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Finance (No. 4) Bill

I want to make a brief contribution to this important debate. The phrase that comes to mind is ““something will turn up””. It is one of the classic stratagems of last resort in politics and perhaps life in general. I suspect that the Treasury's handling of the UK's economy owes rather more than it might be willing to admit to the Mr Micawber principle. After all, time often alleviates and sometimes even eliminates what seem like intractably difficult problems. In stark contrast to the first Thatcher Government, who front-loaded much of the economic pain, the modern-day Treasury, while espousing a tough austerity message, has adopted a more pragmatic, steady-as-she-goes path. Despite the protestations of the hon. Member for Leeds West (Rachel Reeves), we must get one thing straight: there is zero veracity in Labour's contention that the Government are cutting too far, too fast. In the past 12 months, the UK Government's current spending has totalled some £613.5 billion—the highest figure in history. The Government are still borrowing, even this year, £1 in every £5 that they spend. However, more than half the deficit reduction was predicated on annual compound growth through the Parliament of 2.7% to 2.9%, and it is clear that, for the first half of the Parliament, we shall struggle to achieve growth of even one third of that figure. Rather than respond to that deteriorating situation by imposing more savings, we have taken the path of ever more debt, courtesy of the Bank of England's quantitative easing programme. In my view, the real purpose and impact of the UK's central bank intervention has not been to ease the path of investment borrowing for small business, which is perhaps what it should be. Instead, it has mopped up the substantial proportion of gilts that are being issued. That is where the Mr Micawber principle particularly comes into play. The Bank of England's actions will not be sustainable in the longer term without a very real risk of inflation. I suspect that global conditions in the years ahead may make it much more difficult to finance our current levels of deficit. That is one reason why we need to get the deficit down as quickly as we can. Before the Budget, I firmly believed that our focus should rest on some radical supply-side reform to ensure that we get the growth that we need. That would apply partly to the tax system, but also to employment legislation, with forensic attention paid to the impact of high marginal rates of income tax and the disincentives that have crept into the system as a result of both the poverty trap for the low paid and the removal of reliefs for higher rate payers. I was pleased that a small part of my desire was realised: some progress has obviously been made on taking people out of tax entirely through the increase in the threshold for the basic rate of income tax and the reduction in the top rate tax from 50% to 45%, which is particularly important for entrepreneurs. I was also personally delighted that, after three years of campaigning alongside the local animation industry in my constituency, the Chancellor announced the Government's intention to introduce a tax credit for televised animation and video games. I congratulate him and my right hon. Friend the Secretary of State for Culture, Olympics, Media and Sport on securing a bright future in the UK for Peppa Pig, Olive the Ostrich and their animated brethren. Finally, we have the level playing field that our creative industries deserve, and the tax credit will help raise the quality of children's television and retain valuable intellectual property in this country. That is the key reason why I agreed to lead the parliamentary charge on the matter. It is also fantastic news for the vibrant sector in my central London constituency and beyond. However, rather less progress has been made on arguably the more urgent and important supply-side reform: legislation on employment rights. Once more, the glad, confident morning of June 2010's Budget has given way to starker reality. It is worth recalling that, at that point, the increasingly discredited Office for Budget Responsibility predicted that unemployment would peak in 2010-11. We now know that it is likely to rise further in the next two years and remain stubbornly high for the foreseeable future. Yet the UK continues to gold-plate continental employment legislation and grant ever more generous paternity and maternity rights. Little wonder that employers are so reluctant to take on more staff. I disagree with the analysis of the hon. Member for Leeds West about the position in the US. It is instructive to witness how the US has shown signs of turning the economic corner. In simple terms, it is easier to hire, but also to fire staff there. That allows flexibility and supports a rapid readjustment economically.