The Budget

Mr. Mark Field (Cities of London and Westminster) (Con): It is always a great pleasure to speak in a Budget debate, representing as I do the City of London, as well as the city of Westminster. In many ways, this Budget has not involved that much economics. Bearing in mind the contribution of the hon. Member for Burnley (Kitty Ussher), I am always a tad sceptical when people suggest that the economic cycle has ended or that this Government’s economic record in the past 10 years is beyond any norm. I am afraid that it is always the way that, on thinking that one has reached a new paradigm, reality comes back to bite before too long. The hon. Lady raised a number of issues that I, too, wish to discuss, but I am less convinced than she is that there has been a turnaround in all economic fortunes and that it is entirely down to the current Chancellor.

To a large extent, this Budget will be remembered as a great political Budget. For those who were here, the first 48 minutes or so perhaps did not seem terribly exciting. Then, the Chancellor pulled the rabbit out of the hat in the last 30 seconds with a cut in the level of income tax, but it has to be said that it will not come into play until some 13 months’ time?from 5 April 2008. This Budget reminded me of one that seemed to go down very well with the press?as I suspect this one initially will, on the television tonight and in the headlines tomorrow?that of March 1992, which was presented by the now ennobled Norman Lamont. As Chancellor, he introduced the lower, 10 per cent. tax rate, which has now been abolished. I suspect that it will reappear before too long, when a future Chancellor wants to pull such a rabbit out of the hat. There are similarities between the two Budgets, and as I say, I suspect that this one will also go down quite well. People will then begin to unravel its fiscal and economic sense in the weeks and months ahead.

Today’s Budget is also politically quite clever. Its income tax and corporation tax cuts could drive a wedge between members of my party, and bring the tax cuts debate nearer to the surface in a party that considers itself?rightly?as a potential Government in waiting.

Like one or two other contributors to today’s debate, I feel it appropriate to take a broad overview of the past decade. It might well be the Prime Minister’s last Budget, but?who knows??it might not necessarily be the Chancellor’s last. We assume that he is going to make the move from No. 11 Downing street to No. 10. He may yet produce further Budgets?perhaps not?but presumably, this 11th Budget will indeed be his last. It is only fair to give credit where credit is due: there has been a tremendous record of economic stability. As someone who used to be in business, I wanted stability, and most incumbents in business do. However, one problem with a somewhat flat level of stability?I am not suggesting that we have that now?is that it is often a big disincentive to innovation. So we should not look upon stability itself as being a tremendous goal, but it must be recognised that we have had great stability in the past decade, and most people in business would give the Government credit for that.

It has been remarked that one of the most important early developments was giving independence to the Bank of England. However, it is less well remembered that in transferring responsibility for interest rates to the Bank, the Government took away its regulatory role. As a result, the Treasury’s role within the City and economic affairs has been enhanced, compared with that of the Bank.

There is no doubt that growth has been maintained and that is partly as a result of global expansion. The economic power of India and China, which are the great super-powers of all of our lifetimes?I suspect that we will see accelerated evidence of that in the decade to come, let alone in the generation to come?has had a great deflationary effect and will continue to do so. There is an enormous amount of spare capacity in both India and China, assuming that neither has any political upheavals.

I recognise that there has been some skilful management of the economy, both here and in the US. One looks at Alan Greenspan’s actions, especially in relation to the downturn in the fourth quarter of 1998 in south-east Asia, but also in the aftermath of 9/11. We also had a terrorist attack, on a much smaller scale, less than two years ago, which might have had a negative effect on the City and tourism in London, and we have to give credit where it is due to the Chancellor and the Treasury for the skilful management after that event.

That management stands in contrast to what has happened with many of our European neighbours, but as I said in an earlier intervention, it smacks of a paucity of aspiration for us to talk endlessly about our record in relation to Germany, France or Italy over the past 10 or 12 years. In many ways, those countries have not succeeded to any great extent and we should aspire higher.

Kelvin Hopkins (Luton, North) (Lab): Would the hon. Gentleman also give credit to the Chancellor for keeping us out of the euro, which has had a deflationary effect on those countries across Europe to which he has just compared us?

Mr. Field: I would give the Chancellor even as much credit as the hon. Gentleman would do for that policy. I know that the hon. Gentleman’s view on that important decision is supported by many of his colleagues. The practical reality is that there is now, and has been for many years, a single world currency in the US dollar and its relative strength, but we have had great benefits from remaining outside the euro. A certain amount of credit has to go to the Treasury for that decision.
An issue close to my heart is the continued strength of the City of London. In the US, New York and Wall Street have been deeply concerned about the great strength of the City of London in recent years. Undoubtedly, after WorldCom and Enron, there was a rapid move towards regulation that was not entirely thought through and had unintended consequences, such as Sarbanes-Oxley. That has given London yet another competitive advantage. The lesson is plain. It is not that we want to be a bandit state?and we should be careful about the accusations that have been made about overly deregulated areas, whether in private equity or hedge funds?but we should ensure that regulation is kept to a sensible minimum. We also need to keep taxes low. The lesson comes not only from the past five years after Sarbanes-Oxley, but?perhaps more importantly?from the fact that the whole Eurobond and Eurodollar market came about only as a result of high US taxes some 40 years ago. We need to remain aware of problems that may arise. If there are crooks around, they will find a way to abuse any system, but I hope that the City of London has the balance right. It is greatly to the advantage of the UK as a whole to have a strong City. In many ways, without a strong financial services sector, our country would be in deep trouble.

There are knock-on effects, as was mentioned yesterday, of effectively having a City state in London, with so many of our indigenous population being left behind. That applies not only in London, but beyond. The hon. Member for Luton, North (Kelvin Hopkins), for example, must look in horror at the way in which house prices have exploded in his constituency, and the same applies in many other areas in the home counties. There is a risk that those who do not work in the financial services or do not inherit wealth will be left behind and be unable to get on to the housing ladder, which so many of our young people wish to do.

In years gone by, the Opposition may have lacked a nuanced approach to certain aspects of the Government’s record on the economy. We all remember in 1998 “the downturn in Downing street” that was about to take off. We have also been confounded many times by growth figures that turned out better than predicted. However, as I mentioned earlier, the practical reality is that more people are in work, although some of the jobs are part-time. In recent years, we have been able to maintain a high level of growth partly owing to migration, which has brought with it problems to do with housing, health and so on. Nonetheless, we must give credit where it is due, and the growth figures have remained fairly intact.

Even so, the Chancellor will leave the Treasury with many of the fundamentals not looking nearly as good as they did in 1997. The tax system is very complex and, although I accept that today’s Budget contained a certain amount of simplification, the Tolley’s tax guide is twice as thick as it was a decade ago. The spirit of the age supports simplicity, and we must simplify our tax system if we are to make a full impact in a global economy.

Stephen Hesford: China and India are often spoken of as the tiger economies of the east that are ready to overtake us, but is not India’s tax code even larger than ours?

Mr. Field: In fairness, India is the only country with a more complicated tax code than ours. My point was that, in a global world, we need to have an eye to simplicity. In many ways, our tax system has become overly complex, so I am happy to take this opportunity to welcome the Chancellor’s move today to simplify income tax. It also makes absolute sense to align the higher rate of tax with the national insurance level, as that will remove all the little overlaps with which I am sure that the Financial Secretary is familiar.

One legacy of 10 years of this Chancellor is the level of public debt. The golden fiscal rule, insofar as it still exists, has been breached on a number of occasions. The date of the economic cycle has been changed three times to force the facts to fit the theory. Spending is at almost £600 billion a year, and is reliably forecast to rise to about £670 billion by 2010. Too much has been?and will continue to be?funded by debt.

The public finance initiative is another problem. Much of the building of schools and hospitals to which the hon. Member for Wolverhampton, South-West (Rob Marris) referred earlier has been funded by the PFI, and there is a sense that we are relying on future generations to pay for what we are consuming today. Much of that off-balance sheet financing is delaying the tough decisions that need to be made about the future of public expenditure. I fear that this era will come to be regarded as the best of times, because we are consuming now without paying proper regard to future generations.

Mr. Newmark: Off-balance sheet financing is a legitimate device, and I appreciate why the Government use it, but they are never going to let NHS buildings or schools collapse. Does my hon. Friend agree that there needs to be far greater transparency in off-balance sheet financing? Should not items such as hospitals or schools that the Government stand fully behind be put on the balance sheet, or be noted somewhere in the accounts as Government liabilities?

Mr. Field: My hon. Friend is absolutely right. We have long argued that much of the off-balance sheet financing, especially in PFI and the public-private partnerships, should appear on the balance sheet. The obvious reason why that does not happen is that, if it did, public debt and public liabilities would rise to levels much higher than any prudent Chancellor could like. The invidious effect of the PFI is that it creates liabilities today that others in the future will have to pay for. The criticism has been muted, understandably, because contractors, lawyers, accountants and people in construction have benefited from PFI to a large extent. The great genius of PFI has been the way in which, in my view, it was abused over the past decade.

Kelvin Hopkins: The hon. Gentleman seems to be making a critique of PFI, which I should be happy to support, especially if he went further and said that it would be much more sensible to invest with publicly borrowed money. That would be much cheaper and save the Exchequer a lot of money in the long term. I have written an article on the subject that he may have read in The House Magazine.

Mr. Field: The operative word is “seems”. I disagree with the hon. Gentleman’s analysis. I would rather that we did not take on such debts. If we cannot pay for things now, the golden rule, which supposedly guides us, should not be breached. It should be for today’s taxpayers to pay for the benefits that we receive.

From the Treasury’s point of view, the real genius is that the increased tax burden on all of us for decades ahead to pay for many of the schools and hospitals built in recent years will be difficult for any incoming Government, Conservative or otherwise, to reverse. Furthermore, in 25 years, districts will need new or upgraded schools or hospitals. In many ways, we have the mirror image of privatisation in the 1980s and 1990s. Labour went into the 1997 election with a firm commitment to reverse the rail privatisation that had taken place only a year earlier, but the Labour Government quickly discovered that they had to jettison their commitment. I fear that when the Conservatives come back into government, we, too, will have limited room for manoeuvre due to the PFI liabilities that will come on stream in great number.

David Taylor (North-West Leicestershire) (Lab/Co-op): It is estimated that the tax to GDP burden in the year we are about to enter is about 42 per cent. Does the hon. Gentleman care to recall the typical tax to GDP level at the time of Mrs. Thatcher?

Mr. Field: I suspect that the figure would be about 42 per cent., if not slightly higher. I am sure that was the figure the hon. Gentleman had in mind.

I have another general concern about the Chancellor’s record?the unreformed state of our public services. The real losers now and in the future will be the impoverished, the vulnerable and the voiceless. The question that faces all of us in the political world is how to manage an ever larger state, which within the next few years will gobble up £680 billion and rising. Whether health care, law and order, education or security, the public services are in something of a mess?although not for the want of significant expenditure over the past six or seven years. 

Many of the Government’s more recent NHS reforms are to be welcomed, even though, to a large extent, they merely re-establish the position before 1997. My party has started a campaign to say “No” to what are regarded as NHS cuts, although we all appreciate that they are not actual cuts and that ever more money is being spent on the NHS?albeit at a decelerating rate. The Government used similar tactics to criticise the Conservatives during the general election two years ago. However, we need to consider not just tactical benefits; we need greater strategic insight on the better running of health care.

We have a stark choice in health care. The Budget was supposed to be a Budget for the NHS. Perhaps that will be more apparent in the Finance Bill and beyond. We need to support local decision making. I want the empowerment of primary care trusts and foundation hospitals. It is beholden on everyone who wants a locally oriented health service not to make cheap political points about postcode lotteries. Nothing will guarantee firmer, more inflexible centralised control of our public services than campaigns on those lines.

I should have liked more vision, insight and political courage from the Chancellor. In the Government’s first two terms he had an enormous parliamentary majority and, in the early years at least, limitless public good will to bring about some of the fundamental reforms required in the public services. I fear that opportunity has been wasted.

We have an increasing number of supplicants of the state. One of the more shocking elements of that was the inadvertent revelation from the Paymaster General at the last Treasury Question Time that the parents of more than 10,000 children in the constituency of the shadow Paymaster General, my hon. Friend the Member for Rayleigh (Mr. Francois), were in receipt of child tax credits. That is a relatively prosperous, middle-class, southern English constituency. None the less, even in that sort of constituency, a five-figure number of children are getting tax credits. As a backdrop to the changes in the income tax regime that were announced today, there will be even more reliance on child tax credits and working tax credits for those who are paid at the lowest levels, who will no longer benefit from a 10 per cent. tax band.

Mr. Newmark: I acknowledge what the Chancellor said about tax credits, but there is no point in continuing to give out with largesse tax credits, day after day, unless there is fundamental reform of the tax credit system. Is my hon. Friend aware that three out of every five people who receive tax credits get the wrong amount? That is a significant problem.

Mr. Field: I am aware of the great problems that exist. My hon. Friend rightly used the word “largesse”. I worry that there is a sense of great public sector largesse. That may prove electorally beneficial to the Labour party and a Labour Government going forward, but there will obviously be great concerns about our global competitiveness.

During the course of the last few hours, the debate has touched on India and China. I again give credit to the Chancellor: he was probably the first leading-rank politician to identify those two countries as important trading countries going forward and to recognise the benefits of the deflationary pressure that their influence has on the world economy. He is also right to regard that as being a great opportunity for this country?a challenge, of course, but not necessarily a threat. As the hon. Member for Luton, North pointed out earlier, the Chancellor has also been right to stay very much at arm’s length from further integration into the European Union and the single currency.

To conclude, looking at the Chancellor’s track record over the past decade, as it has affected the UK economy, we see a picture of unparalleled economic calm. Yes, the Chancellor is entitled to some significant credit in relation to Britain’s performance. In the years and decades ahead, these times will be regarded by all of us here as being the very best of times, but I fear that we may we also look back upon this era as one when we failed to lay the foundations to ensure that, in the decades ahead, we could see the next generation prosper in a similar vein.