Budget Debate 2006

Brooks Newmark takes a look at the Budget from a businessman's point of view and considers forthcoming international competition from countries such as India and China.

Mr. Brooks Newmark (Braintree) (Con): Listening to the Chancellor's Budget one would think that he was living in a parallel universe, not the real world. I became an MP last May, and the House will not be surprised that, as a business man turned politician, I will look at the Budget from the perspective of a business man. I draw Members' attention to my list of interests in the Register of Members' Interests.

While it is tempting to undertake a SWOT analysis of the Budget, I would prefer to look at it in a different context. How well prepared is Britain or UK plc to meet the competitive challenges posed by fast-developing countries such as India and China-an issue acknowledged by the Chancellor? Turning first to the economy, I assume that the Chancellor's heading for the 2006 Budget-"A strong and strengthening economy"-is ironic, because the evidence indicates otherwise. After he downgraded his growth forecast twice last year, UK growth was finally estimated to be 1.8 per cent., which is significantly below the growth rates of China, India and United States. Moreover, we came a poor 19th among 25 EU member states.

In the World Economic Forum league of competitiveness, we dropped from fourth to 13th. Not surprisingly, we face a record trade deficit of £47 million. Businesses are voting with their feet, as they face increasingly inflexible markets, greater regulation and higher taxes. Google and Apple-the businesses of the future-have both chosen to set up their operations in Ireland rather than the UK. Productivity growth is now only 0.4 per cent.-the lowest in more than 15 years. Worse still, public productivity, as we have heard, is falling. Business investment, which fell to 9.1 per cent. of GDP in the last quarter of 2005, is now the lowest since 1965. Overall, the Chancellor is failing on all the long-term drivers of prosperity.

Rob Marris: I am listening with interest to the hon. Gentleman. Of course not all the economic indicators are as positive as we would wish, but I point out to him, first, that as I said in my speech, in gross national income per capita we have gone from seventh out of seven in the G7 to second out of seven. Secondly, on investment in Ireland and so on, I point out to the hon. Gentleman that last year the UK was the top in the world for foreign direct investment. That is encouraging as a reflection of foreigners' views about the UK as a place to do business, where, like the hon. Gentleman, I did business as a business person before I was elected.

Mr. Newmark: I appreciate the hon. Gentleman's comments, but the indications are that businesses are voting with their feet. When they have a choice, they are not choosing to come to the United Kingdom. They are choosing to go to Ireland, and we can learn the lessons from Ireland. Because it is now a low tax economy and has a flexible labour market, it is attracting the new businesses. We should take that in hand.

If we are to prepare ourselves to face the competition posed by the Chinas and Indias of the world, we must, as everyone agrees, have a well educated work force able to meet the challenges of the 21st century. I congratulate the Chancellor on dealing with this aspect. The extra 1 per cent. that he has added to the education budget-I believe it is £440 million-is welcomed by the Opposition as well.

Mr. Kevan Jones: I am listening carefully to the hon. Gentleman's remarks about education and the importance that he attaches to it. I know that he is new to the House, but can he tell me why, on every occasion that the Government have voted extra investment for education, his party has opposed it?

Mr. Newmark: I will answer that briefly. It is because of the use of the word "investment". Our complaint is directed largely at the expenditure on the bureaucracy that lies behind education, not at the infrastructure. The infrastructure is important, and I acknowledge that.

Perhaps the biggest indictment of all is that the number of adults without basic literacy and numeracy is not shrinking, as the Government would have us believe, but is growing by more than 100,000 a year, with almost a third of 16-year-olds still leaving school without achieving 5 A to C passes. We should be supporting our centres of excellence, such as the chemistry department at Sussex university, not abandoning them. We should be encouraging our children to learn languages such as Chinese, for that is where our future lies.

On savings and pensions, as far back as 1995 the Chancellor stated:

"We will never raise the levels of investment in our economy if we do not encourage savings",

yet our savings culture has been eroded dramatically since Labour came to power. The savings ratio has almost halved since 1997. Worse still, the Chancellor has continued to undermine our pension system. As my right hon. Friend the Member for Witney (Mr. Cameron) mentioned, the right hon. Member for Birkenhead (Mr. Field) was kind enough to remind us that

"when Labour came to office we had one of the strongest pension provisions in Europe, and now probably we have some of the weakest."

Why is that? Because the Chancellor has insisted on taxing pension funds to the tune of £5 billion each and every year. That is almost £50 billion since Labour came to power.

Back in 1993 the Chancellor said:

"I want the . . . end of the means test for our elderly people",

yet nearly half of all pensioners are subject to means-testing.

In any assessment of our relative economic strength we should look at the state of our public finances. The Chancellor continually spends more than planned, with the result that he has had to fiddle his own fiscal rules not once, but twice since the last Budget just to avoid breaking his own golden rule. Despite moving the goalposts twice, the Chancellor still went into deficit in the fourth quarter of 2005.

Part of the problem lies in the Chancellor's inability simply to budget, which means controlling expenditure, and accurately to predict money coming in and money going out. As Mr. Micawber said:

"Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

An example of that shortcoming is the Chancellor's varying predictions of the public sector net borrowing requirement. In 2001, he predicted the need to borrow £12 billion in the fiscal year 2005. In 2002, the figure was revised upwards to £19 billion. In 2003, it was revised upwards to £30 billion. In 2004, it was revised upwards to £33 billion. Finally, in 2005, it was revised upwards to £35 billion. Frankly, Mystic Meg would do a better job of forecasting than the Chancellor.

Mr. Mark Todd (South Derbyshire) (Lab): The hon. Gentleman has not been in this House as long as me and therefore did not sit through the first Parliament of this Labour Government, in which the Chancellor consistently underestimated the state of the public finances. [Interruption.] That was another fault, but perhaps he would commend it. I ask him to reflect on public debt as a percentage of GDP, because I should have thought that he would commend the Government's record as being competitive compared with that of most other major nations.

Mr. Newmark: I congratulate the hon. Gentleman on his foresight, because I am about to address that topic. Perhaps most pernicious of all is the state of Government debt. The Chancellor has continued to hide extra Government debt off balance sheet in order to avoid breaking his own sustainable investment rule. The headline figure used for public sector net debt is £436 billion, which is 35 per cent. of GDP. That headline figure is attractive, but the reality is that each and every year the Chancellor is hiding more and more debt off balance sheet-up to £850 billion at the last count. The real public sector net debt figure could be as high as £1.3 trillion, of which roughly £450 billion is on balance sheet and £850 billion is off balance sheet. That is a staggering 105 per cent. of GDP. For every £1 that the Chancellor is willing to show on balance sheet, he is now hiding £2 off balance sheet.

Back in 1998, the Chancellor promised that he would

"enhance economic stability by ensuring that fiscal and debt management policy operate in accordance with the principles of transparency, stability, responsibility, efficiency and fairness."

Although I would not go as far as to call the Chancellor's off-balance-sheet manoeuvrings Enron-style accounting, because they are technically legitimate, that form of accounting is patently not transparent, carries many risks and falls short of the standards required in the private sector. Only four weeks ago, London and Continental Railway's debt of £5 billion had to be reclassified as on balance sheet. Is this just the tip of the iceberg? I suggest that the Chancellor should heed the words of Dr. Johnson:

"whatever you have, spend less."

Rob Marris: I thank the hon. Gentleman for his usual generosity in giving way. He has discussed being in business, and I have discussed being in business: if my business were to sign a 21-year lease at £20,000 a year,

we would not show it in our accounts as a contingent liability of £420,000, but that is what he is doing when he adds up all the liabilities that fall due over a long period of time-in particular, pensions-and produces a present-day figure of £1.3 trillion, which is not how it would be done in business. I agree with him about transparency, but I suggest that he is over-egging his case by putting 50 years of liability into one year, which is not helpful.

Mr. Newmark: I beg to differ from the hon. Gentleman, because the calculation depends on the rate used to discount public sector liabilities, particularly pensions. If one uses the long gilt rate-it does not matter whether one uses 1.2 or 1.8 per cent.-one ends up with a very big figure. I have used a discount rate to produce a credible figure, which is not cumulative.

In the 2006 Budget, the Chancellor has once again demonstrated that his forecasts cannot be trusted, his taxes are neither fair nor clear, his regulations are stifling business, his means-testing is placing a greater burden on the neediest in our society, his raid on pensions has undermined a savings and pensions culture that was the envy of Europe, and his accounting methods are disingenuous and opaque at best. This Budget bears all the hallmarks of new Labour. It lacks transparency, does not address the challenges that we face in the 21st century, and does not prepare Britain for the future.

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