Growth Strategy

Debate between Peter Grant and John Redwood

Tuesday 21st January 2020 Westminster Hall

[John Redwood]

Yes, I am happy for there to be attractive reasons why people should go to the parts of the economy that have been less heavily invested in and that are less pressurised. However, with cars the issue is demand; there is not enough demand for the very good cars that the industry currently makes. The Government want to change the kind of cars that people buy, but it will take time for Britain, or anywhere else for that matter, to be able to produce the millions of electric cars that the Government want us to buy, at a price and to a specification that people like.

So, this is a top-down revolution and the public are not yet fully engaged in it in the way that the Government would like them to be. When polled, the public say that electric cars are a very good idea. However, when they are then asked, “Well, when are you buying your electric car?”, the answer is, “Well, not yet. Not me. I want a better subsidy on the car, I want a lower price, I want a higher range”—whatever it is.

There are still issues about engaging the public, which is why we are getting this industrial dislocation. China has experienced exactly the same thing and one would have thought that China would have continuous growth in cars, because it is coming from a much lower level of car ownership and individual income. However, even in China car volume is down, because of the regulatory changes and the dislocation involved in going from traditional product to electric product.

In addition, the Minister and his colleagues should look at the issue of property. Property is a very important part of the UK economy. It is often an asset base for people to borrow against in order to develop their business, and it is often the main way in which individuals hold their personal wealth. By buying a house on a mortgage and gradually paying the mortgage off, property often becomes people’s principal asset, which gives them some wealth and financial stability.

However, we have a property market in the UK that has been damaged by the very high stamp duties that were introduced under the previous Government, and the Government should look at that issue very carefully. I do not think that the Government are even maximising the revenues from stamp duties, and it might not be a bad idea for them to ask, “What are the rates that would maximise the revenues?” At the higher price levels in property, transactions have been very badly affected; indeed, they have been massively reduced by the very high rates at the top end of the market. So, the Treasury constantly has to revise down its forecasts of how much revenue it collects from stamp duty.

A more free-flowing property market would be a very good thing, because it would create all sorts of other work for people who are in the refurbishment and removals business, and above all it would allow people to fit their property needs more closely to the property that they have. A lot of potential switching in the market is being frustrated: some people have houses too big for them but they do not fancy paying the stamp duty on the trade-down property, and other people would like a bigger property, but the stamp duty would be just such a big addition to the higher price that they would have to pay for that property.

[Peter Grant (Glenrothes) (SNP)]

I congratulate the right hon. Gentleman on securing the first Westminster Hall debate of the new Session. Does he agree that there has been a major problem in the United Kingdom for many decades, which is that people—for one reason or another—have been encouraged to treat the house that they live in not as a place to live but as a speculative investment, on which they expect to make money? Also, does he accept that many people have been severely stung, because they thought that they would be able to stretch for a mortgage that they could not afford, in order to sell the house for more money in 10 years’ time? If the value of the house does not increase in 10 years’ time, they have a problem. That situation caused the crash in 2007-08 and it has caused a number of minor crashes since then. Does he also agree that more needs to be done to make sure that people who only have the money that they are investing in their house are protected against the possibility of losing their house and everything else when the market crashes?

[John Redwood]

Most people buy a house because they want somewhere to live that is theirs, and that they can then do up and change in the way they see fit, subject to planning. But yes, of course, it is also a way of holding wealth, and I repeat what I said: for many people it becomes their largest single asset. I do not think that is a bad thing. I do not think that people are treating their main property as a trading counter; it is where they wish to live, and they will only move when they want a different house, mainly for living purposes. People would only be able to buy property speculatively if the property was their second or third house, and not many people are in the fortunate position of having such wealth.

There is no absolute protection against house prices going down; they do from time to time, as the hon. Member for Glenrothes (Peter Grant) pointed out. However, if someone’s aim is to live in a house long term, and if they have taken out an affordable mortgage, temporary fluctuations in house prices are not life-threatening or wealth-threatening to any worrying extent, and they will just live through the period when house prices dip because there has been a recession, or whatever.

Fortunately, we do not seem to be looking at such a situation in the immediate future, and it is very important that we have a growth strategy, so that the slowdown in the economy that we have experienced in recent months is turned around quickly and does not become something worse, which could have negative consequences in the way that the hon. Gentleman talked about.

So my No.1 message to the Government is not to underestimate the damage that clumsy taxes can do, and they may even end up costing the Treasury, as stamp duty has done, because it is not collecting as much as it should. That is probably the case with vehicle excise duty as well, because of the volume impact on new cars, which relates to a whole series of factors; it does not just relate to the vehicle excise duty, but that was another complication in the situation.

As the Minister has this particular responsibility, I urge him to look again at IR35. We want a very flexible economy in which people can choose flexible employment, rather than have it forced on them. We have had a relatively flexible small business sector, but it is being damaged by the top-down imposition of the IR35 rules. I hear all sorts of stories from across the country of people having to stop their contracting business or losing contracts because the big companies that might employ them are worried they might get dragged into a retrospective tax increase in employer and employee national insurance. That is damaging the small contracting sector, and I urge the Government not to carry on doing that when we want to encourage more self-employment and allow self-employed people to go on to build bigger businesses.

One of the Office for National Statistics figures I saw recently, which I found fascinating, was that in London there are more than 1,500 businesses per 10,000 people, whereas in the lower income parts of the country there are half that number. There is a huge gap between the volume of enterprise in London, which is the richest part of the country in terms of average incomes, and much of the rest of the country, where incomes could be higher. It is not easy to break into why there are so many more businesses in London. In part, it is because people are better off and have more spending money—demand is important in setting up a business—but it is also to do with the general business environment and the concentration of people, talent, enterprise and spending power that we see in the capital. We need to do something similar in other parts of the country. Building more businesses is crucial, and IR35 is getting in the way of doing that.

Some 4.5 million people in the country who work for themselves do not have any employees, and they are afraid of taking on an extra employee because of the implications, whether for regulation, tax or otherwise, or because they think it will be too difficult to manage. We need to look at that step up in building a business, when someone goes from just working for themselves to having an employee or two. It is important that we make that step as easy as possible, because if another million self-employed people decided that they wanted a single employee, that would be transformational. That would obviously create a lot of extra demand in the labour market.

We need to look at taxes on employment and the complications of employment. Anything that the Government can do to reduce the tax on employment is a very good idea. We cannot collect tax revenue just by taxing things we do not like, but where we have a choice, it is better to tax things we do not like rather than things we do like. All parties in the House like the ideas of well-paid jobs and of more work, so we need to work away in Government to see how we can reduce the burden of taxes on work such as the apprentice levy, the national insurance levy on both the employee and the employer and other concealed taxes on work.

We also need to look at taxes on entrepreneurship. A larger population of people who have great ideas, who can change markets and who can persuade others that they have something people might want to buy is vital to the process of creating a more prosperous United Kingdom. We need to ensure that the offer on capital gains tax in particular is a fair one. People who have built a business over the years should not feel that they will be taxed again on it all, because they have been taxed on the activity in the business. Capital gains has to be a fair regime, and I urge the Government to keep the enterprise allowance arrangements so that entrepreneurs can keep a lot of the benefits from building their business.

It is said that our productivity performance in recent years has been disappointing and that that is a puzzle. I do not quite understand why it is a puzzle; it is exactly what we would expect. We have had a major reduction in North sea oil output. The way the figures are calculated means that it is one of the most productive sectors, because labour productivity is based on the amount of revenue or value-added generated by an individual, and an individual in the oil industry produces a huge amount of revenue due to the windfall element in the oil price. We had a very big squeeze on many of the activities in the City that were apparently profitable before 2008. Those activities flattered the productivity figures, but some of the profits turned out not to be genuine, and a lot of them have been squeezed out. Again, a high-earning, apparently highly productive part of the economy has gone through a big change, and we have lost that.

We have been a successful economy—this is a strength—in creating lots of new jobs, but a lot of them are relatively low paid so they do not score very well under productivity scoring. If we compare our productivity with that for continental countries with unemployment rates two or three times as high as ours, their productivity is higher, because people we are employing on low pay here would be unemployed there, and the unemployed do not count in the productivity figures—they are just ignored as if they do not exist.