Budget Debate
Speaking in the Budget Debate, Philip Dunne highlights real-terms tax increases that are not immediately apparent at first glance, such as the erosion in take-home pay resulting from the freezing of personal allowances.
Mr. Philip Dunne (Ludlow) (Con): It is a pleasure to follow the hon. Member for Stroud (Mr. Drew), and it is a slight shame that he was cut short by Mr. Speaker's instruction, given the paucity of Members on his side of the Chamber who are willing to support the Minister in the debate.
Sir Patrick Cormack (South Staffordshire) (Con): Look at them all!
Mr. Dunne: I can count only one, including the hon. Member for Stroud.
Mr. Drew: There are not many on your side either.
Madam Deputy Speaker: Order.
Mr. Dunne: Thank you, Madam Deputy Speaker. I was going to say that it is a pleasure to participate in a debate in which so many of the Members who are retiring from the House have spoken. I am sure that the hon. Member for Stroud will not be voluntarily retiring. If he did so involuntarily, the House would lose one of its more regular attenders, especially of these end-of-evening sittings, which would be a disappointment.
I would like to raise a couple of macro-economic points before focusing on specific ways in which the Budget creates particular challenges for companies operating through the recession. First, however, I shall focus on the state of the economy. The hon. Member for Stroud was quite right to refer to the economic mess in which the country finds itself, but he and other Labour Members have not acknowledged that the financial services community's role in the cause of the original economic crisis now bears little relation to the state of the public finances. The financial services crisis of two years ago that resulted in the Government having to bail out the banks is now part of this country's economic history, but the structural deficit with which we have to deal, which will be the Government's legacy, has little direct relationship to that crisis. Although there are clearly indirect consequences, the structural deficit has ballooned under this Government, irrespective of the bail-out that funded the resurrection of the banks nearly two years ago. Labour Members do not acknowledge that fact, but it needs to be acknowledged so that we can recognise the measures that are required to start to bring the deficit down.
Throughout their Budget projections, the Government rely on their measure of economic growth, but I would like the House to consider the plausibility of their projection. The Treasury has a track record of forecasting economic growth that any schoolboy economist would find somewhat embarrassing. It has rarely, if ever, got it right, and it has tended to veer on the side of optimism in each Budget presentation that I have heard while I have been a Member-last week's was no exception. The Chancellor admitted that economic growth was likely to come down, but only by 0.25 per cent. The reduction was from 3.5 per cent. to somewhere between 3 and 3.5 per cent., so if we are charitable and take the average, it looks like a reduction to 3.25 per cent. However, that projection remains above all external forecasts, or the average of them, and above the forecasts for all other major industrialised economies. It is also substantially above this country's trend growth during the Government's tenure in charge of the economy, and above trend growth for the 31-year period of this Government and their predecessor. It is surprising that the Government base the largest component of their recovery programme on an estimated increase in this country's activity for the next four years, and specifically for the coming year, that is significantly above their track record and what other forecasters think is likely.
I am not trying to talk down the strength of the economy and I would, of course, like the economy to grow and rebound rapidly. I merely question the validity of the Government's forecasting methodology, which has also been questioned by the National Audit Office in its review of the figures.
The Financial Secretary to the Treasury (Mr. Stephen Timms): Will the hon. Gentleman reflect on the fact that although our forecast in last year's Budget for the coming financial year was criticised in much the terms that he is using today, pretty much everyone now agrees that last year's forecast of 1 to 1.5 per cent. in the coming financial year will be right?
Mr. Dunne: We will have to see, will we not? That is another forecast. I concede that the Treasury has had the benefit of a slight upgrade to the figures for the last quarter of 2009 but, looking forward, I would not like to place much confidence in what it is saying.
The situation raises questions whether the public debt will come down in the manner that the Government anticipate. We are looking at £167 billion of debt in the current year. That is a very difficult figure for ordinary people-and Members of the House-to get their minds around. It means, if my maths is correct, that the Government are borrowing £317,723 per minute of every day and every night this year. That figure is substantially greater than the average price of a home in this country, and when I give that figure on the doorsteps in my constituency, people find it quite astonishing that we could be borrowing at that level. Of course, it is completely unsustainable and that borrowing must come down.
The Government have come up with very few plans to get that debt under control. That will wait until we have had a general election. Whichever party is in power thereafter will have to take the tough decisions that are necessary if we are to get a grip on the public debt and get the economy moving once more.
The two specific points that I wish to make relate to Budget proposals where the Government have been short on detail, and which they have not described with enough frankness. The first has to do with the freezing of personal income tax allowances. In his Budget speech, the Chancellor did not make a single mention of the measure that will affect more people than any other-freezing personal allowances at £6,475. Some 30 million people will be affected by that. With inflation having hit the somewhat giddy and unedifying heights of 3.7 per cent., there is direct erosion on the value of real, take-home pay for those in work. For all those taxpayers, freezing personal allowances will have a significant impact on their disposable income, yet the measure was not mentioned by the Chancellor.
There was another matter that the Chancellor failed to mention. When referring to fuel duty increases, he said with some pleasure that he would defer the escalator for this coming year, so that the rises will be made in three, equal tranches, and said also that he was therefore reducing the increase scheduled for April to 1p per litre. What he did not disclose is that he will increase duty in April not only by the equivalent of 1p through the escalator, but by a further 1.35p through the elimination of the biofuels duty rebate. When the VAT element is included, that means that petrol prices will go up by a further 2.35 per cent. from the beginning of next week. That, of course, will affect every motorist-all those who rely on vehicles to drive themselves around. As the costs of motoring go up, there will be knock-on effects throughout the economy on the delivery of goods and on commerce. That was more sleight of hand from the Chancellor, and it was regrettable.
The reason why I focus on fuel is the fact that, as my hon. Friend the Member for Meriden (Mrs. Spelman) said, since the Government introduced the business rates revaluation, I have been campaigning actively to try to correct some of the anomalies that are clearly apparent in the revaluation methodology that the Government have used-anomalies that they have sought to blame on the assiduity of the Valuation Office Agency. In particular, I have been looking at the retail of petrol at filling stations. One third of the 9,000-odd forecourts trading in this country face an increase in their business rateable value of more than 50 per cent., and 1,500 of them are looking at their rateable values at least doubling. Many of them will face the prospect of ceasing to sell fuel when the increases come through in full, because that will be the logical thing for them to do, economically. Most of them operate with very low margins on the sale of their fuel.
The Government seem to think that because fuel stems from oil and the oil industry is making significant profits, that must flow through the vertical chain and down to the petrol pump. However, I must tell the Ministers present, as I have told other Ministers on the Treasury Bench, that such thinking betrays a lack of understanding of how that market works. As a result, the VOA itself is telling fuel station operators in my constituency that it would be in their economic interest to cease selling fuel, because if they do so the rateable value of the convenience store on their filling station site will then be calculated on the same basis as other retail premises-that is, on the square footage that they occupy, rather than on their turnover. Some operators would see a tenfold reduction in their rates bills.
That increase by the VOA is completely unjustifiable, and I urge Ministers at this very late stage-bills are being sent out with effect from 1 April-to rethink the measure and review the methodology. I also urge that on my Front-Bench colleagues, and I am hopeful that a new Government will look favourably on it. We have already heard my hon. Friend the Member for Meriden say that we intend to review the revaluation, and I hope that such a rethink will take place as a consequence of that review.
While I am on business rates revaluations, I cannot finish without bemoaning the fact that many pubs in rural constituencies face colossal increases. The Boyne Arms in my constituency is looking at an almost fivefold increase-from £4,000 to £19,000, with no change in circumstances other than that flawed revaluation methodology.