Budget Resolutions and Economic Situation

I am most grateful to the hon. Gentleman, because he has made my point for me, although I did not think that my right hon. Friend was angst-ridden; he was merely pointing out, in perhaps more graphic language than I used, one of the implications of growth forecasting and what it means to this afternoon's Budget debate and the forecasts that have been made: we have to be realistic. The hon. Member for South Derbyshire (Mr. Todd) and I do not disagree about the need to reconcile the best of the public and private forecasts—for that is what they are—and I accept that there are ranges. However, the Chancellor spoke from the Dispatch Box with absolute certainty, and that could bring dangers, because he has only to be half a percentage point out and we will have serious problems with future deficits, borrowings and tax revenues—because everything else is based on that forecast. The Budget was pitched in the context of the world economy, but when the Chancellor talked about international co-operation, and the work of the IMF and other bodies, sadly he did not develop the point about one of the most fundamental problems that has not helped this recession—the imbalances in the world economy. When countries such as China, India and those in the middle east with sovereign wealth funds have such profound imbalances on the positive side, there has to be somewhere that is negative. The United Kingdom and the United States are two prime examples of western economies whose deficits have fuelled those positive balances. There is very little that one Chancellor of the Exchequer can do to address that problem, but unless the world as a whole finds a mechanism to introduce more flexibility into the way in which the world's balances are handled, we will find ourselves collectively facing difficulties. For example, in this global world—we all use that term—unless the Chinese can find a face-saving way of effectively revaluing the renminbi, we shall encounter difficulties. Failure to achieve such flexibility will slow down the pace of global recovery. I think that this will be my last speech to the House of Commons—it is certainly my last speech on a Budget—and my second leaving present is to say that a priority for the next Chancellor must be to push hard to get agreement on balances in the world. In fairness to the previous Chancellor—now the Prime Minister—he demonstrated what could be done on a global basis to deal with world debt. If we can reach agreement on debt repayment in that way, we should be able to reach agreement on the balances in the world. There is only so much money in the world to go round, and one person's positive balance today will be someone else's misery tomorrow. What goes round comes round. In this global world, the sooner we realise that, the better. I hope that that issue will be addressed. From the point of view of first-time buyers, I welcome the Chancellor's late conversion to Conservative policy on stamp duty on properties of up to £250,000. I am also delighted that ISAs will continue to be favoured. We need to do something about savings in this country; we still have not done enough. The central issue of this Budget, however, is the deficit. I listened carefully to the Chancellor as he painted the picture of the four years and the almost £80 billion that he has yet to take out of the economy. Let us be under no illusion: if the Chancellor's commitment to halving the deficit by 2013-14 is to come to fruition, we must have some detail about where the £80 billion will come from. Efficiency savings are already the order of the day in Government. I gave the hon. Member for Middlesbrough the information about what was happening in DEFRA in good faith, and what is happening in DEFRA is happening in many other Departments as well. Finding efficiency savings without a dilution of public service is extremely difficult, and there is no way round the fact that, at some stage, we shall have to reduce the sum total of public expenditure. I believe that the Chancellor deserves a black mark for not being prepared to start a fundamental review of public expenditure. He is relying on carrying on until 2011 on the basis of efficiency, and saying that everything will somehow be all right on the night thereafter. At the next election, people on the doorstep will ask those who seek to represent the governing party what they will actually do and how they will save the money that every expert says has to be saved. There might be arguments about the amounts involved, but the fact remains that we have to reduce the level of public spending. We are no wiser about that now, at 4.14 pm, than we were when we started the day listening to the leaks on the radio about what would be in the Budget. I was personally pleased that the Chancellor announced that there would at least be no changes to his inheritance tax regime. The third little wish I would like to leave behind is this: a recognition that inheritance tax has become unbelievably complicated. If people have money, they can afford to spend money on finding ways round inheritance tax. Those who are not well off but live in a big house that has appreciated in capital may not be able to afford professional advice. They could face a big inheritance tax bill, while those who are clever will find all kinds of ways to circumnavigate the tax. That is why about 95 per cent. of estates do not pay inheritance tax. There is, however, a fear about it, and a desperate worry among many old people who would like to leave something to their heirs and graces. We should recognise that in humanitarian terms. I would like to see not an artificial exercise to raise or change the levels, but a clear change to the structure of the tax, so that we can have a low marginal rate but remove—apart from the personal allowance—all the ways in which exceptions can be found. I did an exercise in the Library a couple of years ago, and I found that we could get down to a marginal rate of about 10 per cent. or even less. That would be the right thing to do. The world has moved on. Inheritance tax came in when there were not such vast taxes on income and on consumption: it was a way of gettinghold of people's wealth when a capital transaction occurred. We have many more taxes available, and inheritance tax in its current form is one that has passed its sell-by date. I mentioned Government spending a few moments ago. I noted that the Chancellor's speech was long on the rhetoric of protecting manufacturing industry and industry in general. Fylde is the home of the air systems division of BAE Systems; it is the home of military aircraft production. Being a world leader in that field requires us to be at the margins of advanced technology for developing ideas in systems engineering and manufacturing. That leads me to my fourth request. It is recognised on both sides of the House that turning the tap on and off for defence expenditure is not exactly the best way to sustain the development of the technologies or to maintain skilled teams of engineers at the forefront of their field. That will not happen if there is a battle going on every five minutes as to whether this or that project is to be cut or funded. We have to find a way to sustain our investment in those technologies and to plan for the future. I would ask both Front-Bench teams to recognise the fact that, in respect of unmanned and autonomous air vehicles, this country is developing a lead in lean manufacturing low-cost systems with high operational performance. We should make certain that the investment goes into the people and the programmes that will sustain that. Without it, no golden egg will be harvested in that or any other advanced technology industries in this country. It is also time that we looked at the position of the UK in comparison with other countries with respect to the level of corporation tax. The Chancellor almost hinted that that was where he was going, but he drew back. It is important that we remain a tax-competitive country for those companies that wish to invest in the UK. To round off my remarks on the Budget, I should like to comment on one or two further matters that require attention. The Bank of England still has a fundamental role in translating into reality through its stewardship of monetary policy the now reconfirmed inflation target of 2 per cent. We are very lucky in this country to have had interest rates at 0.5 per cent., but I fear that we have still not taken out of our economy some of the structural problems that leave our productivity behind others in the world, thus leaving us vulnerable to increases in inflation as soon as the economy starts moving. I do not want this country to return to having to control inflation by running interest rates that are higher than those of many of our industrialised competitors. I suggest that we need to look again at the Bank of England Act 1998, and at the Bank's remit. We need to ensure that it is able to engage in rather wider economic management. We need to take careful account of some of the structural matters that affect the country's potential to hang on to a low-inflation economy, because if we return to high inflation, all our proud and fine words about good economic management will be worthless. I had the privilege of seeing on to the statute book the work that the Treasury has been conducting for the last decade on the tax law rewrite, and I want to record my appreciation for the Government's support for the project throughout that time. The project does a remarkable job in illustrating that, in a complex tax world, tax law can be expressed in a way that ordinary people can understand. Those who want to know about capital allowances, for example, can sit and read the Capital Allowances Act 2001 like a book, from one end to the other, and then understand capital allowances. What a transformation! I remind those who seek the nirvana of simplicity in the world of tax that we live in a very complicated tax world, and that tax law is bound to be complex. However, I urge the Treasury to maintain the lessons from the tax law rewrite exercise, and at least to make the law understandable to those who follow us. One of the things that mystify me about the problems that we have faced in the economy is how we got ourselves into this mess, but I have learnt from it—and I send the message on—that when the economy is growing, we should not do what the former Chancellor did and continue to increase public expenditure. That is not the right way in which to run an economy. A Chancellor should build in headroom, because, as sure as eggs is eggs, economic cycles will deliver downturns in the future. The idea that it is possible to get rid of boom and bust is bananas. It is silly. The world runs on cycles, and every so often those cycles deliver unpalatable news. The present cycle has been accelerated by bad decision making in bank boardrooms, with the result that we are all now picking up the tab for a limited number of people's bad decision making.