Finance Bill

What Policy Exchange has done is review the economic literature, which is what I am looking at. Perotti, in 1999, said:"““High debt levels are associated with higher probability for fiscal policy to have””" expansionary effects. The European Commission—not something that Labour Members tend to barrack—said: ““Expenditure cuts may exhibit”” expansionary features,"““even in the short and medium run.””" So the economic evidence is there. The best quotation from that review is this:"““Though now quite well established in economic literature””—" referring to the argument that fiscal consolidations promote growth—"““this work is still feeding its way into the wider public consciousness.””" No doubt part of the reason for the slow move of that argument into the public consciousness is the argument put forward by Opposition Members that it is not true. There are two other important ways in which consolidation will get to higher growth. The first, of course, concerns expectations of future tax rates. If people around the country can see that spending is out of control, they will anticipate that taxes might have to rise in future, whereas setting out a clear path for taxes makes it clear that there will not have to be sharp and immediate tax rises in future, even if that path includes some tax measures. That forward-looking element of human nature, which is so important in understanding how the economy works, matters at a personal level—for some people far more than for others, as I entirely accept—but it especially matters in the corporate world. Businesses look to the future to see how much tax they will be paying, as well as how much it will cost them to pay it because of the complexity of that tax. That is why it is so important to have both the simplification of the tax system that my hon. Friend the Exchequer Secretary—soon to be right hon. Friend, no doubt—set out, and the ladder down in headline corporation tax rate, which will set out a 1% reduction year on year so that our businesses know that Britain is open for business.