Matt Hancock
Main Page: Matt Hancock (Independent - West Suffolk)Department Debates - View all Matt Hancock's debates with the HM Treasury
(13 years, 9 months ago)
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Mr Gauke
If that is the point that the right hon. Gentleman is getting at, I must point out what the OBR made very clear in the Red Book. That point is that it is misleading to make a straight comparison between the growth figures that were projected on the basis of market expectations of interest rates, which were lower as a consequence of the anticipated fiscal tightening that this Government promised to deliver and that we have delivered, and the forecasts that do not take that into account. That is a point that we have gone over a number of times. The OBR said that such comparisons were potentially misleading, so if that idea is what is driving the right hon. Gentleman’s queries, I must point out to him that the OBR would not accept that.
Matthew Hancock (West Suffolk) (Con)
Is not one explanation the idea that the OBR came forward with growth forecasts that were reasonable and at least had a hope of being accurate rather than the hopelessly over-optimistic growth forecasts put in place by the previous Government?
Mr Gauke
My hon. Friend might well have the answer. One point that we learned from Lord Mandelson in the course of his much-loved memoirs is that the then Chancellor, who is now shadow Chancellor, apparently accused the then Prime Minister of having a “ludicrously over-optimistic” view of what the growth forecasts would be and about
“Britain’s ability to support such a large and expanding deficit.”
That might well be the explanation.
Matthew Hancock (West Suffolk) (Con)
It is an honour to follow the right hon. Member for Birmingham, Hodge Hill (Mr Byrne). Having spoken a couple of times in the debates on this Bill as it has passed through the House, I wanted today to consider the economic evidence. We have heard an awful lot about the importance of what we need to do, and we have heard an awful lot from the Labour party complaining about every measure put forward, but it is also important to consider the economic evidence. Listening to his speech, it struck me that he thinks that nothing that the previous Labour Government did was wrong. It also strikes me that, so long as he and his party continue with that approach, nobody will listen to them when they make other points. It is clear to all of us who went through the election campaign that the previous Government did many things wrong, and a little bit of an apology, or perhaps a suggestion of individual things that went wrong, might be appreciated in this debate.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I remind Members that we have to stick to the Bill. We are being dragged off in different directions, so please stick to the Bill. That is what we are debating.
Matthew Hancock
I am grateful for the opportunity to pay tribute to the then Chancellor, who expressed his gratitude to the then Opposition Conservative party for the support it gave him during September 2008. That is often forgotten on the Labour Benches.
On the evidence, one of the central questions to which we return time and again in this debate is whether there is a contradiction between dealing with the deficit and getting growth. It is clear that the Labour Front-Bench team think that those two things are entirely in contradiction. However, I want to consider the evidence for whether that is true. We all know that, in the long term, tackling the deficit is unavoidable—occasionally that is even acknowledged by those on the Labour Front Bench. Any child born is born with £23,000 of debt, and under the former Government’s plans, interest payments would have amounted to £70 billion a year, which could otherwise have been spent on important public spending.
There is also a question, in the shorter term, of whether fiscal responsibility can lead to growth. I was interested in this, so I went to look at some of the evidence. There is a very good literature review by Alberto Alesina, who, having described the argument that there is only either fiscal consolidation or growth, wrote that
“the accumulated evidence paints a different picture… Many even sharp reductions of budget deficits have been accompanied and immediately followed by sustained growth… These are the adjustments which have occurred on the spending side and have been large, credible and decisive.”
If the shadow Minister thinks that the Budget was large, credible and decisive, I would be happy to hear from him.
Mr Byrne
I understand the debating technique that the hon. Gentleman is adopting—trying to set up a straw man in order to knock it down—but our deficit reduction plan contained £57 billion of decisions relating to fiscal consolidation alongside £22 billion of growth. Fiscal consolidation was not posed as an alternative to growth; actually the two things were seen very much as twins.
Matthew Hancock
Unfortunately, those from whom the previous Government had borrowed so much did not see a credible plan from the Labour party. That is why we have had to introduce the emergency Budget, so that we could put that credible plan in place. Since the election, there have been downgrades in the debt of many of our competitors, so it is critical that we have managed to put that triple A rating on to a sustainable basis.
I want to go through three reasons why a fiscal consolidation can lead to growth. The first, of course, concerns interest rates. The long-term interest rates at which many companies around the country borrow—they include those in my constituency, and no doubt those of all other Members—have fallen. In fact, since the election the 10-year rate has fallen from 3.88 to 3.44%, which represents more than a 10% fall in the funding costs of companies up and down the country. Of course, that was not taken into account in the two productions of the Office for Budget Responsibility analysis, which is why a direct comparison of the two is, as stated by Sir Alan Budd, misleading.
James Wharton (Stockton South) (Con)
I would like to echo my hon. Friend’s comments about interest rates, but also add that low interest rates have a beneficial impact not only on our economy and businesses, but on the very individuals and families whom the right hon. Member for Birmingham, Hodge Hill (Mr Byrne) talked so much about. The most disadvantaged in our society will benefit most from the positive outcomes of the fiscal and economic policy approach that we have taken.
Matthew Hancock
My hon. Friend is getting a reputation for making extremely good interventions, and that was one of them. Fiscal consolidation also means that interest rates can be held lower for longer by the independent Bank of England, which is a second important channel through which economic growth can be supported, and not opposed, by fiscal consolidation.
Mr Byrne
I am following the hon. Gentleman’s argument with great interest. He will have worked at the Bank of England for long enough to be able to read bond yields. Like me, he will have noticed that they were actually coming down from late 2008, down to a low point in February, not least because there was a flight to safety in the European bond markets. As people began to worry about what was going on in the eurozone, they chose to transfer to safer assets, including UK gilts. That was because there was credibility in what was the fastest and clearest deficit reduction plan of any country in the G7.
Matthew Hancock
Of course, the bond market could see a Conservative—or coalition—Government coming, and that is exactly what happened. I will say this to the right hon. Gentleman: when there is a flight to safety, I would rather it was to British bonds, not to bonds overseas, which is what could easily happen if we did not have a credible policy.
Kwasi Kwarteng (Spelthorne) (Con)
Those of us who have looked at bond yields will have noticed that the tightening—as it called—of British bonds actually happened in April. That happened as a consequence of the markets being sure that the Labour Government would be voted out, as everyone in the City has mentioned.
Matthew Hancock
I am always delighted to talk about when the previous Labour Government lost office, so I thank my hon. Friend for that intervention. Let me go through a few more elements of the economic evidence. I have here an extremely good literature review, by Policy Exchange, the think-tank, which lists—
Matthew Hancock
What Policy Exchange has done is review the economic literature, which is what I am looking at. Perotti, in 1999, said:
“High debt levels are associated with higher probability for fiscal policy to have”
expansionary effects. The European Commission—not something that Labour Members tend to barrack—said: “Expenditure cuts may exhibit” expansionary features,
“even in the short and medium run.”
So the economic evidence is there. The best quotation from that review is this:
“Though now quite well established in economic literature”—
referring to the argument that fiscal consolidations promote growth—
“this work is still feeding its way into the wider public consciousness.”
No doubt part of the reason for the slow move of that argument into the public consciousness is the argument put forward by Opposition Members that it is not true.
There are two other important ways in which consolidation will get to higher growth. The first, of course, concerns expectations of future tax rates. If people around the country can see that spending is out of control, they will anticipate that taxes might have to rise in future, whereas setting out a clear path for taxes makes it clear that there will not have to be sharp and immediate tax rises in future, even if that path includes some tax measures. That forward-looking element of human nature, which is so important in understanding how the economy works, matters at a personal level—for some people far more than for others, as I entirely accept—but it especially matters in the corporate world. Businesses look to the future to see how much tax they will be paying, as well as how much it will cost them to pay it because of the complexity of that tax. That is why it is so important to have both the simplification of the tax system that my hon. Friend the Exchequer Secretary—soon to be right hon. Friend, no doubt—set out, and the ladder down in headline corporation tax rate, which will set out a 1% reduction year on year so that our businesses know that Britain is open for business.
Owen Smith
On that specific point of corporations looking to the future and thinking about how to plan their business, can the hon. Gentleman tell me of any industrial sector or any big British company that has responded to the austerity budget and said that they now anticipate significant growth and taking on new people? I have not seen any such report.
Mr Deputy Speaker (Mr Nigel Evans)
Order. Before the hon. Member for West Suffolk (Matthew Hancock) resumes his speech, let me say that we allow some latitude on Third Reading of the Finance Bill, but that it would be useful if Members made reference to the Bill from time to time.
Matthew Hancock
The reductions in corporation tax that are outlined in this Bill have been welcomed by the CBI, the British Chambers of Commerce, the Institute of Directors and the Federation of Small Businesses. Indeed, a multitude of business organisations have welcomed it. Even the Engineering Employers Federation said that this was a path in the right direction. That shows the support from business organisations.
Matthew Hancock
Let me make some progress; I have only a couple of minutes left.
The final argument is about productivity. Greater tax competitiveness not only helps productivity in the private sector, as consolidation can also help productivity in the public sector. We read only this morning that the police have said that they can take 12% out of their budget without affecting front-line services. I wonder what that 12% was spent on under the previous Administration.
Matthew Hancock
I am going to conclude.
So this is my argument: fiscal responsibility is not contradictory to growth; it is absolutely central to sustainable growth in our country. The Budget is unavoidable, but it also lays the platform for confidence and for support of the businesses that are going to grow us out of this hole. Everybody knows that if one is in debt, the sooner it is dealt with, the better; and the longer it is left, the worse it gets. Having looked at the economic evidence surrounding this Budget, I am absolutely delighted to say that I commend this Bill to the House.
Mary Creagh
No. I am going to take my time. As I have said, I am not going to take interventions.
Nappies, prams, babygros, bottles, dummies and high chairs will all be more expensive for families in our constituencies as a result of the VAT increase, but the grants to help the poorest women in our society to afford them will be cut. When I asked the Secretary of State for Work and Pensions how he expected families to cope, he said that he wanted them to recycle prams, but if someone has a child one year younger than another child, where is the second baby supposed to sleep? In the same cot? The parent of a second child will still need to buy a new car seat and a double buggy. It will be more difficult for low-income families to buy all those items. We are losing the baby element of child tax credit, and we are losing Labour’s proposed toddler tax credit, which would have meant another £208—
Matthew Hancock
Will the hon. Lady give way to an intervention on the increase in tax credit?
Mary Creagh
I have already said that I am not going to give way to Opposition Members. It is true that child tax credit will rise by £150 above inflation for one year—
Mary Creagh
I am dealing with the hon. Gentleman’s point. Perhaps he would acknowledge that. Families on low incomes, however, will see their costs rise as a result of the VAT increase—
Mary Creagh
I know what the hon. Gentleman wants to ask, and I am happy to answer his question without his having to spend a minute asking it.
Matthew Hancock
On a point of order, Mr Deputy Speaker. I am new to the House. Could you possibly advise me whether it is appropriate for a Member to make an entire speech having stated in advance that he or she will take no interventions whatever?
Mr Deputy Speaker (Mr Nigel Evans)
It is very much up to hon. Members whether to take any interventions or a number of interventions, but what I have heard from the hon. Lady tells me that she is going to take no interventions during her speech.