Pre-Budget Report Debate

House of Commons Chamber

Peter Luff (Mid-Worcestershire) (Con):

On Tuesday, the Government's flagship Bill, the Fiscal Responsibility Bill, attracted the active interest of just two Government Back Benchers-and they both opposed the Bill. I am not entirely sure that the support that the Government have received from the Back Benches today will be much more welcome. That is not to say that I disagree with everything that all those Members have said. My good friend the hon. Member for Great Grimsby (Mr. Mitchell) spoke about the importance of manufacturing. I entirely agree. Nevertheless there are ways of getting there.
I hope that I will be present for the winding-up speeches. There are some issues about travel this evening and I apologise to Front Benchers if I am not here for their speeches. I will check my trains once I sit down.
"There were two tests for this Pre-Budget report. First, would it increase the credibility of government plans to restore the public finances? Second, would it be a platform for job creation and economic growth? The government has failed on both counts."

Those are not my words but those of the CBI director general speaking on the day of the pre-Budget report. It is not just big business that has spoken in that way. The Federation of Small Businesses reported that 44 per cent. of small businesses were less confident as a result of the PBR. I do not think that it has been said so far in the debate that we need to remember that the PBR bombed comprehensively on the day and calm and more careful consideration has not made it look much better.
It is important to remember that this is a tragedy not just for the corporate sector, small, large or medium, but for thousands of individuals. The number of 16 to 24-year-olds out of work was 952,000 in the three months to October, a quarterly rise of 6,000 and the highest figure since records began in 1992. The OECD said in September that Britain now has the highest level of youth unemployment in Europe. That for me, of all the shameful failures of this Government, is perhaps the most shameful. I think that that statistic is not properly understood outside this place. I can imagine what would happen if a Conservative Government presided over youth unemployment on that scale. There would be shrieks of horror and outrage from Labour Members, who are very muted today, and tragically so.
I am grateful to the Chairman of the Treasury Committee for his thoughtful contribution to the debate. It was measured, as was the Treasury Committee report that came out yesterday. It is important to remember that it, too, called for much greater clarity over spending reduction plans. It expressed concern about future gilt sales and highlighted fears about Britain's future credit rating. The PBR is being debated in an extremely worrying situation.
I am fond of metaphors. I hope that this is an appropriate one. I see the Prime Minister a little like an arsonist who helped to start a blaze and then wants credit for stopping it from destroying the whole town. Stopping the blaze before it destroyed everything should not be a cause for congratulation if one is the author of the blaze itself.

Three specific and serious mistakes by the Prime Minister when he was Chancellor, which are the background to the PBR, led directly to the recession, or at least its severity. The first was excessive spending in the good times-not mending the roof while the sun was shining. In fact, I would add that his plans added holes to the roof, funded by taxes on the bubble of finance and housing-a bubble that could never endure.
The second problem is excessive debt, built up not just in the public sector, but in the private and corporate sectors, encouraged by the Prime Minister's false promise when he was Chancellor of an end to boom and bust. Thirdly, there was poor regulation of financial services. At least two of those factors were present in the United States of America too, but it will not do for the Prime Minister to claim that the problems that underlie the PBR have their origins in the States or the international economy. They have their origins here, too. The Prime Minister is to blame for the crisis that this country now faces. He has earned no right to be praised, as this country has been mired in the deepest recession since the 1930s and he is part of the reason for that.

It cannot be said too often that Britain is currently the only G20 country officially still in recession. We might come out of recession in the current quarter, but the fact remains that this has been a huge and severe recession. It has been a personal tragedy for many thousands of our fellow citizens, and the UK has suffered a 6 per cent. cut in the size of its economy, beaten in that regard only by Japan, Italy and, I think, Germany. We have lost that for ever; as growth returns, we will still have lost that part of our economy.

According to a construction survey, the British building industry suffered its 22nd successive monthly fall in activity in December, and employment in the contracting sector fell again last month. Many businesses still fear a double-dip recession, and consumer and business confidence is still fragile, to put it mildly. The PBR succeeded in denting consumer confidence further. Yet, for all this, the Prime Minister wants credit.

The tragedy for our nation is that this is a pre-election PBR. At this time of great economic crisis for the nation, it would be better if we were not on the verge of an election. The PBR has become a product of electoral expediency, not economic necessity. Tragically, it has also exposed the deep divisions at the heart of Government, as well as a very unwelcome desire to create divisions and add dividing lines in politics in general at a time when we should be doing precisely the opposite.

Yesterday, Lord Mandelson made a very thoughtful speech, which was occasionally devalued by political point scoring. In it, he said:
"We need a politics of long-termism over short-termism; of a smarter, more effective and affordable state; of a return to the values of hard work, enterprise, corporate stewardship and mutual commitment over those of dodging responsibility, making a fast buck, and putting self before others; of working together as a nation to address the shared challenges of the future."
I agree with that, but all we got on 9 December was short-termism by the bucket load. We got a larger, less effective, less affordable state. We got taxes on hard work and enterprise, and deliberate dividing lines designed to split us apart, not bring us together.

Lord Mandelson was right, and the PBR was wrong. As was said in The Guardian recently:
"The Government remains at war with itself, with Brown, Balls and Cooper pursuing the line of 'Labour spending versus Tory cuts' and Mandelson and Darling favouring a pragmatic, deficit-slashing PBR. We can see who won. Lord Mandelson is apparently still seething with anger-'incandescent' at the outcome of the PBR."

As my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) said in his thoughtful remarks, this Government's reaction of retreating entirely into increasing taxes rather than attacking public expenditure is the problem. The large increases in national insurance on all of us in society-including those on below-average earnings-and the 50 per cent. income tax rate are taxes on aspiration, enterprise and hard work.

Lord Mandelson tried to justify that in his speech yesterday. He said that
"there is never a case for punitive taxation",
but he also said:
"As for the new top income tax rate, I believe that is justified in the quite exceptional circumstances we face."
What are those exceptional circumstances? As was said in the Financial Times on 11 December, the national insurance increase
"will raise 3 billion a year from 2011, but that money is not being used to pay down the 178 billion deficit; the tax rise is needed to offset Mr. Darling's surprise decision to increase public spending by almost 15 billion in 2011 and 2012 compared with previous plans."

As the Centre for Economics and Business Research put it:
"If public sector wage inflation had risen at the same time as that in the private sector over the past two years, 21 billion of the national insurance and income tax rises to be introduced in April would have been unnecessary."
These are Government decisions that are making our problems worse, not better. They are taxes on jobs, aspiration and enterprise. They may win some short-term cheers in the run-up to an election, but in the long run they will cause more pain, suffering and economic problems.

The same is true of the bankers' bonuses tax. I loathe the scale of the bonuses, and I agree with the Chairman of the Treasury Committee, the right hon. Member for West Dunbartonshire (John McFall) on that, but not only have the measures to address that been brought forward in a technically incompetent way which caused massive confusion in the City, but they will have a negative impact on our competitiveness. We cannot duck that. We do not live in an isolated country any longer, and I do not see our chief economic competitors-the United States and Germany, for instance-following our lead on that matter.

The scale of our debt mountain is great, and I find it incredible that Government members are advocating still higher debt. In this week's edition of The Economist, estimates of various countries' budget balances as a percentage of GDP for 2009 are listed. By a long chalk, Britain's is the highest, followed by the United States. Only Spain joins us in having double-digit figures. All the rest of the major industrial nations of the world, and some very minor ones as well, are running smaller budget deficits than us.
n September-before the PBR- The Times illustrated that dramatically in a leader entitled, "Fainting by numbers". I had hoped to have the time to recite quite a few of those numbers, but bearing in mind your strictures, Mr. Deputy Speaker, I will not do so. I shall just use one. The article stated:
"The most succinct statistic is also the scariest: by the 2013-14 financial year, government spending on welfare and on servicing the national debt will total 257.1 billion. How much does that amount to exactly? Just over 1 in every 3 that will be spent by the Government."

In other words, these are the bills of failure. I remember what Tony Blair said when he was in opposition about what he described then as the "bills of failure". Those bills pale into insignificance by this scale; we are talking about massive borrowing and massive social security expenditure. Those are the bills of failure that have been brought about by this Government. Richard Lambert's new year message from the CBI stated:

"The Government has not yet established a credible path back to fiscal stability for the UK. The longer this is delayed, the greater the threat to long-term interest rates and sterling. Everyone knows that painful decisions are going to have to be made sooner or later about public spending and tax. But the timing and shape of these moves remain unclear-and that is another significant concern for business."
I have already said that the problem is that the Government did not fix the roof when the sun was shining, and that is true-the structural deficit is alarmingly high. It is a structural deficit; it is not the product of bank bail-outs and so on. It is the problem of systemic Government failure to manage the public finances appropriately. The Institute for Fiscal Studies wrote the following on the day of the pre-Budget report:
"The Treasury now believes that the structural budget deficit-the portion of government borrowing that cannot be explained by the temporary weakness of the economy-is 'only' 9 per cent. of national income this year, rather than the 9.8 per cent. it estimated at Budget time. This means that the underlying fiscal problem looks somewhat smaller than it did in March, although still huge by any standard."
It is indeed huge by any standard, but I must add that that is predicated on the very optimistic forecast of a return to above-trend growth rates in two or three years' time. I do not believe that forecast; I do not think we will do that well. Thus, the problem of dealing with this situation is still worse.

I had wanted to talk in detail about one or two specific issues, but I shall just run through them very briefly. I wished to discuss the lack of finance for manufacturing and businesses in general, but that has been done and so I shall not reiterate the point-I should just say that the situation is extremely worrying. I would have liked to talk about the comments made by those on the Liberal Front Bench about across-the-board cuts in science, but I shall not do that either.

However, I wish briefly to mention manufacturing. I do not want to talk it down-not for a second. It is right to say that, notwithstanding the current recession, manufacturing has grown over the past 13 years under this Government, but it has shrunk massively as a proportion of gross domestic product; it has done that so much more over this period than it did under the so-called Thatcher years. The Government need to think carefully about their policies to deal with that problem and this pre-Budget report does not do that. It talks a lot about future growth, high-technology industries and low-carbon industries, but many traditional industries, for example brick making in my constituency and glass making, have been hit very hard by decisions in this PBR about alterations to the climate change agreements. We are talking about very sharp stealth taxes on traditional manufacturing industries that will lead to further manufacturing job losses in this country, the import from abroad of the products that would have been made here and carbon leakage-no gain, just loss. I urge the Government to think a bit more about traditional industries, as well as about future industries.

I also urge the Government to examine the reasons for the failure of the automotive assistance programme, which has still not delivered a single penny to any automotive business in the United Kingdom a year after it was launched. I welcome the extension of the enterprise finance guarantee scheme, despite the cynic in me thinking that it may have something to do with the fact that the scheme has not got money out of the door quickly enough and the money is still left in the bank, so the Government are extending the period in order to use the same amount of money over a longer time.

The one other issue that I wish to raise is that of a windfall-there is some good news-about which I know the Financial Secretary to the Treasury is aware. It comes from the digital dividend review. I am talking about the sale of the spectrum, which will result in the digital dividend. That spectrum is used largely by television, but it is also used by radio microphones, which are crucial to community halls, outside broadcasting, music, theatre and a range of interests. The Government originally promised to compensate such interests in full for evicting them from the spectrum. The cost of that eviction is about 70 million to 75 million, but it should unlock a windfall of 2 billion for the Treasury. I hope that the Government will stick to their promises, and I have received some encouraging answers from the Minister, who was wearing both of his hats this morning-operating as a Department for Business, Innovation and Skills Minister and as a Treasury Minister-to suggest that they might just do that. I hope that he will stick to that, because that 75 million is the permission to unlock a 2 billion windfall for the Government.

We are not out of the woods yet. The international banking crisis could still get worse. Net lending to companies is still shrinking and we face huge structural problems, but I believe that they can be faced in the lifetime of the next Parliament.

As Richard Lambert put it
"the job of political and business leaders is to focus relentlessly on those policies that will enable a different and more sustainable pattern of economic growth for the future-education and skills, enterprise and innovation, competitive taxes and flexible labour markets, private sector investment, trade growth and open markets."

Sadly, there is little sign of that in this PBR.

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