Finance Bill

My Lords, I thank the Minister for setting out in such detail the Bill and what it will do. I was tempted for a few moments to think that it would be exciting to go through all this detail and slog it out, clause by clause, in Committee, but I was reminded that it is a money Bill. As such, this afternoon is a formality. Nevertheless, it is an occasion when this House can debate the generality of the Budget. I will stick to that generality, rather than go into much detail. The objective of the Budget should be to set a fiscal framework for the enhancement of the material well-being of the British people. That is how it should be judged. Does the Budget contribute to the expansion of the production of goods and services that define national well-being? Mr Geoffrey Dicks of the Office for Budget Responsibility told the Treasury Committee in another place that, ““logically the chances of”” a double-dip recession ““have increased”” as a result of the Budget. I think Mr Dicks is right, which raises another important question: why is the coalition proposing measures that most objective observers believe will harm the well-being of the British people? To answer that question we need to examine the coalition’s analysis of the crisis and its own justification for its destructive policies. Consider, for example, Mr Cameron’s statement: "““Nothing illustrates better the total irresponsibility of the last Government’s approach than the fact that they kept on ratcheting up unaffordable … spending even when the economy was shrinking””." Thank goodness the Labour Government did ratchet up spending in the face of the worst financial crisis in 80 years. That is what saved us from entering the terrible recession that would have been our fate if the coalition had been in charge. Indeed, the coalition may take us there. Even now, government expenditure is vital to the maintenance of the fragile recovery. In the face of the fact that government expenditure is necessary, Mr Cameron still argues that spending is unaffordable. The Budget and the Finance Bill herald massive cuts in the public sector. In his Budget speech, Mr Osborne said: "““What we have not inherited from our predecessors is a credible plan to reduce their record deficit””.—[Official Report, Commons, 22/6/10; col. 166.]" Contrast that with the report by the Office for Budget Responsibility, which demonstrates that the Budget put forward by Alistair Darling would have halved the deficit in four years, exactly the timeframe recommended by the G20 at its meeting in Toronto last month. Consider also Mr Osborne’s statement that the crisis in the eurozone shows that unless we deal with our debts, there will be no growth. Contrast that with the fact that the UK has the lowest debt to GDP ratio of any major EU economy, that the average maturity of British government debts at 14 years is significantly more than double that of any eurozone economy and that the cost of government borrowing in Britain has been falling all this year. There is no comparison. Mr Osborne said: "““Because the structural deficit is worse than we were told, my Budget today implies further reductions in departmental spending of £17 billion by 2014-15””.—[Official Report, Commons, 22/6/2010; col. 171.]" Note that the Chancellor refers to the structural deficit, not the actual deficit. The structural deficit is a theoretical construct that relies heavily on contentious assumptions. The OBR clearly states that the actual deficit is less than Alistair Darling estimated in March, and the rate of growth of the economy is slightly higher—a fact borne out by second-quarter figures. In other words, the overall economic position is better than my right honourable friend estimated, not worse. To sum up, it is not true that the overall fiscal position is worse than that presented by Alistair Darling in March. It is not true that the overall economic standing of the UK is comparable with that of major eurozone countries, let alone Greece and Spain. It is not true that the Labour Government had no plan to deal with the deficit. Of course, we have serious economic problems in this country; how could we not when we have just gone through the worst world recession for 80 years and when we have suffered massive convulsions in the financial sector? However, it is our contention that the massive cuts in public expenditure trailed in the Budget will make the situation worse. There is one crucial question that the Government must face: with the withdrawal of public sector demand planned by the Government, where is the demand in the economy going to come from? The OBR seeks to answer this in the Red Book. It sees only 1.1 per cent coming from private consumption, compared with 1.9 per cent in the boom years. Even 1.1 per cent is likely to be generous as unemployment increases and real pay is cut. Instead, the OBR forecasts that growing business investment will make a positive contribution of 1.1 per cent to the growth of GDP—three times greater than in the boom years—investment in housing will contribute twice as much as in the boom years and the contribution of net trade will be 1.1 per cent, when it was negative in the boom years. These heroic assumptions are difficult to believe. Of course, the Liberal Democrats will believe them—they have to to keep the coalition together—but do the Tories really think that they are credible, or are they just a cover for the old-fashioned slash-and-burn politics with which they are so comfortable? Their goal is not simply to cut the deficit—Alistair Darling’s proposals did that—but to shrink the public sector, whether it be education, transport or, of course, support for the poor. The Tories want less public sector to make way for tax cuts to come. One specific measure in this Bill on which I wish to comment is the broken promise on VAT. The Budget announced that VAT would rise from 17.5 per cent to 20 per cent in January 2011. This will cost each household in the country more than £500. Labour rejected a VAT increase as part of our deficit reduction plan and chose to increase national insurance contributions instead.