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Baldry attacks dishonest Budget

27 April 2009

Tony Baldry (Banbury) (Con): It is a pleasure to follow my hon. Friend the Member for Lancaster and Wyre (Mr. Wallace), but it is also worth observing that here we are, halfway through the Budget debate, yet there is not a single Labour Member in the Chamber to defend the Government's record. That is a dismal situation—

David Taylor: On a point of order, Madam Deputy Speaker. I request that the hon. Member for Banbury (Tony Baldry) corrects that statement. My hon. Friend the Member for Wolverhampton, South-West (Rob Marris) is waiting to defend the Government loyally.

Madam Deputy Speaker: That is not a point of order for the Chair.

Tony Baldry: The hon. Member for Wolverhampton, South-West (Rob Marris) has spent most of the debate outside the Chamber. Even if he had spent most of the time here, it is pathetic that Labour's huge majority is reduced to one. It is so inefficient of the Whips that they cannot organise a rota of Members to defend their own Budget—

Emily Thornberry: Will the hon. Gentleman give way?

Tony Baldry: It is no good the hon. Lady jumping up and down. The only thing that she learnt at the Bar was how to make a decent plea in mitigation. That is all that we heard from her earlier.

Last November, the Chancellor of the Exchequer said that the Government would need to borrow £118 billion next year. In last week's Budget he upped the amount to £175 billion. The increase of £57 billion is bigger than any of the Labour Government's previous Budget deficits. Borrowing that amount in the current financial year will be the highest level of borrowing since the second world war. Experts think that even those desperate figures are too optimistic. Hardly had the Chancellor sat down than the IMF contradicted his forecasts. It said that the British economy would contract by 0.4 per cent. next year as opposed to the Chancellor's prediction of growth of 1.25 per cent.—itself a desperate figure in any other circumstances.

After the Budget, everyone has to accept that, as a consequence of this Government's mismanagement of the economy, national debt will climb to about 80 per cent. of national income. Let us be clear that that indebtedness is the result of decisions made by this Government. They entered the recession, as the Governor of the Bank of England has said, borrowing too much and with little room for manoeuvre.

The overwhelming reality that everyone now must recognise is the complete mess into which the public finances have descended. The challenge now is how to
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control state spending before it destroys national solvency. There is no way in which the Government can any longer pretend to spend and borrow their way out of the hole they have created. There is no more money to spend. As for borrowing, the figures are nightmarish. This year, the Government were already planning to sell a record £220 billion of bonds—gilts—followed by more than £240 billion in 2010-11 and £250 billion in 2011-12. In all, over five years they plan to sell some £900 billion of gilts, or twice the size of the entire UK Government bond market. What happens if overseas investors decide not to buy UK gilts? They are under no obligation to hold gilts and they have no reservations about selling them, especially as there will be competition from other countries wishing to attract lenders. What will happen if overseas investors seek higher yields elsewhere?

The reality is that before us lie at least two Parliaments of pain as we repair the damage caused by this Government's financial mismanagement and the resulting £90 billion a year black hole in the nation's coffers. The Institute for Fiscal Studies has estimated that it will take more than 22 years for the national debt to drop back to 40 per cent. from the nearly 80 per cent. that the Chancellor forecasts. Hamish McRae said in The Independent last Thursday:

"We have both a fiscal catastrophe and wild swings from boom to bust. You can blame this government in general and Gordon Brown in particular for that failure".

This Budget was also fundamentally dishonest on a number of counts. First, the Chancellor sought to give the impression that a black hole in the public finances could be sorted out by increasing the higher tax rates. Even if the 50 per cent. rate of tax were to bring in the Treasury's most optimistic yield, it would bring in only about £7 billion. To put that into context, the Government are planning to spend up to £4 billion on recruiting management consultants for the public sector over the next four years. So, £7 billion will not necessarily go a very long way and it is also a long way off meeting the £175 billion needed. Last week the Institute for Fiscal Studies also noted that raising the higher rate of tax, even to the 45p in the pound that was first thought of, might lose the Treasury money as it moves the wrong side of what economists call the Laffer curve after the economist who pointed out the tendency of punitive taxation to yield diminishing returns.

It will, of course, be a footnote to the 2009 Budget that it marked the death of new Labour when the Chancellor said the words,

"the new rate will be 50 per cent."—[ Official Report, 22 April 2009; Vol. 491, c. 244.]

Was it not the present Prime Minister who, when he was Chancellor of the Exchequer, said on the "Today" programme in January 1997 that

"we will leave the basic rate of tax unchanged and we will leave the top rate of tax unchanged"?

That pledge was explicitly repeated in the 2001 and 2005 general elections—a tax promise that we were told reflected the spirit of new Labour and a commitment not to punish success. I suspect that the speech that we heard earlier this afternoon from the right hon. Member for North Tyneside (Mr. Byers), a former Labour Secretary of State for Trade and Industry, which condemned the 50 per cent. tax rate, will be well worth reading and re-reading.

It is dishonest of the Government to try to pretend that higher taxes can meet the need to sort out public finances. No Government for 30 years has sustained tax receipts above 37 per cent. of GDP, yet the Government are proposing that spending should rise to 48 per cent. of GDP, almost as high as in the mid-1970s, when the IMF came in.

The Budget was also dishonest in its basic assumptions about the economy's likely performance. That point was tellingly made on Friday when official figures showed that in the first three months of this year the British economy contracted at the fastest pace for 30 years, with a slump in manufacturing that was the worst since records began 61 years ago.

To my mind, the greatest dishonesty of the Budget was that it deliberately postponed until after the next general election any difficult decisions about public spending and controlling public spending. From 2011, public spending will grow in real terms by just 0.7 per cent. a year. Even in the tightest years of Margaret Thatcher's first Government, public spending increased by more than 2 per cent. in real terms. When I raised those points with the Secretary of State earlier in the debate, he accused me of raising a distraction. I shall say it again: the Government propose, after the next general election, a tighter level of public spending than we ever saw under Margaret Thatcher. However, we have not had a scintilla of a suggestion from any Minister about where they expect to make savings.

Disingenuously, Lord Mandelson toured the radio stations on Friday, challenging us to say how we would reduce spending. That was disingenuous because his words sought to give the impression that a Labour Government could and would maintain high public spending while the figures are there for everyone to see in the Budget. From 2011, public spending will grow at just 0.7 per cent. a year, which will inevitably result in some serious re-approaches to public spending. The country deserves better than a year of pre-election name-calling and a year of the Government of the living dead. We must all sort out sensible processes to engage everyone in an honest debate about how we can restructure the state. We need an honest acknowledgement that together we need to get a grip on Government spending and public spending and we need to decide how we can best achieve that. The Government will not even tell us how the vast amount of borrowing will be repaid. By next year, the Treasury expects Government debt interest payments alone to equal spending on education and defence combined.

At present, many of my constituents are understandably concerned about the taxes on the many that this Budget introduced: the increase in fuel duty, the reintroduction of the fuel duty escalator and the increased tax on beer. Those were all unwelcome, regressive moves. The ongoing challenge of this Budget—the reality to which every right hon. and hon. Member in this House has to face up—is the question of how we most effectively reduce public spending while, at the same time, maintaining decent public services. We need a grown-up and honest debate that engages everyone from now onwards.

We cannot simply spend the coming year between now and the general election catcalling at each other. This issue is far too serious. If we are to maintain decent public services and get our public finances in order, that will require sensible, proper, grown-up and mature debates. I think that the country expects no less of us all.