John Redwood
(Wokingham) (Con): I beg to move,
That this House has considered the
growth strategy for the UK.
It is a pleasure to serve under your
chairmanship, Mr Hollobone. A most welcome change has occurred in economic
policy since the advent of the new Prime Minister. We are now told that the aim
of economic policy is to promote the greater prosperity of the many in the
United Kingdom by means of promoting faster economic growth. The Prime Minister
often adds “opportunity” to his justified enthusiasm for growth and greater
prosperity.
I welcome that fundamental change,
because that is what I have wanted our policy to achieve in recent years, at a
time when my party and the general economic establishment thought that priority
had to be given to a single, central aim of economic policy—the reduction of
state debt as a percentage of GDP. The change of aim in economic policy to the
monitoring of state debt occurred first under the Labour Government in 2009,
when state debt got out of control. Before the Labour Government left office,
they accepted the need to get state debt down, particularly the running
deficit, from very high levels, and made some cuts. The coalition Government
changed some of those cuts, but went on with that strategy, because they
rightly agreed with the outgoing Labour Government that the deficit was far too
high and unsustainable.
I supported that policy in those
days, but in 2015-16, when the deficit was under better control, I became more
concerned about the tension between the central aim of getting the deficit down
and the need to promote growth, which, in the longer term, is the best way of
getting the deficit down, because it generates more activity and more tax
revenue. Therefore, I started campaigning for an economic policy based on the
promotion of prosperity. I am delighted that we now have a Government with that
as their central aim.
Our economic policy under the
previous guidance, from 2009 to 2015, stabilised our position and reduced the
state deficit, necessarily, by a substantial amount, without preventing all
growth. However, that policy ushered in a period of lower growth than we had
experienced prior to the banking crash, primarily because of the way the
deficit was tamed. At the time, it was said that the deficit was tamed by big
cuts in public spending, but it was mainly tamed by a massive increase in the
amount of tax revenue collected from the domestic economy.
It is true that there were individual
cuts and individual departmental budgets took a hit, some of which were very contentious
on both sides of the House, particularly among the Opposition. However, public
spending went up overall in cash terms, and arguably went up slightly in real
terms over that period. The main challenge of ​getting the deficit down
was achieved through a series of tax-rate rises and collecting extra tax
revenue out of the modest growth that the economy achieved, without any relief
of that tax burden. Part of the reason that we had slower growth is that we
became a relatively higher tax economy than we had been before.
We have seen an experiment conducted
on both sides of the Atlantic since 2016, when the Americans opted for
eye-catching and dramatic tax cuts, both cutting the rates companies must pay
and putting money into the pocket of every person with a working wage, with a
particular emphasis on getting people on the lower end of the income spectrum
to have more money to spend. That has proved extremely successful: the American
economy has been growing at more than 2% for most of the time since the tax
cuts kicked in, whereas the European side, sticking with the Maastricht
requirements, deficit reduction requirements and relatively high taxes, has
been struggling to grow at 1%.
Mr Gregory
Campbell (East Londonderry) (DUP): I congratulate the
right hon. Gentleman on securing the debate. He is making a powerful argument
for growth across the UK. On the issue of differential employment and income
rates, does he agree that if this is to be successful, we must see economic
growth and higher wage levels spread more evenly across the UK, so that regions
with a much lower wage economy start to see more wealth and employment at the
higher end?
John Redwood: Indeed, and I welcome the emphasis placed on that by the Prime Minister
and Ministers. I hope that we can give them some more ideas on how that can
become realistic policy. I am just setting the scene: there has been a big
change in the aim of policy, which I warmly welcome. I suggest to the Minister
and others that lower taxes might be an important way of trying to develop that
aim. The experiment conducted on both sides of the Atlantic seems to suggest
that countries with the ambition and desire to cut taxes on working incomes and
businesses will experience more growth and success. We have seen a lot of money
repatriated to the United States of America by big businesses, which now find
the tax rates acceptable and therefore do not require the same legal
structures—I am sure they were behaving legally—to keep the money offshore or
not to pay taxes for the time being in the United States.
The United Kingdom Government have,
even during difficult times, decided on lower corporation tax rates. I think we
have a competitive corporation tax structure. Our lack of tax competitiveness
rests in the treatment of individuals and income, and employment costs, rather
than corporation tax, where we have done a good job relative to continental
Europe. We are benefiting from that. It was good to hear it announced this week
that the UK is now the third preferred destination for technology investment
after only the United States and China—two economies much larger than our
own—and that we are attracting more investment than the combined totals of
France and Germany, so we must be getting something right in our approach to
business investment and the taxation of business profits.
The Government have already set out a
new fiscal framework, which I welcome, because they understand that it is not
sufficient just to set a new aim for policy—they need a fiscal framework to
deliver it. They have directly ​addressed the issue of state debt, saying
that they will not spend money on revenue matters that is not covered by
taxation—a prudent control on the situation—but they have also said that there
is nothing wrong with the budget deficit expanding from just over 1% to 3%, if
the purpose is for good investment, especially given the very low rates that
the Government now have to pay to borrow money.
I think that is a sensible compromise
that gives us a bit of scope in the public sector. I trust it will also leave
us scope to lower tax rates, which is important for getting extra growth from
the private sector, where much of the growth will come from. Today, the
Government’s 10-year borrowing rate—if they needed to borrow more money from
the market—is 0.63%. One would assume that the public sector can find
investment projects and get a return considerably above 0.63%, so I fully
endorse what they are trying to do.
I hope we can accept the new policy
aims and the new fiscal framework, which give us flexibility, and think about
what additional policies the Government might need to adopt to boost that
growth rate. I have been predicting for some time that we would have a marked
slowdown in the United Kingdom, as a result of the fiscal tightening that we
have experienced until now and the monetary tightening that the Bank of England
has implemented. It has been very curious that the Bank of England has detached
itself from the world’s central banks over this recent very marked slowdown in
world activity. The slowdown was led by an actual recession in manufacturing in
most parts of the world; the centre of the storm has been in the motor
industry, but it has also extended more widely into the consumer and service
areas.
The rest of the world’s central banks
are busily fighting that, and so we have seen a succession of interest rate
cuts in countries with interest rates that could still be cut. We have also
seen a resumption of quantitative easing programmes in the European Union,
after it perhaps rather foolishly abandoned them at the end of the previous
year; we have seen continuous large quantitative easing programmes in Japan;
and in China, we have seen a big reduction in the required capital of banks, so
that those banks can lend more to the private sector and expand China’s
economy, which has also slowed quite markedly.
I suggest to the Treasury Front-Bench
team that they look very carefully at the centre of the downturn that we have
seen worldwide and mirrored here in the United Kingdom, and in particular at
the motor industry. The motor industry was hit by higher taxes on consumers in
China; it was hit by changed emission regulations on the continent of Europe;
it was hit in the United Kingdom by increases in vehicle excise duty in the
2017 Budget; and it was also held back by Bank of England guidance warning
banks against lending too much money for car purchases, in a market where
practically everybody buys a car on credit, rather than their having the cash to
pay the considerable sums that cars cost these days. So there was a very
predictable slowing of the UK car market, in parallel with the slowing going on
elsewhere.
That was compounded by the fact that
the UK had been incredibly successful at building a very large diesel car
industry, and in particular a diesel car engine-making ​industry in the
United Kingdom, just in time for the EU and the UK to become very hostile to
diesels and send out the message that people really should not buy diesels, and
that in future diesels may even be taxed or regulated off the road. There could
also be new controls on diesels, with the Government, in common with the EU and
other Governments, wanting people to buy electric cars before they felt
confident enough in electric cars, or before the prices of electric cars come
down to a more realistic level for them to be a feasible opportunity for
people. So we have seen in the UK, as in China and in Europe, a big decline in
the sale of traditional diesels, and there has not been an off-set in
sufficient numbers by the new vehicles that are being introduced.
So the Government need to look at the
car industry and recognise that the issues affecting it are a combination of
taxation, availability of credit, and messages about what kind of car people
are allowed to buy and drive. The industry needs to be given some time to
complete the transition that Governments want, and it is not yet in a state
where it can sell enough electric cars to immediately replace the lost capacity
that it is experiencing on diesels.
Kevin Hollinrake
(Thirsk and Malton) (Con): I thank my right hon. Friend for
securing this very important and wide-ranging debate. He mentioned the car
industry, which is largely based in the north-east of England, but it based
itself there because clear incentives for it to do so were provided by the
Government at the time. Does he agree that if we are going to rebalance this
economy and level it up, we will need some incentives for businesses to start
up in or relocate to some of these areas?
John Redwood: Yes, I am happy for there to be attractive reasons why people should go
to the parts of the economy that have been less heavily invested in and that
are less pressurised. However, with cars the issue is demand; there is not
enough demand for the very good cars that the industry currently makes. The
Government want to change the kind of cars that people buy, but it will take
time for Britain, or anywhere else for that matter, to be able to produce the
millions of electric cars that the Government want us to buy, at a price and to
a specification that people like.
So, this is a top-down revolution and
the public are not yet fully engaged in it in the way that the Government would
like them to be. When polled, the public say that electric cars are a very good
idea. However, when they are then asked, “Well, when are you buying your
electric car?”, the answer is, “Well, not yet. Not me. I want a better subsidy
on the car, I want a lower price, I want a higher range”—whatever it is.
There are still issues about engaging
the public, which is why we are getting this industrial dislocation. China has
experienced exactly the same thing and one would have thought that China would
have continuous growth in cars, because it is coming from a much lower level of
car ownership and individual income. However, even in China car volume is down,
because of the regulatory changes and the dislocation involved in going from
traditional product to electric product.
In addition, the Minister and his
colleagues should look at the issue of property. Property is a very important
part of the UK economy. It is often an asset base for people to borrow against
in order to develop their ​business, and it is often the main way in which
individuals hold their personal wealth. By buying a house on a mortgage and
gradually paying the mortgage off, property often becomes people’s principal
asset, which gives them some wealth and financial stability.
However, we have a property market in
the UK that has been damaged by the very high stamp duties that were introduced
under the previous Government, and the Government should look at that issue
very carefully. I do not think that the Government are even maximising the
revenues from stamp duties, and it might not be a bad idea for them to ask,
“What are the rates that would maximise the revenues?” At the higher price
levels in property, transactions have been very badly affected; indeed, they
have been massively reduced by the very high rates at the top end of the
market. So, the Treasury constantly has to revise down its forecasts of how
much revenue it collects from stamp duty.
A more free-flowing property market
would be a very good thing, because it would create all sorts of other work for
people who are in the refurbishment and removals business, and above all it
would allow people to fit their property needs more closely to the property
that they have. A lot of potential switching in the market is being frustrated:
some people have houses too big for them but they do not fancy paying the stamp
duty on the trade-down property, and other people would like a bigger property,
but the stamp duty would be just such a big addition to the higher price that
they would have to pay for that property.
Peter Grant
(Glenrothes) (SNP): I congratulate the right hon.
Gentleman on securing the first Westminster Hall debate of the new Session.
Does he agree that there has been a major problem in the United Kingdom for
many decades, which is that people—for one reason or another—have been
encouraged to treat the house that they live in not as a place to live but as a
speculative investment, on which they expect to make money? Also, does he
accept that many people have been severely stung, because they thought that
they would be able to stretch for a mortgage that they could not afford, in
order to sell the house for more money in 10 years’ time? If the value of the
house does not increase in 10 years’ time, they have a problem. That situation
caused the crash in 2007-08 and it has caused a number of minor crashes since
then. Does he also agree that more needs to be done to make sure that people
who only have the money that they are investing in their house are protected
against the possibility of losing their house and everything else when the
market crashes?
John Redwood: Most people buy a house because they want somewhere to live that is
theirs, and that they can then do up and change in the way they see fit,
subject to planning. But yes, of course, it is also a way of holding wealth,
and I repeat what I said: for many people it becomes their largest single
asset. I do not think that is a bad thing. I do not think that people are
treating their main property as a trading counter; it is where they wish to
live, and they will only move when they want a different house, mainly for
living purposes. People would only be able to buy property speculatively if the
property was their second or third house, and not many people are in the
fortunate position of having such wealth.​
There is no absolute protection
against house prices going down; they do from time to time, as the hon. Member
for Glenrothes (Peter Grant) pointed out. However, if someone’s aim is to live
in a house long term, and if they have taken out an affordable mortgage, temporary
fluctuations in house prices are not life-threatening or wealth-threatening to
any worrying extent, and they will just live through the period when house
prices dip because there has been a recession, or whatever.
Fortunately, we do not seem to be looking
at such a situation in the immediate future, and it is very important that we
have a growth strategy, so that the slowdown in the economy that we have
experienced in recent months is turned around quickly and does not become
something worse, which could have negative consequences in the way that the
hon. Gentleman talked about.
So my No.1 message to the Government
is not to underestimate the damage that clumsy taxes can do, and they may even
end up costing the Treasury, as stamp duty has done, because it is not
collecting as much as it should. That is probably the case with vehicle excise
duty as well, because of the volume impact on new cars, which relates to a
whole series of factors; it does not just relate to the vehicle excise duty,
but that was another complication in the situation.
As the Minister has this particular
responsibility, I urge him to look again at IR35. We want a very flexible
economy in which people can choose flexible employment, rather than have it
forced on them. We have had a relatively flexible small business sector, but it
is being damaged by the top-down imposition of the IR35 rules. I hear all sorts
of stories from across the country of people having to stop their contracting
business or losing contracts because the big companies that might employ them
are worried they might get dragged into a retrospective tax increase in
employer and employee national insurance. That is damaging the small
contracting sector, and I urge the Government not to carry on doing that when
we want to encourage more self-employment and allow self-employed people to go
on to build bigger businesses.
One of the Office for National
Statistics figures I saw recently, which I found fascinating, was that in
London there are more than 1,500 businesses per 10,000 people, whereas in the
lower income parts of the country there are half that number. There is a huge
gap between the volume of enterprise in London, which is the richest part of
the country in terms of average incomes, and much of the rest of the country,
where incomes could be higher. It is not easy to break into why there are so
many more businesses in London. In part, it is because people are better off
and have more spending money—demand is important in setting up a business—but
it is also to do with the general business environment and the concentration of
people, talent, enterprise and spending power that we see in the capital. We
need to do something similar in other parts of the country. Building more
businesses is crucial, and IR35 is getting in the way of doing that.
Some 4.5 million people in the
country who work for themselves do not have any employees, and they are afraid
of taking on an extra employee because of the implications, whether for
regulation, tax or otherwise, or because they think it will be too difficult to
manage. We need to look at that step up in building a business, when someone
goes from just working for themselves to ​having an employee or two. It is
important that we make that step as easy as possible, because if another
million self-employed people decided that they wanted a single employee, that
would be transformational. That would obviously create a lot of extra demand in
the labour market.
We need to look at taxes on
employment and the complications of employment. Anything that the Government
can do to reduce the tax on employment is a very good idea. We cannot collect
tax revenue just by taxing things we do not like, but where we have a choice,
it is better to tax things we do not like rather than things we do like. All
parties in the House like the ideas of well-paid jobs and of more work, so we
need to work away in Government to see how we can reduce the burden of taxes on
work such as the apprentice levy, the national insurance levy on both the
employee and the employer and other concealed taxes on work.
We also need to look at taxes on
entrepreneurship. A larger population of people who have great ideas, who can
change markets and who can persuade others that they have something people
might want to buy is vital to the process of creating a more prosperous United
Kingdom. We need to ensure that the offer on capital gains tax in particular is
a fair one. People who have built a business over the years should not feel
that they will be taxed again on it all, because they have been taxed on the
activity in the business. Capital gains has to be a fair regime, and I urge the
Government to keep the enterprise allowance arrangements so that entrepreneurs
can keep a lot of the benefits from building their business.
It is said that our productivity
performance in recent years has been disappointing and that that is a puzzle. I
do not quite understand why it is a puzzle; it is exactly what we would expect.
We have had a major reduction in North sea oil output. The way the figures are
calculated means that it is one of the most productive sectors, because labour
productivity is based on the amount of revenue or value-added generated by an
individual, and an individual in the oil industry produces a huge amount of
revenue due to the windfall element in the oil price. We had a very big squeeze
on many of the activities in the City that were apparently profitable before
2008. Those activities flattered the productivity figures, but some of the
profits turned out not to be genuine, and a lot of them have been squeezed out.
Again, a high-earning, apparently highly productive part of the economy has
gone through a big change, and we have lost that.
We have been a successful
economy—this is a strength—in creating lots of new jobs, but a lot of them are
relatively low paid so they do not score very well under productivity scoring.
If we compare our productivity with that for continental countries with
unemployment rates two or three times as high as ours, their productivity is
higher, because people we are employing on low pay here would be unemployed
there, and the unemployed do not count in the productivity figures—they are
just ignored as if they do not exist.
Kevin Hollinrake: My right hon. Friend is making some very good points, but is
productivity not principally a regional problem? The gross value added per
capita in London is about £50,000 a year. In the north-east, the ​north-west
and Yorkshire, it is about ÂŁ20,000 a year. Is that not where we have to level
up, because that would drive productivity right across the UK?
John Redwood: I agree, and one of the things I hope will happen as we pursue policies
that spread prosperity more widely is that some of the higher value-added
activities that people come to London for will be carried out in other cities
around the country. If somebody established a manufacturing business in a great
northern city, it would be good if they had their media advice, public
relations, legal advice, accountancy advice, consultancy advice and all the
rest of it from firms in northern cities that specialised in those things,
rather than the current model, where many of them come to London to take
advantage of the excellent business and professional services available there.
In attracting more industry to the
northern and western cities and towns, we need also to be conscious of
encouraging the cluster of service businesses around them that can add value in
other ways. In modern manufacturing, a lot of the traditional work is now done
by machines and robots, so the individual plant does not attract a large number
of jobs; the jobs are in all the other things—marketing, PR, services, legal,
accountancy, invoicing and so forth—and we want to make sure that enough of
those jobs come with the factory to the local area. That is where we have to
see what other policies we need to put in place to spread such jobs more widely
around the country.
The productivity puzzle is also
caused by the public sector not innovating enough and not raising its
productivity. It has been noticeable under Labour and Conservative Governments
and the coalition that public sector productivity has stalled. That is
disappointing, and we have a large public sector, so we need to get the
Government to direct their attention to that, because the one bit of the
productivity puzzle they can actually manage is the public sector, and
Ministers have various powers to encourage and promote innovation.
I was interested to hear the
Secretary of State for Health and Social Care talking last night about the role
of innovation, new ideas and smaller businesses in the health service. There is
huge scope for better partnership between innovative smaller and medium-sized
companies and the public sector. The current contracting rules do not work well
for many small businesses. It is difficult, because often the public sector
wants a large solution for an awful lot of locations, and the small business
can only handle so much and cannot scale up quickly enough. I hope that the
Government will have another look at how the best of the private sector can be
harnessed for the productivity increase we need from better innovation and
better technology in big areas of the public services.
We must make sure that we see the
technological revolution as a potential friend and not a potential threat. I
was quite surprised this morning when reading the background papers for Davos—a
meeting that I was not invited to and did not want to go to—to see how negative
they were about technology. It was seen as a threat to be tamed and slowed
down; as something that was going to destroy jobs and be very disruptive. It
talked about the endless dislocations, whereas the public see much of technology
as their friend. Why does America have huge success with trillion-dollar
companies? ​Some of them are, and some of them seem to be trillion-dollar
companies. Where have Facebook, Apple, Amazon and Netflix got their strength
from? They have got it because they have public support. It is all very well
for a politician to say, “They are wrong about this and wrong about that, and
we need to regulate them and stop them doing this”, but it is a bottom-up
revolution that we should not ignore. Those are things that people want. They
have completely changed how people lead their lives.
People now go out to restaurants
together and sit there with their iPods or smartphones not talking to each
other. I am not sure that that is a great development for human relationships,
but it shows that the technology has been transformative for people’s lives.
They have much more instant information and much more ability to communicate to
set out their views. It is not just what the BBC tells us; it is what we push
back through social media these days, which some of us welcome. So we have a
new model, and there is a danger that the Davos elite see it as a threat to
their control over everybody. They are getting out of touch with what the
public want. We should broadly welcome the technological revolution. I
understand that a lot of our constituents like its services and products. We
need to learn to live with it and co-operate with it in a sensible way.
As we come out of the EU, there are
huge opportunities for us. Contrary to the misleading comments that some people
have made, I have always taken the view that we can be better off as we leave
the EU, not worse off. I have never understood why people are so negative about
it all. I will simply end with a few obvious points about how we can be better
off in certain areas. We can have a much bigger fishing industry. I hope it
will be a prime task this year to create the conditions for that. We certainly
do not want to keep on sacrificing our fish to over-exploitation by continental
trawlers. We want to land more of our own fish while having a good conservation
policy for stocks as a total, and that should then lead to onshore activities
for fish processing and food manufacturers based on the excellent fish stock
that we have available.
There are huge opportunities in
farming. A lot of people would like to buy more local produce for all sorts of
reasons. We like to support local farms. We are conscious of wanting to cut
down food miles. We often like the flavours and benefits of locally produced
food. We can do more of that, and there are ways in which, as we come out of
the common agricultural policy, we could aim to get back to the levels of
self-sufficiency in food that we enjoyed before our period in the common
agricultural policy lowered it quite considerably.
We should also concentrate on our
defence industries. We are making a commitment to spend more each year on
defence so that we are more secure, but we are not truly secure unless we can
make all the weapons and defence goods that we need in time of war. We must not
be dependent on other people’s technology that we cannot access independently,
or on imports over perilous sea lanes in times of conflict. We need to be able
to scale up, and I urge all those involved in defence to see a big opportunity
for us to make more of our own defence equipment. We should certainly make sure
that we have control so that if the need ever arose, which I hope it does not,
we would be able to scale up quickly without major issues.​
I have gone on for rather a long time
and I know that colleagues wish to debate these matters, so I will leave my
other ideas for another time, but my conclusions are that we should not
underestimate the damage that high tax rates do; that we should not
underestimate the ability to generate more revenue, if we are brave on tax
rates, by getting them down; and that we should pay particular attention to the
big ticket items—homes and cars—that have been damaged by a variety of negative
forces in recent years. I say a big thank you for the change in fiscal
strategy. I hope that the Bank of England will join the party in wanting to
promote growth as well, because that would make a considerable difference. It
has been going in the wrong direction for some time, unfortunately. Let us make
sure that all the obvious opportunities from Brexit, particularly in sectors
that have been under strong EU control, are grasped warmly because they would
give us some early wins.