Budget Resolutions and Economic Situation — House of Commons, 2015-07-08
Topic: Macroeconomics
Robert Howard Marris (Labour, Centre-left): I welcome parts of this Budget, including the announcement on vehicle excise duty; the reduction of buy-to-let mortgage interest relief to the basic rate; the restriction on higher-rate tax relief on pension contributions, which will pay for the changes to inheritance tax; the increase in the employment allowance from £2,000 to £3,000; and the apprenticeship levy I also welcome, if the Government can get it right—it is a big "if"—the changes to what the Chancellor is now pleased to call the national living wage. However, as has been pointed out, there is a sleight of hand—in terms of incorporating tax credits into it—with regard to how what Labour has always called the living wage will be calculated I welcome the increase in employment in the past two years, although too much of it is low paid, and I welcome the return to some growth in our economy, which was blown off course when this Chancellor sucked money out of it in 2011 and 2012 before he returned to classic Keynesianism, with counter-cyclical deficit spending at a huge level. That is what he has been doing for the past five years—more of that later Conservative Members and the Chancellor himself keep talking about the long-term economic plan, but I am a whole lot more worried about this Government’s short and medium-term economic plan, because this is an over-optimistic dash-for-growth Budget. Those of us who listened to several of Gordon Brown’s Budgets when he was Chancellor of the Exchequer will remember how over-optimistic they could be, and some of what he did did not exactly end well This Chancellor has taken steps to increase Government income with some of his policies, such as the restriction on non-dom status; the increase in the insurance premium tax; the increase in the cost of buy to let as a result of the restriction on relief; the restriction on tax relief on pension contributions; the abolition of the climate change levy exemption, which I am not wild about, but it will increase Government revenue; and the selling of some more family silver and assets There is also some revenue-neutral stuff in the Budget, such as the proposal on vehicle excise duty. However, I caution those Conservative Members who were jumping up and down about how wonderful that is, because if they read the policy, they will see that the proposal to spend VED on roads—which is hypothecated—will not kick in until 2020. That is the long-term economic plan we should be worried about, because we should be doing more of that now The dividend changes will, as far as one can tell, be tax-neutral. The apprentice levy is very welcome, but it will be tax-neutral in the sense that the money will come in from the levy and then be spent on apprenticeships. That is great, but it will not raise any more money for the Government. We have heard the usual stuff about tax evasion and tax avoidance that has been trotted out by every Chancellor back to Gordon Brown and beyond: sometimes it produces a bit of money and sometimes it does not We have also had the Chancellor tying his hands on other sources of revenue, with no increase in VAT, income tax or national insurance contributions, and a cut in inheritance tax, corporation tax and income tax through personal allowances going up and the thresholds to the higher rates going up. There will be a cut in the bank levy, because I do not think that that will be offset by the surcharge on bank profits; it may be, but I cannot see the figures. The annual investment allowance changes will cut revenue. A cut that was not highlighted by the Chancellor—unsurprisingly, because it was in his Budget earlier this year—is the cut in the tax on North Sea oil and gas. The Chancellor is tying his hands on Government revenue, so I caution Conservative Members that quite a lot of this stuff is about a dash for growth that I suspect will end in tears Then we have what Labour Members see as the nasty stuff. It has not been much remarked upon in this debate, but for four years there will be a further cut, effectively, in public sector pay—pay restraint of 1% for another four years—as if public sector workers have not had their pay restricted enough. If inflation is higher than that, they will have a pay cut. We also have the slashing of tax credits. I understand the theory of that, but it is putting the cart before the horse, because incomes have not yet gone up enough to counterbalance the cut in tax credits. Tax credits will be frozen, as will other benefits, and that has also not been remarked on in this debate. There will be a freeze on working-age benefits, including tax credits and local housing allowances for four years, from 2016 to 2020, to save £4 billion a year. That will hurt some of the most vulnerable in our society I have said this in this House before, but it bears repeating: the Government are trying to cut the deficit because of their fear about the intergenerational transfer of debt and, as is reinforced by this Budget, they are privatising that debt. We have had private borrowing at very high levels during the past five years. We have had the privatisation of debt through rising house prices, because of the restriction in supply. The Government introduced Help to Buy on the demand side of the equation, which has driven up prices but it has not increased supply by anything like the amount that we all know is needed We have had further privatising of debt through the abolition of the student maintenance grant. There was a significant privatisation of debt when the coalition Government said that the state would not take on debt for post-secondary education in England, but would get students to take it on with fees of £9,000. This Budget pushes that further by saying that students from the poorest backgrounds will no longer even get maintenance grants; they will have to take on debts. The irony about the privatisation of debt, as every Member of this House and his or her dog knows, is that the majority of that debt—I use the word "majority" advisedly—will never be paid back. Rates of applications to universities in England have not gone down, despite the tripling of tuition fees, because 17 and 18-year-olds are smart and know that they will never have to pay it back. Does it matter whether the debt is of £20,000 or of £50,000 or £60,000? No, because they will never have to pay it back. Who will pay it back? The state, so it is even a failed privatisation of debt The economy has not been rosy during the past five years, as the Chancellor and Conservative Members like to believe. There have been some good things, to which I have pointed, but we have also had a huge problem with productivity. There were jokes earlier about the socialists in France, but if we look at the Red Book, we find—surprise, surprise—that output per hour is 27% better in France, which means productivity is a whole lot better there. GDP per capita has stagnated, and half of our anaemic growth has been driven by immigration. We have a continuing problem, which has become a structural one, with the balance of trade being way out of kilter. We have had a lack of infrastructure spending. This week, we have already seen the Government cutting back on rail investment, and in the vehicle excise duty proposals in this Budget—with none of that recycled, hypothecated money until 2020—we see a cutting back in road investment During the past five years, the national debt has gone up by 55%. So much for getting the deficit down. Yes, it is almost down to 5% of GDP, but that is still enormous. It is actually far higher than Greece’s deficit. The Greek Government do not have a day-to-day deficit; they have accumulated debt, but no deficit. We are still running a deficit of 5% of GDP, and the national debt is up 55%, which is a terrible economic performance. As with the stock market, let us be careful, because this Chancellor’s past performance might well be a good indicator of the future performance of his long-term economic plan.