In considering the [Finance] Bill, we need to address three basic questions. First, does it raise the right amount of money? Secondly, will it promote growth? Thirdly, is it fair? Table 1.1 on page 15 of the Red Book is particularly useful. It lays the policy that the new coalition Government inherited alongside their own tax and spending increases. One of the most interesting things that it shows is that over the five-year period, the extra spending reductions required are £112 billion, and the extra tax increases required are £33 billion.
The policy that the Government inherited of halving the budget deficit over four years was set out by my right hon. Friend Mr Darling in March, and the detail of how that would be done was repeated today by my right hon. Friend Mr Byrne.
One of the key issues that we have not considered so far tonight is whether we should be more concerned about the size of the deficit or the size of the debt. Hon. Members opposite continually stress the importance of the deficit, but the main reason that the deficit is significant is because it contributes to the debt. Page 23 of the Red Book contains chart 1.3, “Consolidation in the cyclically-adjusted current budget”, and chart 1.4, “Public sector net debt”. They show the tremendous difference that will be made by the policies being pursued by the coalition Government.
The policies that my right hon. Friend the Member for Edinburgh South West laid out would have produced a debt to GDP ratio in 2014 of 75%-a high number and not where we would like to be in the long term. But for all the pain and agony that the coalition Government will impose on the country the net impact will be to reduce the debt to GDP ratio by 5% to 70%-just a 5% reduction. It is not even a 5% reduction now, but in 2014. We are being asked to believe that the markets will take a very different view of this small difference in four years’ time. That is the altar on which we are told we should smash our public services. That is why Labour Members regard this as a deeply ideological Budget.
In order to achieve that difference in the debt to GDP ratio four years hence, we will see cuts of 25% across most Departments, four times greater than those that Geoffrey Howe tried to impose on the country in the early 1980s. Even so, the tax burden will also rise by £33 billion. We have to question the judgment of a Government who are taking that amount of money out of the British economy.
Another issue is whether the Budget will promote growth. It is clear that in overall terms it will not do so. That is clear from the revisions to the forecasts made by the OBR, which show that growth is down and unemployment is up. Given the huge cuts proposed in the public sector-we heard about the first slice yesterday to the Building Schools for the Future programme-not only will the number of public sector jobs be reduced, but the knock-on effect will be significant increases in job losses in the private sector. The Government’s contention that 2 million private sector jobs can be created is just not credible. That is far more than was achieved in the 1990s when interest rates were cut aggressively and the pound depreciated by 25%. In those years, it took seven years for employment to grow by 1 million. Obviously, interest rates cannot be cut aggressively in the current situation, and it is highly unlikely we will see a depreciation of the pound against the euro, given that the European economies-our largest market-are in the state they are in. Under the Labour Government, 2.5 million jobs were created over 13 years, but that included extra jobs in the public sector, a housing boom and huge increases in financial services. The Government are now putting forward a prospectus that is simply not tenable. The argument that we have to attend to the level of the deficit because private sector investment is being crowded out by the public sector is also not credible, given that the economy has 4% spare capacity.
I turn to the measures in the Bill. On corporation tax, the coalition Government are cutting the rates-this is a long-standing pattern with the Tories-while cutting the allowances. What will that do for growth? How will that enable the economy to be rebalanced in the way the Secretary of State for Business, Innovation and Skills says is so important?
Cutting allowances for investment is bad for manufacturing. The small and medium-sized firms in my constituency, where there is a lot of engineering and small manufacturing, provide several examples demonstrating what the problems are. Over the past month, I have visited two firms that make packaging, which means they supply the retail industry. Obviously, if shops are not doing very well, those firms are not doing very well. Clearly, they need a lot of big machinery to make the packaging, and if they are to continue to have the new, up-to-date machinery to do that, they need investment allowances.
Not so long ago, I visited a building and joinery firm that also has a lot of expensive machinery that it needs to keep up to date, and it also needs these investment allowances. Its contracts are largely dependent on the public sector and on schools and police stations being refurbished, so these cuts in the public sector will have huge knock-on effects in the private sector. Let us take a final example: a chemicals firm making sealant for aircraft. How will it fare with cuts to the defence budget, which is one of the budgets not being protected? Once again we have a complete picture that is totally incoherent. What the Government offer in practice and what they say they want to achieve are two completely different things.
Many hon. Members have commented on the unfairness of the low level of the bank levy and on the fact that the banks will gain more from the corporation tax cuts than they will lose from the increase in the bank levy. However, no one has asked why the bank levy is only being introduced from 1 January 2011. I would like Treasury Ministers to explain why there is a delay in the introduction of the bank levy. Surely that gives the banks a lot of time to move their assets around and avoid this tax, at which, as we all know, the financial services are particularly adept.
The Minister shakes his head. They clearly do not know the answer.
The Conservative-Liberal coalition cannot agree on its environmental policy either, which is presumably why, rather than taking action on environmental taxes, we now have yet another commission to look into the climate change levy. Once again, therefore, a potentially progressive measure is being put on the backburner. We do not know when it will happen. We do not know when we will see progress on it.
Many hon. Members have spoken about the unfairness of VAT. The Government claim that they had no choice, but of course they had a choice, and they have made it. Their choice has been to change the national insurance regime and replace the increase in national insurance with an increase in VAT. However, one of the things that the Government will not admit is that VAT is also a tax on jobs. VAT also drives a wedge between the cost on employers for the goods and service that employees buy, and what they pay for them, so the notion that we can have an increase in VAT without seeing an impact on the number of jobs in the economy is yet another fantasy. The Government have not explained what they are doing about the lower rate of VAT, on essentials, and many Opposition Members would like some clarification on that.
The third and final issue that I would like to discuss is fairness in the income tax and benefits system. The Liberal Democrats say that raising the personal allowance is their major attempt to be fair to poor people. The attempt is being made, but it has not produced the upshot that the Liberal Democrats are looking for. Rather, it has failed, because they have not taken account of the interaction with the tax credit reductions and the cuts in welfare benefits.
The distribution figures on page 66 of the Red Book purport to show what the position in the Budget is. However, a day or so later, we all discovered that chart A2, entitled “Impact of all measures as a per cent of net income by income distribution”, in fact included not just the measures taken by the Chancellor of the Exchequer in announcing his June Budget, but the measures taken previously by my right hon. Friend the Member for Edinburgh South West, which were jumbled up with them. When those figures were stripped out and separated by the Institute for Fiscal Studies, we could see that the distributional impacts were totally different. Whereas my right hon. Friend’s Budget took less than 0.5% from the poorest and almost 7% from the richest, the June Budget took 2.5% from the poorest and 0.5% from the richest, so the claim of fairness is completely fraudulent.
The major cuts in benefits-in housing benefits, tax credits and benefits affecting families-come in the two final years.
The other thing that Members on the Government Benches simply do not seem to understand is the impact of the changes on work incentives. The Government say that they want to promote a climate for growth. One would think that if they were trying to promote a climate for growth, they would improve work incentives. The Government are about to test to destruction the theory that simply cutting benefits will improve work incentives. That is illustrated in another table in the Red Book-the Red Book is, I have to say, a rather useful document-which shows the changes in the marginal deduction rates. That table shows that almost 100,000 people will see increases in their marginal deduction rates as a result of the Budget-that is, a worsening of their incentives.
The level of transparency in the document is totally inadequate, and it has been extremely difficult to get information out of the Government. However, in conclusion, I would like to ask: what is the balance of risk that the British economy now faces? Is it spiralling inflation or is it deflation? The choice that the Government have made is far more likely to push us towards deflation.
Before he sat down, the Chancellor or the Exchequer said that the richest should pay the most and that the vulnerable would be protected in the Budget. The Government have failed every test. They have not been fair, they have not promoted growth, they are raising far too much money and this Budget will fail the nation.
