Harriett Baldwin welcomes the Budget, in particular innovative measures to encourage business investment and growth but calls for a rethink on the scrapping of the 0.7% GNI commitment to international aid.
Unlike the hon. Member for Norwich South (Clive Lewis), I think that this was a Budget that put in place the genesis of a strong recovery. It is one that supports people and businesses through the pandemic, and puts the economy in the best possible position to bounce back strongly in the second half of this year. Every vaccination is boosting the chances of a vigorous recovery with strong job creation. I put on record my thanks to everyone who is helping with the blistering pace of vaccination roll-out across the country, and say, “Please, when you’re offered your vaccination, have one right away.”
The Chancellor’s Budget also began the process of repairing our public finances. The Treasury Committee report, which we put out this week, on tax after coronavirus stated that the public finances are on an unsustainable path and even a strong recovery may not be enough to bring current spending back into balance. Every expert we heard from some said that the economy still needs both loose monetary and fiscal policy now, but it is right that the Budget put in place fiscal tightening that comes down the road. It is not right away, but it needs to be there for the year after next.
There are some really innovative measures in the Budget. The super deduction on capital investment is a huge signal to business and should shift the long-standing under-investment by businesses in our economy. The future fund breakthrough will tackle another challenge: the difficulty that small businesses find scaling up capital to go from being a small business to being a big, high-growth businesses. The Help to Grow initiative offers business education, and will help the long-standing challenge in our country of low productivity in the small business sector. The Budget gives the great entrepreneurs and business owners in this country the very best chance to rebound from the lockdown.
We all know that economic forecasts are bound to be wrong, and I hope that the OBR’s forecasts will prove to be far too pessimistic; however, I was also struck by one of the Chancellor’s phrases about the sensitivity of the UK Government debt to interest rates. He said that a 1% increase in rates would add £25 billion to current spending because of the size of the debt. That is a truly startling statistic. It reminded me of a phrase from James Carville, the US political strategist of the 1990s, who said that, when he died, he wanted
“to come back as the bond market”
because it intimidates everyone.
Rates are low today because the Bank of England is buying £895 billion through quantitative easing. The Bank of England is doing that because of the deflationary shock in the economy, but that could change. The Bank is independent. It is possible that the economic rebound leads it to conclude that current rates are too low to keep inflation under control. I am a fiscal conservative above all. A budget deficit is simply a tax increase or a spending cut that we are not prepared to do today, but are prepared to pass on to another generation.
I know I sound a bit like Cassandra, but I worry about the bond market and that it might decide to reprice. I am probably one of the few MPs in this House who traded bonds during the markets of 1994. I assure Members that yields can rise very fast, which is why personally I would have preferred to see a lower budget deficit next year—not the 10% planned and the £234 billion deficit budgeted for. There are measures that could have been implemented, such as freezing income tax allowances immediately, reactivating the fair fuel stabiliser, widening the sugar tax to tackle obesity, adding a small surcharge on online deliveries, and raising the cost of carbon.
All those things would have been practical, and I think we could have brought the public with us. Given the unpredictable character of the bond market, it could have been a prudent decision. It would also have meant that the big cut to the UK aid budget would not be needed. As the Chancellor knows, I personally am ashamed that we are breaking our manifesto pledge to the world’s poorest. I would be interested to hear from the Minister when the vote on this measure is likely to come before the House because, as things stand and given that we have 0.7% in statute, the Government are currently planning to break the law next year, and I am sure they will want to rectify that before long and test the opinion of the House.
I am confident that this Budget puts in place the best conditions for a strong recovery for jobs and the livelihoods of the British people. I add that note of warning that we should not be bouncing back on the backs of the world’s very poorest. As a former bond vigilante myself, I add that further message of caution that the Chancellor may need to take some further tax measures next year if the growth rebound alone is not bringing the current budget deficit down fast enough.