Budget Resolutions and Economic Situation

George Kerevan Excerpts

Tuesday 22nd March 2016 Commons Chamber

[Mr Osborne]

If we take no decisions to control welfare spending and public expenditure, we destroy the nation’s finances, and the people who suffer are precisely the most vulnerable in society. Yes, we have taken difficult decisions, but where we have not got them right, we have listened and we have learned. If we had not taken those decisions, the country would be in an even bigger mess than the one we inherited.

[George Kerevan (East Lothian) (SNP)]

The Chancellor mentions security, including for the poor. Does he realise that until Monday, 340,000 people on PIP were worried that their benefits were going to be cut? If he just apologised and changed that, we could move on and discuss the economics.

[Mr Osborne]

I could not have been clearer. I said that we listened, we learned, we made a mistake, and we withdrew the proposals. The hon. Gentleman talks about days of the week, and Thursday would have been the day when Scotland separated from the United Kingdom if the nationalists had had their way. They would have plunged that new country into a fiscal crisis the likes of which few western countries have ever seen. They would have impoverished the Scottish people and driven businesses away. They based all their numbers on oil revenue forecasts that were totally fanciful, and it is time that they got up and apologised for leading the Scottish people into that potential trap. Thankfully, the Scottish people thought better.

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[George Kerevan (East Lothian) (SNP)]

Let me begin by associating the SNP with the words of the Chancellor and the shadow Chancellor in expressing sympathy for the people of Belgium—Flemish, Walloon, and recent immigrants—at this tragic hour.

I must give the Chancellor his due. He gave us a bravura performance: in my view, a more assured and more interesting performance than we were given last week. However, I am always worried when he goes into his expansive, emotional mode. What is he hiding? We know what he hid last week, which was the fact that he would have to come back and tear up his Budget and create a new one, but what did he hide this week? He hid what he always hides and never addresses: the crucial issue of productivity. Without productivity growth, there can be no tax growth, no jobs growth and no wage growth. The truth is that, under this Chancellor, productivity has risen at an annual average of 0.1%. Since the top of the boom in 2007, the cumulative increase in UK productivity has been less than 1%. That is the Chancellor’s failure.

I have great respect for the Chancellor, but he is not a Chancellor who ever had a real job. He is not a Chancellor who ever worked in the private sector. He is not a Chancellor who ever had to lie awake at night—as I have, and as, I am sure, have many other Members on both sides of the House—and worry about how to pay the next wage bill. This Chancellor is an intellectual Chancellor: that is his problem.

[Chris Philp]

I have spent the last 15 years setting up and running businesses. As someone who has done that, I am glad that it is this Chancellor who is sitting in that seat, because he is the man who has created jobs and helped businesses like mine! [Interruption.]

[Mr Speaker]

Order. May I just say, for the benefit of the House, that moderation and good humour are the precepts of “Erskine May”. Members on both sides of the House can learn from the right hon. and learned Member for Rushcliffe (Mr Clarke), who has just given a textbook example of a robust speech made with good humour. Many Opposition Members can do the same, and new Members could learn from them.

[George Kerevan]

Thank you, Mr Speaker. I serve on the Treasury Committee with the hon. Member for Croydon South (Chris Philp), and I did not take what he said personally.

If we do not get productivity, what happens? We do not get growth. The right hon. and learned Member for Rushcliffe (Mr Clarke) gave us a wise presentation, as he normally does, but he slipped up a little. He said that, under this Chancellor, the United Kingdom had experienced the fastest growth in the developed world. That is not true. As he phrased it, it is not true—unless, of course, Australia is not developed; unless, of course, the United States is not developed; unless, of course, Sweden is not developed; unless, of course, Korea is not developed; unless, of course, Spain is not developed. All those countries experienced faster GDP growth than the UK in 2015, largely because they experienced faster productivity growth. That is what this Chancellor has not delivered. That is not what this Budget contains. And that is this Budget’s weakness.

If we look at the failure of productivity growth in the UK under this Chancellor, we see that productivity is lagging in practically every commercial and industrial sector. Crucially, productivity has been falling by an average of 1% a year in the financial services industry—our flagship industry, our key service industry, the industry that is leading our service exports. This Chancellor has devoted a lot of time and effort to reconstructing the financial services sector—I grant him that—but what have we got? Falling productivity. According to the Office for National Statistics, productivity in the British financial sector, including insurance, is now behind the level of financial services productivity in France and Italy. That is not a great record, Chancellor. Here is the bottom line: if we do not have productivity growth, the cash economy will not grow, wages will not grow and income to the Treasury will therefore not grow.

[Marcus Fysh (Yeovil) (Con)]

Does the hon. Gentleman not recognise that there is a lot in this Budget to improve the performance of the economy? Does he not agree that a massive cut in business rates will deliver exactly the productivity that he is talking about?

[George Kerevan]

I utterly accept that point. This is at the core of what I am saying. The kind of business rate cuts for small companies that the Chancellor has belatedly introduced in this Budget have long been available in Scotland. What has happened to productivity in Scotland? Despite the Scottish Government’s limited drivers for economic growth, productivity in Scotland has gone up 4.4% since the recession. That is more than four times what this Chancellor has managed to deliver. In Scotland, our limited tax powers have forced us to concentrate on the supply side, and my bill of fare against the Chancellor is that he does not do that. Yes, there are lots of bits and pieces in the Budget that I welcome—particularly the move to clamp down on transfer pricing in multinational companies—but in the end, there is no strategy. The Chancellor has no strategy apart from his rendezvous with 2020 and trying to run a budget surplus.

[Sammy Wilson]

Does the hon. Gentleman accept that he is perhaps being a bit harsh? There are many supply-side measures in this Budget, including improved investment in infrastructure and the digital economy and cuts in corporation tax and business rates, all of which should help investment and therefore increase productivity.

[George Kerevan]

Indeed, and I welcome all the supply-side measures, but—[Interruption.] Wait for it! We have had five Budgets in the past 15 months. Why did those measures not appear in the last four of them? In fact, if we count today as well as last week, we have had six Budgets in that time. Why did those measures not appear before? This is not about the Treasury officials, who are bright men and women; this is about the fact that there is no strategy apart from trying to run a budget surplus in a particular year, because the Chancellor knows that if he does not deliver in 2020, what is left of his reputation after this week will be in shreds.

[Mr Steve Baker (Wycombe) (Con)]

I should like to draw the hon. Gentleman’s attention to page 2 of the Red Book. It states:

“This is precisely why the UK has been working through its long-term economic plan. Since 2010 the plan has been focussed on reducing the deficit, while delivering the supply side reforms necessary to improve long-term productivity growth.”

Will he at least concede that the Chancellor has in his Red Book precisely the kind of strategy that he is criticising him for not possessing?

[George Kerevan]

I cannot accept that. There is a tension in the Chancellor’s mind. It is like good and evil sitting on either shoulder. One side is telling him to run a budget surplus, because that is an easy road to take. That is not badly thought out. Given the number of rules that Chancellors have thought up over the years and then failed to implement, running a budget surplus is an extremely simple rule. It is just too crude, however. That argument vies with the supply-side strategy.

Following on from the question from the hon. Member for Wycombe (Mr Baker), another friend from the Treasury Select Committee, let us look at what the Office for Budget Responsibility says in its report about how the Budget supply-side measures will work. It states:

“We also expect smaller positive contributions to potential output growth over the next five years from population growth, while average hours worked are expected to trend down over time.”

With a decrease in average hours, in input and in population growth, where is the productivity increase going to come from? I should like to hear the answer from the Chancellor.

[Geraint Davies]

Does the hon. Gentleman agree that we have such hopeless productivity growth because, first, our research and development is very low, by international standards, and secondly, so is infrastructure investment? Thirdly, the rights and security of people in work are now low, making it easier for them to be sacked. In Germany, where people can stay in work, employers have to invest in their productivity because they cannot get rid of them. Here, however, we are destroying rights and creating short-term, low-paid jobs, which is resulting in lower productivity.

[George Kerevan]

I could not agree more with all three points, so I will just accept them.

The Red Book also shows that public sector net investment—capital investment in the public sector—is set to fall for the next four years. I have to ask Conservative Members this question. With industry in trouble and manufacturing contracting, as it has done in the past quarter, how will it help productivity if we have to cut public sector net investment in the capital side of the economy in order for the Chancellor to meet his rendezvous with destiny in 2020 and have his budget surplus? We need investment in capital in order to have productivity—that is where it comes from.

It is interesting to see what the OBR thinks we will have to do in order to get the books to balance. It believes that UK private sector business investment will have to make up the difference. It believes that private business investment will come to the rescue and contribute a quarter of the expenditure contribution to GDP growth in the period to 2020 in order to achieve the Chancellor’s fabled budget surplus. So, to make all the sums work, there has to be growth. Where is the growth coming from? According to the OBR, a quarter of all the potential expenditure in the economy between now and 2020 has to come from business investment. [Interruption.] Bear with me as I go through the numbers, because they are important. According to the OBR, business will have to contribute 0.6 percentage points each year to GDP in order for the economy to grow sufficiently to deliver the taxes to enable the Chancellor’s budget to come into balance.

There is only one problem. Historically, from 1990 to 2008—that is, throughout the boom period—the level of investment that British business managed to achieve as a percentage of GDP annually was 0.3, which is precisely half what the OBR thinks that business will have to invest between now and 2020 if the Chancellor’s numbers are to work. That is not going to happen.

[David Rutley (Macclesfield) (Con)]

The hon. Gentleman says that the Chancellor lacks strategy, but that is clearly not the case. He was clearly not listening to the same Budget speech that I was listening to. That speech included supply-side measures, with business taxes going down and infrastructure being improved. We are seeing massive Government investment in the northern powerhouse to tackle the challenges, and private sector investment is coming in on the back of it, including £1 billion of investment in Manchester airport over the next 10 years. Is not that the sort of leverage that the Government should be seeking?

[George Kerevan]

If the hon. Gentleman had been listening carefully instead of following his script, he would understand that I am in favour of all the supply-side measures that we can get, because that is how we get growth. I am simply pointing out that the Budget figures that we have been presented with in the Red Book, alongside the OBR’s independent analysis, suggest that business investment will have to be double the level of its historical average, at a time when the global economy is slowing, in order for the Budget numbers to work. That is not going to happen.

The hon. Member for Macclesfield (David Rutley) made a reasonable point, however, and I shall follow on from it by asking: how do we boost business investment? The Budget includes a cut in corporation tax, yet our rate is already the lowest in the G20. How can a further cut produce any more inward investment? The incentive is already the biggest it is going to be, so cutting it even more at the margins will not increase incentive. That will just waste funds. Even with that—I have raised this in the House before—because there is so little outlet for investment at the moment, much of companies’ profits from reduced corporation tax is going into share buy-backs, which is a complete waste of time because it does not add to productivity.

The other tax issue in the Budget is the cut in capital gains tax. There is an argument for cutting capital gains tax, but here’s the point: which Chancellor raised capital gains tax in 2010? It was the Chancellor who is sitting there. Where is the long-term plan in raising it and then lowering it? The confusion of signals is exactly why businesses are not investing. They do not know what taxes will be from one Budget to another, which, at the moment, is every three months. [Interruption.]

[David Rutley]

I thank the hon. Gentleman for giving way. I was not seeking to make a point, but I will now. The Chancellor has clearly demonstrated that he has his public finances under control—[Interruption.] The deficit is massively down and he is now in a position to take forward the changes to which the hon. Member for East Lothian (George Kerevan) refers.

[Madam Deputy Speaker (Natascha Engel)]

Order. The hon. Member for East Lothian (George Kerevan) has been on his feet for 15 minutes and is taking an awful lot of interventions—he is very generous like that —but over 40 Members want to speak and I do not think that I am going to get everybody in. If he limits the number of interventions he takes, I will be very grateful.

[George Kerevan]

As ever, Madam Deputy Speaker, I am at your service and the service of the House. I will come to my final point, because I am sure that we will be discussing this at the next Budget in another three months.

The Chancellor talks about living beyond our means. He prioritises the budget surplus. He talks about intergenerational fairness. He says that if we do not get overall national debt down, it will be a burden on future generations. Let us test that and go back to the late 1940s and 1950s, when the national debt as a share of GDP was more than twice what it is now and was coasting at over 200% at one point. For most of the ’50s it was 150%, which is twice what we have at the moment. Where did it come from? It came from Governments, particularly Conservative Governments, borrowing money. Most of the rise in national debt did not come during world war two, but during the late ’40s and early ’50s as we tried to rebuild Britain’s infrastructure following the depredation of the war. Harold Macmillan was building a million houses a year. We invested and the national debt was pushed up.

Here is the thing: if huge national debts weigh heavily on future generations, let us look forward. What happened to baby boomers such as the right hon. and learned Member for Rushcliffe and me? Our generation has houses and pensions. We have benefited from state-funded investment in national infrastructure. The whole notion that investing and running up a budget deficit places a burden on future generations is not historically true. Did the economy grow fast in the ’50s and early ’60s? Yes, it did.

Here is my final point and my message for the Chancellor to reflect on: when trying to control public spending, what matters is what it is spent on. Harold Macmillan and the Conservative Governments of the 1950s invested in infrastructure. This Chancellor is borrowing to invest in current spending, which gets blown away by the wind, and if we do that, we fail. It is no wonder that the Chancellor wants his rendezvous with destiny in 2020. He wants to pretend that he can run a budget surplus. It may never happen. Even if it does for one year, it is unsustainable. The Chancellor does not understand business or how the economy works. He pretends he does and talks a good game, but he has not delivered productivity, which is the core thing that we need in this country.

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[Stella Creasy (Walthamstow) (Lab/Co-op)]

Let me begin by associating myself with the comments made by the hon. Member for South Dorset (Richard Drax) about the dreadful situation in Brussels.

This debate has seemed to be more about astronomy than about the Budget, because we have all been talking about black holes. However, there is a clear analogy to be drawn. It will be remembered that Stephen Hawking famously described what he called the “black hole paradox”: the idea that information could simply disappear into a black hole, never to be restored, although all matter contained information that was to be held in perpetuity. What a perfect analogy that is, given that, at this point, we simply have no information about how the Budget will stack up. Our colleagues in local government would rightly be horrified.

Where can we find information about the impact of the Budget? We can find it in our constituencies, and obtain it from the people whom we represent. In the time that I have been granted, I shall offer three areas of information on which we can judge the Chancellor’s work. The first is personal debt; the second is savings; and the third is productivity. Those are three areas in which this Budget signally fails the British people.

It is no accident that personal household debt in this country is going up and up. “Unprecedented” is the term that the Office for Budget Responsibility has used to describe the impact of the Chancellor’s plans on our constituents. Unsecured personal debt is set to reach 3% of GDP and to stay at that level. This is a black hole into which the Chancellor is asking the public to pour their own money to pay for his mistakes. Just how bad is the situation? The Bank of England tells us that people are now borrowing £1 billion a month in this country. In January alone, people put £500 million on their credit cards, and Aviva tells us that the average family debt is now £13,000, up £4,000 from last summer’s level.

Those on the Conservative Benches who are casual about credit miss the point. Not everyone is paying the same level of interest. Some are being charged excessive amounts for the debts that they are getting into to pay for the Chancellor’s mistakes. The hon. Member for South Dorset talked about people putting their houses up to fund their businesses, but many in our communities have long given up on the dream of home ownership as a result of the debt that they are now in. Wages have risen by just 4% in the last few years, but house prices have gone up by 76%. We know that every single penny matters. That is why it is such a problem that people face these levels of debt. This Chancellor is banking on the British habit of borrowing, but that is like putting Wayne Rooney in charge of a stock-take in a Nike shop.

This is not just about people’s borrowing habits. The fact is that we are now a nation that cannot save either. We are saving just 4% of our disposable income, which is half as much as we were saving four years ago. That is the lowest level of personal saving since 1963. Help to Save will do little for the 26 million people in our country who do not even have access to £1,000 for an emergency. On this Government’s watch, they have no rainy day money. Lifetime ISAs are out of reach for those people who have too much month at the end of their money.

We are seeing a situation of rising personal debt, and low or no savings, in which wages are now stalling. This has an impact on our public finances, because it leads to lower tax receipts. They are down £44 billion on the projections made in 2011. That is why we on this side of the House are angry when we see that those who will do well out of the Budget are those who can well afford to pay. We know that 80% of the gains from the Budget will go to those in the top half of the income distribution, and that half of that amount will go to the top 20%. Meanwhile, debt is locking our people out of opportunities.

[George Kerevan]

Is the hon. Lady aware that the very act of running a budget surplus—that is, putting more in than we take out—forces the public accounts into a situation in which private borrowing increases?

[Stella Creasy]

The hon. Gentleman might not know of my long-held concerns about the way in which this Government are managing the public finances. We do not have time today to talk about PFI debt, or about PF2, which is going to lead to even more problems.

We on this side of the House get the fact that we need to get the deficit down, because every single penny that we pay in interest, and every single penny that we use to pay for the mistakes in this Government’s borrowing, is money that could be invested in our people. It could be invested in the public services that our communities need in order to succeed. That is the point about this Budget. It is not just about the damage that it is doing to people today, or about the debts and destitution that they face now. It is about the narrowing of their horizons tomorrow, too.

We can see the Government signally failing to deal with the productivity gap Britain faces, and the 18% difference between ourselves and our competitors. They are failing to invest in our young people. By the end of this Parliament, China intends to produce 195 million graduates. Not just China is investing in its people; Brazil, Russia and Argentina are as well. Our children will have to compete with graduates from those countries, but our Government are offering them nothing in that regard. We can see the consequences for them in the productivity gap. And when the Government are forcing every school to become an academy, we can see that they are rejecting their own responsibility.

How very different this is from when we sat here a year ago and listened to the Chancellor claim that he was fixing the roof and that Britain would be able to walk tall again. He is a bit like one of those builders we see on the “Watchdog” programme. I would encourage the British people to go to their trading standards officer about him, but the Government have cut that service too. They are left with only one alternative, to look to an alternative party of government—the Labour party—to offer a genuine investment in the future of our young people and a genuine recognition of why fiscal responsibility matters. This is a black hole that is sucking everything out of this country—including, hopefully, the Chancellor’s career.

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[Chris Philp (Croydon South) (Con)]

I would like to start with fiscal responsibility, as the Chief Secretary is on the Front Bench. Fiscal responsibility is very important —for the sake of our children, if nothing else. I have two-year-old twins, and there is nothing noble, moral or ethical about consistently spending more than we can afford and sending the bill to the next generation. Moreover, as the Chancellor eloquently put it earlier, without fiscal responsibility we cannot deliver the services that are so important.

Clearly, a good start has been made on fixing the deficit left behind in 2010; about half of it has been eliminated. Labour Members are right to point out that there is still more work to do, but it does not seem entirely appropriate for them to give angry lectures on the topic, when they have opposed every measure proposed by the Government over the last five years to reduce the deficit. In fact, had we followed their advice during the last Parliament, our national debt would be £900 billion higher than it is today.

During his thoughtful speech, my colleague on the Treasury Committee, the hon. Member for East Lothian (George Kerevan), suggested that high spending during the late 1940s and 1950s demonstrated that we could in fact spend money to grow. I am afraid that I dispute that analysis, because that spending spree ended in 1976, when we had to go cap-in-hand to the IMF. Even Denis Healey, the then Chancellor of the Exchequer, said:

“You can’t spend your way out of a recession”—

a lesson we would do well to remember.

[George Kerevan]

My point was to go not into the 1970s, but into the very specific period of the 1950s, when national debt as a share of GDP was significantly higher—twice as high—in many years than it is now. That did not lead to a burden on the generation that was young then—my generation—which is in fact extremely well-off as a result of that spending. I was trying to look at whether borrowing per se disbenefits future generations, and it does not—it depends on how we spend the money.

[Chris Philp]

I must respectfully disagree with the conclusions of my Treasury Committee colleague. If we look at economic performance in the 1960s and 1970s, we see that the enormous debt overhang, with the state spending too much money, was a drag on the economy and culminated in the 1976 bail-out. That was the natural conclusion of the overspending that started in the 1950s and continued through the post-war consensus period, which ended only in 1979.

The second main criticism levelled at the Budget by Opposition Members is on the issue of fairness. I am afraid I disagree with the comments made over the weekend by my right hon. Friend the Member for Chingford and Woodford Green (Mr Duncan Smith). This is a fair Budget, but let me produce some evidence to substantiate that.

Over the last five years, spending on disability benefits has increased by £3 billion, and it is forecast to increase further. That strikes me as fundamentally fair. We are spending more than we ever have on the NHS and on education—particularly on pupils from low-income backgrounds, via the pupil premium. Moreover, we are introducing the highest-ever national minimum wage—the national living wage—which takes effect in about a week’s time. We have taken millions of people out of income tax entirely, which disproportionately benefits people on low incomes. We have frozen petrol duty once again, which also disproportionately benefits people on low incomes, because things such as petrol duty are inherently regressive.

If we consult the Treasury’s distributional analysis, we see that the lowest 20% of earners pay just 6% of tax; we would expect that to be 20% if everything was even. They will pay the same in 2019-20 as they paid in 2010, while the top quintile will pay 52%—up from 49% five years ago. The highest earners will therefore pay proportionately more in five years’ time than they did five years ago. This analysis excludes the effect of the national minimum wage; if that is included, the skew will go even further. I believe that this Budget is a fair Budget. It protects spending on the most vulnerable, and those with the broadest shoulders are bearing the burden.

Let me turn briefly to business. Before coming here, I spent 15 years setting up and running entrepreneurial businesses. There is a reason why our economy has created 2.4 million jobs in the past five years, and why youth unemployment in my constituency is down by an incredible 62%—it is not an accident. It is because corporation tax has been cut, which has encouraged businesses to invest in creating jobs. I am delighted that the Chancellor is continuing this very successful long-term economic plan—[Interruption.] I see it commands widespread support—with further cuts in corporation tax and capital gains tax to encourage investment. My Treasury Committee colleague suggested that lower corporation tax encouraged share buy-backs, which is a bad thing. I would respectfully suggest that share buy-backs cycle money back into the investor community, who can then reinvest in other opportunities.

I welcome the Government’s action on international tax evasion through the BEPS initiative, although they could forerun that with further moves on transparency and disclosure unilaterally in the UK, as has been suggested. There is a consultation document on giving the Financial Policy Committee further powers to direct buy-to-let mortgage lending, which appears to be very high. I urge the Government to look seriously at those proposals and enact them at the earliest opportunity.

I support this Budget. It is good for business and good for our country—and most of all, it is fair.