has a lot of expensive machinery that it needs to keep up to date, and it also needs these investment allowances. Its contracts are largely dependent on the public sector and on schools and police stations being refurbished, so these cuts in the public sector will have huge knock-on effects in the private sector. Let us take a final example: a chemicals firm making sealant for aircraft. How will it fare with cuts to the defence budget, which is one of the budgets not being protected? Once again we have a complete picture that is totally incoherent. What the Government offer in practice and what they say they want to achieve are two completely different things.
Many hon. Members have commented on the unfairness of the low level of the bank levy and on the fact that the banks will gain more from the corporation tax cuts than they will lose from the increase in the bank levy. However, no one has asked why the bank levy is only being introduced from 1 January 2011. I would like Treasury Ministers to explain why there is a delay in the introduction of the bank levy. Surely that gives the banks a lot of time to move their assets around and avoid this tax, at which, as we all know, the financial services are particularly adept.
Helen Goodman
The Minister shakes his head. They clearly do not know the answer.
The Conservative-Liberal coalition cannot agree on its environmental policy either, which is presumably why, rather than acting on environmental taxes, we now have yet another commission to look into the climate change levy. Once again, therefore, a potentially progressive measure is being put on the backburner. We do not know when it will happen. We do not know when we will see progress on it.
Many hon. Members have spoken about the unfairness of VAT. The Government claim that they had no choice, but of course they had a choice, and they have made it. Their choice has been to change the national insurance regime and replace the increase in national insurance with an increase in VAT. However, one of the things that the Government will not admit is that VAT is also a tax on jobs. VAT also drives a wedge between the cost on employers for the goods and service that employees buy, and what they pay for them, so the notion that we can have an increase in VAT without seeing an impact on the number of jobs in the economy is yet another fantasy.
The Government have not explained what they are doing about the lower rate of VAT, on essentials, and many Opposition Members would like some clarification on that.
The third and final issue that I would like to discuss is fairness in the income tax and benefits system. The Liberal Democrats say that raising the personal allowance is their major attempt to be fair to poor people. The attempt is being made, but it has not produced the upshot that the Liberal Democrats are looking for. Rather, it has failed, because they have not taken account of the interaction with the tax credit reductions and the cuts in welfare benefits.
The distribution figures on page 66 of the Red Book purport to show what the position in the Budget is. However, a day or so later, we all discovered that chart A2, entitled “Impact of all measures as a per cent of net income by income distribution”, in fact included not just the measures taken by the Chancellor of the Exchequer in announcing his June Budget, but the measures taken previously by my right hon. Friend the Member for Edinburgh South West, which were jumbled up with them. When those figures were stripped out and separated by the Institute for Fiscal Studies, we could see that the distributional impacts were totally different. Whereas my right hon. Friend’s Budget took less than 0.5% from the poorest and almost 7% from the richest, the June Budget took 2.5% from the poorest and 0.5% from the richest, so the claim of fairness is completely fraudulent.
The Exchequer Secretary to the Treasury (Mr David Gauke)
We have had nine and a half hours of debate, we have heard many speeches from Labour Members—to be precise, I should perhaps say that we have heard one speech many times—and we have heard not one word of apology. We debate this Bill in the context of a crisis in our public finances, yet we do not see the two right hon. Members most responsible for that here: the shadow Chancellor and the right honourable—and absent—Member for Kirkcaldy and Cowdenbeath (Mr Brown). Over the past few years, few contributions have been made by Labour Members on Finance Bills; usually we heard a contribution from the then Member for Wolverhampton South West, Rob Marris, who is a well-respected figure. We heard many speeches from Labour Members today, but I must say that although the quantity has increased, the quality has deteriorated. There was one exception: the hon. Member for Scunthorpe (Nic Dakin) made a fine maiden speech.
We also heard three other excellent maiden speeches. One was made by my hon. Friend the Member for Weaver Vale (Graham Evans), who pointed out that we do not help the poor by piling up debt. Another was made by my hon. Friend the Member for Ipswich (Ben Gummer). I was particularly delighted to hear that, because I grew up in that town and I remember that even in the days of substantial Conservative majorities it was a Labour-held seat. That goes to show what a fantastic effort he has put in there. I was also delighted to hear the maiden speech of my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay), whom I have known for nearly 20 years. I also wish to thank my right hon. Friend the Member for Wokingham (Mr Redwood), the hon. Members for Solihull (Lorely Burt) and for St Ives (Andrew George), and my hon. Friends the Members for North East Somerset (Jacob Rees-Mogg) and for Dover (Charlie Elphicke), for their contributions.
We debate this Finance Bill in the context of a need for a further fiscal tightening. This country is borrowing more than at any time in our peacetime history. We have seen real turmoil in the markets, with concerns about sovereign debt contagion and with Spain, Portugal and Greece having their credit ratings downgraded. We have seen the independent Office for Budget Responsibility downgrade our predecessors’ less than independent growth forecasts and increase the estimate of the structural deficit.
May I respond to the point about Sir Alan Budd by saying that the hon. Member for Wallasey (Ms Eagle) may find that if she spoke to her colleague—or perhaps former colleague—Lord Myners, she would find that in response to his freedom of information request we sent him a copy of Alan Budd’s contract, which makes it clear that it was a three-month contract? It also has to be said that in providing credibility for the public finances, he achieved more in three months than the Labour party achieved in 13 years.
It was imperative that the new Government moved further and faster in reducing our deficit and putting the public finances on a firmer footing. What were the risks if we did not do that? At best we would have had a substantial structural deficit at the end of the Parliament, and we would have paid more than £70 billion a year in debt interest. At worst, we ran a risk of the UK being swept up in a sovereign debt crisis, of a downgrading in our credit rating, of a loss of confidence by international investors, of interest rates having to rise in response, and as a consequence, of any recovery being choked off as credit became more expensive and less available. This was a risk that the coalition Government were not prepared to run, even if others were. It was necessary and overdue that we had a Government who were willing to take decisive action, to get a grip of the situation, and to set out a clear and credible path out of this inherited mess. That is what we have done.
Mr Gauke
The hon. Gentleman had nine and a half hours to take part in this debate. I am not going to give way to him now.
It is right that we should focus our attention on spending cuts. That is the best way of ensuring a successful fiscal consolidation; none the less, it was also necessary to raise taxes. Our challenge was to do so in a way that was fair and enhanced the competitiveness of the UK economy, so that we could encourage the necessary private sector growth.
We will open Britain up for business by creating a more competitive system of corporation tax. We will reduce the main rate from 28% today to just 24% over four years. Rather than putting the small profits rate up, as our predecessors planned to do, we will reduce it to 20%. That proposal has been widely welcomed by business groups such as the CBI, the British Chambers of Commerce and the Institute of Directors.
For the first time we have set out the distributional impact of all the Government’s tax and benefit changes that will affect the public over the next two years. It is clear that we have ensured that every part of society will make a contribution to reducing the deficit while protecting the most vulnerable. Even with some tough decisions, we have ensured that child poverty will not increase in the next two years, through a significant above-inflation increase in child tax credit.
We have not heard proposals from the Opposition about how they would raise more tax. To be fair, one or two Opposition Members, even former members of the Government, said, “We should have raised more from the bank levy,” somewhat forgetting that when the Labour party was in government it refused to introduce a bank levy.
I know that there is sincere concern on both sides of the House that those who are materially deprived may have to pay disproportionately more in tax as a consequence of the change in VAT, but I urge all hon. Members to look at the academic debate on this matter. If they want to see a correlation between material deprivation and income, the best way of looking at it is to look at the expenditure basis. The fact is that income distribution will always reflect the fact that there are groups in society with volatile incomes who are not as materially deprived as others, but who will from time to time earn less and at other times earn more. As a consequence—
Mr Deputy Speaker
Order. If the Minister wanted to give way, he would do so. The hon. Gentleman has been in the House long enough to recognise that the Minister is not going to give way.
Mr Gauke
We are not going to take any lectures from the Opposition. Remember, theirs is the party that doubled the 10p tax rate. Of course, at that point the Government did not produce a distributional analysis. I have asked officials to look into this, and if we look at the distributional impacts of the changes in income tax announced in 2007, an interesting fact emerges: the bottom five deciles all lose and the top five deciles all win. That was the consequence of the policy of the right hon. and absent Member for Kirkcaldy and Cowdenbeath, and some of us remember Labour Members cheering when that policy was announced.
What a contrast with the coalition Government. Whereas the Labour Government raised income tax on the poorest, we have taken 880,000 people out of income tax. What a contrast on the deficit, as well. I do not believe that when the Labour Government came to power in 1997 they intended to leave the biggest budget deficit in our peacetime history, but the fact is that they did. We know it, the British people know it, and deep down, Labour Members must know it too, but the more we listen to them—in complete denial, opposing each and every measure to control the deficit, failing to engage in how we solve the problem—the more absurd and out of touch they look. That will not impress many people.
The British people know that this Government are sensibly and pragmatically clearing up a mess left by our predecessors. I say to Labour Members: accept that fact, engage constructively in what we do about it, but above all, apologise for it. It is clear, however, that we will not get any constructive engagement from Labour Members. Instead, we see Labour’s age-old habit of failing to confront the hard truths: self-indulgent, short-sighted, with passion and resolution marching into the wilderness—irresponsible in government, irrelevant in opposition.
This country deserves better than that. The British people know that sorting out the mess will not be easy. Yes, sacrifices will have to be made, but in this Finance Bill we are making tough choices—choices that will restore our public finances, choices that enhance not diminish our competitiveness, and choices that are fair to all sections of society. I commend the Bill to the House.
Question put, That the Bill be now read a Second time.