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Finance Bill

I declare my interest in the Register of Members' Interests as a director of a family business. We are having a very interesting debate that is tending to wander a little bit off tax measures and on to debt, which is the big item on the agenda today. Over a long period, under Labour and Conservative Governments, our debt has tended to be about 40 per cent. of GDP, although we go through brief periods of growth and higher tax revenues. In the mid-1980s, Mrs. Thatcher's Government paid off some debt, and that happened again in the early years of the Labour Government of 1997, with Conservative spending plans plus the sale of the spectrum. Commentators briefly get excited about that and say that if we carry on we will eventually get rid of our debt completely, but that never quite happens—in this case, the Government were determined to have more public spending. We now have a very large, ballooning public sector deficit, but that always happens in a recession. There are two very large figures, and when one goes up because people lose their jobs and businesses start to get into difficulty, the other goes down because tax revenue is less buoyant and the deficit opens up like a vast chasm. That tends to make people a little pessimistic. Many commentators have talked about a brave new world and a change in our economy. Much of today's debate could be determined by whether the debt is cyclical or structural. One's view on that depends on whether one thinks that in a few years we will see a resurgent City of London with banks making big profits and the housing market booming, or that the world is going to change and we will not rely on the City of London but suddenly find new ways to make a living in the world. It would not surprise me if in six years' time bankers were making big bonuses, profits were going up, and tax revenue was being generated. The problem is that because we are running a large deficit and do not know at what rate we will recover, we are more vulnerable to turbulence in the world economy. As the right hon. Member for Birkenhead (Mr. Field) asked, what is plan B? If the recession is deeper and the recovery slower than expected and unemployment goes over 3 million, we could have a real problem in financing our deficit. We might have to pay a premium, there might have to be more quantitative easing and sterling might come under pressure. I am old enough to remember 1976, when the noble Lord Healey had to turn around at the airport because the IMF came in, and we are running rather larger figures than we did in '76. The other interesting thing about 1976 is that the projected figures turned out to be rather benevolent and not as bad as had been thought. Governments can sometimes get projections wrong and predicate policy on them. Britain seems to survive and prosper because, at root, we have good people who work hard and a pretty good economy. I am sure that we will get through our current problems, but that requires leadership. One thing that has come out in the debate is that we as politicians have to be honest with people about the fact that there are going to be some very tough decisions to be taken, irrespective of who wins the general election next year or, God help us, if we have a hung Parliament. We will have to take tough decisions on the scale of the state and public spending, and indeed on tax. If we are honest, the only way to raise an awful lot of tax revenue is to raise tax on ordinary working people, not on a particular section of people. High tax rates might make a debating point, but the reality of the Government's policy of raising the higher tax rates, restricting allowances and restricting what people can do with pensions is that people will look for others ways to recompense themselves. They might forgo salary in the short term or look for other ways, such as capitalising their salary. That is why I said in my intervention on the shadow Chief Secretary that if the Government continue down this path, the next item to come up will be capital gains tax.