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Budget Resolutions and Economic Situation

I begin by offering the apologies of my hon. Friend the Member for Rutland and Melton (Alan Duncan). He has a long standing engagement of some 50 years: I will leave the House to work that one out. Last week, the Chancellor gave us his view of the state of the economy. His speech, however, was as notable for what he left out, as for what he actually said. The Chancellor did not, for example, tell us that productivity growth—the measure that he once called the fundamental yardstick of economic performance—is now barely half the rate that it was under the last Conservative Government. He did not mention that business investment, a key driver of future economic growth, has now fallen below 10 per cent. of GDP for the first time since records began. He also neglected to mention that while Britain had a balance of trade surplus in May 1997, under his stewardship there has been a trade deficit every month since January 1998, with last year’s deficit being an all-time record of more than £54 billion. The sleight of hand did not end there. While the Chancellor was proud to boast that his borrowing forecast was £1 billion better than in his pre-Budget report, he forgot to mention that it was still £16 billion worse than he predicted in last year’s Budget. So the Chancellor’s speech—unlike that of the Secretary of State’s, to be fair—was a triumph of omission over candour. But perhaps the most interesting omission was on the UK’s declining competitiveness. The World Economic Forum is the leading independent authority which assesses international competitiveness. It has found that in recent years the UK has fallen further and further behind. For example, when it comes to starting up a business, the UK now ranks 22nd in the world, behind Latvia and Tunisia. When it comes to the burden of the tax system, we are now down at No. 25, below India and Nigeria. When it comes to the burden of regulation, the UK is now ranked a dismal 41st, below Azerbaijan and Burkina Faso. The result is that, while the Chancellor has been in office, the UK has fallen from being the world’s fourth most competitive nation to being the 10th. I wonder why that was not in his speech? The Opposition do not pretend that everything is wrong with the economy, but it would be nice if Treasury Ministers—and they are well represented here this evening—for once could be a little more candid about the underlying problems that our economy is facing, and about the tax burden that they are imposing. It is clear that the British people see the Budget for what it is—a tax con, and not a tax cut. It is a con that hits the poorest hardest. Thus a full-time employee on the minimum wage will pay more than £160 more in tax as a result of the Budget. The Chancellor says that people can claim the money back through higher tax credits, but he knows full well that take-up rates on tax credits are often only 60 per cent. It is not even a Budget that takes money with one hand and gives it back with the other: it is one that takes people’s money and then gives them a form to fill in instead. Of course, the tax con was not limited to personal taxes. For more than a week, the Treasury was leaking that it was to be a Budget for business. However, page 208 of the Red Book shows that the total taxes on business are to rise by more than £1 billion next year and another £800 million the year after. I welcome the fact that the Government have taken our advice in respect of large companies and are going to simplify reliefs to cut the headline rate. However, although the Chancellor claimed to be tackling tax complexity, he does not seem to realise that he is part of the problem. In 1997, Tolleys yellow tax handbook was 4,550 pages long; in just nine years, it doubled in size to more than 9,000 pages—not least as a result of more than 100 stealth tax changes. Last year’s Finance Bill was a bit of a dull affair, comprising a mere 181 clauses over 489 pages, and so complex that it needed three separate volumes of explanatory notes. That represented a quiet day in the Treasury office. When he replies to the debate, perhaps the Chief Secretary can tell us how many pages long Tolleys tax guide will be after this year’s Budget. For business, every change that the Government make costs time and money in compliance. Indeed, the Federation of Small Businesses says that simply complying with Government red tape now costs every small business in this country seven hours a week. It is no wonder that our productivity is so poor. Business and investors need clarity and certainty, but from this Chancellor they get only confusion and complexity. Never mind Stalin, the Chancellor’s constant tax changes are more Maoist in character—a form of permanent revolution in regulation. As was briefly mentioned in the Budget, a vital part of the Department of Trade and Industry’s remit is supporting business, especially small business, yet all too often Ministers have no idea whether the programmes that they are running have any effect. Earlier this month, we published the interim report from our small business task force, which is chaired by the entrepreneur Doug Richard. It found that, overall, the Government spend £12 billion of taxpayers’ money on small businesses, but cannot— or will not—say whether the money is working. Part of the problem is that the whole system has got out of control. There are roughly 3,000 schemes, and they are run by approximately 2,000 different public bodies and their contractors. Just as worrying is the fact that, in most schemes, much of the money is lost in administration. Indeed, the task force found that, even in the best schemes, a third of the money in such schemes is lost in administration. Not surprisingly, business confidence in state advisory services is low. The FSB has found that just 4.4 per cent. of small businesses use Government-funded advice, with more than half consulting accountants. Moreover, those small businesses that use public services are often deeply disappointed. The task force found that less than 0.5 per cent. of all small businesses using state agencies for advice were satisfied with the advice provided. Given the amount of taxpayers’ money involved, it is extraordinary—although, sadly, not surprising—that the Government can spend so much and have so little to show for it. Small businesses deserve better. It is these small businesses that are the real losers in this Budget. As a result of the changes announced by the Chancellor, small companies face an extra £820 million tax bill from the Treasury. The Budget increases the rate of tax that small companies pay by 3 pence in the pound, and creates a new set of complex capital reliefs. The Chancellor knows all too well that many small companies will not be eligible for those reliefs, or will not apply for them. Thus most service businesses—such as design agencies, hairdressers, shops or accountants—will be losers. Those companies innovating through contracting-out will also lose out, and even those business that do invest will still be losers under this Budget. As Nick Goulding, chief executive of the Forum of Private Business, said:"““The Chancellor has used smoke and mirrors to disguise the fact that there is nothing in this budget to support small businesses””." That is why we will be voting against the Chancellor’s small business tax rises later tonight. They are bad for small companies and bad for the economy. Last Wednesday, the Chancellor had a golden opportunity to match his enterprising rhetoric with practical action to help business. He could have set out a balanced view of the strengths and weaknesses in the economy, and explained the long term threats and opportunities. He should have helped small businesses as he helped large firms, but instead he pretended that the Budget was both tax neutral and a tax cut. Instead of simplifying the tax system for all businesses, he made it worse for the smallest. Instead of an income tax cut, we had a tax con. Beyond the spin and smoke and mirrors, people can now see what kind of Chancellor this really is: a man whose tax promises cannot be trusted. If he becomes Prime Minister, they will not forget it, nor will they forgive him.