|

Budget Debate

Tony Baldry (Banbury) (Con): It is always a joy to follow the right hon. Member for Holborn and St. Pancras (Frank Dobson)—a self-proclaimed member of heritage Labour. When he actually said that bankers could not be left to their own decisions, he wonderfully took us back to good old clause 4 old Labour, with public ownership of the means of production, distribution and exchange—the authentic voice of old Labour. Little wonder that when the right hon. Gentleman stood as the candidate for Mayor of London, he did not find much support in or among Londoners.
The right hon. Member for Coatbridge, Chryston and Bellshill (Mr. Clarke), who is no longer in his place, said that this was a Budget for hard-working families. He was absolutely right, but it is a Budget to hammer hard-working families. It is a bad-news Budget that adds £110 a year to the tax bill of every family; and the tax take will be £2.8 billion a year higher by 2010. It is a Budget for kicking families when they are down because new taxes announced for the next three years will put an extra £1.5 billion on all alcoholic drinks, hitting 43 million people; £1.6 billion extra on drivers, even with the delayed fuel tax rise; and £1.7 billion extra on businesses.
The background to the Budget is that during the years of plenty, the Government, whose economic management was then in the charge of the man who is currently Prime Minister, squandered the national riches rather than put them aside for the years of difficulty. Sadly, the poorest people are about to be
18 Mar 2008 : Column 805
stung by the Prime Minister’s swan-song as Chancellor—the abolition of the 10 per cent. tax band.
There is, of course, growing uncertainty around the globe, and we have no protection here for a rainy day, let alone for the global economic storms that seem to be blowing across the Atlantic. Inflation is rising because the previous Chancellor chose for so long to debauch the currency by expanding the money supply at an unhealthy rate, and the present Chancellor admits to a rise in borrowing to the ugly level of £43 billion next year.
Mr. MacNeil: Does the hon. Gentleman recall that the present Prime Minister and former Chancellor was the man who said that he would put an end to boom and bust? Does he agree that those words seem very hollow at the present time?
Tony Baldry: The hon. Gentleman makes a very good point, but there are a number of phrases that the Prime Minister was wont to use on many occasions—“boom and bust” is one that no longer appears from his lips, as even he can see the irony of it—that no longer apply. I am not quite sure what has happened to Prudence. I am very concerned about Prudence, but she seems to have been debauched. She has disappeared and we now hear nothing more about her. She has gone and the new girl on the block is Stability. That is what we are in love with nowadays and I suspect that the irony of praying to the mantra of “stability” will be so evident in a few months’ time that even the Prime Minister will not allow the word to cross his lips.
Economists have warned that voters face the equivalent of up to 3p more on income tax after the next general election. An analysis of last Wednesday’s Budget by the Institute for Fiscal Studies showed that spending would have to be slashed by billions if the Chancellor does not want to break his economic rules. The IFS has said that it could mean Ministers having to plan tax increases to avoid cutting back on schools and hospitals if they should perchance win the next general election, which I think is increasingly unlikely.
The IFS added to the gloom around the Budget in pointing out that middle-income households have been hammered by rises in tax for drinkers and family car owners. Robert Chote, director of the IFS, has said that details hidden in the Budget report reveal that the annual growth in spending will be cut to 1.8 per cent. in 2012-13, meaning a reduction in spending by around £8 billion by 2013—which would be equivalent to an income tax rise of 3p in the pound. That will be the result of the very substantial cut of £8 billion in public spending. No wonder that polls since the Budget reveal that fears about rising prices in food, fuel and taxes are people’s biggest worries. Soaring gas and petrol prices, higher council tax and bigger supermarket bills were among the recurring themes of those who commented on The Times online response to the Budget, to which 2,500 people contributed. People expressed concerns about the rise in energy and fuel costs, coupled with ever-increasing food prices.
Not surprisingly, when YouGov did a survey, it found the following responses to various propositions: 86 per cent. of those surveyed agreed that their bills
18 Mar 2008 : Column 806
were rising faster than the Government said they were; 84 per cent. agreed that energy firms ripped them off and should have been hit with a windfall tax; 78 per cent. agreed that the Government wasted huge amounts of taxpayers’ money—a point made very effectively by my hon. Friend the Member for Gainsborough (Mr. Leigh), the Chairman of the Public Accounts Committee and reflected in the concerns of many of our constituents; 66 per cent. agreed that the Government spent too much in the good times, so they were raising taxes now; and 74 per cent. agreed that green taxes were just an excuse to raise more money. It has not escaped the attention of most people that the Chancellor is not offsetting the green taxes raised in one place with taxes elsewhere; he is simply taking the green taxes as additional taxation.
The main cause, I suspect, of the swing in the opinion polls to the Conservatives is the collapse of faith in the Prime Minister’s and the Chancellor’s stewardship of the economy. Just 21 per cent. of voters say that they would trust the Government more than the Opposition to raise their families’ living standards; the Conservatives have a decisive lead on that issue. The overwhelming majority—83 per cent.—believe that the economy will either grow more slowly over the next 12 months or slide into recession. There is no question of people having to talk about this; the fact of the matter is that our constituents are genuinely concerned about what is happening to the UK economy. They find it rather depressing when all that the Prime Minister and the Chancellor can do is simply repeat the mantra of “stability” in the hope that if they say it often enough, it might actually happen.
The Government’s reputation for economic competence is now at its lowest since Jim Callaghan went cap in hand to the International Monetary Fund in 1976. At 28p in the pound, the UK has one of Europe’s highest rates of corporation tax. This Government’s spending binge has seen the size of the state balloon—from 37 per cent. to 45 per cent. of gross domestic product. Under this Government, the cack-handed expansion of means-testing has seen the savings ratio plummet from 11 to 3 per cent., with consumer debt now a staggering 156 per cent. of household income.
The reality is that after the recent years of strong global growth, other countries such as Germany now have a budget surplus. Yet when it comes to fiscal management, the UK’s so-called prudent Government have been outclassed by the allegedly profligate Italians and French, as Britain’s budget deficit at 3.2 per cent. of GDP is by far the biggest of any major economy. That is why last week’s Budget imposed a net tax rise of £2.5 billion—the precise opposite of what is now needed.
It is important to understand the extent of the Government’s borrowing. This time last year, when the Prime Minister delivered his final Budget as Chancellor, he said that the Government would borrow £30 billion during 2008-09—the fiscal year about to begin. Yet in his first pre-Budget report, the present Chancellor raised that estimate to £36 billion—an alarming increase. Last Wednesday, the Chancellor jacked that amount up even more, announcing that borrowing in 2008-09 would, in fact, be £43 billion. In other words, in just 12 months, the Government’s borrowing estimate for next year has increased by no less than £13 billion, a jaw-dropping 43 per cent. rise.

18 Mar 2008 : Column 807
Looking further into the future, the numbers barely improve. The Prime Minister told us last year that he would borrow £28 billion in 2009-10. The Chancellor has just raised that figure to £38 billion. During 2010-11, the UK will increase its liabilities by another £32 billion—way higher than the Prime Minister’s £26 billion estimate last year. In sum, our borrowing totals for 2008-09 to 2011-12 have gone up by £20 billion since the Chancellor’s pre-Budget report. That is a staggering sum of money, which has not hitherto been accounted for.
Mr. MacNeil: Listening to the Westminster Government’s catalogue of disaster, I can only think of the oil fund that Norway put away in the good years, or perhaps of a lesson from the Old Testament about getting ready in the seven years of plenty in Pharaoh’s time for the seven years of famine. Given the catalogue of disaster and mismanagement at Westminster, does the hon. Gentleman agree that Scotland would have been far better off in Norway’s position, building an oil fund and, of course, being independent, while being a good friend of England’s at the same time?
Tony Baldry: I am sure that the supporters of this Government will pay an electoral price in Scotland, as they will everywhere else in the United Kingdom, because every part of the United Kingdom has been hit by their inability properly to manage the economy.
In the quiet watches of the night, even Ministers realise how bad is the present state of the economy. If we look at the detail of the Red Book, we see that the Treasury expects house prices to fall in real terms in the coming year, causing the first fall in stamp duty revenues since 2001. It is stated that due to
“sluggish or flat house price growth, receipts related to property such as stamp duty land tax, inheritance tax and capital gains tax, are expected to be £2.25 billion lower in 2008/09 than in the Pre-Budget Report.”
The Treasury also expects to generate less from the City and business as the credit crunch and impending economic slowdown hit enterprise. What does the Chancellor do in response? He increases taxes and puts up the Government’s borrowing to the highest rates for more than a decade.
As a consequence of the Budget, middle-income groups will be hit by a national insurance stealth tax. In every Budget that this Government introduce, various things are not apparent on the day. However long and soporifically the Chancellor drones on for, we often discover a lot of the nasties either in press releases issued by the Treasury afterwards or in the small print. This year was no exception. The Chancellor made no mention during the statement of the rise in the earnings ceiling for national insurance by £100 to £770 a week, but it was in the details of the Red Book. Analysts suggest that from 6 April next year, the 11 per cent. band will apply to earnings up to £40,040. Anyone on £41,000 or more will therefore pay about £500 a year more. That change will bring the Treasury additional revenue of almost £2 billion a year.
Instead of helping people out in the Budget, the Government have hit them again with big increases in alcohol prices, big increases in the purchase price of many family cars and big increases in taxes on business hidden in the small print of the Budget. Our constituents have to pay more for their drink and their cars. People are being kicked while they are down.

18 Mar 2008 : Column 808
According to number crunching by the ever-vigilant Taxpayers’ Alliance, nearly nine in 10 cars will attract higher rates of tax under the Chancellor’s proposals. Less than one in 10 vehicles will benefit from the new system, and the biggest losers will be family cars. As a result of the reforms in the Budget, however, it is stated that
“the majority of motorists will be better or no worse off in 2009.”
It is unbelievably difficult to relate that assertion to the fact that nearly nine in 10 cars will attract higher rates of duty. The vehicles hit will include modest family cars and people carriers, so that drivers of Skodas, Ford Mondeos and other models costing up to £20,000 will be hit almost as hard as those paying 20 times as much for their Rolls- Royces, Bentleys and Ferraris. Mondeo man, whom the Government courted to get into power more than a decade ago, is paying the price of filling the Government’s borrowing black hole.
The Prime Minister’s much-trumpeted green effort seems to have a very ad hoc quality. With regard to carbon emissions, the Government seem to be focused more on the targets that are the most visible than on those that are most at fault on carbon emissions. There is also a certain degree of gimmickry—for example, the non-tax on plastic bags. The Chancellor announced the possibility that next year he would propose a law to require retailers to charge for plastic bags and transfer the profits to charities. That is rabbit-out-of-the-hat stuff to distract people from what is happening to the economy.
It is not surprising that Tony Juniper, the executive director of Friends of the Earth, commenting on the Budget, said that it
“falls a long way short of not only what is necessary, but also what was possible to do...we need far more substantial measures to encourage waste minimisation and recycling.
Green tax measures would be more popular if they were linked to cuts in taxes on people and jobs...
Given New Labour’s reputation for slick communications it seems that it was not a lack of creativity that was at fault, but a lack of leadership, vision and imagination.”
The whole Budget demonstrates lack of leadership, vision and imagination.
The Budget is bad for small businesses. The Government deployed one of the oldest rhetorical approaches: when in trouble, they simply talked a good game and pretended that everything would be fine. On the day of the Budget, a new enterprise strategy was launched, regulatory reform was promised, and the Chancellor pledged to do more to help small firms get access to the finance that they needed. Business will not be deceived. The Chancellor is imposing more than £1 billion in new taxes on small firms at just the wrong moment in the economic cycle. He appears oblivious to that. He delayed a further £200 million tax rise on family businesses only because he realised at the last moment that it would not work. Those entrepreneurs and people in small business have already been hit by the scrapping of the 10 per cent. capital gains tax rate, and the Government will now reward only the first £1 million of wealth created—anything above that will be taxed at 18 per cent.
Mr. Prisk: My hon. Friend rightly highlights the burden of the Government’s proposals on small businesses. As he has said, what the Government referred to as an
18 Mar 2008 : Column 809
entrepreneurs’ relief set a cap on the ambitions of those entrepreneurs. Does he agree that it is a peculiar approach on the part of a Government who claim to support enterprise to penalise anyone who is successful above £1 million?
Tony Baldry: The treatment of capital gains tax has been and continues to be a fiasco. Clearly, the Government have arrived at a compromise between wanting to get the greatest possible tax take and not wishing to frighten off the business community too much. The Government have recognised that the business community have understandably fallen out of love with them, and are trying to mitigate the damage.
Business owners have also been hit by reforms to capital allowances, which will raise billions for the Treasury. That makes the giveaways in the Budget—a small £30 million enterprise capital fund, a £12.5 million fund to invest in female-run businesses, and a £60 million increase in the small firms loan guarantee—appear to be exactly what they are: token gestures.
While it is true that businesses will receive more than £680 million worth of tax relief from the Chancellor over the next three years, it is also true that £1.4 billion worth of new taxes will eat away at any gains that they may make. For most businesses, the rate of capital gains tax will rise from 10 per cent. to 18 per cent., a rate that the Chancellor said would be introduced next month as planned. Britain’s corporation tax income from companies is higher than that of any other countries except Japan and Canada. Bill Dodwell, a tax partner at Deloitte, has said:
“Businesses are worried at the rate at which things are taxed but also on what they are taxed. They are taxed on far more... than in other countries”.
Businesses have been hard hit by this Budget. Let me take up what the hon. Member for Selby (Mr. Grogan) said about the tax on beer. As James Clarke, managing director of Hook Norton brewery in my constituency, has observed,
“A duty increase would not significantly affect off-trade prices, but would be devastating for pubs... Beer sold in pubs contributes to local economies, and often the pub can be the only retail outlet in a community, but obviously this still needs to be a viable business. Pubs are under increasing pressure from energy and food prices, as indeed we all are, so freezing duty on beer would not only be a real benefit, but it would also be seen as such.”
Of course, the Government did not freeze the duty on beer; they put it up.
In my constituency, businesses will be asking “What next? We are seeing post offices being closed, hospital services being downgraded and village pubs disappearing. What will we see next under this Government?” I do not have time, notwithstanding the generous allocation that the House has given me—
Mr. Andrew Love (Edmonton) (Lab/Co-op): Will the hon. Gentleman give way?
Tony Baldry: No. I have no time to do so, or to draw the House’s attention to the fact that nothing has been done to help business with red tape. Labour pledged to
18 Mar 2008 : Column 810
cut red tape in their 2001 manifesto, but even after three Acts of Parliament the regulatory burden on business is worse than ever.
This is a bad Budget for business, for jobs, for enterprise and for our constituents, and a particularly bad Budget for the families who are being hammered by this Government.