Budget Resolutions — House of Commons, 2021-11-01
Topic: Macroeconomics
Liam Fox (Conservative, Centre-right): In all my time in the House of Commons, I do not think I have heard a Labour response to the Budget that has left me, as this one does, not knowing what Labour would do, in the nightmare scenario of its coming into office. Like my hon. Friend the Member for North West Durham (Mr Holden), I am not sure whether Labour Members think we are taxing and spending too much or too little. It is an utterly economically incompetent way to approach opposition. Since the era of Gordon Brown, we have got used to wanting to go through the Red Book to find out what we were not told, particularly on the public finances, in the Budget speech. The increases in national insurance and corporation tax will take them to 36.5% of Britain’s GDP—the highest proportion in 70 years. That undermines the tax-cutting agenda that we Conservatives have had for such a long time when in office I am pleased that public spending as a proportion of GDP will fall from the 51.3% that it was as a result of the pandemic. We all accept that we had to spend money in that national emergency. Had the Chancellor not taken brave and decisive measures, the impact on unemployment, and therefore the public finances, could have been substantially worse. What really disturbs me about the Budget figures, however, is that from 2024-25, public spending will stabilise at 41.6% of GDP, and that is the highest sustained level since the 1970s, when we were carrying a substantial defence burden because of the cold war. We see a shift to a bigger state, and to a bigger proportion of our spending being taken up by welfare I do not normally learn very much from "Newsnight", but I was interested to find out from the Chief Secretary to the Treasury, when he was on it, that the Conservatives have changed our philosophy on economic management. I say to my right hon. Friend the Secretary of State for Levelling Up, Housing and Communities that although some in the Government may take a more social democratic approach to economic management, I certainly did not come to Parliament, as a Conservative, to see the state grow at the expense of the private sector. We need to remember what gave Britain its substantial economic strength However, when it comes to the economy, it is not the Budget that will affect the political weather, but inflation. In all my years in the House of Commons, and before then, politicians have been too slow to recognise the threat that inflation poses to the economy. They always want to believe that the present high level is the peak, and that they will not have to apply too much unpleasant medicine. Inflation, as we all know, is like a genie: once it is out of the bottle, it is very hard to put it back in. Let us remember the economic and social cost of inflation. It hits the poorest hardest, because a higher proportion of their income goes on non-discretionary spending—on clothes and food, for example. That is why the left’s approach to economic management, which always ends up in higher inflation, always undermines the very people it claims to represent Inflation also hits those with no assets. If there is the sort of inflation that there was in the past, including house price inflation, it will put getting on the housing ladder even further beyond the reach of young people. When I bought my first flat in 1988, the interest rate was 10.38%. By October the next year, it had risen to 14.88%, and the payments took almost my entire income as a junior doctor. I do not want another generation to go through the horror of inflation. People have become used to low inflation and interest rates in this country, and I do not think that the public understand exactly what the cost would be—the effect on the living standard of ordinary families—if inflation was allowed to get going I understand that there is a difficult choice for the Chancellor. Is inflation a short-term impact of the pandemic and of the disruption to supply chains; a system problem, too much money having been pumped into the global economy through quantitative easing for too long; or a mixture of both, which of course would be the most difficult option to deal with? The Bank of England should set a small, quick increase in interest rates—a 0.25% rise—to show that we are neither panicking nor complacent about inflation. The longer we wait to take action, the further behind the curve we get, and the greater the measures that we have to take A final point: let us remember the impact of inflation on our public finances. A 1% base rate adds £20.1 billion to the Government’s debt repayment. That is real money that could be spent elsewhere. A 2% base rate makes for over £70 billion in Government debt repayment; that is more than twice our Defence budget. That is the reality of where inflation can lead if we do not do something about it quickly.