Finance Bill debate
Philip Dunne condemns the Government's complete lack of vision to get the economy out of the mess they have driven it into.
He also deplores the lack of any measures in the Bill to encourage entrepreneurial initiative or people to save.Mr. Philip Dunne (Ludlow) (Con): It is a great pleasure to follow that passionate speech by my hon. Friend the Member for Bournemouth, East (Mr. Ellwood). I would like to start my remarks by reflecting a little bit on the comments that he and other hon. Friends have made about the nature of the Chief Secretary's opening speech earlier today. I listened carefully to what she had to say, and I regret to say that I found it entirely characteristic of her approach to the House and her present role.
The Chief Secretary's speech was focused not really on her own proposals, but on a smokescreen. She sought to conjure up a smokescreen from thin air to camouflage the Government's disastrous conduct of the economy, while at the same time seeking to paint a fantasy picture of Conservative plans. Her speech betrayed the whole approach of this beleaguered Government: "When you are lying at the bottom of a hole that you have dug for yourself, you bear your teeth, start gnashing and try to claw your way out of a dugout." In the way the right hon. Lady conducted herself, she was really the chief terrier of the Treasury rather than its Chief Secretary.
Mr. Newmark: Is not the expression, "If you are digging a hole, simply stop digging"?
Mr. Dunne: That would have been good advice for the Chief Secretary, so perhaps my hon. Friend should have proffered it to her. Perhaps he will be able to do so later in the debate.
The Chief Secretary's approach belied her political antennae, which were clearly telling her that she should adopt attack as the best form of defence in any form of political debate. Her attack was intrinsically political and focused on attempts to wrongfoot her political opponents rather than to recognise the reality, acknowledge the scale of the problems that our economy has been driven into by the Government and seek to introduce measures to help address them. What the meant for me was the end of aspiration under new Labour. There were no signals that Britain is a competitive place in which to do business, that individuals find Britain an attractive place in which to build their careers or that the Government understand how this economy can compete.
This Finance Bill exposes the political truth of this Government under the present Prime Minister. We heard calls earlier today for him to reveal his vision for this country. Well, I have seen his vision-in the Budget, in the Finance Bill and in his Chief Secretary's speech. It is not aspirational; it is not new Labour; it tears up the manifesto commitment not to raise income tax; and it tears up the fiscal rules with nothing to replace them. It rips out the heart of new Labour. The vision is bleak: it is for a prolonged period of debt-burdened darkness. It is back to old Labour, lurching rudderless from crisis to crisis as dole queues lengthen.
Mr. Ben Wallace (Lancaster and Wyre) (Con): Does my hon. Friend agree that the retrograde step in the totem or red herring of the 50p tax rate was that the Government tried to pander to the audience in portraying all high earners as bankers, when the reality is that most high earners in the north-west, for example, work in industry, manufacturing and wealth-creating businesses? Does he agree that because the Government decided to pander to the gallery, what they did was punish success, thus announcing the end of new Labour?
Mr. Dunne: My hon. Friend makes an extremely important point. There is no evidence in what we have heard from Labour Members today or in the Budget debate that there is any longer any real understanding on the Labour Benches of what drives an economy, what makes it work or how much it relies, especially in a trading nation such as ours, on the entrepreneurial spirit. We must encourage business men to come to this country, given the increasingly global environment in which we live. We cannot simply assume that things will happen because we have a talented pool of people who have been educated here. Education is now an international business. Many people from this country can be educated in other countries-increasingly they are doing so in the United States-if that is where they feel that their future lies.
Mr. Stewart Jackson: Does my hon. Friend agree that the 50p tax increase is emblematic of a party whose record shows that it was never really committed to the entrepreneurial spirit or to free enterprise? The whole edifice of new Labour was based on year-on-year increases in public expenditure irrespective of reform, a housing boom, and a Faustian pact with the City that there would be continuing tax revenues with light-touch regulation. Is it not the case that all three of those pillars have crumbled, and that as a result we are now in a disastrous fiscal position?
Mr. Dunne: I think that my hon. Friend is being a little unfair on the Labour party in opposition. I think that the Labour party, or at least its leadership-the present Prime Minister and his predecessor-recognised that if it was to secure power, it would have to develop a broad consensus of opinion and establish a wide church of support. That included attracting the middle classes-the aspirational people, both those in work and those entering the work force. It was clear that they must be encouraged to vote Labour, which meant that a Labour Government must adopt a policy involving stability and certainty in tax rates, rather than a penal policy reverting to the old class wars of preceding decades.
David Taylor: The strength, passion and emotion of the hon. Gentleman's speech, allied to that of the intervention from the hon. Member for Peterborough (Mr. Jackson), is enough to bring tears to a glass eye. Cannot the distribution of the tax burden in the economy best be illustrated by the fact that those in the lowest income quartile pay a higher proportion of their income in tax than those in the upper quartile? It is not as if the highly paid are seriously overtaxed by that measure, is it?
Mr. Dunne: What the hon. Gentleman needs to consider is what happens to the admittedly small number of people who are responsible for generating the jobs that employ those at the bottom end of the spectrum. If the tax rate in this country is perceived to be entering a period of prolonged excess by international standards-we have been led to believe that the new top marginal rate will place us third in a list of 83 of the most world's most developed countries-this country will not be perceived as an attractive place in which to generate business, which allows the employment of people living here and attracts other people. That is the fundamental issue which seems to be so absent from the debate conducted by Labour Members, and that is where I think the Government are making such a terrible mistake.
Mr. Jeremy Browne: I share many of the hon. Gentleman's reservations about marginal tax rates, but my difficulty is in understanding how it is possible to advance two arguments simultaneously: the argument that the 50p rate will drive entrepreneurs away and be bad for the economy, and the argument that it will raise little additional revenue. If the latter is the case, it would surely not be difficult to abolish the rate with immediate effect. If the former is the case, surely the need to abolish it is all the more urgent. In any event, I see no reason why, consistent with the case that the hon. Gentleman is making, any Government would not abolish the 50p rate on their first day in office.
Mr. Dunne: I think that timing comes into play. Such action cannot be taken overnight. If the present Government are re-elected, they will have an opportunity to reconsider the 50p rate in their next Finance Bill, at a time when the impact on the perception of entrepreneurs may well be clearer because it will be known whether people have left the country in droves. Timing is all-important in this context.
Let me say something about the forecasts on which the Bill is based, and the impact on the public finances to which it refers. The Chancellor claimed to the Treasury Committee that his forecasts were realistic; I think that that was the word that he used. Much of this debate has already been given over to discussion of how realistic these forecasts were, and I have to say that I find that claim truly astonishing given the Treasury's track record in forecasting both GDP and public borrowing.
I had the pleasure of serving on the Treasury Committee alongside the hon. Member for Edmonton (Mr. Love). He chose to defend as gallantly as he could the Government's forecasting record, and tried to make a reasonable job of discussing arithmetical averages, but let me describe my recollections of studying the Treasury's performance. In each of the four Budgets and pre-Budget reports that I reviewed as part of that Committee's work, the then Chancellor had to appear before the Committee to try to defend his forecasts and explain why they were not so unreasonable in the circumstances compared with the forecasts he had made on his previous visit to the Committee. On each occasion, that was a very hollow claim. It was clear that the Treasury models were not giving rise to accurate forecasts for either GDP growth or, more particularly, public borrowing. That has been exposed not merely within months, weeks or days, but even within hours, of the Chancellor sitting down following his Budget speech.
The Chancellor said that in the current year GDP growth would be negative 3.5 per cent., but barely an hour later the International Monetary Fund estimated it would be negative 4.1 per cent. A week later, the European Union estimated that it would be negative 3.8 per cent., and this week we have had reports from the National Institute of Economic and Social Research that its estimate is negative 4.3 per cent. Two days after the Chancellor sat down, the first estimate of first-quarter GDP growth came out from the Office for National Statistics. The underlying assumption in the Chancellor's forecasts had been that the figure for the first quarter was negative 1.5 per cent., but the ONS estimate was negative 1.9 per cent. That is a 27 per cent. difference. It is barely credible that the Treasury did not have some sight of the underlying information available to the ONS in preparing its forecasts, and that suggests either a lack of understanding about the data in the economy at the time or an astonishing lack of competence. I hope for the sake of any incoming Government that the Treasury is not so incompetent that it can make such a significant error within such a short period and have such a lack of understanding.
Mr. Newmark: Might we not add this as a third problem with the Government: they do not recognise the magnitude of the problem that they face? That is why they are always short-selling what the statistics and real facts are in relation to the situation the country is in.
Mr. Dunne: I am grateful for that intervention, as it takes me nicely on to the issue of the magnitude of the problem. The NIESR says that there is a real possibility that GDP will fall more this year than in 1931, stating:
"The pace of decline to date shows a remarkable resemblance to that of the depression of the early 1930s."
That is bad enough, but if the governing party and those responsible for managing the economy acknowledged that we face such a dire GDP situation and that the scale of the problem in general is so great, we Conservative Members would have some sympathy. As we all know, however, there is very little recognition on the part of the Prime Minister and his Treasury team that we are in such a situation, even though it is evident to all independent commentators that that is the case. It therefore becomes increasingly challenging for the Government to find their way out of this problem.
The impact of the poor forecasting can be seen in the Red Book estimates and projections for public sector net borrowing as a proportion of GDP. As the hon. Member for Edmonton said, projecting several years ahead is prone to considerable statistical error, but the Red Book makes a stab at it and comes up with a figure of 5.5 per cent. for 2013. That is based on the highly optimistic, rather than realistic, forecasts that the Chancellor set out in his Budget speech. The variance between the 5.5 per cent. cited in the Red Book and what the NIESR says is more than 50 per cent. The NIESR forecasts that public sector net borrowing will be 8.6 per cent. of GDP in 2013-14. There will be a significant shortfall in Government funding should the economy not grow as the Chancellor has forecast. If it does grow as he has forecast, some estimates have identified that there will be a black hole of more than
