Taxes

I inform the House that Mr Speaker has not selected either of the amendments tabled. I call the shadow Chancellor.

I beg to move,

That this House calls on the Government to control public expenditure in order to keep the promise made by the Chancellor of the Exchequer at the Confederation of British Industry conference on 25 November 2024 that, after the last Budget, the Government would not raise taxes; and further calls on the Government not to break its manifesto commitment that it would not increase National Insurance, the basic, higher or additional rates of Income Tax or VAT.

Right at the centre of this motion is the single word “trust”—the trust that Labour Members lost with the British electorate. They lost it when they promised not to put taxes on farms, and did so; when they said they would not be means-testing the winter fuel payment, yet did; and when they said they would not be putting up taxes left, right and centre, but did exactly that when they came into office. Indeed, in their own manifesto there were around £7 billion of tax increases, which by the time of the first Budget translated into some £40 billion of additional taxes. Of course, much of that related to employer national insurance—a clear breach of the Labour party manifesto. Do not take my word for it. Take the word of Paul Johnson, the former head of the Institute for Fiscal Studies, who said that that particular tax increase was a “straightforward breach” of the Labour party manifesto.

The Chancellor also said that she would not take decisions that would affect working people, yet we know from the figures released just yesterday that unemployment is at a five-year high. There are 180,000 fewer jobs on payrolls on her watch. Some sectors are particularly badly impacted. Some 90,000 jobs in hospitality have been destroyed, which particularly affects the youngest people in our country, who are desperate to get on the first rung of the career ladder but are deprived of that opportunity by Ministers.

After that calamitous Budget, there were further pledges and further promises from the Chancellor. She said to the Treasury Committee:

“we are not going to be coming back with more tax increases”.

She said on Sky News that she had “wiped the slate clean”. On 25 November, at the CBI’s annual conference, she said:

“I’m not coming back with more borrowing or taxes.”

There has been little of that language of late, and I think we all know why.

At the October Budget, the Chancellor said something else that was telling and extremely important. It is worth my repeating it in full. It relates to her clear pledge not to extend the freeze in the personal allowance under the income tax regime. She said:

“I have come to the conclusion that extending the threshold freeze would hurt working people. It would take more money out of their payslips. I am keeping every single promise on tax that I made in our manifesto, so there will be no extension of the freeze in income tax and national insurance thresholds”.—[Official Report, 30 October 2024; Vol. 755, c. 821.]

No, it was definitely the Korean war!

It was the Korean war—my right hon. Friend is absolutely right.

It is the Chancellor’s choices that have led to this situation. She was the person who chose to put up taxes on jobs, which has led to growth being anaemic. We know that taxes such as national insurance feed through to lower investment, higher inflation, higher unemployment and lower real wages. We know that the Government talked down the economy with the absurd and fictitious £22 billion black hole. In a sweet irony, when they asked the OBR to come in and opine on that number, it said that it would not legitimise it.

Does my right hon. Friend agree that the real downfall of the Government dates from when they did not face down their own Back Benchers and deal with the rocketing benefits bill? Frankly, the country is going broke and the Government must have the courage to deal with millions of people who are not contributing to society.

My right hon. Friend makes an extremely valid point. I shall come to those matters shortly, because there are alternatives to what the Government have decided to do.

It was this Government who went on a reckless borrowing spree. This year, we have borrowed £100 billion—the highest borrowing in our history, excluding the pandemic. Why has that happened? Because the Chancellor has fiddled the fiscal rules. She changed the debt definition from public sector net debt, as it was under us, to public sector net financial liabilities, which allows far more borrowing. In fact, under the original definition that we had—which she, incidentally, said she would not change—she would have been underwater in just about every year of the forecast on the debt target. That recklessness has led to the Labour party having plans to borrow half a trillion pounds more over the period of this Parliament than we had in our plans that it inherited.

To put it in simple terms for those listening at home, the Chancellor raised taxes by £40 billion, she spent £30 billion and she borrowed £70 billion. Cumulatively, that will make people think, “How am I going to get the return on that investment if we are not growing the economy? How do I ensure that the interest will be paid?” That is why interest payments go up and we as a country end up paying more debt—because of the decisions the Chancellor has made.

My hon. Friend is absolutely right. If we borrow more money, we pay more for that borrowing. Of course, that has fed through to inflation. We know that inflation this year, according to the International Monetary Fund, will be the highest in the G7. The IMF also says it will be the highest in the G7 next year. The consequence of that in monetary policy is interest rates being higher for longer. Of course, if we have a mountain of debt and add to it ruinously, the cost of servicing that debt goes through the roof. It now stands at about £100 billion a year, rising to £130 billion at the end of the scorecard. That is more than twice what we spend on defence every year.

The shadow Chancellor is laying out compellingly the calamitous choices that were made at the last Budget. Does he agree that fundamentally underlying them is the most calamitous choice of all, which was the strategic decision that the public sector would be expanded and the private sector contracted? The crowding out of the private sector is resulting in this doom loop that we are trapped in. We have fewer and fewer wealth creators and businesses paying for this bloated public sector, and their ability to shoulder that burden gets weaker by the day.

My right hon. Friend makes an extremely incisive and correct point. If a Government spend huge amounts of money, there is an opportunity cost to that and it comes through in various forms, including, as he rightly says, raising the cost of capital and crowding out labour, skills and so on. It is a fine and important balance to get right and this Government, palpably, have got it wrong.

The hon. Member for Hinckley and Bosworth (Dr Evans) makes a fair point. When raising public revenue, one should at least expect a decent return on that spend, whether it be a social return or otherwise. Does the right hon. Member not consider investing in our NHS to be such a decent return?

The hon. Gentleman’s question identifies the core of the fallacy of his Government’s approach, which is to assume that getting better outputs is all about spending ever more money. It is not. It is about what you do with that money; it is about productivity. One of the Government’s many mistakes when they came to office was to splash out on pay rises for their trade union paymasters—14% for the railways drivers and 22% for the junior doctors—with not one string attached in terms of improved productivity. Therein lies the answer to the hon. Gentleman’s question.

I thank the right hon. Gentleman for giving way again. Will he acknowledge the massive dead-weight loss caused by the strikes that were going on, unbelievably, under the previous Government, and the negative returns as a result of the previous Government’s actions?

I am surprised that the hon. Gentleman would follow up what was not the strongest first question with that.

The Government are naive enough to think that by simply buying people off with no strings attached, the problem would go away. It is like feeding meat to the wolf: when the wolf is fed meat, it will come back to the door the next day, and that is precisely what has happened here. Industrial relations are not improving at the moment. We have various unions in the public sector threatening to strike, including in the NHS, where the hon. Member for St Austell and Newquay (Noah Law) started in his first question.

Where has all this led? It has led to lower growth. No matter how much those on the Front Bench may trumpet increased growth, the reality is that growth per capita—[Interruption.] The hon. Member for Bishop Auckland (Sam Rushworth) says it is the highest in the G7, but our growth per capita is the second lowest in the G7. What matters is growth per capita, because that is what drives an improvement in living standards. [Interruption.] I have more bad news for the hon. Gentleman, who continues to chunter from a sedentary position: the IMF says that growth per capita will deteriorate even further next year and be the lowest in the G7.

I commend the shadow Chancellor and the Conservative party for bringing forward this debate. Is he aware of the stat that the average British family is as much as £15,000 poorer than they were five years ago? The biggest increases have been in energy and food, of course, and while there have been wage increases, all that has been swallowed up by the cost of living. Does the shadow Chancellor share my concern for middle and working-class families, who are worse off now than ever before, including those in my constituency, that any tax increases from the Labour party will push them towards the poverty line? It could mean that some of them will be unable to pay the bills that they are just about paying at the moment.

I agree. Of course, higher taxes are bearing down on living standards, but so is inflation. We have the highest level of inflation in the G7 and are forecast to have the highest in the G7 next year, too. Within that sits food inflation, which is running way above the headline rate of inflation. Who does that impact the most? It impacts the very people that Labour professes to stand up for the strongest: the poorest in our society. It is a direct consequence of the policies pursued by this Chancellor.

Does the shadow Chancellor recognise that the previous Government were the only Government in living memory to oversee a reduction in real living standards over the course of five years? Does he accept that the difficult situation with the cost of living is in large part due to his Government’s decisions over those five years?