Pre-Budget Report

I am sure that that is right: the extent and timing of the fiscal contraction have to reflect the state of the economy. I have suggested five tests that might be used to ensure that, one of which is—obviously—the rate of growth. Another is the growth of unemployment. Another one has to be the state of the borrowing markets. I hope that the Government are right about the expectations of economic growth. I hope for rapid economic growth because hundreds of thousands of people's jobs hinge on it, but one has to be realistic: an awful lot of factors are holding back growth, and are likely still to be doing so in a year. Private consumers are unlikely to embark on another spending splurge when they are heavily in debt. We have an underlying problem that British consumer debt in relation to the economy is the largest in the developed world, and certainly the largest in our history for a very long period. It would be surprising—and probably unwise, in many cases—were people to rush out and start spending. Private sector business investment is unlikely to take off rapidly. There is an enormous amount of spare capacity, but as the Chairman of the Treasury Committee just reminded us, there is a severe credit squeeze. That will be even more the case once we enter a period of expansion, because the banks are over-reacting to the crisis and not lending to sound British companies. We will not get any growth from public spending, whether consumption or investment. The entire expectation of economic growth rests on exports, but actually they are a relatively small part of the British economy. It will require a near miracle to achieve the kind of growth for which the Government, and indeed all of us, hope. Frankly, we have to be realistic about that. I want to comment on two other aspects of the PBR that have not today received the attention they probably should have done. One is the Government's tax on bank bonuses, which was put together in a hurry. Given that it is a fairly short-term tax, I hope that, in the conclusion to the debate, the Chief Secretary or his colleague, having had a month's reflection, can summarise what, in their judgement, has been the impact of the tax. Furthermore, how are they meeting some of the criticisms that have been thrown at the tax, of which there have been several? The first was advanced from the Liberal Democrat Benches. We were very sceptical about the ability of the tax to capture bank bonuses because of the numerous opportunities for potential avoidance, through multiple payments of bonuses, payments in salary and payments in kind, and it would be useful to have an assessment of how far the Government think they have plugged those various potential holes. Secondly, the Government themselves argued that the main purpose of the tax was to change the behaviour of the banks, to discourage them from paying out bonuses and to encourage them to build up their capital reserves. Are the Government in a position to estimate how much capital reserves will be changed—improved, from the Government's standpoint—as a result of the measure? It was all done in a hurry and we did not get much analysis at the time. Can the Government now tell us what they think? Thirdly, we are being told by the banks themselves, rightly or wrongly, that they are all now stumping up the money, that they are paying it and that the Government will receive a lot more than £500 million. What is the current estimate of the amount of money that will be raised? Finally, over the holiday period, we heard many rumours and much speculation about banks running off to Switzerland and other places because they object to paying this high tax and other things. I suspect that much of that is rhetoric and an attempt to blackmail the Government.