(13 years, 10 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
Ms Harriet Harman (Camberwell and Peckham) (Lab)
The Chancellor of the Exchequer has delivered his Budget. It is his first Budget, but we have seen it all before. This is a Tory Budget that will throw people out of work, will hold back economic growth—[Interruption.] Read the book! This Budget will hold back economic growth, and will harm vital public services. Yes, it is the Chancellor’s first Budget, but it is the same old Tories, hitting hardest at those who can least afford it and breaking their promises. This is true to form for the Tories, but it includes things that the Liberal Democrats have always fought against. Surely they cannot vote for this.
The Chancellor says his top priority is to cut the deficit. In order to get the deficit down, we need to keep economic growth up and we need to keep unemployment down. Today’s Budget—[Interruption.] Read the book! Today’s Budget is bad for growth, and that will make it harder to cut the deficit.
The new Office for Budget Responsibility has said in its report today that because of this Budget, growth next year will be lower than it would have been under our policies to support the economy through difficult times. It has revised growth for next year down from 2.6% to 2.3% because of the harm that the Chancellor’s Budget does. He said he was going to tell it straight, but the Chancellor has not told it straight today on jobs. Today’s Budget is bad for jobs and that, too, will make it harder to cut the deficit. The OBR forecasts on page 84 of its report that the price of the plans he has set out today in his Budget is tens of thousands of people out of work. [Interruption.] I say to hon. Members, look at the OBR report last week and compare it, on the International Labour Organisation unemployment and claimant count, with the forecast as a result of this Budget: tens of thousands more people out of work, and unemployment higher next year and every year of this Parliament. For people affected, this is a high price to pay, and it is equivalent in scale to putting every working man and woman in the city of Coventry out of work; that is the scale of the changes on jobs. And it is counter-productive. Private sector jobs will not spontaneously emerge as we see fewer people employed in public services. This Budget will hit private sector jobs as well as public sector jobs.
The reality is we do not get borrowing down by pulling the plug on support for businesses. We do not get borrowing down by throwing people out of work and on to the dole. [Interruption.] Look at the forecasts! We do not get borrowing down by stifling economic growth. This reckless Budget’s short-sighted approach will jeopardise the recovery and make the deficit worse, and when we do that, we end up with more tax rises further down the track, and it is unfair.
It is unfair on young people who need help to get work and get a decent start in life. The Government have scrapped the future jobs fund before it has even been formally evaluated, but every young person helped into work shows its value. It is unfair on the regions, whose manufacturing industries will suffer. They have cancelled the loan to Sheffield Forgemasters; they have snatched away the chance of new jobs. It is unfair on families: cuts to the value of child benefit; cuts to the disability living allowance; cuts to help for the jobless; ending the health in pregnancy grant; cutting the Sure Start maternity grant; ending free swimming; and cutting back free school meals. It is also unfair to older people, who will have to pay higher VAT and will have less money to spend in their local shops.
The Chancellor tells us that his plans are fair: that the rich will pay most. That is not true. As the Prime Minister himself said of VAT:
“it’s very regressive, it hits the poorest the hardest. It does, I absolutely promise you”,
and as the hon. Member for Bermondsey and Old Southwark (Simon Hughes) rightly pointed out last week, VAT “penalises the poor”.
It is unfair when cuts in public spending hit those people and those areas where public services and benefits matter most. The impact of the Chancellor’s changes to benefits and tax will be greatest in the poorest areas. We agree that borrowing must be brought down, but look at whom he has chosen to bear the brunt of cutting the deficit. The area most affected by his austerity policy, where people will see the biggest fall in average incomes, is Merseyside; the area least affected by his austerity policy—least affected by the fall in income—will be Cheshire. Yes, that includes his own constituency. This is not a fair Budget; it will entrench unfairness for the future.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Please wait until after the right hon. and learned Lady has spoken.
Ms Harman
And the VAT rise makes this a Budget of broken promises. Before the election the Prime Minister said he had no plans to put up VAT, and now, in his first Budget, he puts up VAT. During the election campaign the Liberal Democrats attacked what they called the Tory secret VAT bombshell. Little did we know that the Lib Dems had their own secret bombshell to drop on us: that they would vote for it.
The Tories present this Budget but they try to evade responsibility for it. They try to justify their broken promises, saying that things have changed—that things are worse than they realised—but what is this new information? The OBR forecasts are better than we predicted at the time of the March Budget: less borrowing than expected, and lower unemployment than expected, because of our actions.
The Government like to cite new information from abroad: the problems of Greece. Greece is in a completely different position from us: it is still in recession; it does not control its interest rates; and its debt is over 115% of its GDP. Greece is no alibi for this Tory Budget.
Nor should they pray in aid the story of Canada’s Budget cuts. Canada’s deficit reduction was taking place as Canada’s economy was boosted by strong growth in its neighbouring economy and main export market, the United States. Our export market is mainly the EU and growth there is sluggish. That is why President Obama wrote to his fellow G20 leaders this week urging them to turn away from the rush to austerity. Yes, deficits must be reduced, but we must not risk undermining the fragile global recovery. This is a Budget based on rewritten history and false excuses.
They say there is no alternative, but the truth is this is what they want. This Budget is not driven by economics; it is driven by ideology—their commitment to a smaller state. The Chancellor claims he has no alternative, but the OBR last week clearly stated that our plans would have more than halved the deficit over four years. No, this austerity Budget is their choice, and right now it is exactly the wrong choice.
This reckless Tory Budget would not be possible without the Lib Dems. The Lib Dems denounced early cuts; now they are backing them. They denounced VAT increases; now they are voting for them. How could they support everything they fought against? How could they let down everyone who voted for them? How could they let the Tories so exploit them? Do they not see that they are just a fig leaf? The Liberal Democrat Chief Secretary is just the Chancellor’s fig leaf. The Deputy Prime Minister is just the Prime Minister’s fig leaf. The Lib Dems’ leaders have sacrificed everything they ever stood for to ride in ministerial cars and to ride on the coat tails of the Tory Government. Twenty-two Liberal Democrat ministerial jobs have been bought at the cost of tens of thousands of other people’s. The Liberal Democrats used to stand up for people’s jobs, but now they only stand up for their own.
Look at the Business Secretary, the right hon. Member for Twickenham (Vince Cable). The House has noticed his remarkable transformation in the past few weeks from national treasure to Treasury poodle. They have no mandate for this Budget; this Budget has no legitimacy. Even if the Lib Dems will not speak up for jobs, we will. Even if they will not fight for fairness, we will, and even if they will not protest against Tory broken promises, we will.
We will support measures that are fair and that will help the economy. We will support the increase in capital gains tax. As the Chancellor said, it will help to stop people avoiding income tax by getting payment in capital. Such avoidance of tax is even more objectionable when we need to cut borrowing. We welcome the retention of the 50p tax rate. The Labour party was the first to call for a levy on the banks and the Government are going ahead with it. We will support that move, although I note that the banks will get a corporation tax cut to compensate them. We will support the increase in personal allowance, but the public, who will be hit by a rise in VAT, will feel short-changed.
In the face of a global economic crisis, this has been a difficult time for businesses and families, not just here but around the world. What this country needed was a Budget to support economic growth, to protect jobs and to cut the deficit fairly, but what we have got is a reckless Budget that pulls the rug out from under the economy. Predictably, the Tories do not care and are not listening. The Lib Dems are wringing their hands, and well they might, but that is not good enough. They should think about their constituents who will suffer if this Budget goes ahead. The Lib Dems should think again, but whatever they do, we will vote against it.
Chris Bryant (Rhondda) (Lab)
On a point of order, Mr Deputy Speaker. The Chancellor of the Exchequer said to us earlier that this country would hear the facts about his Budget straight from him at the Dispatch Box, but this morning his freeze of the civil list moneys was announced in The Guardian, his announcements on capital spending plans were in The Guardian and his proposals on national insurance, child tax credit and the VAT rise being delayed were all in The Guardian. Also, the precise figures about the changes to income tax—rising by £1,000 to £7,475—were in every single media outlet in this country. That is an abuse of the privilege of this House. Will Mr Speaker, or you on his behalf, refer this issue of the abuse of the privilege of the House to the Select Committee on Standards and Privileges?
Mr Deputy Speaker
As hon. Members well know, Mr Speaker is unhappy about announcements being trailed before they come to this House. If the hon. Member speaks later, he can bring it to the House’s attention once more. No doubt, this will be passed on to Mr Speaker.
Mr Andrew Tyrie (Chichester) (Con)
It falls to me to respond just as everybody quite reasonably goes off for a bite to eat. I commiserate with the right hon. and learned Member for Camberwell and Peckham (Ms Harman) about having to respond to the Budget without a chance to absorb it, although I must say that that showed in some of the things she said. She made the best of a very weak hand, but a couple of points must be borne in mind. I shall say this as best I can without partisanship.
First, all three parties were committed at the last election to sharp cuts in spending. According to the Institute for Fiscal Studies, Labour was planning about £45 billion-worth of cuts, which, because of ring-fencing, would have had to fall on only four main areas: education, defence, transport and housing. To give people an idea of the scale, defence spending is only about £40 billion, so massive adjustments would have had to be made by Labour, but that did not seem to feature in anything the right hon. and learned Lady said.
A second point that needs to be made is that we went into the recession carrying a huge structural deficit. Again, the right hon. and learned Lady did not acknowledge that at all. That deficit developed as a result of over-ambitious spending over many years by the previous Government, particularly by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown). It simply had to be tackled; it could not have been left unaddressed. It really is not correct to attribute most of the tightening we need now to the mistakes of banks, the global recession or, as she has suggested today, to coalition ideology. The overwhelming majority of people who have looked at this have concluded that we must take early action to curb the huge, burgeoning deficit.
Mr John Redwood (Wokingham) (Con)
Does my hon. Friend agree that it was a disgraceful performance by the acting leader of the Labour party to accept no responsibility for the disgraceful state of the public accounts, and to dare to say that we wanted to cut when Labour was going to have to cut?
Mr Tyrie
In my new job, I am doing my best to avoid putting things in such trenchant terms, but I feel that not enough has been accepted by the Labour party about the scale of the mismanagement on the economy—requiring us to do something about it now.
This was an astonishing and phenomenal Budget—a tour de force. It really was a further addition to the early economic radicalism of the coalition Government. We have already had announcements about a complete overhaul of financial regulation and an innovative body, the Office for Budget Responsibility, has been created. We have also had announcements about vigorous action being taken on the deficit as well as major proposals for tax and benefit reform. The first of these measures is needed, among other things, to change the culture. The politics of plenty have to give way to the politics of thrift in Whitehall. That, above all, is why it is right for the Government to make the £6 billion-worth of cuts.
On the second of the measures that I have just mentioned, we must have tax reform and simplification if we are to have any chance of improving Britain’s long-run growth rate, which has been imperilled by immense complexity in the tax system.
Kevin Brennan (Cardiff West) (Lab)
On taxation, when the Prime Minister said on 1 April, when he was the Leader of the Opposition:
“Our plans don’t involve an increase in VAT”,
did the hon. Gentleman believe him?
Mr Tyrie
As I recall, all three parties talked about having no plans to increase VAT, and it would not have surprised me a scrap, had the positions been reversed, if we had had an increase in VAT. How would Labour have filled the £45 billion deficit? We have not heard a word on that. That brings me to a point that I had decided, on the grounds of non-partisanship, not to make, but that I now think needs to be made. It was irresponsible and damaging to British democracy not to have had a spending review on which to judge the decisions to be taken. In my current job, if I were to find the coalition Government as evasive as that, I would do everything in my power to call them to account and to make sure that they told us the facts.
Albert Owen (Ynys Môn) (Lab)
I congratulate the hon. Gentleman on his election as Chair of the Treasury Committee. Does he accept that the rise in VAT that the Chancellor announced today will have a huge impact on small companies in the construction industry in my constituency that are looking for business building extensions to houses and so on? They will have to pass the rise on to those individuals, so the rise will slow down growth in that sector and will cause further job losses.
Iain Stewart (Milton Keynes South) (Con)
Does my hon. Friend recall that when the former Chancellor temporarily reduced VAT to 15%, a Treasury document clearly showed that afterwards the Labour Government were planning to increase it to 20%?
Mr Tyrie
I thank my hon. Friend for reminding me about that, as I had completely forgotten it. The whole House has heard the point he made.
The central judgment in the Budget is about the scale and speed of the fiscal adjustment. Whatever the Chancellor does, there are risks. If he shows lack of resolve on the deficit, the Greek experience beckons, as markets lose confidence in our ability to service our debts. The Chancellor was right to emphasise sovereign debt risk in his speech. That is not a fanciful risk, but a clear and present danger for Britain and he was right to flag it up. If we show too much zeal, too early, on the deficit, some people fear that the Japanese experience awaits us—being caught in a heavily indebted deflationary trap.
Michael Connarty (Linlithgow and East Falkirk) (Lab)
I voted for the hon. Gentleman to hold his new position and even told his opponent that I had done so, but I am deeply concerned that today he is making the same mistake as the Chancellor. He said that the greatest problem facing economies is sovereign debt, when in fact analysis shows that it is bank indebtedness. Greece has a sovereign debt problem, but other countries of Europe have a problem with bank debt. That is the problem, so we are looking at the wrong target.
Mr Tyrie
I agree that both are extremely important. I do not think I said that the greatest threat is necessarily sovereign debt, although Hansard will show whether I did. I said that I agreed with the Chancellor that it was an extremely grave risk. That is supported by the overwhelming majority of commentators—the International Monetary Fund, the OECD and a large number of independent commentators.
From the remarks made by the Leader of the Opposition, I presume that she is more fearful of the recovery being snuffed out by further tightening than of the risk of a downgrade in the bond markets. I shall not form an instant judgment now. I shall want my Committee to take a look at the situation and report to the House. None the less I noted a couple of relevant points. With the benefit of hindsight—looking historically—most fiscal retrenchments in this country have erred on the side of too little, too late, rather than too much, too soon.
My other general comment is that although the Japanese parallel is well worth examining, it should be borne in mind that the Japanese banking system was in a shocking state even by comparison with ours, and it has remained in grave difficulties. The revival of our banking system is crucial if we are to have sustained recovery. In some degree, that answers the point made by the hon. Member for Linlithgow and East Falkirk (Michael Connarty), and agrees with it.
Whether the Chancellor’s judgment turns out to be right or wrong, there are a couple of points on which I should like to hear more from him over the coming days and weeks. First, although he must be resolute in his judgment his policy framework could, and I think should, signal that if the facts change, he will change his mind—he hinted at that in his speech. The global economic situation is fluid and fragile, so if we were to find ourselves in another global downturn, possibly triggered by global fiscal contraction, we need to know that he would deploy whatever tools were required to avoid deflation. There must be some risk of that. It is not just a matter of Governments around the world, and particularly in Europe, beginning to address their deficits after their bail-outs. The banking system, too, will remain under strain. Banks will be subjected to a levy and will be required to secure major increases in capital and liquid assets, both of which will reduce lending. On top of that, there is the risk that household saving might sharply increase at the expense of consumption.
However, looking at things from an international perspective, I am heartened by the global growth forecasts of the IMF, which suggest that global growth for the next two years will be running in excess of 4%. I have not yet had a chance to see what the Office for Budget Responsibility has written in, but I suspect it will probably be in line, which would appear to buttress the Chancellor’s judgment that the cuts are sustainable.
My second question to the Chancellor relates to the first: what is the overall macro-economic framework for the Budget judgment? I should like more information about that. In previous squeezes on fiscal policy, it has been reasonable to argue that tight policy has created room for a compensating looser monetary policy through short-term interest rates. This time, however, interest rates are already very low, so the only offset comes in long-term bond rates. Interestingly, the OBR has already published a second estimate for gross debt interest, which takes account of the tighter fiscal policy that has just been announced. On its forecast, the figures show a reduction in central Government gross debt interest of £7 billion over the planning period, so there is a long-term bond yield dividend to be had from the tighter fiscal policy.
In any case, the Chancellor may have spelt out his macro-economic framework in more detail in the Red Book. None of us has yet had a chance to read it, although some people may be taking that opportunity while I am speaking. It would be worth hearing more about the policy framework, because it must leave the Chancellor with enough room to alter course if circumstances change, otherwise credibility could collapse in the face of unforeseen events. The one thing I can predict is that there will be quite a few of those.
Whatever else people conclude about the Budget, it is fair to say that it shows extraordinary political courage by the Chancellor and by the coalition Government. There will be rumblings in the undergrowth in both coalition parties. The vested interest groups will cause enormous trouble, just as they would have done if a Labour Government had been implementing their cuts. It will take sustained resolution by the Prime Minister, his Deputy and the Chancellor to stick to their course. The relationship between No. 10 and No. 11 will be absolutely crucial in the months ahead.
I have concentrated on the deficit and the macro-economic framework, but the Budget will be judged on more than just accountancy. There are a number of other important issues. Does the Budget pave the way for providing better economic performance in the long run? Does it adequately protect the poorest and the most vulnerable in our society? I hope the Treasury Committee will look at that issue. Does it take enough account of both regional and structural imbalances in the economy? What role will Britain play in addressing the large global imbalances that still remain? Those are some of the questions that I very much hope my colleagues on the Treasury Committee will agree should be looked at in the months and years ahead.
I look forward to the formation of the Committee, the first-ever Treasury Committee that will benefit from a democratic mandate. Our task now is to get on with the job. I am open to suggestions from both sides of the House about what exactly we should look at; indeed I am already being inundated with proposals and suggestions, so we shall need to prioritise. Of course, I shall await the views of my Committee colleagues, but it would surprise no one—certainly not me—if we concluded that the central fiscal judgment of the Budget, and both the structure and early output of the new Office for Budget Responsibility, should be high on our agenda.
Barry Gardiner (Brent North) (Lab)
Today, let us spare a thought for the Liberal Democrats. In April, the great cause célèbre—the only amendment they fought for in Labour’s Budget—was deferring the rise in the rate of duty on cider until June. Today, they achieved that ambition; duty was reduced from 10% to just 2%. In April, Liberal Democrat spokespeople loudly claimed to have stopped the wicked Labour Government from raising a few million pounds from west country cider farmers. Today, they sit, quisling apologists, for a Budget containing the most savage cuts and devastating tax increases in a generation.
On 8 April, the Deputy Prime Minister accused the Conservatives of wanting to raise VAT to plug a black hole in their financial plans. He boasted:
“We will not have to raise VAT to deliver to our promises. The Conservatives will. Let me repeat that: our plans do not require a rise in VAT”.
No wonder that, when the Prime Minister was asked during the election campaign for his favourite political joke, he replied in just two words: “Nick Clegg.” The Liberal Democrats have now delivered the tax bombshell for their Conservative masters, precisely targeted at the poor, who spend a far greater proportion of their income on VAT-able items.
Stephen Williams (Bristol West) (LD)
Would the hon. Gentleman like to look at the tables on pages 67 and 68 of the Red Book, which disprove the point that he has just made?
Barry Gardiner
I should be very happy to look at the pages of the Red Book in due course, but if the hon. Gentleman wants to challenge the fact, which I have just stated, that the poor spend a greater proportion of their incomes on VATable items, I am sure that he will find not only that he is wrong, but that he is out of sync with other Liberal Democrats—his leader, in fact, and his deputy leader—who have said exactly the same as I have. No wonder that the Liberal leader had to write to his MPs today to insist that he had not sold out on his party’s promise to protect those who are on average incomes.
I simply refer those hon. Members to “Liberal Democrat Voice”, published on 8 April, in which the Liberal leader said:
“So if you’re on an ordinary income, you have a choice. If you want your taxes to rise: vote Labour or Conservative. If you want your taxes to fall: choose the Liberal Democrats.”
The smugness is breathtaking, but nowhere near as breathtaking as the G-forces exerted by the speed of the U-turn that he has performed. His talk of progressive cuts certainly did not go down well in Sheffield, Hallam, where the axing of the Labour Government’s £80 million loan to Sheffield Forgemasters has denied his constituency of the manufacturing future and new jobs that local people so badly wanted and that he once said that he believed in.
As the Social Liberal Forum reminded the Deputy Prime Minister in an open letter last week:
“The Liberal Democrats did not sign up to the Conservative formula of cutting £4 for every £1 raised in additional revenue and it would be impossible to pursue such a policy without adversely hurting the most vulnerable in society. With this in mind, it seems incomprehensible that we could be contemplating a rise in VAT at this stage. As the Liberal Democrats pointed out before the election, a VAT rise to 20% would cost every person in the country an average of £389, disproportionately hurting the least well-off who would be least able to afford it.”
That is Liberal Democrats talking. Frankly, we expect the Conservative party to attack the poorest in society. It was rather refreshing to be told a week last Thursday, by the Under-Secretary of State for Communities and Local Government, the hon. Member for Bromley and Chislehurst (Robert Neill), that
“Those in greatest need ultimately bear the burden of paying off the debt”.—[Official Report, 10 June 2010; Vol. 511, c. 450.]
At least he got it right.
Paul Blomfield (Sheffield Central) (Lab)
It is unfortunate that the Deputy Prime Minister is not listening to the comments about Sheffield Forgemasters, and I assume that he was not listening to the Prime Minister’s remarks yesterday, when he made disparaging comments about the shareholders of Sheffield Forgemasters and the financial engineering associated with the deal, which has been through the most robust critique by the Treasury. Does my hon. Friend agree that, when the Deputy Prime Minister returns to Sheffield, it would be appropriate for him to apologise on behalf of the Prime Minister for those comments?
Barry Gardiner
I entirely endorse my hon. Friend’s remarks. The only thing that I find more smug than the comments that have been made was the fact that, during the entirety of oral questions to the Deputy Prime Minister, he refused to answer any of the questions that he would have found difficult to answer. One wonders why they are called oral questions to the Deputy Prime Minister if he is not going to bother to answer them.
Mary Creagh (Wakefield) (Lab)
How does my hon. Friend feel that the Budget will impact on the poorest of his constituents in Brent? The impact will be felt by the poorest people across the country, but does he agree that, with this Budget, we have finally seen the Liberal Democrats for what they are: the real wolves in sheep’s clothing?
Barry Gardiner
My hon. Friend is absolutely right. It is very clear that the Liberal Democrats vary not just what they say from doorstep to doorstep, but what they say before the election from what they do after the election, and many of us have bitter experience of that.
Today, it was interesting to hear the Chancellor say that council taxes will be frozen. I thought to myself, “Yes, I’ve heard that mantra before.” My hon. Friend prompts me. That is exactly what the Liberal Democrats promised in the run-up to the 2006 local elections in Brent. Strangely, after that local election, they went into a coalition with the Conservatives, who had promised not just a freeze on council tax but a reduction in council tax. When they got into power, what did they do? They raised council tax for three years in a row.
Moreover, before the election, the Minister of State, Department for Education, the hon. Member for Brent Central (Sarah Teather), was photographed with the elderly—I have a copy of it here—and appeared on a leaflet that said, “Free Personal Care for the elderly say Lib Dems”, but when they got into office on Brent council, they raised the personal care charges from £5 an hour to £16.50 an hour.
When the Chancellor talked today about how the Government would freeze council tax, I thought, “Yes, I know how they will manage to do that.” All the charges that councils make people, such as elderly residents in Brent, pay will be bumped up. The increase will be imposed not on council tax, but on those who have the very least ability to pay—the most vulnerable people in our community.
Last week, I was invited to the Brent Teachers Association meeting to debate the future of education in the borough with the Minister of State, Department for Education, the hon. Member for Brent Central. As she had promised in her election literature an extra £2.5 billion towards education and smaller class sizes, but subsequently approved a £1.88 million cut to the borough’s education area-based grant, I was looking forward to that debate. However, I understand that, half an hour before the start of it, her office phoned to indicate that she was indisposed and could not attend. If I had been in her position, I would have been indisposed and unable to attend, too. To cut one’s education department in the borough, having promised such a vast increase in the education spending, is typical of how the Liberal Democrats have proceeded around the country, and we now see that what they do in national government is absolutely no different. The disillusion of those who believed the Liberal Democrat promises before the election can be only further deepened by the Budget statement that they have heard today.
Barry Gardiner
No, I am moving on from the Liberal Democrats. [Interruption.] We have got to go for the Tories now. Go on, I will give way to the hon. Lady.
Jo Swinson
I thank the hon. Gentleman for rethinking and giving way. I am listening to what he is saying with great care, but I wonder whether he is going to tell us—I am yet to hear about this from any Labour politician—where he would like any of the £44 billion of cuts that the Labour Government decided were required to fall.
Barry Gardiner
The hon. Lady has been a Member for a number of years. She will remember the answer that she and her colleagues gave when they sat on the Opposition Benches and Labour Members asked them exactly that sort of question: “You’re in government. It is you who provide the answers and we who ask the questions.”
People were told, “Vote blue, go green.” Vote blue, go green? Go green with frustration? Go green with fury? Where was that—did I miss it? Was there anything in the Budget about going green? I heard a mention of an investigation into whether there should be a per-passenger or per-plane duty, but that hardly constitutes vote blue, go green. There are many things that a really progressive Government could be doing to improve the way in which the environment is treated in this country.
Stewart Hosie (Dundee East) (SNP)
The hon. Gentleman is absolutely right that there are a great many such things—fairness in transmission charges to the grid, for example, and access to the fossil fuel levy—so perhaps he will explain why, over 13 years, his party did not do them either.
Barry Gardiner
I am happy to give an answer to the hon. Gentleman. We introduced the first legislation on climate change anywhere in the world. We put in place carbon budgets and feed-in tariffs. We ensured that we set a reduction target for 2050 of not just 50% but at least 80%, with interim budgets that can be examined every year, so that Parliament can hold the Government to account. The Labour Government achieved substantial things on the environment, but I agree with the hon. Gentleman that we did not do enough. I often spoke from the Government Benches to ask my own Ministers to go further. In addition, the system of renewables obligation certificates is a good deal more generous in Scotland than in England. However, does the Budget address the environment? Not one whit; we heard only a mention of an investigation into duty for planes rather than passengers.
Heather Wheeler (South Derbyshire) (Con)
If the hon. Gentleman reads page 57 of the Red Book, he will see that it states:
“Legislation will be in the Finance Bill introduced in the autumn for an enhanced capital allowance for zero-carbon goods vehicles.”
If that is not a green element, I do not know what is.
Barry Gardiner
The hon. Lady is new to the House and might not have had the opportunity to read earlier Red Books. The previous Government were also doing quite a bit on zero-carbon vehicles.
The Budget is a dreadful missed opportunity. It should have ensured that we can resolve the problems with our public finances and pull the country through the recession. It should have achieved that in a staged and phased way. The Government tried to paint a dichotomy between those who appreciated that this had to be done—that this was the inevitable Budget—and, as they put it, those on the other side who said, “No, no. Hold back.” However, it was never like that. Labour Members said that this must be done, but more progressively and slowly. We said that we must not jeopardise the recovery now by taking a macho posture that goes too far, that chokes off recovery and that will ultimately be self-defeating.
Barry Gardiner
I am about to conclude my remarks.
If the Opposition’s policies had been followed, we could have pulled the country through the recession and reduced the structural deficit to half its present level, as has been shown by today’s predictions and forecasts. However, the Government have decided to go for machismo over prudence—they will pay the price for it.
Malcolm Bruce (Gordon) (LD)
The Labour party’s synthetic anger, and the rather pompous and patronising show that we have just seen, are perhaps a reflection of Labour Members’ inability to accept their share of responsibility for the mess that the country is in. The party is in total denial. It is leaderless and rudderless, and it has not even had the courtesy to apologise to the British people for what it did. Perhaps Labour Members are also reflecting on the things that they could have done over 13 years but never got round to, such as restoring the earnings link for pensions, introducing a bank levy and raising the tax threshold. I do not think that Labour Members will find those on these Benches receptive to a party that has shown no leadership, no responsibility and no ideas, and that does not know where it is going.
We should be grateful that my right hon. Friend the Chancellor has set out a Budget that has ideally balanced the need to deliver tough control over our finances with a fair approach that, as the Red Book shows, will mean that in tax terms 80% of people will be better off under the Budget, while the richest 20% bear the greatest share of the burden. That is a proper expression of a progressive Budget.
Jack Dromey (Birmingham, Erdington) (Lab)
The right hon. Gentleman talks about balance and fairness. Will he comment on the balance between £11 billion of welfare cuts and less than £2 billion from the bankers, which is offset by the decrease in corporation tax? Will he also comment on the fairness and balance of setting an average of £35 per household from council tax against taking an extra £12 billion in VAT, which will hit the poor hardest?
Malcolm Bruce
I am sorry but that intervention also shows no recognition of the fact that we have to find the money from somewhere. Our approach to that gives the poorest the most and makes the richest pay the biggest contribution. I cannot think of anything more progressive than that, and the more the hon. Gentleman and others consider the Budget, the more they will recognise that it stands up to robust analysis.
I had the honour of being my party’s Treasury spokesman between 1995 and 2000. During the 1997 election, the Liberal Democrat manifesto included an aspiration to raise the threshold at which people started to pay income tax to £10,000. That was only an aspiration because, try as we might, we were unable to find the resources at that time to pay for it. However, when the Labour Government were elected in 1997, the first thing that they did was to introduce the most generous capital gains tax relief that the richest people in this country had ever enjoyed—Mrs Thatcher never contemplated it! However, closing such tax loopholes has enabled us to start to deliver the increase in the tax threshold so that people will not have to pay tax and then apply for benefit, as the Chancellor said. I for one am absolutely delighted to support a Budget that fulfils a commitment set out in an aspiration on which I fought the 1997 election.
The hon. Member for Brent North (Barry Gardiner) suggests that Liberal Democrats should be ashamed of the Budget, but far from it. There is much in the Budget of which to be proud, and I make it clear to right hon. and hon. Friends in the Conservative party that it is not a Conservative Budget or a Liberal Democrat Budget, but a coalition Budget. I would argue that it draws on the best on both parties. Those parties command the support of the majority of the British people, and the Budget’s approach will deliver benefits to the majority of the British people. I said in the election campaign, when I became aware of the seriousness of the financial situation facing the country, that the position would be much better after the election if cuts that had to be made were implemented by more than one party, as they would be forced to engage with each other and find a balance that would be more acceptable than measures adopted by one party running for a sectional interest that did not have the same strength of appeal. I honestly believe that the coalition has found a dynamic that has delivered something that is greater than the sum of its parts: a Budget that is genuinely progressive.
Simon Hughes
Does my right hon. Friend agree that another part of this package is fundamental? The discussion about the cuts and savings in public expenditure will take place with the public, the trade unions, business, communities and local government, so that decisions are not only informed by the prejudices of civil servants and Ministers but are made as a result of the widest consultation with the British public to make sure that although, yes, they may be tough, they will be absolutely fair.
Malcolm Bruce
I am grateful to my hon. Friend. Opposition Members and the wider audience looking at the Budget should examine it in detail and recognise the extent to which it is based on a much broader consensus and approach to consultation, while being radical across the piece and balanced. That is not easy to achieve, and I am prepared to admit that I had my doubts about whether the Chancellor of the Exchequer would be able to achieve it. I am pleasantly surprised by the extent to which he has been able to do so.
Indeed, there is little in the Budget to which I can fundamentally take exception. It is absolutely true that an increase in VAT is a painful decision—there is no question about that. It is difficult to understand how the Opposition could balance their books without any such tax increases. Although our proposals in the self-contained Liberal Democrat budget did not require an increase in VAT, we always said that if the financial situation required it, we would not rule it out. We never did rule it out, so those attacks that suggest that somehow this is a betrayal are not true. There was careful and guarded explanation of that position.
Mr Redwood
Has the right hon. Gentleman noticed that on page 45 of the Red Book the public spending figures make it quite clear that there is not a single year in which there is a cash cut in overall public spending? Public spending goes up every year in cash terms.
Malcolm Bruce
I am grateful, because I have not had time to look at the Red Book, only at one or two selected items. The health budget overall is protected. As the Chair of the Select Committee on International Development, I am delighted that the coalition is committed not only to protecting the aid and development budget but, over the coalition period, to delivering our promise of 0.7% of our gross domestic product in overseas aid spending.
Even in these difficult times, we can protect key areas, and the Chancellor demonstrated his recognition of the vulnerability of education and his desire to make sure that it received a degree of protection. I have been involved in working up a policy on the future of Royal Mail and the Post Office. I do not know how many times most hon. Members have debated the closure of post offices and problems in the Royal Mail. We all recognise that what we have at the moment is not fit for purpose, and has to be radically reformed and changed. I can honestly say that the Liberal Democrats have made a big contribution to producing a proposal that brings capital into Royal Mail, will help to support the post office network, and will enable Royal Mail employees to take a share in the business in which they are engaged in a way that makes it a much more co-operative venture. That is something that we have brought to the coalition, and I am delighted that it has been accepted.
A number of small details are worth acknowledging—for example, reversing the policy on furnished holiday lets, which affects some constituencies more than others, but is a serious cause of concern for people who have a single holiday cottage, and who would not have been able to maintain it. The policy would not have been good for tourism, and it was not a fair system, so I am glad that the Government have withdrawn it.
The commitment to deliver broadband support across the country is extremely important for rural areas, because if we want to encourage people to run businesses in such areas they need access to high-speed broadband. I am attracted to the proposal to provide finance for regional capital, although I want to hear the details of it. I can certainly think of projects in my constituency that I want to suggest to Ministers should bid for that fund. Indeed, I wrote to them in advance of the need, before I knew that there was a fund to tap into, but I think that it has real prospects. An important part of the Budget, which goes completely against the rant by the Leader of the Opposition, is the promotion of enterprise to create new jobs and businesses, whether through corporation tax reductions, decreases in national insurance costs for small businesses, or a regional premium for those areas where the public sector is disproportionately large.
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)
My right hon. Friend will know, as he represents a neighbouring constituency, how important the oil and gas industry is to our constituencies. It was refreshing not to have a tax bombshell dropped on that industry, as has happened in the past. The press notices for the Budget say that further improvements in the field allowance regime will be made to encourage exploration in the high-temperature, high-pressure world. That industry brings so much revenue into the Treasury that it must be treated in such a way as to make sure that the maximum investment is delivered.
Malcolm Bruce
My hon. Friend and I represent neighbouring constituencies, where a high proportion of people and companies work in the oil and gas industry. Far too often—and this applies to both Labour and Conservative Governments—sudden changes in the tax regime have been deeply damaging, and I am grateful that that is something else that will be done by consultation. It is, I hope, recognition that north-east Scotland, which my hon. Friend and I represent, makes a disproportionately large contribution to the economy of Scotland and of the United Kingdom, not just in oil revenues but in the 450,000 jobs that derive from the activities that run out of Aberdeen and north-east Scotland. There is £5 billion of exports in sub-sea technology, and a burgeoning new industry in marine renewables, which uses the same technology. It is important that the Government understand how they can support that industry, so my hon. Friend’s intervention is pertinent and relevant.
I declare an interest, as I have a grown-up deaf daughter who receives disability living allowance, so I certainly welcome the simplification of the process for applying for that abstruse allowance. It is not means-tested—people do not have to prove that they need the money; in fact, that is not a valid reason at all for qualifying for it—as individuals have just to prove how disabled they are to enable someone to make a judgment. That is difficult, and it goes against the grain for disabled people, who want to show how able they are, in spite of their disability. A simple medical test, if it is applied objectively and fairly, would work, and I hope that someone like my daughter, who can prove that she is profoundly deaf, would automatically qualify, as would others with a similar category of disability.
Jim McGovern (Dundee West) (Lab)
I would like to take the right hon. Gentleman back a couple of steps. He said that his party, and presumably the coalition, welcome the part-privatisation of Royal Mail, but is he aware that people employed by Royal Mail definitely do not welcome it?
Malcolm Bruce
I am aware that some people employed by Royal Mail have argued that they are not in favour of that, but they include people who are involved in the downfall of Royal Mail, too. We have to undertake a consultation, and let those people make a judgment. Royal Mail needs capital, without which it cannot survive and compete. It is a good idea to give the employees a real stake in a reinvested and reinvigorated Royal Mail. I hope that when many of them see what has been proposed they will welcome it as a positive.
Mr Brian Binley (Northampton South) (Con)
Does my right hon. Friend accept that the real need for Royal Mail is to get an injection of management skills, which is what the proposals will create?
Malcolm Bruce
Good management and good industrial relations are something that Royal Mail needs. Perhaps we all need to pull together a little bit to make that happen, but reinvigorating the organisation financially is part of the process.
I had some reservations and concerns about the proposal to freeze council tax, although my fears have been substantially allayed by what the Chancellor said. We have had a freezing of council tax in Scotland under the Scottish National party Administration, and I believe that it is a populist but extremely regressive development, because it effectively weakens local authority control and accountability and strengthens the centre.
The tone of the Chancellor of the Exchequer’s explanation of the measure allayed many of my fears. He said, first, “for one year” and, secondly, “based on incentives and encouragement, rather than imposition”. However, I hope that the measure will be set against a background whereby we think again—this is in the coalition agreement—about how we finance local authorities in a way that not only makes them locally controlled and accountable, but reduces the intervention of central management and control. I repeat that, although freezing council tax in Scotland is popular because people do not have to pay for an increase, people realise over time that their local council does not have the flexibility to fund some of the services that they want. People have certainly said to me, “We’d rather pay a little bit more council tax and have more investment in our schools,” or roads, or whatever it may be, so it is not the right long-term way in which to operate local government finance.
Stewart Hosie
The council tax freeze is most certainly popular, but the argument that it removes flexibility is completely wrong. The Scottish Government ended ring-fencing. We trust local authorities—[Interruption.] Ah! I see from the sneers that the Liberals now want to bring back ring-fencing and put up the council tax. Are they at odds with the Scottish Government or their coalition partners?
Malcolm Bruce
I was not quite sure how the measure went down in Glasgow. I am very disappointed by the hon. Gentleman’s intervention, because he could have defended the council tax freeze as a short-term measure in difficult circumstances—although nothing like as difficult as our current circumstances. However, he cannot possibly defend it as a long-term policy, arguing that councils have no right to determine their own precept, and that it is entirely a matter for the Scottish or UK Governments. That cannot be the right way to proceed, and I hear nothing from the Scottish National party about its ideas. Its local income tax policy was simply not viable.
Malcolm Bruce
Well, it was not viable and it did not add up, because it was not local. That was the problem. It was a central measure. Indeed, the hon. Gentleman might also want to listen to the fact that the centralisation of business rates is one reason why north-east Scotland is so underfunded. The city of Aberdeen pays £150 million a year in business rates to Edinburgh—to the SNP Government—and gets £75 million back. That is a pretty bad deal for a city that supports the economy and has severe financial difficulties, so I do not think that we need to hear any more from the SNP.
Malcolm Bruce
I do not really understand where these people are coming from. I believe in an open, pluralistic democracy and a reformed electoral system, and I believe that, ultimately, we should all recognise that we are all minorities. No one party in the House commands majority support, and that is why we have a coalition. That is what the electorate, effectively, voted to deliver. If we want a democratic, pluralistic system, and if government is to be delivered, we have to recognise that one way or another more than one party will have to work together, either by supply and confidence from the Opposition or in a full-blown coalition.
Chris Leslie (Nottingham East) (Lab/Co-op)
Will the right hon. Gentleman give way?
Malcolm Bruce
No.
Confidence and supply gives the minority Government the freedom and the party providing the confidence and supply the responsibility, and that does not seem to be a good deal. Coalition gives both parties the opportunity to be full playing partners, to inject their own ideas, policies and people and to strike sparks off each other in ways that they could not if the situation were different. Over the past seven weeks, I have been really pleasantly surprised by how many sparks have been provided and by how rigorously a flame of reform has been blown into life as a result of the coalition.
When the Leader of the Opposition reflects on the intemperate tone of her response, she will understand that the people will say, “Those in Labour are substantially responsible for the situation in which the country finds itself, they are in total denial and they have not offered an apology or an explanation of anything that they would do.” Right now, they should just go away, have a leadership competition and let the rest of us get on with running the country and getting it out of the mess in which they left it.
Sammy Wilson (East Antrim) (DUP)
First, we all must recognise that this is a very difficult Budget at a difficult time. Throughout the United Kingdom, people are talking about this Budget. They were fearful of what was going to come out, of its consequences and of the fallout from it. However, as the Chancellor said, with the announcement of the emergency Budget, at least we can now start to inject some certainty into the economic way forward, and from that point of view it must be welcome. Secondly, despite the background to the current situation, there is still immense economic uncertainty, even among those who have been professional economists, about the best way forward. I shall address that point when I discuss what we are looking for in the Budget.
Thirdly, I come from Northern Ireland, where the major party in the coalition was recently rejected by the electorate, so we do not have too much to fear from them; where the Labour party does not even stand; and where the Liberal Democrats do not have a presence, either, although they have a sister party in the Alliance party. Therefore, the political point scoring in the debate so far does not have to form part of my response. I sit on the Opposition Benches, but the Leader of the official Opposition’s hysterical reaction does not grace this debate with the seriousness that it deserves. There was not even any recognition of the role that the previous Government played. Although there were many other responsible factors, the previous Government played a role in the situation in which we now find ourselves. Indeed, there was not even any recognition that, as today’s figures point out, something similar would have had to be done if there had been a different outcome in the election. The Leader of the Opposition’s reaction was disappointing, and it is right that I make that point. However, I do not make it because I have to score party political points; I make it just as a general observation on a very serious situation.
Stephen Pound (Ealing North) (Lab)
I appreciate that the hon. Gentleman is rising above the fray in this debate, but, as a former economics lecturer, is he as concerned as I am about paragraph 2.108 of the Red Book, which refers to
“rebalancing the Northern Ireland economy”?
I suspect that I know what that means. What does the hon. Gentleman fear it means?
Sammy Wilson
I shall come on to the issue of rebalancing the Northern Ireland economy. My understanding is that it is in keeping with the Northern Ireland Executive’s programme for government, namely that we cannot for ever remain as dependent upon the public sector as we are at present. There must be a rebalancing, so that we have a structured economy that allows for greater private sector involvement and, therefore, leaves us less open to the dangers of what has had to be done today. I do believe that what has been announced today will be very detrimental to the Northern Ireland economy in the short term.
However, let me turn to what we were looking for in the Budget. We want a Budget that is effective at getting us out of the current economic situation. The Chancellor’s view is that, given the size of the debt, the interest that is accumulating on it and the fact that we have to finance it for a large number of years, we must show the financial markets that we are serious about getting the deficit down. That will ensure that our good credit rating continues, and that we do not have to borrow at punitive interest rates and, therefore, take even more money from that which we have for current spending. I have been able to have only a cursory look through the Budget statement, but it seems that the Chancellor’s assessment is that if we do not do this quickly, we will find that our credit ratings go down and we lose the confidence of the financial markets, with all the consequences of that.
The other side of the coin is that if that assessment is wrong—if our credit rating is good for a number of years because we show that we are starting to make efforts and we do not have to take draconian measures of the kind that have been announced today—then withdrawing public spending from the economy will lead to a downward multiplier effect. That will impact on the level of growth, thereby getting us into what has been called the double-dip recession, whereby tax revenues go down, welfare spending goes up, support for industry has to increase, and we get ourselves into an even bigger muddle.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
Does the hon. Gentleman recall that prior to the election, the leader of the Conservative party particularly targeted Northern Ireland and the north-east of England, my region, for criticism on account of the amount of investment in public sector funding? We have seen in today’s Budget that the Chancellor has not heeded the advice of the North East chamber of commerce, a leading voice of business in the north-east, which has said that the Chancellor and the coalition Government need to re-check their commitments on public sector spending so as not to jeopardise economic growth in the north-east.
Sammy Wilson
The hon. Gentleman is leading me on to my second point, which is about fairness, but let me finish this point first.
I have described the two sides of the argument. It is a subjective assessment, because the report before us does not present any conclusive evidence to the effect that the financial markets are so nervous that we have to take such deep, draconian action at this stage. Neither is there an assurance that the reduction in the amount of money that is going into the economy as a result of public spending cuts will not have an impact on economic growth.
Mr Redwood
I think that we should try to talk about the Budget that was actually presented. The figure for total spending in 2009-10, the last year of the previous Government, was £669 billion, and the forecast total spending for the last year of this Government, if they run to five years, is £737 billion. That is an increase of about £77 billion over the period, so what is the hon. Gentleman talking about?
Sammy Wilson
The right hon. Gentleman quotes the figure for spending, not the figures for taxation or, indeed, those relating to bringing down the deficit. That money was borrowed to be pumped back into the economy, so the amount of money going into the economy will be substantially less.
This is a subjective assessment, because the report does not give us any clear picture of what the likely impact will be. At least we now have an independent body reporting on whether these measures will be effective, but only time will tell as to whether the risk that has been taken today will pay off and will balance the economy quickly.
Gavin Barwell (Croydon Central) (Con)
Is the hon. Gentleman aware of the paper published by Goldman Sachs on 14 April, which reviewed every major fiscal correction in the OECD since 1975, and concluded,
“we find that decisive budgetary adjustments that have focused on reducing government expenditure have…typically boosted growth”?
Sammy Wilson
The context in which those adjustments take place is important, as is the speed at which they happen. All I am saying is that one way in which this Budget must be judged is on how effective it will be. Neither the report, nor the assurances given by the Chancellor today, offers any firm guarantee, if indeed that can be given, that the Budget will be effective.
The Financial Secretary to the Treasury (Mr Mark Hoban)
I suggest that the hon. Gentleman look at the report by the independent Office for Budget Responsibility in the Red Book, which sets out the impact on growth of the package proposed by the Chancellor and suggests that, post-2012, GDP growth will be stronger than the OBR initially estimated in its work prior to the Budget.
Sammy Wilson
As far as I am concerned, this is not about scoring political points off the Conservative party; the Conservatives do not present any threat to us in Northern Ireland. This is all about ensuring that the citizens of the United Kingdom do not have to live in the economic doldrums for a long period. I hope that the projections that have been quoted are correct, but it is right at least to look at both sides of the argument and make an assessment on that basis. Should these measures have been delayed, or should we have jumped in as we have done?
Secondly, we will judge this Budget on the basis of fairness. I look at that in two ways. First, is it fair to individuals; and secondly, is it fair to specific regions of the United Kingdom? The second point, as the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) suggested, is extremely important to people in Northern Ireland. Before the election, the Prime Minister—he has tried to explain it away and qualify what he said—stressed in a “Newsnight” interview that Northern Ireland is heavily dependent on the public sector. That is a fact, but he then implied that Northern Ireland would be targeted as a result. That is one of the reasons why the alliance between the Ulster Unionist party and the Conservative party failed so miserably—I do not know how well it would have done otherwise. People in Northern Ireland were extremely nervous that we in that part of the United Kingdom were going to be treated unfairly.
Under the proposals in today’s Budget, a regional fund will make money available immediately. However, it will not apply to Northern Ireland, or to Scotland or Wales, but only to England. Infrastructure projects have been guaranteed spending, but none of that applies to Northern Ireland. We are promised a report in the autumn on how Northern Ireland’s economy might be rebalanced, including an examination of proposals on economic enterprise zones, a possible mechanism for changing corporation tax rates, and other economic reform options. I look forward to that paper, and I am sure that the Northern Ireland Executive will do so too, but I note that that paper is merely examining options and proposals.
The Northern Ireland Executive have made a genuine attempt to restructure the economy by using public policy and public spending, trying to build up the infrastructure, trying to get people economically active by giving them new skills and preparing them for work, and so on. The reduction in public spending will have an impact on the ability to do such things, because they required that pump-priming. We will look to see how quickly the impact of the reductions in public spending is offset by some of the proposals in the promised paper on rebalancing the economy. This is important to us, and we want to drive it forward, but it will be made more difficult by some of today’s announcements.
Mark Durkan (Foyle) (SDLP)
Does the hon. Gentleman recognise that in the autumn, around the same time as the consultation document on rebalancing the Northern Ireland economy is published, the Executive and the Assembly will find out the outcome of the review of departmental expenditure limits in the current comprehensive spending round? That will have an effect on what Northern Ireland gets through the Barnett formula. The Budget also projects serious reductions in annually managed expenditure in the form of social security benefits, and those two squeezes on Northern Ireland combined could have a high economic impact that would make what is in the consultation document pretty irrelevant.
Sammy Wilson
That is related to the point that I made about the downward multiplier impact that the proposals will have on the UK economy, and particularly on the Northern Ireland economy. I am always reluctant to plead special cases, but one has to consider where Northern Ireland is in the economic cycle. We lag behind, as we are still in the downward part of the cycle. All the available indices, whether of output, employment, forward orders, investment or whatever else, show that we are still on the downward slide in the cycle. Our concern is about the impact that the attempts to restructure the economy could have, and the fact that while growth might occur in the rest of the United Kingdom, we might find ourselves still stuck in a recession because of the particular circumstances in Northern Ireland.
Ian Paisley (North Antrim) (DUP)
On the subject of fairness and special cases, the Red Book outlines a special case for Scotland, where there is to be a possible pilot scheme for rural fuel duty. Given that Northern Ireland is the only region of the UK that has a land border with another EU state whose fuel duty is progressively lower than ours, would it not be wise for that possible pilot scheme to be extended to the region that would benefit most from its findings?
Sammy Wilson
I would like to see that scheme initiated quickly in Northern Ireland. I suspect that it is one of the proposals that the Liberal Democrats were keen on pushing forward. Given the rural nature of much of Northern Ireland and the particular circumstances that we face, we would welcome it. We will be interested to see the outcome of the pilot scheme and how quickly it is rolled out across the rest of the UK, if at all.
I turn to fairness for individuals, on which there are things to be welcomed in the Budget. I suppose that at the end of the day, it will all be about balance. I am pleased to see that the pledge to restore the link between earnings and pensions has been honoured. For many pensioners who find themselves in difficulty, that will be an important gain. We also have the banking levy, the change to capital gains tax for those paying the top rate of tax and the fact that the pay freeze will not apply to those at the lower end of the public sector pay scale. There has been a genuine attempt to recognise that those who are already on low incomes should not be pushed down further.
On the other hand, there will be concern about the regressive nature of the VAT increase and the freezing of child benefit and tax credits. I am particularly concerned about the backdating of tax credits for one month instead of three, and I hope that the Chancellor will give us an answer about that. I hope that Her Majesty’s Revenue and Customs will improve its performance in dealing with tax credits, otherwise many people will have an unfair result through no fault of their own. They will be powerless against a bureaucracy that seems unable to move on the issue.
Kate Green (Stretford and Urmston) (Lab)
Is it not also the case that the families whose circumstances are most prone to change will be particularly hard-hit by a mere one-month backdating period? Those are families, of course, for whom jobs are particularly stop-go and at risk. The risk to families who already face dangerous and unstable economic circumstances will be heightened by that ungenerous measure.
Sammy Wilson
Not only are those the families whose circumstances are most liable to change, they are often the ones who find it the most difficult to deal with the bureaucratic maze that they face when making applications. I should like to hear from the Chancellor what proposals are in place to ensure more efficient processing of claims.
The final thing that I am looking for in the Budget is some certainty, particularly about its impact on Northern Ireland. We have been told that there will be a 25% cut in departmental expenditure limits over the next four years, but that it will not apply evenly and some Departments and areas of Government spending will be hit more than others. In Northern Ireland, we have now started the budget process. Because of the neglect of the previous Government, there was no comprehensive spending review announcement for the previous year, so we are planning in a vacuum. It is important that information be made available quickly to regional Assemblies as to what the impact on their departmental expenditure limits is likely to be, so that effective planning can take place. There is nothing worse than asking Departments to deal with difficult economic circumstances and then giving them a list of parameters and assumptions that are so vague that is almost impossible for them to make any long-term decisions.
If less money is going to be available, it has to be used more effectively. For that, there must be an ability to plan, so that we can look forward and see how that money can best be put to use and how Departments might work together to get more services from the available money. That can be done only if there is certainty, so I appeal for the information that regional Assemblies require to be given to them quickly.
Mr Deputy Speaker (Mr Nigel Evans)
Order. I am sure that Members will wish to observe the conventions of maiden speeches when they take place. We will have a small number of them this afternoon.
Simon Reevell (Dewsbury) (Con)
I am grateful to you, Mr Deputy Speaker, for the opportunity to make my maiden speech this afternoon. It is both an honour and a privilege to make these observations on behalf of the constituency of Dewsbury, which sits proudly in the West Riding of Yorkshire and comprises, in its northern half, the towns of Dewsbury and Mirfield, and in its southern half the rural wards of Denby Dale and Kirkburton.
Dewsbury is a diverse constituency in both geography and population. It has many famous sons and daughters, but before I mention just a few of them I should pay tribute again to Corporal Stephen Curley of 40 Commando Royal Marines, who was from Dewsbury and who recently made the ultimate sacrifice for our country in Afghanistan. Those of our footballers in South Africa who hint that their poor performance may be attributed to being away from their families for a few weeks should reflect on the fact that our real heroes are serving six-month operational tours in Afghanistan.
I referred to sons and daughters of Dewsbury, and I cannot make reference to any of them without mentioning Betty Boothroyd, as was, who became Speaker in 1992 and remained so for eight years. Another Dewsbury politician is my predecessor as a candidate, Sayeeda Warsi, who is an inspiration to many young Muslim women in my constituency and beyond. I should mention Sir Owen Richardson, who won a Nobel prize in physics; Patrick Stewart, an outstanding actor on television, screen and stage; Eddie Waring, successful pre-war manager of Dewsbury’s rugby club and for so many years the voice of rugby league; and current British super-featherweight champion Gary Sykes.
Although it is interesting to note the achievements of the famous, the real issues that affect people’s lives are my primary concern. In the Denby Dale ward, the village of Birdsedge supports sustainable energy, but rightly cannot understand why anyone would try to site huge turbines so that they overshadow the village and village school. Renewables are important, but so is quality of life, and I am pleased that the planning process will soon reflect that. I support BOLT—Birdsedge and district Opposition to Large wind Turbines—the village’s action group.
The villages of Skelmanthorpe and Scisset recognise the need to provide homes to sustain their villages, but could not understand how anyone could suggest doubling them in size without addressing the infrastructure that thousands of new homes would necessitate. Thankfully, the regional spatial strategy is behind us, along with the local development framework, but the local authority must recognise local people’s legitimate concerns as it considers its plans. I am pleased to support Save Our Scisset and the Skelmanthorpe community action group.
In the Kirkburton ward, there are successful businesses supplying everything from mineral water to precision engineering components. There is a remarkable company, which manufactures a machine that can prevent hair loss—
Simon Reevell
It is good, but not that good. It can prevent hair loss for some chemotherapy patients.
I have given examples of enterprises that must be encouraged, and the same applies to those who farm in rural areas. Honest food labelling is a reasonable request from those who farm the southern half of my constituency. Those who maintain our countryside and those who build up private sector businesses deserve a tax system that recognises generations of careful investment.
In Mirfield, as everywhere, education is important. Mirfield’s Castle Hall and the Mirfield free grammar are two of the local authority’s top performing schools. It was acknowledged that any sort of merger would harm the standards in both, yet that was the local authority’s plan. Many groups and individuals fought those proposals, and this is an appropriate moment to pay tribute to my predecessor, Mr Malik, who, through this involvement, put party loyalty to one side and stood with parents, pupils, teachers and politicians of all parties to oppose the local authority’s proposal. It is a good example of how a constituency MP should and did put people before politics. The schools adjudicator threw out the proposals for Mirfield, and I hope that they never resurface, but against such a background, schools such as Mirfield free grammar now look to academy status.
Mirfield has an excellent Air Training Corps and Army Cadet Force. Those organisations teach young people discipline, self-confidence and respect. Their colleagues in the Sea Cadets and Army Cadets in Dewsbury do the same.
Let me consider the town of Dewsbury. It was in the news again last week when the local authority published the summary of its serious case review into the Shannon Matthews case. I am glad that the publication of the entire report will follow, but publication of the summary was sufficient to cause the media to descend once more on the town. The real story is that the people of the town of Dewsbury are no different from the people of Mirfield, Kirkburton or Denby Dale. The Shannon Matthews case concerned only two members of a single family, who behaved in a truly appalling way, but no two individuals can define a town. What defines Dewsbury is the fact that when the people of the town believed that a vulnerable young girl had been abducted, friends, neighbours and strangers spent hour after hour, night after night searching for her, just as they would do in Kirkburton, Mirfield or Denby Dale.
That is not to say that Dewsbury is without problems. Despite its fine Victorian buildings and the best market in the country, regeneration is a priority, and there is a growing feeling that there is an obligation on the local authority to consider carefully whether relocating part of its work force to Dewsbury, a town with first-rate road and rail access, would be a responsible contribution to that process. Some landlords must be more realistic about their rents and more proactive about their responsibilities to the town centre.
Dewsbury’s minster stands on a site of Christian worship going back to 672. In its walls nearly 900 years later, the Protestant faith replaced the Catholic faith. More recently came the chapels, and even more recently, the minster was joined on the skyline by the silhouette of the town’s mosques. That is a sign of a confident and tolerant place, and no one should be allowed to jeopardise that.
The minster’s most famous curate was an Irish immigrant born Patrick Brunty. His is an interesting story. In 1799, after his victory in Naples, Admiral Nelson received the title “Duke of Bronté” from a grateful King Ferdinand. Patrick Brunty changed his surname in honour of the great naval hero. As Patrick Brontë, he worked as curate at Dewsbury’s minster, then went with his daughters to the parsonage at Haworth. The novels written there by his daughters, the Brontë sisters, made their new surname famous the world over. The point is not that those who come to West Yorkshire should change their names to honour the hero of the hour, but that much of what we regard as a product of England, even its finest literature, has roots further afield.
Integration is important—it is not about where someone is from, but the extent to which people are prepared to mix, and ensuring that we respect one another, whatever our cultural differences. It is about asking ourselves if a particular course of action will be helpful or inflammatory; whether something we want to do or even want to wear can be better explained or even changed if it alienates others. It is a central issue in the town of Dewsbury. We are entitled to expect integration and to say to community gatekeepers that their role is to hold the gate open, not force it shut. I pay tribute to all the organisations that do so much already to pursue that course.
Many people in my constituency are fed up with working hard and doing their best, and seeing others who make little or no effort being better off because of the vagaries of the benefits system. The system is unfair and I am delighted that, under the coalition Government, it will change to reward those who strive in the face of adversity, rather than those who sit back and ask, “What can I have for as little effort as possible?”
I thank those who worked so hard to win in Dewsbury. No one had a better team than me. I recognise that alongside victory comes great responsibility. It is an enormous privilege to shoulder that responsibility on behalf of the constituents of Dewsbury.
Rachel Reeves (Leeds West) (Lab)
I have great concerns about what the Government have outlined today. First, international evidence shows that hasty cuts will derail growth. Secondly, by failing to set out a vision for the future, the coalition destroys our chances of rebuilding a balanced economy. Thirdly, the Budget’s measures will hit the poorest in society—those who can least afford the pain—hardest. I fear for my constituents in Leeds West and am worried about how they will fare in the months and years ahead.
On growth, it is clear from the Chancellor’s speech that he has chosen to ignore the harsh lessons of history—from Japan in the 1990s and the USA in the 1930s. Despite his talk of a plan for growth, as a result of today, we face the real prospect of a double-dip recession.
I wholeheartedly agree that the deficit needs to be cut, but the issue is whether it should be cut this year or next year, and the method of making those cuts. The surest way to bring down the deficit is to embed strong and sustainable growth, but we heard nothing about that from the Chancellor today. The Office for Budget Responsibility’s forecasts have revised growth downwards—after those presented only a week ago—by 0.1% this year and 0.3% next year, and an additional 100,000 people are due to go on the dole.
Kwasi Kwarteng (Spelthorne) (Con)
What does the hon. Lady think about the sovereign debt crisis in Greece, to which my right hon. Friend the Chancellor referred in his Budget statement?
Rachel Reeves
I thank the hon. Gentleman for giving me the opportunity to address that issue. The debt-GDP ratio in Greece is two and half times that of the UK, and the maturity on UK debt is, on average, 13 years, compared with an OECD average of two to three years. In addition, the Greek economy remains in recession, while the UK is beginning to recover from a recession. We cannot take that recovery for granted, but our economy grew by 0.3% in the first quarter of this year, and we are beginning to emerge from recession.
The downgrades from the OBR reflect the fact that the cuts will stall the recovery and throw more people into unemployment. There are two ways to reduce the deficit: strong growth, or wielding the axe. The Chancellor has today chosen the latter, and the result will be, as we have seen from those forecasts, weaker growth, higher unemployment, more business failures, more home repossessions and a less competitive British economy. Instead of a strategy for growth, we have been given a strategy for austerity, cuts and pain for working people—the people whom I have been sent to Parliament to represent.
Christopher Pincher
When the Governor of the Bank of England, who was of course Governor when Labour was in power, said that the deficit reduction plan is strong and powerful; when José Manuel Barroso says that fiscal consolidation is necessary; and when Lord Myners, who has made an astonishing but none the less welcome conversion to sanity, says that Governments should spend less than they earn, does the hon. Lady agree with them?
Rachel Reeves
I will give way less often if interventions last that long. The hon. Gentleman made a long intervention, but missed a couple of points on which I should like to fill him in. In its statement from South Korea a couple of the weeks ago, the G20, as well as calling for countries to address budget deficits, argued for growth-friendly deficit reduction strategies. Today we did not get that. Another of the hon. Gentleman’s omissions is President Barack Obama’s warning. In a letter ahead of the G20 meeting this weekend, he said that we should
“learn from the consequential mistakes of the past, when stimulus was too quickly withdrawn and resulted in renewed economic hardships and recession”.
The hon. Gentleman failed to mention those points, but they are extremely relevant to the debate.
Stewart Hosie
The hon. Lady is absolutely right on the early withdrawal of the fiscal stimulus—so does she regret the fact that her Government were one of only two Governments fully to withdraw the fiscal stimulus package in 2010?
Rachel Reeves
What I regret is that the current Government withdrew the future jobs fund and the extra 20,000 places that Labour introduced to universities, and cut the regional development agencies, which were doing fantastic work in my region of Yorkshire and Humberside. Those are my regrets.
Frankly, there is no vision from the Chancellor and the Government of the sort of economy they want to emerge from the recession. What sort of society and economy do they want when they have reduced the budget deficit? Labour wants a sectorally and regionally diverse economy that is robust enough to face future shocks. None of that is on the Chancellor’s or the Government’s radar—let alone within their grasp—because they are cutting the very measures that would ensure not only growth in the short term but future economic security.
The new Government are portraying their cuts as eliminating waste, when in fact they are risking our future economic prosperity. Eliminating the future jobs fund, which has got almost 200,000 people back to work through the recession, axing the loan to Sheffield Forgemasters—an absolute disgrace that has cost jobs and economic growth in my region—cutting funding to universities, and cutting hospitals, transport and school building programmes across the country, including in my city of Leeds, is certainly not my idea of eliminating waste. Rather, it is cutting the front-line services on which my constituents rely.
Jim McGovern
My hon. Friend mentioned her regrets and went on to describe some of the things that are happening in her constituency, but does she agree that the Government’s refusal in today’s Budget to honour the commitment to tax breaks for the computer games industry will have a detrimental effect in my constituency?
Rachel Reeves
My hon. Friend is absolutely right, and we could think of countless examples of things that the Government have done today that will risk the future economic prosperity of this country.
Worse than that, ordinary people—those least responsible for the recession—will be hardest hit. In Leeds West, average earnings are £16,000 and unemployment stands at 8.7%. Increasing VAT, reducing access to free school meals, abolishing the health in pregnancy grant, freezing child benefit and cutting tax credits will hurt my constituents. The people who bear no responsibility for the financial crisis and recession will be hardest hit. An extra £13 billion is to be paid in VAT, but there will be only £2 billion extra from the bankers. Is that fair? Is that the way to bring down a budget if we are “all in this together”? I think not. Asking those who already struggle to make ends meet, such as those in Leeds West, to make the same sacrifices as, or more than, those at the top is plain unfair and socially divisive.
I began by urging the Government not to forget the lessons from Japan in the 1990s and the United States in the 1930s. However, I am filled with fear that they want to learn a lesson from Canada, because we are in a totally different position from that of Canada when it approached its fiscal consolidation. At that time, Canada was a partner in the newly formed North American Free Trade Agreement, and was experiencing strong demand for its exports. It was also able to loosen monetary policy, which was integral to getting its economy back on track. Given that UK interest rates are at 0.5%, that rates will be low in the long term, and that quantitative easing has already been undertaken, it is pretty much impossible to see how we can loosen monetary policy further—that is simply not at our discretion. I urge the Government not to manipulate the Canadian experience to justify today’s deep cuts.
I do not dispute that we need a realistic and credible plan for reducing the deficit—[Hon. Members: “Hear, Hear!”] In response to those heckles, as far as I am aware, it is the Government’s responsibility to come up with the plans, but without a credible plan for growth, we risk a double-dip recession, or a British economy that splutters along in the slow lane of the global economic recovery.
The Government are trying to convince the public that there is only one way that Britain will bring down the deficit—pursuing hasty and unjust spending cuts—but that is simply not true. They are using the budget deficit as a cloak for fulfilling their overriding ideological desire for a smaller state. They are set on achieving that by doing the economy down—as the hon. Member for Spelthorne (Kwasi Kwarteng) did when he made the comparison with Greece, which was the most misleading comparison he could have made—and by panicking the public into thinking that there is no other option.
However, there is another option. The surest way to reduce the budget deficit is to ensure strong and sustainable growth and a rebalanced economy. Yes, taxes need to increase and spending to decrease, but not at the expense of the economic future of this country or of a diverse, strong regional and national economy; and not in a way that will plunge more families and children, who played absolutely no role in causing this recession, into poverty, unemployment and despair.
Mr John Redwood (Wokingham) (Con)
I remind the House that, in the declaration of Members’ interests, I have revealed that I offer business advice to a global industrial company and an investment company.
In her response to my right hon. Friend the Chancellor’s Budget, the Leader of the Opposition gave one of the worst speeches I have ever heard in the House. It was intemperate and ill judged, and did not seem to be based at all on the Budget presented to us today. It is a great pity that she and her party still do not understand their culpability for the financial mess in which we find ourselves, show a little humility over the inheritance they have passed on—the worst financial and economic inheritance any Government have received since the second world war—and show a little willingness to work with us on getting out of this hole.
Many Labour Members, having been Ministers or ministerial advisers until just a few weeks ago, have a lot of information. They told us during the election, in general terms, that they would unleash substantial public spending cuts after the election, and it would be good to know from them where those cuts would have been made. They might be preferable to some of the ones we are thinking about, and it would be most useful if they would share them with us. If they are not prepared to share them with us or the country, the country is entitled to say, “These people got us into this mess, are totally unconstructive and still have not learned anything.” As other Members have said, it might be better if they got on with their leadership election, and let us get on with the serious task of debating the state of the country.
Austin Mitchell (Great Grimsby) (Lab)
If the public finances are in such a mess, why did the Conservative party want to adopt Labour’s spending targets in 2008, and did it oppose the huge amounts of money put into the banks to save the banking system, which was responsible for much of the borrowing?
Mr Redwood
I was clear throughout the previous Parliament that I thought Labour’s spending targets were unaffordable, and I said so in the economic policy review that I wrote for the Conservative party at the time. I was strongly opposed to the indiscriminate subsidies and moneys flung at the banks on a scale that defied belief and which I felt was totally unnecessary. I offered an alternative way of saving what needed saving in those banks, for the sake of the general economy and at a much lower cost, so I think that the hon. Gentleman has challenged the wrong person on that issue.
I pay tribute to my hon. Friend the Member for Dewsbury (Simon Reevell). He gave an elegant, traditional and classical maiden speech that bodes well for his representation of the people of Dewsbury. It was funny and detailed; showed a great love of the territory and people he now represents; and showed that he will be a campaigning politician. I also detected just a little conservatism in his attitudes, so I was entirely happy with it and wish him a long and successful stay with us in the House.
The Budget has been little understood by some of the people who have commented on it so far—perhaps that is not surprising because those who speak early do not necessarily manage to read the Red Book quickly enough. I praise my right hon. Friend the Chancellor for producing a Red Book half the length of the Labour Red Book—and, therefore, a lot cheaper and economical—but containing much more useful information. With a short read one can understand exactly what he is trying to do in the measures he is proposing, whereas I used to find it took more than a day to winnow out the truths from the great weight of paper that the previous Chancellors of the Exchequer used to present, because they were always trying to disguise the negatives and highlight and exaggerate the positives.
My right hon. Friend is right to say in his Budget that we can get out of this mess only with a strong and vigorous private sector-led recovery. We need to preside over the creation of a very large number of new private sector jobs, because we need to absorb many of the people languishing on benefits as a result of past policies—almost 6 million people of working age without a job, many of whom would like and need a job. We need to create a much more vibrant private sector that can take them into employment, so that the benefit costs come off the public accounts and those people can start to make a contribution through taxes.
We also need to create many more jobs because the 6 million people currently employed in the public sector are too many. I do not wish to see compulsory redundancies, but I am glad that my right hon. Friends in ministerial office are now imposing freezes on recruitment and allowing recruitment from outside only where it is really necessary. We need to reduce the number of people across the public sector, and I am pleased that we will be showing the way here as well, so that nobody can say that MPs are exempt from the process.
Chris Leslie
The right hon. Gentleman is talking about the number of people in public service employment. What sort of reduction does he feel would be acceptable? How many people should no longer be employed in the public sector?
Mr Redwood
That has to be judged case by case. I will not play the hon. Gentleman’s silly political game so that he can create a sensational press release immediately after I have given him a suitably large number, and I am not going to give him a suitably small number so that he can say it would not have the necessary impact. Suffice it to say that proper management could deliver more for less across many parts of the public sector, and we can do that without compulsory redundancies; we can do it by sensible management.
My first test for my right hon. Friend’s Budget is: how does it promote private sector-led recovery? I am pleased that he has said that he wishes to cut, through a steady process, the headline rate of corporation tax by rather more, I think, than under the plans when he was in opposition. The receipts pages—pages 40 and 41 of the Red Book—on “Budget policy decisions” show that he will be reducing the tax burden for most of business, and that not all of it will be given back in the form of reduced capital allowances in the way that Labour feared. However, if we add in the banks tax, the corporate sector as a whole will be making a bigger contribution. So the thrust of the Budget is that non-banking businesses will get a modest benefit from the changes and that overall business will have to help to pay for the large amounts of public spending still going on. However, a clear message will be sent to the outside world that we want lower taxes and that we believe in lower tax rates. The lower headline rate is the most beneficial thing that we can do to get people abroad interested in coming here with their companies, investments and new ventures, which is what we need.
I am pleased that the Chancellor has done more for small business. [Hon. Members: “Hear, hear!”] All the evidence shows that small businesses are not only politically popular with my colleagues, as we have just heard, but the main generators of new jobs during an economic recovery. They are more creative and need to take on more people. He has targeted them favourably with both the small business profits tax rate reduction and, for those outside London and the south-east, the generous national insurance reduction—as a Member for a south-east constituency, I would like him to extend that to the rest of the country as well, but I understand his argument that he wishes to concentrate the help on those parts of the country with the most unemployment and the biggest public sector problem.
Overall, the Budget judgment is not to ensure that 80% of the strain is taken by public spending reductions. The idea is that next year 57% of the strain is taken by public spending changes and 43% by tax increases. That is quite high on the tax increase side, which is a little worrying, but it reflects how my right hon. Friend is very reluctant to cut public spending in a damaging way and his understandable wish to get on with Budget deficit reduction.
Tom Blenkinsop
The right hon. Gentleman mentioned that he would like to see extra advantages for his constituents in the south-east. The Financial Times recently calculated that cuts to benefits and key Departments will have twice the detrimental impact on family incomes in Middlesbrough South and East Cleveland and other constituencies in the north-east as they will in the home counties. Given that, how can the Government talk about us all sharing the burden, and about all of us being in this together?
Mr Redwood
I was coming on to talk about the impact on incomes. The Red Book is quite explicit about that, and has some very helpful tables. I suggest that the hon. Gentleman gets a copy for his greater interests, as those tables make it very clear that the more one earns, the bigger will be the negative impact on earnings. As the Chancellor himself said, in that sense this is a very progressive Budget: he has shielded people on low incomes from part of the impact, and made those on higher incomes carry more of it. Although the hon. Gentleman represents a place with more people on lower incomes, they will be relatively protected.
Mr Nigel Dodds (Belfast North) (DUP)
The right hon. Gentleman listed a number of measures that the Chancellor is taking to promote the private sector. I am sure that he will agree that one of the most welcome proposals is to reduce the volume and complexity of regulation. However, does he accept—I am sure that he will—that a lot of regulations come from the EU? How can we grapple with the extent and complexity of regulation if a lot of it emanates from somewhere other than Whitehall?
Mr Redwood
The hon. Gentleman is right to say that we have much less power to reduce or improve regulation from Brussels than we do with what is homespun. However, so much crass and foolish regulation has been put on British businesses over the past decade by the home legislators—the then Labour Government—that we can get quite a long way by removing, amending or changing that. In the meantime, we need to summon up a bit of courage and tell those in Brussels that they, too, should join in the process, as that would benefit their businesses as much as ours.
I have often said in this House that, from the point of view of running a business, reducing regulatory cost is a good way of offering something that is just like a tax cut without reducing the public revenue. Indeed, it is even better: not only is there no revenue loss, but public sector costs can be reduced, as the enforcement and monitoring costs of needless or over-the-top regulation can themselves be reduced. That means that businesses get a cash flow benefit, and that there is a reduction in the costs of Government.
The previous Government regulated too many things, and they did so too much and too often. They often regulated in a way that made things worse rather than better. We often found ourselves opposing them, even though we did not disagree with their aims. Like them, we wanted people to have nice lives and decent jobs, and to be free from risk in the workplace and so forth, but we often found that the regulation that the former Government proposed was very expensive and did not achieve the required result.
A tick-box culture means that people get very good at ticking boxes and writing memos, but that they do not manage in the proper way. A factory can be made less safe if the process is merely bureaucratic. Instead, the notion that safety comes first, second and third must be inculcated in all the senior people in that factory. They must manage safety intuitively, as ensuring that a workplace is safe cannot be achieved by tick boxes, inspectors or regulators.
Safety must be inherent in every workplace, and what we can do is to set a tone by saying that it matters above all else. We can have laws at a high level on safety but we need not go into as much detail as the previous Government did. Their approach often made things worse, and much more expensive.
The most important table in the Red Book can be found on page 45. It is one that we must discuss and understand, as it sets out the expenditure patterns for the forthcoming period of Government. The information in the table will come as a pleasant surprise to many neutral people outside the House, although it may worry Labour Members, who seem to be in denial about it. The table shows that total expenditure in the last year of the Labour Government reached £669 billion, and that expenditure will rise steadily to £737 billion by 2014-15.
Stewart Hosie
The right hon. Gentleman is accusing Labour over this cash-terms expenditure increase, but I am sure that he will remember that the Chancellor explained early in his speech that ever-increasing debt repayment costs were included. I have no doubt that, for the sake of completeness, he will want to remind the House of the gross domestic product deflators of 3.2%, 2.1%, 2.1% and 2.6% over the next four years.
Mr Redwood
I was going on to say that we are talking about a big increase in cash. If all of us in the public sector can get better at managing that cash, we should be able to do a good job for people because the amount of spending is going up.
What could go wrong? Well, the hon. Gentleman has mentioned two things that could go wrong. If public sector inflation is as high as, or higher than, forecast general inflation, that will eat away at the value of the money that we are spending and make it more difficult to sustain good public services. However, Ministers tell us that they will be very tough on wage increases. That will help, as it will share the work and mean that we can keep more people doing more worthwhile things for our constituents, without all the money being eaten away by wage increases.
After all, that is what the private sector had to experience for two or three years, during the worst of the recession. In that regard, I pay tribute to the many work forces and unions in this country that did not merely accept that there would be no pay increases; instead, they often accepted pay reductions and very tough work-sharing schemes. They did so because they understood how dire the position of their industries and companies were, and they helped their managements to see their companies through.
We do not have to go that far in the public sector, but there is something that we need to tell all our public sector employees, and I think that this is a task for Opposition MPs as well as Government MPs. We need to say, “Things will be less painful and better for all of us if we can keep costs down and wages and salaries under control. More jobs will be preserved and a better service delivered to the people whom we serve, because more of that cash increase is going to go into helpful spending.”
As the hon. Gentleman says, the rising interest charges are also a worry, albeit one that makes the coalition Government’s case rather well. If we do not tackle the rising deficit now, more and more of the money will go on paying interest bills for past spending, rather than being available for paying teachers’ or nurses’ wages, which is what we would rather be doing with it. His point therefore makes the case strongly that the more action that is taken at the beginning, the better, because then more of the quite large sums of extra money that will be available will go on buying real improvements or maintaining a decent quality of public service, instead of going on the rising interest bill.
The Government have had just one piece of good fortune with their rather bleak inheritance, as well as quite a lot of bad news from outside the United Kingdom. The one piece of good fortune is that over the weekend the Chinese Government announced that they were going to allow their currency to start to move upwards against the dollar. We have had quite a long period of the yuan/renminbi being pegged to the dollar. That has meant that China has been super-competitive. China works hard, she is developing much better technology and she produces good products. With the managed exchange rate that we were experiencing, with the pound sticking around with the dollar in recent months, we discovered that China was getting more and more competitive. Indeed, there has been another huge surge in Chinese exports in recent months.
Let us hope that the Chinese will now allow their crawling peg to crawl up quite a bit. The last time they had a crawling peg, it started a bit slowly, but then there was a 20% revaluation of the currency, which was quite helpful. We need all the help that we can get, because Britain has to export more and earn more money in overseas markets. The world’s No. 1 colossus—the dominant, most competitive exporter—is China, and any currency revaluation would be helpful. We still have to work hard—we have to get smarter and control our costs—but that revaluation might take some of the pressure off.
However, the bad news is that the European market is getting worse. We had hoped that European countries would have a normal, cyclical recovery, such as that which the United States is enjoying. However, it now looks as if their recovery will be slow, with quite a number of countries going backwards this year and early next year, because of their deficit problems and difficulties with the euro. Indeed, those countries’ economies might continue to fall or start to fall again. That is difficult for Britain, because euroland is an important marketplace for our physical goods—it is not nearly so important for services or inward and outward investment, but it is important for physical goods. It is therefore in our interests that euroland starts to mend itself as soon as possible. I therefore hope that the Chancellor will continue his negotiations and work with his European partners, because it is important that we allow them to take the actions that they need to take to start mending the euro.
The euro is a single currency in search of a single country, and that has been its tragedy ever since it was first created. Those of us who warned that we could not have a single currency without a single economy, a single budget and a single Government were told that we were quite wrong and that we had misunderstood things. Apparently all that history that we had read was a waste of time. However, all the history of currency unions that I have ever read shows that they work only if there is control of the borrowing and spending levels through a central power, which is what we are now told our friends and colleagues in euroland are learning. They have discovered that they cannot allow Ireland, Greece, Portugal and Spain to free-ride at the expense of the rather more prudent core. Those in euroland are learning that, if they allow those countries to borrow and borrow at the lower common interest rate that Germany has granted them, there comes a point when the markets no longer believe in those countries and they start to blow their debt markets apart.
Sammy Wilson
Is the right hon. Gentleman not a bit concerned that the Government now accept that the European Union perhaps has the right to scrutinise the budgets of euro countries before those budgets are implemented? Does he not believe that that could be the thin end of the wedge, and that such scrutiny might eventually extend to all members of the European Union?
Mr Redwood
I am very strongly of the view that countries have to do that, and more, in euroland. As Members might guess, I am passionately of the view that that has nothing to do with Britain. The deal I want my right hon. Friends to offer our European partners is that we will accept more or less any kind of treaty change to give them proper control over the budgets of euroland as long as we get some powers back and it is made very clear that we are not part of this new machine to try to create an economic Government of Europe.
There need to be changes. The system is not at all stable, and I do not think that the much advertised trillion dollar package of loans and guarantees, and possible facilities, is necessarily going to see all these countries through the future threats to their stability. Given the rather damaged states of their private sector economies in many cases, there is a danger that, if all they do in response to the financial market pressures is to cut public spending to try to get their borrowing down, they will not succeed. If they are cutting their public spending, but there is no growth coming through in the private sector to take up the slack, or if they are cutting their public spending while their tax revenues are falling, the gloomy pundits will be right and the medicine will not work. Just cutting expenditure does not create a strong economy.
It is important to cut spending sufficiently to allow the private sector to grow and it is important to cut spending sufficiently so that the deficit does not get out of control and produce too much pressure on interest rates, but that needs to be done against the background of the beginning of a recovery—as we have in the United Kingdom. For a country in turmoil with a deeply damaged economy, as some of the southern states seem to have, simply cutting expenditure might make the problem worse, not better, without taking other action to try to get the economy’s private sector going.
The proof of the Budget will be in what happens to the private sector recovery over the next year or so. I hope that the Office for Budget Responsibility will turn out to have been too gloomy. It says that the impact of the Budget in the first two years will be to lower the growth rate slightly; it says the growth rate will be better in the following years when the full benefits of deficit reduction and private enterprise promotion kick in.
It need not be like that; we could do better than that. If the Chancellor wishes to do better than that, as I trust he does, he needs to turn his attention urgently to the state of the British banking industry and the capability of British banks to finance the private sector-led recovery that we clearly need. I do not believe that the current regulators of the British banks have got it right, and although I fully support centralising the regulation of money markets and banks in the Bank of England—I advocated it myself and I am happy that that is going to be done—that in itself is not enough. That is a structural change, but what we also need is an attitude change.
The sad truth of life is that we have just lived through the worst five years I have ever seen in terms of mismanagement of money and banking in this country. Labour Members will want to blame just the private sector banks, and I agree that some directors of those banks got it horribly wrong and they deserve to be dealt with in the appropriate way by their shareholders and by others. However, I hope that sensible Opposition Members would agree with me that it does not speak well of the monetary control system and the regulatory system that that happened. Why do we have financial regulators? We have them to stop that kind of thing happening. They are meant to stop runs on banks, even if banks have directors who are likely to produce a run. They are meant to stop systemic collapse, even if directors get a bit carried away.
Mr Binley
Is it not right to point out to the Opposition that the then Chancellor of the Exchequer, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), asked the Financial Services Authority to apply a light touch in order to sustain his myth that he had done away with bust? Is that not one of the reasons that Labour Members should apologise?
Mr Redwood
If one interprets light touch as meaning regulating the wrong things, I would agree with my hon. Friend. There was a huge increase in the amount of regulation during the Labour years, as one would expect, as Labour Members believe in regulation, but I think that they have demonstrated that it does not work. Our old friend the box ticker is relevant. There were many more box tickers in the City at the end of the Labour period than at the beginning: lots of nice, neat forms were duly filed; and people got into trouble if they put the wrong figure in the wrong box, which was apparently a great crime.
Meanwhile, the regulators simply ignored the phenomenal explosion of the banks’ balance sheets. I do not mean just hedge funds or off-balance-sheet items; the actual balance sheets ballooned in a crazy and unreal way. As I recall, the main banks went from 20 times to 34 times leverage, and not once did the regulators ask, “What is going on here? Is this not a bit excessive?” Why did the banks have only 20 times leverage in Lady Thatcher’s day? She was not known for being too shy about promoting private sector recovery. Perhaps there was a reason why banks were only allowed to gear that much in those days, and perhaps we should think again about the degree of gearing.
We then lurched from that to the opposite position. At the depth of the recession the regulators said, “We have now decided that the banks must get rid of all this leverage. They must have huge amounts of cash and capital pumped into them so that they cannot lend anything to anyone.” That made the recession 10 times worse.
Mr Graham Stuart (Beverley and Holderness) (Con)
My right hon. Friend has just made the very point that I was going to make. The regulators compounded their failure to regulate at a time when they should have reduced the lending of banks by, during the bust, doing the precise opposite, and compressing lending when the economy desperately needed the banks to lend more. That was a double whammy for the British economy, it was entirely due to the behaviour of the Labour party, and it has left a terrible economic legacy which the Chancellor today set out bravely to put right.
Mr Redwood
I think that we now need to be positive, and I want to try to engage the Labour party in the process. I understand that the hon. Member for Leeds West (Rachel Reeves) used to work at the Bank of England, and we may have learnt from her speech why it is a good thing that her advice is no longer available to the Bank; I do not think that she would have helped to get us out of the mess. From now on, however, we need to ask ourselves what we should do about banking regulations, because I do not believe that the current system is right. It is all very well for us to say that it was wrong under the previous Government, as it clearly was, but it is our duty now to try to ensure that we do a better job. Unless we change the system, it will not be much better under the present Government.
I believe, and I think Treasury Ministers believe, that we should now have counter-cyclical rather than pro-cyclical regulation. What does that mean? It means that when times are tough and we are in recession, we should allow banks to lend more money on easier terms, and when times are really good—as in 2006-07—we should rein in the banks and say, “You cannot go on lending like this.” In the immortal words of the Governor of the Bank of England, we should remove the punchbowl before the party has everyone blind drunk. It is a pity that we did not do that in 2007.
Some of my critics say to me, “That is all very well, but how do we know where we are in the cycle?” We can never be sure where we are in the cycle, but I should have thought that it was fairly easy at the moment to agree that we are somewhere near the bottom of it. Heaven help us if this is not the bottom of it. I do not believe that all the figures in the Red Book about growth from this point are wrong, and I do not believe that all the independent forecasters are wrong. I think it quite likely that there will be some growth, but not as much as I would like and not as much as we will need.
The main reason that there will not be enough growth is that we do not have easy enough money for the private sector to refuel the recovery. The overall money supply figures are pretty dire, and we should bear in mind how much of the money is circulated around the system from the Bank of England to the Treasury to the spending Departments. Labour left a perfectly good money machine to put relatively low-cost money into the public sector, but at the cost of the private sector, which—particularly small and medium-sized enterprises—is still shivering in a world in which there is not enough sensible credit.
I do not want to stoke a new unsustainable boom, but there must be a judgment about whether the recovery is too fast or too slow, too hot or too cold. At present, it is most people’s judgment that in the private sector is too cold. It is not going quickly enough, and it is not easy enough. We need to make it easier for ordinary, run-of-the-mill entrepreneurs to succeed. It should not be necessary to be a complete genius who is prepared to take on all the odds in order to establish a company. We want people to be able to do that who have reasonable skills and do not want to have to fight the jungle all the time.
Nadhim Zahawi (Stratford-on-Avon) (Con)
I agree with my right hon. Friend. He has heard me speak passionately about start-ups, and I was pleased that my right hon. Friend the Chancellor provided some incentives for them today, but given the reality of where we are today in the economy, the recovery will be fuelled less by start-ups than by medium-sized businesses that are already exporting to countries such as China and Brazil, where our record is currently abysmal. We export more to Ireland than to those countries. It is those type of companies that have a more mature business that are not investing at present. They are not retrenching, but they are not investing. Banks need to send a message to them that there is money available to them to make that investment and to grow their business from medium to large.
Mr Redwood
I am grateful to my hon. Friend, and I agree exactly with what he said.
My conclusion on this is that to promote a proper recovery the Government need to have words with their financial regulators to say that at this stage of the cycle they should not be demanding more cash and capital from here. The banks are now perfectly solvent. They are perfectly liquid; they are lending huge sums of money to the Government, and that counts as liquid resources because they hold it in the form of Government bonds and Treasury bills. Job done, therefore, but by all means start to tighten things again in a year or two if we have a really good recovery going on and if credit is beginning to build up.
The economy is still anaemic, however; it is still short of credit. It does not have the oomph behind it that we need, and the answer lies in the banks. So my plea to the Chancellor is that in order to make his strategy successful he needs to do something about the way we approach banks, credit and money supply in this country.
The overall Budget strategy takes the risk of doing rather more by tax and rather less by public spending reductions than the Chancellor himself was suggesting when he first looked at this problem, but I wish it well. It is very important for all of us that it works. Every Member in this House wants their constituents to have more chance of a decent job, more chance of getting off benefit if they are unemployed, and more chance of keeping good-quality schools and hospitals.
We have seen what happens in extreme situations in countries that did not take their deficit seriously. They not only end up with a worse economy; they end up with much bigger slashes in public services because they literally run out of money. The previous Government very helpfully advised us that all the money had gone. We know where it went and who took it. The Red Book today gives a pathway to get back from that, so I hope that we will get behind it and try to make it work.
Chris Leslie (Nottingham East) (Lab/Co-op)
It is an honour to represent Nottingham East, having had a few years out of Parliament from 2005. Although I would encourage Members to treat my contribution today as a maiden speech—following, perhaps, the conventions of treating me gently and with great respect—I suspect that might be twisting the rules on maidens a little bit. I do not know whether one can be a born-again maiden, but I will try to focus today on the measures in the Budget speech.
First, I would like to pay tribute to my predecessor, John Heppell, who served Nottingham East faithfully for 18 years, not only—and perhaps most infamously—as Parliamentary Private Secretary to John Prescott, but for several years in the Whips Office.
Nottingham East is truly a wonderful constituency, ranging all the way from St Ann’s, Sneinton, Mapperley, Sherwood and Carrington to Bakersfield and other parts of the core of Nottingham city, which has some of the poorest parts not only of the city, but of the country as a whole. It is because of my concern about the impact of the Budget on those in my constituency who are among the poorest in the country that I wanted to speak today to signal my deep reservations about the measures announced.
I particularly want to focus on the Chancellor’s taxation measures, but there is also the hidden part of the iceberg beneath the waterline: the 80% public spending reductions. That may harm my constituents most of all. We will not know the full ramifications until the spending review in the autumn, of course, but the Chancellor signalled that there could be a 25% reduction in those departmental expenditure limits that are not in the protected areas of health and international development. To take 25% so quickly out of some of the key budgets in the country such as education, transport, housing, police and counter-terrorism will affect key services, and there will undoubtedly be a major effect on our quality of life, in particular on the least well-off.
I want to challenge some of the Conservatives’ spin and assumptions. I understand where they are coming from. They had to set out the context as best they could to try to soften up the public before they wielded the axe, but I am not convinced that it has worked on this occasion. The notion that the condition that we are in is all the fault of the previous Labour Government is really stretching things too far. Even the right hon. Member for Wokingham (Mr Redwood), who is not at the wetter end of the Conservative party, had to acknowledge that the banks were the root cause of the credit crunch and that it was a global credit crunch that started in America and spread around the world. Yes, the regulators failed, but regulators failed worldwide. He might well be like Mystic Meg in his understanding of the sorts of problems likely to range from the regulation of derivatives all the way through to the gearing ratios that the banks pursued, but the truth is that the then Government had no choice but to take steps to save the banking industry, otherwise the cash machines would not have been working; Had he been in government, he would have done exactly the same thing. It is important to put that on the record.
Mr Redwood
The hon. Gentleman should really point out that Australia, China, India and Canada have had much better success at getting their banks and economies through without the kind of crisis that we have had.
Chris Leslie
If the right hon. Gentleman is seriously suggesting that this was not an international credit crunch, I just do not think that is plausible. The House deserves better from him.
Chris Leslie
Let me make a little progress first.
The notion that the debt is solely Government-authored debt has to be rebutted. The problem was not so much about excessive public spending as about tax receipts being drastically reduced because of the recession that came as a consequence of the credit crunch. That is the reality of the situation. The Conservatives try to promulgate the notion that the situation is far worse than expected, but the statistics show that the borrowing requirement is not as difficult as it was a few months ago and that the receipts we now gain from revenues are recovering better than expected.
The notion that debt is out of control was rebutted quite well in today’s edition of The Independent by Sean O’Grady, the economics editor, who illustrated very well that Britain is not Greece. The right hon. Member for Wokingham talked about the difference between euroland and our particular predicament. Although we have difficulties, we also have our own currency and some flexibility. We are not trapped in that currency zone, we have a more diversified economy than others in those areas and our debt has a longer maturity—it is not as short as in other countries. Our national debt might, unfortunately, peak at around the 75% mark, but that is very far from the levels that other countries are talking about.
There is a concentration solely on deficit, rather than on debt, but debt should be the issue at hand as that is the best way of comparing, historically, where we are. At the end of the second world war, Britain had a debt ratio of about 262% of gross domestic product, but the Labour Administration were able to establish a welfare state even with those levels. There is this notion that we are in a dreadful predicament, but the Conservatives have to concoct that urgency and talk about emergencies. There is absolutely no consensus either in the House or among economists more generally that the severity and the austerity that the Government have introduced in the Budget is on a necessary scale.
Nadhim Zahawi
The hon. Gentleman speaks as though his Government were not going to introduce any cuts. Is he telling the House that if Labour were on the Government side, they would do nothing about this? As my right hon. Friend the Member for Wokingham (Mr Redwood) has mentioned, Labour suggested during the election that there would be cuts of £40 billion but gave no further detail. Is the hon. Gentleman suggesting that everything was rosy in the garden before and that we should continue as we were?
Chris Leslie
No, we have to be mature and grown-up about these issues. It is important to recognise that the best way to address our deficit is to have a pro-growth strategy, because it will be through growth that we generate receipts, so that we can make improvements. If we have to restrain public expenditure, doing so in such a short space of time, with such severity, is an exceptionally risky strategy. In Sweden, and even in Canada—countries the Conservatives keep citing—such changes were made over 10 or 15 years. Yes, they rebalanced and consolidated, but for the Government to do so with such fervour betrays what is really going on in the Conservative party. Ideologically, the Conservatives secretly enjoy the cutting back of public expenditure. They hate state expenditure—they absolutely loathe it. They take a certain kind of masochistic relish in scaling back public expenditure.
Steve Baker (Wycombe) (Con)
Does the hon. Gentleman recognise that there is not just one school of economic thinking but at least three? Keynesianism, monetarism and the Austrian school have very different ideas about the rate at which we should cut and about how the economy would recover. Will he at least recognise that in academia there are real differences in economic thinking?
Chris Leslie
I could not agree more. That level of maturity is refreshing, but the Chancellor of the Exchequer saying that there was consensus that the measures had to be taken in a particular way shows how the hon. Gentleman departs from his Front-Bench colleagues. I hope he will have the foresight to listen to the differences of opinion and recognise the possibility that austere and harsh public expenditure reductions, as well as some of the tax increases, could have a harmful effect on the economy. We do not know about the individual measures, but we have already heard from my right hon. and learned Friend the Leader of the Opposition about the effect on unemployment, as shown in the forecasts from the so-called Office for Budget Responsibility, appointed while the Conservatives were in opposition.
Sammy Wilson
The hon. Gentleman is making some good points, but he takes his argument a little too far when he describes Government Members as economic masochists who enjoy the process. At the end of the day, their constituents will not thank them for unnecessary cuts. There is a good argument to be made, but does the hon. Gentleman not agree that the extent to which he is taking it may diminish his case?
Chris Leslie
I hope that the hon. Gentleman is right. Judging from the Conservatives’ reaction—the papers waved in the air when the Chancellor sat down—the enjoyment they took in those harsh—[Interruption.] The hon. Member for Devizes (Claire Perry) calls out, “Pathetic”, but why else would they cheer with such fervour?
Claire Perry (Devizes) (Con)
I too welcome the chance to have a grown-up and sensible discussion, but could the hon. Gentleman not do the Tory cuts thing every time we come into the Chamber? Even my seven-year-old finds it rather childish. Of course the Budget will be tough to justify in our constituencies; no one wants to talk to their constituents about public spending reductions, particularly ones that we did not put on the statute book. We have to deal with a legacy problem and I waved my Order Paper because for the first time in 13 years we had a Budget designed not to win votes but to get Britain back on track.
Chris Leslie
The hon. Lady will have to forgive me, but sometimes I get the impression that sign language is the only one she might understand. Cutting back budgets is exactly what she has been doing and she will be voting for it with relish.
Andrew Bridgen (North West Leicestershire) (Con)
I assure the hon. Gentleman that Conservative Members would have liked to enjoy Labour’s economic inheritance in 1997.
Chris Leslie
It is important that we start to look at the measures in the Budget. They did not deal with the waste and inefficiency the Government promised to find. The Government said that waste and inefficiency would form the totality of their public spending reductions. They said they would not hit front-line services. The fallacy of those claims is beginning to show.
Bill Esterson (Sefton Central) (Lab)
Does my hon. Friend agree that one of the concerns is that Government Members say that the Budget is about fairness, yet a good degree of the suffering that will be inflicted on people as a result of the cuts will be felt hardest by those who are least able to bear it? In particular, areas such as Merseyside will bear the brunt.
Chris Leslie
Absolutely, and the local and regional impact of many of the announcements will become clear over the next few days. It is very difficult to assess the full extent of the impact on our constituents only a matter of hours after the Budget has been delivered, but I shall pick out some of the most pernicious measures announced. Putting up VAT to 20% is undoubtedly one of the most regressive tax decisions ever made by a Government in this country—20% indirect taxation, hitting those people who need to buy some of life’s necessities. Yes, indeed, some things may still be zero-rated, although people should watch this space on that one, because the Liberal Democrats in particular promised that they had no plans to increase VAT—that was a secret tax bombshell—but they then introduced a tax bombshell of that scale.
Chris Leslie
I suspect that it would be far preferable to follow a progressive route, not a regressive one, if taxation needed to be increased.
Chris Leslie
I am answering the hon. Gentleman’s question. There are significant revenue-generating measures, particularly in respect of the wealthiest in society, that should have been taken. The fact is that he will vote to take £12 billion in VAT—three letters that will be tattooed for ever on to the face of his constituency—annually from people, including his constituents, yet the Government have only managed to take £1 billion in revenue from the banking levy. That ratio says it all.
Lilian Greenwood (Nottingham South) (Lab)
Does my hon. Friend agree that increasing VAT will also have a significant impact on places such as Nottingham, where large numbers of people are employed in the retail sector, and that it will affect retail jobs? Is he aware that the Centre for Retail Research estimated that increasing VAT to 20% would lead to a reduction of 47,000 retail jobs and 10,000 stores closing?
Chris Leslie
I sincerely hope that that does not happen, but I worry that my hon. Friend may well indeed be right. The Government have tried their best to stagger the arrangement by delaying the introduction of the VAT rise, but they had better hope that the recovery is well under way by the time that the increase comes in—I think, in January—because, if there are still difficulties in our economy and they wallop up VAT by such a large amount, we risk a double-dip recession, which would particularly hit those who are in greatest need.
I want to talk about the most pernicious parts of the Budget which affect child poverty and even infant mortality: for instance, the scrapping of the health in pregnancy grant—just stating its name makes me incredulous that the Government have chosen it—in this financial year, from January onwards, coupled with the restriction of the Sure Start maternity grant to the first child from April 2011. I shall be very interested to see whether Government Members will walk through the Lobby with their heads held high to vote on those measures in respect of pregnant women in the greatest need. Coupled with the freezing of child benefit for three years, the shunting of lone parents off income support from next year—something that is also hidden away in the Budget—the abolition of the child trust fund and a couple of other things that the Chancellor spoke about very quickly in his statement, such as reversing the child tax credit supplement for one and two-year-olds and removing the baby element of the child tax credit from next year, which will cost young new families across the country £295 million, that is a phenomenal tax essentially on those who are in greatest need. Taken together, that seems to be one of the most despicable series of changes in the Budget.
Chris Leslie
I should like to hear the hon. Gentleman justify those changes.
Gavin Barwell
The hon. Gentleman is being very generous in taking interventions. Has he had the chance to look at chart A6 on page 70 of the Red Book, which shows the combined effect of the freeze in child benefits and the indexation increase in child tax credit? It demonstrates that the two changes are extremely progressive when taken together and not regressive, as he tries to argue.
Chris Leslie
It is interesting that the hon. Gentleman talks about that table because I have looked at the whole of annexe A of the document, which attempts to suggest that the changes will affect all income levels fairly and that we are all in it together. However, the tables extend only to 2012-13, which is only a couple of years hence. If the hon. Gentleman has a copy of the document in front of him, he will see that page 40 shows that cuts in benefits really start to bite in—guess when—2013-14 and 2014-15. There is more spin in the document than in any Budget document that I have seen before. If the hon. Gentleman would care to table a written question to the Chancellor to ask for the tables to be extended beyond the short period to 2012-13, I would then be more than happy to debate fairness implications.
I would like to raise a few more of the many hidden elements in the Budget. The Budget will levy an extra £455 million of tax on the insurance bills that our constituents pay, such as for buildings and contents insurance, although I do not think that the Chancellor mentioned that in his statement. The Government will also scrap the saving gateway, which was due to be introduced in July. That initiative was designed to encourage the very poorest in society to save for the future, but it is gone as a result of the Chancellor’s generosity. Given that the child trust fund is also being scrapped, we will have no measures to encourage the poorest in society to start the savings habit, so it is a great pity that Government Members will support such policies.
A further hidden element in the Budget is the Government’s announcement that they will cut support for the payment of unemployed people’s mortgage interest by £15 million in this financial year, although that support is given at the point of those people’s lives at which they are in most need.
Gordon Henderson (Sittingbourne and Sheppey) (Con)
Is the hon. Gentleman aware that the interest paid by the Government under the existing mortgage interest support regime is fixed at 6.08%, even though many people pay interest at 2%, which means that the Government give them 4% more than they need to? In addition, surely it cannot be right that those payments can cover mortgages of up to £200,000 over two years.
Chris Leslie
It can if a person who is made unemployed relies on the mortgage interest support to keep a roof over their head, because they will otherwise be in great jeopardy. The hon. Gentleman might think that people should simply cope with the situation, but I believe that we need to scrutinise the measure much further.
The housing benefit changes announced in the Budget are exceptionally complex, so it is difficult to assimilate their likely impact. However, the reduction of the local housing allowance to the 30th percentile of local rents will distort housing support for the poorest in society.
The hon. Member for East Antrim (Sammy Wilson) talked about the tax credit regime and the reduction in the time period for backdating changes in circumstances from three months to one month. That mean-minded reform is an attempt to claw back money by reducing the period in which people in changeable or almost chaotic circumstances may analyse their position and go through the bureaucratic process of reclaiming their tax credits by submitting correct arrangements. As all hon. Members know, many people will find it difficult to do that within 28 days, and the measure typifies the mean-spirited nature of the Budget.
Claire Perry
I am grateful to the hon. Gentleman for giving way again—he is generous with his time. He is eloquently highlighting many of the tough decisions that have to be taken. He seems to be ruling out almost all of the deficit reduction measures that we have proposed, so may I again ask what he or his party would do to get to grips with the deficit?
Chris Leslie
As I have said before, we need a pro-growth strategy. Sometimes we have to spend to save. Investment is exceptionally important at this point in the economic cycle. All borrowing is not evil, as the hon. Lady suggests. [Interruption.]
Chris Leslie
Absolutely—my hon. Friend is right. We need a mature debate about the economy, and the hon. Lady should listen to her hon. Friend the Member for Wycombe (Steve Baker), who said that there are differences of opinion. There is not just one particular view of these things.
There are risks to the economy from completely pulling the rug from under it by doing things such as imposing tax increases that go too far or cutting public expenditure too swiftly or harshly. If the hon. Lady thinks that we can cut public expenditure harshly without any ramifications for the economy, I shall just have to beg to differ.
I have been director of a local government research organisation for the past five years, and something that I suspected would be in the Budget looks as if it may be coming. Capital expenditure will reduce significantly, but many local authorities rely on public borrowing from the Public Works Loan Board, which has a prudential borrowing regime that offers considerable freedom to local authorities as a means of accessing capital for important projects in our constituencies. The Budget document reveals that the tap may well begin to be turned off for local authorities, and discusses monitoring that lending far more closely. Reading between the lines, the implication is that the Government are considering reviewing the prudential borrowing regime. I urge members of the Government, particularly the Under-Secretary of State for Communities and Local Government, the hon. Member for Bromley and Chislehurst (Robert Neill), who helpfully has come into the Chamber especially to hear my contribution, not to change that prudential borrowing framework, because the implications may be severe.
Gavin Barwell
I thank the hon. Gentleman for giving way again. He has just made an important point, but I should like to take him back to his reply to my hon. Friend the Member for Devizes (Claire Perry). He said that he wanted a pro-growth strategy. I am sure that everyone in the Chamber wants growth, but does he accept that by definition, growth will not deal with the structural deficit, which is what is there, even when the economy returns to growth. How would he deal with that deficit?
Chris Leslie
I disagree. I think it is possible to deal with the structural and cyclical deficits through pro-growth strategy. The fact that the Government’s so-called independent Office for Budget Responsibility has downgraded the growth forecast as a result of measures in the Budget shows that even it has had to admit that there are dangers in their strategy. I hope that they are absolutely confident about this—they seem to be—although I detect that a few Government Members may have doubts and questions in the evening when they are looking at the measures that will be introduced. I hope that they will look at them line by line, and not just hold their noses and vote regardless, especially Liberal Democrat Members.
Kate Green
It is absolutely right that the measures need to be examined in great detail to discover their true impact on individuals and families. Is it not the case that the distribution effects go beyond simply looking at income and expenditure deciles to groups that are especially vulnerable to poverty? My hon. Friend will agree that the damage done by linking benefits over the medium term to the consumer price index, and the attack on benefits such as disability living allowance will be particularly harsh for some of the most vulnerable members of society. It is important that we do not take a simplistic view of the impact of the measures but look at their effect on the most vulnerable groups.
Chris Leslie
I could not agree more with my hon. Friend, who knows a great deal about these matters. These are stealth cuts from the Government. When they were in opposition, they liked to talk about stealthy measures. Well, these are the stealth cuts. The change from retail price index to the consumer price index is not something that many of our constituents would necessarily notice in the small print, but there are vast reductions affecting them.
There are all sorts of tricks in the Budget, such as linking pensions to earnings—at a time when the Government are going to freeze public sector pay and they know that earnings will be deliberately depressed. With supposed generosity, they can of course link the two at that point in the cycle.
The change to the personal tax allowance was another part of the Liberal Democrat manifesto. It seems that they were not able to fulfil that manifesto pledge, so they have managed to change it a little, but they do not recognise that the people who earn an amount that is below the existing threshold will benefit not at all from the change. We have to think about the very poorest in society, and I urge hon. Members to do that.
Martin Horwood (Cheltenham) (LD)
The hon. Gentleman must admit, however, that taking almost 1 million out of income tax altogether must be a good thing for some of the poorest in our society. If he is keen on looking at the small print and for stealth impacts on the poor, he need look no further than the Budgets that we used to get from the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), which included the supposed abolition of the 10p tax rate. That was cheered by Labour Members, because everyone thought that it meant reducing the rate to zero, but it was in fact being doubled.
Chris Leslie
This Budget makes the 10p tax rate issue look like a drop in the ocean. Some Members want to look at one particular measure on income, and nobody objects to a personal tax allowance change, but we cannot just look at income tax on its own. The Chancellor has shunted revenue generation from income tax to VAT, and that is a Liberal Democrat strategy. The Liberal Democrats prefer VAT now, we can see that, despite the posters.
Chris Leslie
If the hon. Gentleman is going to apologise for the VAT increase.
Martin Horwood
Let us not look at income tax alone. Why do we not look at the comparison between increasing VAT and increasing duties, which the previous Labour Government always used to do? That hits people across the income bands, whereas VAT, although no one likes it to increase, is less regressive because it is not imposed on necessities.
Chris Leslie
If the hon. Gentleman feels that every single item of expenditure that has VAT imposed upon it is not a necessity, I must disagree. It is not simply a tax on luxury items, nor is it akin to duties. The VAT yield is astronomical: £12 billion annually, some of which comes from his constituents. We will see what their reaction is to the increase, and I urge them to write to the hon. Gentleman, because they need to convince him on that issue.
A couple of items in the Budget statement were definitely very confusing. Now that the Under-Secretary of State for Communities and Local Government is present, I must say that I am still at a loss to understand quite how the Government’s council tax freeze will work. It sounds superficially plausible to say that the Government will give an amount equivalent to 2.5%—I think that that was the figure when it was last in the Conservative manifesto—to councils that keep their council tax increase below that level in order to reach a zero increase. That guarantee has been reduced from two years to one year, but with one hand they give a little and then, with the other, yank away a great chunk of the grant that local authorities receive.
Local authorities throughout the country will have to pull those two elements together, but how on earth that supposed council tax guarantee is going to work will be a mystery to them. They will delay their budget setting and budget planning until the spending review is clear, because until they know the departmental expenditure limit for the Department for Communities and Local Government, and until they know their grant settlement arrangements, they will be none the wiser about the Government’s plans either on council tax or on how they should set their budgets. I urge hon. Members to speak to their local authority leaders and elected members about that point, because whether or not we agree with the strategy, if we are to believe in local democracy, the technicalities—the operational details of those matters—count a great deal.
Andrew Bridgen
The hon. Gentleman talks about the coalition Government’s cuts, but he has forgotten about the biggest cut of all. We are going to cut the deficit, which is a millstone around the necks of current and future taxpayers. That will secure the future of our economy.
Chris Leslie
And everyone will live happily ever after—in the rainbow land that the hon. Gentleman inhabits. If he feels that the deficit reduction is the only issue that he needs to worry about, then he is looking at only a very narrow band of the issues that face our economy. Of course we need to have a pro-growth strategy in order gradually, over a longer period, to deal with our debt and deficit strategy, but not at the expense of the poorest in society and of economic growth or employment. The hon. Gentleman may well feel that unemployment is a price worth paying, which was the famous mantra of the Conservatives, but Labour Members do not.
On a technical issue, will Ministers come back at some point to talk about the limit on savings as regards ISAs? There is a suggestion that they are going to be index-linked, but now that we are moving from RPI to CPI in terms of indexation, the Red Book is not clear whether the link will be made on that lower level.
On the weekend before the general election, the Prime Minister appeared on “The Andrew Marr Show”, where he apparently promised to avoid cuts to front-line services, saying:
“But what I can tell you is any cabinet minister if I win the election, if we win the election, who comes to me and says, “Here are my plans” and they involve frontline reductions, they’ll be sent straight back to their department to go away and think again.”
That is what the Prime Minister said only a matter of weeks ago. Unfortunately, Ministers have not been thinking again, but have simply taken the axe to vital services.
In Nottingham, we know that the services people rely on most will be severely hit, and that is only from the £6 billion of changes that have been announced so far. The tidal wave—the tsunami—of spending cuts that is coming in the autumn will be shocking indeed. In Nottingham, we know that £2.7 million is being taken out of education expenditure, with savings from one-to-one tuition, school transport, and provision for special educational needs. We know that £1.2 million is being taken from the working neighbourhoods fund, which includes back-to-work programmes, literacy and numeracy support, and welfare rights advice. That is the front line in Nottingham—cutting by the Conservatives. We know that they have even scrapped the right to see a GP within 48 hours: again, changes to arrangements for which they have no substitute, affecting the front line in Nottingham. They have chopped £350,000 off the road safety budget in Nottingham, as well as the £2 million taken from the transport capital plans. In my constituency, the Conservatives have frozen—I hope that they will reverse this decision and allow the project to go ahead—£5.9 million of housing renewal money for Stonebridge Park, where more than 250 old homes were to be cleared and the same number of family-sized one and two-bedroom units constructed to help to take some pressure off the 15,000 people on housing waiting lists. Again, I fear that that is the front line in Nottingham.
This unholy alliance between the Liberals and the Conservatives—I suppose that one could characterise it as an axis of the axe—will be absolutely to the detriment of my constituents. It makes me concerned about the potential merging of the Liberals and the Conservatives around a right-wing, ideological pole that has shown a clear divide between the parties in this country. I hope that hon. Members on the Government Benches will listen to their consciences, look at the detail in these proposals, recall their election promises—particularly those of the Liberal Democrats on VAT—and vote against this dreadful Budget.
Richard Fuller (Bedford) (Con)
I rise for my maiden speech to applaud my right hon. Friend the Chancellor for his courage in meeting the challenge of the most parlous state of our public borrowings, and for proposing a series of measures that attempts to deal with that problem while striving to protect the most vulnerable. I know it is a task he does not relish, but it is a burden he shoulders on behalf of us all.
I appreciate the opportunity in this robust debate to have a brief interlude—a commercial break, if you wish, Madam Deputy Speaker—to say good things about my home town and constituency of Bedford. I hope that in so doing, I can do as good a job for Bedford as my hon. Friend the Member for Dewsbury (Simon Reevell) did for his constituency in his maiden speech. I shall of course thereby lose the enticing opportunity to correct some of the breathtaking assertions I have heard from the Opposition Benches, not least from the hon. Member for Nottingham East (Chris Leslie), who strains the credulity not only of those of us on this side of the House but of a great proportion of the British public, who really do not understand where he is coming from.
I am the first Member to represent Bedford who was born there since the Liberal Member, Mr James Howard, in 1868. I truly love my home town. It is a wonderful and diverse community, and I am extremely honoured to be able to represent the people of Bedford and the neighbouring town of Kempston. It is an honour that I share with my predecessor Patrick Hall, who was a tireless advocate on behalf of the constituents of Bedford and Kempston. I can say honestly that his work on their behalf knew few limits. He was their constant companion in their navigation of the bureaucratic state that has come to bedevil the lives of so many of us. Patrick was the first Labour MP for Bedford to be re-elected, and in fact he secured a second re-election, a feat so remarkable that I doubt it will ever be repeated by a Labour politician in Bedford.
I also pay tribute to Patrick’s predecessor, Sir Trevor Skeet, who represented the constituency for 27 years. I remember him fondly as I began my political career delivering leaflets for him in 1979. I am happy to say that 150,000 deliveries later, the post finally arrived.
Bedford is a town remarkable for its diversity, both in ethnicity and in culture. It is a most harmonious town and has much to teach the rest of our country about the power and potential of diversity. It can truly be said that a child in the course of their school career in Bedford may well meet other children whose parents come from every single nation in the world. What a fantastic start that gives children in my home town, and what a wonderful job the teachers of my town are doing to ensure that those children have a world-class education.
We are very proud of our education in Bedford, and it is very important to us because we are a town of young families. We embraced the legislative freedoms that the previous Government provided through the opportunity for schools to set up their own trusts. We are also looking forward to September, when two of our finest institutions, Bedford college and the Bedford Charity, join together to establish the John Bunyan academy. I know that many parents and teachers in Bedford look forward to the legislation that my right hon. Friend the Secretary of State for Education will propose, and we intend Bedford to be at the forefront of the free schools initiative.
Great schools beget great Bedfordians. Archbishop Trevor Huddleston was born in Bedford and was a relentless campaigner against apartheid. He was so strong in his actions, against such great odds, that he earned the nickname in South Africa of “the dauntless one”. John Le Mesurier, better known as Sergeant Wilson of “Dad’s Army”, was another Bedfordian and a great man of comedy, who penned his own obituary in The Times thus:
“John Le Mesurier wishes it to be known that he conked out on November 15th. He sadly misses his family and friends.”
It is said that his last words were, in true Sergeant Wilson fashion, “It’s all been rather lovely.”
The challenge for the Government, met in the Budget, is to balance our books while rewarding work; to find a way in which our public services can support and raise up the people of this country who need their help, and not—as happens too frequently, despite the best intentions—hold them down. I believe that a key to that is unleashing the power, potential, leadership and creativity of our social enterprises and charities.
Recently, Bedford college hosted an evening with the entrepreneurs—an opportunity for schoolchildren to meet some of the leading lights in our social enterprises, including Adele Blakebrough of Community Action Network and Tim Campbell of the Bright Ideas Trust. The schoolchildren could hear the passion that guided those people’s lives, and learn about their potential to provide for social services in a better way than the bureaucratic state.
In Bedford, groups of charities have already come together in a formal coalition, Consortico, which will enable them better to compete for the contracts that local government offers. Those charities and social entrepreneurs need the Government as an ally who will enable them to overcome the inertia and intransigence of some arms of the bureaucratic state. We need the leaders of the arms of the bureaucratic state to become champions of unbundling their privileges, not intransigent defenders of their own interests.
Social enterprise is one key, but as has been said many times in the debate, enterprise is absolutely critical. For the arc of my life, my home town has been in economic decline. It is not unique in that—indeed, the causes transcend party and are a pattern repeated throughout our country. Manufacturing jobs have been exported as we plugged into the global economy. There are measures in today’s Budget that will start to address that and rebalance growth throughout our economy. We have witnessed a persistence by Government in permitting those who are able but idle not to contribute to the economy. Again, this Government will tackle that.
In Bedford, we have experienced a doubling of unemployment in the past 10 years. The so-called boom of the past decade seemed to pass our town centre by. It is now in urgent need of regeneration, but incapable of making that happen unless we achieve the economic recovery that we need. The measures the Chancellor proposed today will hasten that recovery.
Our bypass is tantalisingly close to completion after 70 years of waiting. As a town, we need to start punching above our weight to attract more capital to it and to the constituency. We will do that together as a community, by promoting entrepreneurship so that we can start more small businesses, and by opening up our bureaucracies to the social entrepreneurs who can provide a much better service for our community in the long term. We will provide a beacon for other communities to show what can be done by harnessing the opportunities that are presented even in these most difficult times for communities to step forward and fulfil the challenges.
It is said that courage is often found in the most challenging times. With the very difficult measures that he proposed in his speech today, the Chancellor has shown us the courage that is needed, and that he can set us on the right course.
We need a House that can both strive for the most important interests of this country and amplify the weakest and quietest voices in our community. The people need a House that can be a beacon for liberty, freedom and democracy for those in the world for whom those are still ideals and not reality. We need a House that will restore probity to the public finances, so that future generations of Britons are not shackled by the excesses of this generation. The Budget has made a start. I hope, in my time in this House, that I can make a brief and small contribution to achieving those ambitions.
Austin Mitchell (Great Grimsby) (Lab)
In rising to make what must be my 13th maiden speech, I congratulate the hon. Member for Bedford (Richard Fuller) on his graceful maiden speech. He ensured that what can be an ordeal for new Members was not an ordeal for the rest of the House. I am afraid that my one association with Bedford is an unhappy one. I was carted there in an ambulance after a car crash on the A1 and was in concussion for some time. When I woke up, the surgeon came to see me and congratulated himself on having stitched my right hand together, before telling me that I should be very grateful to him. When I explained that I am left handed, he just said, “Damn!” and went away. It was interesting to hear of the famous people from Bedford—better John Le Mesurier than Eddie Waring, I suppose—and of the attractions of the town. I am sure it has produced almost as many interesting people and has almost as many attractions to visit as Grimsby.
I am less congratulatory to the Chancellor on his Budget. I congratulate him on the provision to protect low-paid civil servants, of whom there are many, from the rigours of a pay freeze, but I am not sure that such measures will be sufficient to outweigh what my hon. Friend the Member for Nottingham East (Chris Leslie) called, in his very effective speech, stealth cuts, or the general depressive impact of not only the Budget, but the £6 billion of cuts that went before it and the massive cuts still to come. Those are not part of the Budget package, but they must be viewed as part of the approach. I am sure those measures will have such a depressing effect on the economy that the poor cannot be protected by the simple measures the Chancellor introduced.
In fact, collectively, the package of cuts and the Budget lead me to lament the economic ignorance and social arrogance behind them. The Budget is a dangerous assault on the economy when growth is just beginning—it is not fully entrenched or powerful yet—and there is a glimmer of light ahead. It also represents a transformation in the attitude of the Conservative party. Its leader tried to win the election—he did not actually do so—by charm and by presenting the face of compassionate conservatism. He undertook to protect spending on aid, defence, the NHS and education, to protect front-line services, and to preserve free bus travel and winter fuel payments for pensioners. He also told us that he had no plans to increase VAT. Those must have been the same non-plans that the Conservatives had in 1979, when they increased VAT from 8% to 15%—their non-plans then were equally fulfilled.
That charm offensive—compassionate conservatism—has been replaced by the Chancellor, who was clearly kept in the attic, like Mrs Rochester, during the election campaign, so that he did not go out and frighten people with the extent of the cuts that he wanted to make. He has now been released from the attic to impose his Mrs Rochester economics on the system, with a few pathetic crumbs and benefits, such as the abolition of the cider duty, which we had already in fact abolished before the election. That has now been dropped from the Tory table to the Liberal Democrats to give them and their leader something, however small, to compensate them for having betrayed those who voted for them, thinking them an independent-minded, compassionate middle party.
Martin Horwood
Does the hon. Gentleman really think that taking nearly 1 million people out of income tax, which was a key pledge in the Liberal Democrat manifesto on which we insisted in the coalition agreement, is a small matter?
Austin Mitchell
No, it is of great benefit. I congratulated the Chancellor on it, and I am glad the Liberals won it. However, it is still not sufficient to compensate those 1 million people for the increase in VAT, which is a regressive tax, and for the general depressing effects on the economy and employment of the other measures in the package of cuts in the Budget. That policy on income tax is a gain for the Liberals—and, indeed, the country—and it was right. I congratulated the Liberals at the time on including it in their manifesto.
The transformation of the Liberals is like that of the pigs in “Nineteen Eighty-Four”—I am not calling the Liberals pigs, but they were pigs in “Nineteen Eighty-Four”—into human beings, if not Tories. The Liberals have been transmuted not into Tories, but into European liberals—I am thinking, in particular, of the Free Democratic party, which is an economic liberal party that, I am pleased to note, is now disrupting the coalition in Germany by demanding stringent cuts from Angela Merkel and the Christian Democrats. I am sorry to see my friends in that situation. There are difficulties in the coalition between the Liberals and the Conservatives, because it is like merging a Brownie pack with the Brigade of Guards. I feel sorry for Liberal Ministers who have to sit there and join in the chorus of nodding dogs on the Front Bench at every Tory policy announcement. I am sorry to see that habit spreading to the Liberals.
Austin Mitchell
In a minute, when I have finished the joke!
It is sad to see the Liberals justifying Tory policies, while their Ministers in the Cabinet are being picked off one by one by the Tory press, which is maligning them and doing them down. That is a pathetic spectacle.
Richard Graham
Does the hon. Gentleman agree with Oona King’s remarks to The Guardian last week that the tragedy of new Labour is that, while many signed up to the concept of social justice and economic growth, too many Labour Members concentrated on social justice and forgot about economic growth? The reality can be seen in my constituency of Gloucester, where 4,600 jobs have been lost in the private sector over 10 years, 7,600 have been created in the public sector and there is record youth unemployment. Economic growth has completely disappeared, so it is the Government’s job to restore the economic growth in order to provide the social justice we all want.
Austin Mitchell
I am surprised that the hon. Gentleman has not heard of the economic recession and its effect on our economy. Before now, we have enjoyed 10 years of steady, substantial economic growth that has improved everything—it has put more people in work, improved people’s quality of life and made them better off. Does he deny that reality? I do not want to get into an argument about history, but he is blaming the recession and putting the blame for that on the Labour Government.
I want to move on to the substance of the Budget. The package of cuts in the Budget represents a gigantic confidence trick bigger than the Zinoviev letter, which the Tory party was seen to be responsible for as well. We have to accept that recession brings a need for social democratic, governmental state solutions. Recession brings a need for regulation and fairness, and for public spending to counter the curtailment of private spending and to protect the community. The Conservative party has reacted to that by creating panic about debt, borrowing and the possible foreclosure of our credit cards in Europe. Conservative Members warn about us becoming another Greek economy and, through their tirade of anti-British complaint, they consistently knock Britain.
The clamour about debt is designed to frighten people into accepting measures, cuts in public spending and the roll-back of the state that the Conservative party certainly wanted to put in place anyway.
Austin Mitchell
There is no need to defend the Conservative party at every juncture in my speech. The hon. Gentleman might concentrate on defending his own party for its part in the process—[Hon. Members: “He’s a Conservative.”] In that case, I apologise and give way.
Richard Graham
I am very grateful to the hon. Gentleman for giving way again. Has he looked at the other role model example, which is that of Spain? Currently, it has 20% unemployment, and 40% youth unemployment, having followed precisely the policies that he and so many of his colleagues appear to be advocating—that is, to carry on spending regardless. That leads not to economic growth but to economic disaster. If it were to happen in my constituency, there would be riots on the streets.
Austin Mitchell
I am sorry for mistaking the hon. Gentleman for a Liberal. As a Conservative, he must be sitting in some kind of custodial role on the Liberal Benches.
The analogy that the hon. Gentleman makes is false. It is no use comparing us with Spain, Greece or any of the European countries. Our borrowing is on 13 or 14-year terms, and the interest rates that we pay on it are much lower, whereas Greece’s borrowing is on two-year terms, or less.
We are protected by something for which our previous Prime Minister is never given credit—the fact that we did not enter the euro. The Liberal party wanted us to do that, but our being outside it means that we can take exchange rate adjustments that Greece, Spain, Portugal and the other countries in this situation cannot. As a result, we are not facing the same problem, or the same threat to our debt.
Chris Heaton-Harris (Daventry) (Con)
I take it, therefore, that the hon. Gentleman is proud of the fact that we pay £80,000 in debt interest every minute that ticks by. Is he proud of that?
Austin Mitchell
I am proud of that, because it keeps the economy running at a higher level than would otherwise be the case. It keeps people in work, and it stimulates the growth that is the only answer—
Austin Mitchell
I am sorry, but I want to make a little progress with my argument. I am proud of borrowing. I believe that we have not placed enough emphasis on the need for borrowing, or its role. Borrowing is extremely important, and the panic being created about debt and borrowing is totally unrealistic. It is counter-productive economics at a time when we are facing a recession.
First, I should point out that the debt is not a serious problem. Our debt-to-GDP ratio is lower than that of any other country in the G7, except Canada. We are in a healthy situation when it comes to debt.
Secondly, borrowing by the Government is not the same as borrowing by a household or a company. A Government cannot feel the burden of debt in the same way, because Government borrowing stimulates the economy, growth, jobs and employment.
Mr Sam Gyimah (East Surrey) (Con)
To see the problems caused to a country by debt, we only have to look at what happened to Greece. It is clear that it can be a problem, and that something has to be done to resolve it.
Austin Mitchell
We are doing something to resolve it, and that is to get growth. The only way to bring down borrowing and get the economy moving so that it can bear a heavier burden of debt repayment is through economic growth—all the rest is simple piggy-banking and economic ignorance. If I am going to have to face a chorus of that kind of piggy-banking attitude for the rest of my speech, it will be very unfunny, and I had intended it be as humorous as I could make it.
We have to accept that borrowing is important, and that borrowing by a Government is not the same as borrowing by a household. That is because Government borrowing stimulates the economy, growth and jobs. Borrowing in a recession is a virtue. Indeed, it is absolutely essential, because if the private sector is contracting and credit is tight, and if people are not spending, borrowing is the only way that purchasing power can be kept up, so that the economy can be stimulated. It is simple Keynesianism, and I am surprised that the Tory party seems to have forgotten Keynes.
Steve Baker
The hon. Gentleman has said the word himself, so I will make the same point that I made to the hon. Member for Nottingham East (Chris Leslie) earlier. The hon. Gentleman is just rehearsing Keynesian arguments that died in the 1970s. Even the Labour party in the ’70s understood that, to the extent that Keynesianism worked at all, it only succeeded in stimulating inflation. Would he please consider the inflationary effects of the policies that he is recommending?
Austin Mitchell
Well, where are they? The Government claim that we have been borrowing at too high a level, yet in 2008 the Conservatives were keen to accept—as an electoral manoeuvre—our spending targets, saying that they would adopt the same targets themselves. Did they mean that we should not have borrowed to save the banks? Should we have let the banks go under, with the cataclysmic consequence of credit contracting in our society? Much of that borrowing went into saving the banks. Should we not have done that?
Claire Perry
I am listening, as always with great interest and enjoyment, to what the hon. Gentleman is saying, but in my constituency people were worried that we were about to lose our sovereign credit rating, which would have been a consequence of the sort of borrowing that he is talking about. Do his constituents not care about that, or not think that it is a risk?
Austin Mitchell
My constituents care about the jobs, benefits and growth that borrowing can give them. That kind of threat that the hon. Lady describes is not talked of in the fish and chip shops of Grimsby, nor is it part of any realistic assessment of our economic situation. There is no threat to our credit rating. The idea is absolutely ludicrous. In fact, the Office for Budget Responsibility, which is a wholly owned subsidiary of the Bank of England as far as I can see, has said that the borrowing estimates are coming down. We are borrowing less than the Government predicted. We can well bear that total of borrowing—we should bear it; we must bear it—to get the economy growing again, because that is the only way to pay off the borrowing and to reduce the overdraft.
The Government insist on cutting spending, but I am not sure about the scale of unemployment that today’s cuts in spending will produce. The figure might be 100,000, but it might be up to 500,000, because that is how many jobs have been saved by Labour’s expansionary policies and stimulus spending. However, if we increase total unemployment, those people will no longer be paying taxes. They will be receiving benefits and all kinds of public support, which is necessary to support them and their families. That means that the deficit will increase. Therefore, borrowing goes up as a consequence of an increase in unemployment. The only way to counter that is for the Government to spend and borrow to stimulate the economy.
The proof of that point is dramatically demonstrated in British history by the situation from 1931 to 1934. Because of the cuts made in 1931, with the Geddes axe and all that, public sector borrowing increased substantially from 1931 to 1934, because the economy was not growing. From 1934, when the economy began to grow under the stimulus of the housing boom and, later, rearmament, the public sector borrowing requirement as a proportion of GDP came down rapidly and substantially. That indicates my point, as did our experience when we came into government in 1997. The Conservatives seem to forget that, when Labour came to power in 1997, we paid off massive amounts of debt in the first three years, because the economy was growing and we could do so.
That is the solution to our problems. Only growth will allow what we borrow to be paid off. It is no use knocking Britain and saying that we are like Greece, Spain or Portugal. We are not like any of those: our credit standing is not threatened in any way and we can adjust through the exchange rate, because of what our previous Prime Minister did in keeping us out. The only way to reduce borrowing is to get economic growth. I hope that I have made that point sufficiently clear, because I have made it pedantically and at some repetitive length. It does indicate to me that borrowing is not a problem, and the panic created about it is something of a confidence trick. It is a smokescreen to allow the Chancellor to do what he wants to do for his own political motives: cut public services, roll back the state, cut public spending, cut benefits, cut provisions, and weaken the protection of the poor and those on benefit that comes from borrowing and higher public spending. It enables him to implement his own prejudices.
The cuts are supported by untrue claims about what Mrs Thatcher did in the 1980s. Mrs Thatcher was able to get away with those cuts, which destroyed so much of British manufacturing and certainly turned us from a net manufacturing exporter into a net manufacturing importer, because of the cushion of North sea oil. The Norwegians invested the proceeds of North sea oil in the future; what we did was waste them on a process of creative destruction of British manufacturing industry, which left us the weaker at the end of it.
The cuts are also justified by the claims that Canada and Sweden were able to carry successful spending rounds, but in both cases, the spending cuts were across the board with no huge chunks of the public sector being exempted from them. Both were carried out at a time when the world economy—including the American economy—was expanding rapidly, so that sustained the Canadian and the Swedish economies. We are carrying out our spending cuts, however, at a time of growing recession. Our ex-Prime Minister was trying to lead the world—he did lead it successfully—to agree on stimulus spending to get the economy to grow. This Government are joining a chorus of cuts that will deflate European economies and the world economy.
Bill Esterson
Has my hon. Friend had the same experience as I did in my constituency when discussing how to deal with the budget deficit? Not one person mentioned to me the issue of sovereign debt, yet every single person I spoke to agreed with our analysis that the deficit should be paid off by growing the economy.
Austin Mitchell
Yes, certainly. Sovereign debt is never mentioned. Indeed, this is one of the weaknesses of the Liberal party approach of supposedly involving the whole community in deciding on the cuts. First, it assumes that the cuts are necessary, but, secondly, we have to remember that one person’s cut is another person’s Trident missile.
Martin Horwood
In advancing this rather extraordinary proposition that we have nothing to worry about with the level of borrowing in this economy, is the hon. Gentleman saying that he would have opposed the Labour Government’s plans to reduce departmental budgets by more than £40 billion over the next four years?
Austin Mitchell
Look, I am not an apologist for everything that happened under the Labour Government. I thought that that was an unnecessary commitment, particularly as it was made in order to safeguard our position and not frighten people in response to the Tory clamour about cuts. The Liberal party made the same concessions, actually, so it is no use the hon. Gentleman coming back to me on that. Even if we attempted to cut the deficit by half in four years, it is all a question of timing. There is a time for cuts—“Lord, make us cut borrowing, but not now” would have been my approach, and I believe that that is the only sensible approach. These cuts are premature. The economy is teetering on the brink of recovery, but it is not recovering, unemployment is still rising, the difficulties are still there, and credit is still tight. The banks are not providing credit on a sufficient scale; they need to expand credit and their lending. In that situation, cuts compound the problem. Thanks to these cuts and thanks to this Budget, we now face the danger of the economy slipping back into a recession.
Martin Horwood
Will the hon. Gentleman clarify his position, as it seems to have changed within the space of one speech? Five minutes ago, he was saying that only through growth would these issues be tackled and that we need not worry about borrowing. Now he is saying that it is only a matter of timing and that the Labour Government would have done exactly the same thing in due course.
Austin Mitchell
I was not responsible for the decision to try to cut borrowing within four years, but I assumed that it would be a question of “Let us do it as time allows”. I am sorry that the hon. Gentleman is so strenuous in defending Tory positions—for his is essentially a Tory argument.
The answer is to expand the economy. Growth was beginning, and, as the report from the Office for Budget Responsibility shows, it is now threatened by the cuts and the Budget. Is that what the Liberal Democrats want? Do they want to reverse the improvement that is taking place? If the improvement continues and becomes more substantial, we shall be able to begin to cut borrowing, but that can only be done once the economy is growing strongly and effectively; and it will only need to be done then. We must keep spending high if we are to achieve that economic growth. The Liberal Democrats can make a lot of sacrifices to support the Conservatives, but prostituting their intellects is not one of them.
Claire Perry
I am learning a great deal about economics today. Presumably the hon. Gentleman would have advocated a strong reduction in borrowing at the height of the last piped-up economic boom at some point in the mid-2000 cycle. I should be interested to know what his views were back then.
Austin Mitchell
I think, retrospectively, that we expanded public spending without increasing taxation enough to pay for it. The result was a series of subterfuges, such as the public finance initiative and the public-private partnership. It would be interesting to know what the Government are going to do about them in order to get borrowing off the books.
It was right for us to expand public spending. Society has improved enormously. Public spending improves the lot and the lives of the people, and it is our job to improve those things. I would certainly have spent more, but I would probably have taxed more to pay for that spending. I do not see why the people who benefited so substantially and did so well during the period of growth that we experienced under a Labour Government should not pay more in taxes now in order to counteract the recession with which we are currently trying to deal.
This is a circular argument, but, as I have said, the only answer to the borrowing problem and the deficit problem is economic growth to close the deficit and ease the borrowing, and to make it easier—as we did between 1997 and 2000—to reduce borrowing substantially. When we have growth, that is an easy process. It is silly to worry about it, become obsessed with it and create an atmosphere of fear, but that is what the Government are doing.
The leader of the Liberal Democrats, the Deputy Prime Minister, told us that this was a Free Democratic party moment, and that these would be progressive cuts, the poor and the north would be protected, and the cuts would deliver fairness. That is totally wishful thinking. Cuts always, and must necessarily, hit the poor and the vulnerable hardest. They have less with which to protect themselves. They are more dependent on public spending. Grimsby is more dependent on public spending than, say, Weybridge, or some of the other more prosperous southern areas. Any group or area that is heavily dependent on public spending will be hit by cuts, and that means Grimsby. I am now trying to protect Grimsby from those consequences.
An article in yesterday’s Financial Times provided us with an interesting map. Members should read the article, headed “Poorer areas are to be hardest hit”, and stating that the cuts would be
“striking twice as deeply in parts of the Labour-dominated north of England as in the Conservative-dominated home counties.”
That is the effect of cuts on the people and the spending in my area.
Richard Graham
Does the hon. Gentleman agree with Lord Myners, whose speech in the House of Lords last week reflected his deep frustration following conversations with Ministers in the previous Government who constantly expressed the belief that Government created jobs? His core point was that Government create the environment—the framework—in which jobs will be created by business. The problem with constituencies such as the hon. Gentleman’s, and to some extent mine, is that over the years Government have been led into the belief that they can create jobs themselves. In fact, what has happened is that more people have gone on to benefits, and our cities have stopped being working cities and have increasingly become benefit cities that need to be rescued today.
Austin Mitchell
The short answer is that I do not agree with Lord Myners in any respect at all.
I have just been passed a note from the Hansard reporters, which must imply that I have finished speaking, but in fact I have not.
I must point out to Members, particularly those on the Government Benches, that public money follows need. We are spending at a higher level because need is greater because of the recession. If we cut public spending, as the Government intend to do, we punish need. We do not punish the greed that brought the banks and the economy into recession, nor do we punish the people who have done well out of the economic growth. We punish the needy people and the needy regions. As I represent one of those needy areas—Grimsby—I object strongly to the £6 billion of cuts now being carried out, which the Liberals joined in with, as well as the cuts to come and the cuts foreshadowed in this Budget.
I cannot welcome this Budget, therefore. I think it will be disastrous for the Liberal Democrats. It will also be bad for the poor and the vulnerable. It will be bad because it will hit the recovery that is now taking place, and which is all too slow. It will be bad because it will increase unemployment. It will be bad because it will increase the deficit, and it will be a disaster for our nation, which will be locked into deflation; it will be pushed into it longer than need be.
I give the Chancellor a message from Grimsby, therefore: we who are about to suffer, certainly do not salute you.
Andrea Leadsom (South Northamptonshire) (Con)
According to the Bank for International Settlements, the amount of global derivatives outstanding is now $1.14 quadrillion; that is more than $1,000 trillion and more than 10 times the GDP of the entire world. It is a vast risk, and not only that; it is largely unregulated and traded between the banks themselves.
I am grateful for this opportunity to give my maiden speech during today’s crucial Budget debate. There is no doubt that the actions we take now to cut our deficit and make our banking system safer will determine how quickly our economy recovers.
In speaking today, I am following in the big footsteps of my predecessor, Tim Boswell. He made his maiden speech during a debate on the Finance Bill in 1987, and I hope I am not tempting fate, because within a few months of his speech the stock market spectacularly crashed.
It is a great pleasure to pay tribute to Tim’s 23 years of service in this House. He is one of a small number of politicians to have been called a saint by The Daily Telegraph and he has certainly been an honourable Member of this House. As well as his many virtues, however, he also has a wicked sense of humour. He recently e-mailed me to tell me he was never going to vote for me again—ever. It was only after a few minutes of sheer panic that I realised that that was his way of giving me the great news of his elevation to the other place. Tim has many friends on both sides of the House and I am sure many Members will want to join me in congratulating him on his well-deserved new role.
South Northamptonshire is a new constituency, with two thirds of it from Tim Boswell’s Daventry and a third from Northampton South. My family members have worked and farmed there for generations. It is a wonderful place in the heart of England: we have a mixture of ancient villages, with the market towns of Brackley and Towcester; we have thriving new communities on the outskirts of Northampton; and, of course, we have the world-famous Silverstone circuit. Engineering and technology businesses are a great strength, and we also have some big local employers, such as Barclaycard and Carlsberg.
We do have our own challenges, however. Under the last Government Northamptonshire was a huge target for housing growth, with little regard for the needs and desires of existing long-standing communities, and I am very glad that my right hon. Friend the Secretary of State for Communities and Local Government has announced plans to scrap the regional spatial strategies, thereby giving power back to local people.
We have been beset with applications for wind turbines on the edge of villages, where local residents have felt unable to defend their own environment.
More recently, we have whole communities under threat from Labour’s preferred route for high-speed rail. It would literally cut through farms and villages in my constituency, in some places on a 6 metre-high embankment. We all know that we cannot build new infrastructure painlessly, but there is a huge price to pay by people whose homes and businesses would be destroyed by the track. I urge our Government to make sure that the consultation on high-speed rail gives to everyone whose life and business will be affected the opportunity to have their voice heard. South Northamptonshire is a gem of a place to live, to work and to visit and I am hugely honoured to be its first Member of Parliament.
Let me return to the subject of the debate. To me, it is absolutely key to restore the health of our financial services sector as a critical part of restoring our broken economy. There are two ways of doing that. First, I am glad that my right hon. Friend the Chancellor of the Exchequer has already decided to give back extra responsibility to the Bank of England.
In 1995, Barings bank collapsed due to rogue trading in the far east. Nick Leeson had found a way to put on massive uncovered derivatives exposure without the knowledge of Barings’ treasury in London, in a different time zone if not on a different planet. At the time, I was managing the investment banks team at Barclays, and we were the principal banker to Barings. The collapse came on a Friday evening and the markets were threatening chaos, but Eddie George, the then Governor of the Bank of England, called together a small group of bankers, including myself, and we worked over the weekend to calm the fears of banks that were exposed to Barings. The direct result was that there was no run on the banks on the Monday morning, Barings was allowed to fail and there was no systemic contagion.
The difference between that experience and the more recent experience with Northern Rock is the difference between accountability and the tripartite system. In 1995, Eddie George knew that it was down to him to prevent a run on the banks, whereas in the case of Northern Rock, we had the Financial Services Agency looking to the Bank of England, which was looking to the Treasury for action. The result was the first run on a bank in 150 years and a taste of the financial meltdown to come.
From my experience, I am positive that a key to restoring the health of our financial sector is giving back powers and accountability to the Bank of England, and I am delighted that my right hon. Friend plans to do just that.
There is a second key action that we need to take as well. The financial crisis was not just a failure of regulation; it was also a failure of competition. The great Adam Smith always said in his wealth-creation ideas that for markets to be free and for us to create new wealth we have to have free entry and free exit of market players.
But in the world of finance those principles have not been true for years: cost and complexity have created huge barriers to new entry; we have already seen that Governments cannot possibly allow a single bank to fail when there are issues of systemic contagion; and we see every day the distortion of free competition in the power of investment banks to charge huge margins for derivatives trading and underwriting.
So, I and many of my ex-City colleagues argue that a key way of making our banking system safer is through measures to change the culture of our financial sector. The banks that are supposedly too big to fail must be broken up. The barriers to entry must be removed. The ability to charge monopoly prices must be taken away.
In South Northamptonshire, businesses are struggling because of the lack of available working capital, but with our high-tech and engineering expertise we should be really well placed to build new jobs in the low-carbon economy that our Government want to create.
The Government are right to want to promote a broader mix of business in our economy. That mix must contain a successful financial services sector with healthy competition and the free availability of working capital.
It is a mix that will be at the core of our economic recovery.
Stewart Hosie (Dundee East) (SNP)
I congratulate the hon. Member for South Northamptonshire (Andrea Leadsom) on her maiden speech. She brings great experience to bear, and her description of accountability versus the tripartite, in the differences between Barings and Northern Rock, was instructive. Many of us remember that there were so many cracks between the three pillars of the tripartite they were unable even to agree a weekend takeover of Northern Rock, which led to a five-month hiatus before the action to nationalise was finally taken. I agree entirely with the hon. Lady, who said enough today to show the whole House that she will be a huge asset to her constituents and her party.
Before I comment on the Budget proper, I have a question for Members on the Treasury Bench about the bank levy. The Chancellor said it would apply to the balance sheets of banks and building societies, and to the UK operations of banks from abroad. He sensibly said that there would be deductions for tier 1 capital and insured retail deposits, and a lower rate for longer maturity funding. However, we already have the financial services compensation scheme and some banks are also paying considerable amounts towards insurance premiums for the asset protection scheme for non-performing distressed assets.
Furthermore, the European Banking Authority proposed both a European deposit guarantee fund and a European bank stability fund. Will the levy be discounted, or deductions made, on the basis that funds are going to those schemes too? I make the point not because I do not want the banks to take their full share, but because for every £1 billion in bank levy, there is £20 billion less to lend in the real economy. A little understanding of the relationship between the bank levy and other draws on banks’ cash would be helpful.
The Chancellor clearly confirmed the position of the economy. There is a deficit of £149 billion—10.1% of gross domestic product—and national debt is still about £1 trillion. Using the treaty calculation, we know that it is due to hit £1.3 trillion by 2015-16, which is still about 80% of GDP. In the real economy, our balance of trade position last year was £32 billion in the red and there was a catastrophic £82 billion deficit for trade in goods, which was no doubt a consequence of Labour’s managing to lose a million manufacturing jobs between 1997 and the start of the recession. Notwithstanding what was in the Budget statement, I found it heartening that in so many maiden speeches, particularly during the debates on the Gracious Speech, Members spoke about rebalancing the economy and supporting manufacturing in their constituencies. We certainly need to do that.
The economic backdrop to the Budget—the mess left by Labour—is clear, and demonstrates many of the irresponsible decisions taken by the Labour Government. However, I shall concentrate on the implications for Scotland and the UK economy of the solutions proposed by the Chancellor. To summarise, he said there would be an additional £32 billion reduction in spending by 2014-15, as part of an additional £40 billion in so-called fiscal tightening by the same year. That is an extraordinary additional amount to take from the economy.
It is worth repeating how much the UK economy has been supported over recent years by Government spending. At the time of last year’s Budget, Government consumption was up 2% on the year, which helped keep the economy afloat when household consumption was down 1.9%, business investment was down 24% and gross fixed capital formation was down 14%. That was investment in productive assets for the future.
Household consumption is now 0.5% lower than last year, while business investment is still down 11% and gross fixed capital is down 5.7%. Government consumption was up 3% on the year, to support the gap and keep the economy going. I hope the Government are right about their plans, but I have a serious question about the Office for Budget Responsibility forecast that from 2011 onwards business investment would rise at rates between 8% and 11%. I very much hope that the OBR is right, but they seem to be heroic growth figures. I hope that we are not in the same position with the new Government’s business investment figures as we were with the old Government’s raw, vulgar growth figures—overstated—and I hope that the OBR is correct. We are certainly not out of the woods yet economically.
Although Labour cut the Scottish budget and the UK budget in real terms in this financial year and Labour ensured that the UK was one of only two countries in the G20 without a fiscal stimulus package this year, the new coalition Government appear to be ignoring much of the evidence that only Government consumption shored up and supported the economy when private spending and investment had fallen through the floor. I hope that the Government are not blind to the fact that such support is still necessary.
Given that the Chancellor’s comments today on accelerating the attack on the structural deficit confirm the presumption that most of the savings will come from cuts, he runs the very real risk of pulling the rug from under what remains fragile growth and risks undermining economic recovery. Given that the ratio of cuts to tax increases has gone from 2:1 to 4:1, his comments certainly confirm that we are pointing in the direction of a 25% reduction in unprotected departmental spending—an extraordinary reduction in many Departments’ budgets.
The OBR has downgraded growth forecasts—this was published today—from the 3.2% growth figure published by the previous Government for four of the next five years and the 2.1% to 2.35% average trend growth figures that it published on 14 June to 2.3% for 2011 and 2.7% to 2.9% thereafter. The implications are massive real-terms cuts affecting both Scotland and the rest of the UK. Although a £400 million real-terms cut to Scotland this year was announced in Labour’s last Budget, this Budget will deliver further billions of pounds in real-terms cuts on top of the £330 million in cuts that come from the £6 billion cuts announced earlier this year but deferred until next year by the Scottish Parliament.
The problem is that we were all critics of the last Government for not holding a comprehensive spending review, but, of course, the departmental expenditure limits in the Red Book today give no clarity, as they do not go past 2010-11. Although the Chancellor offered a deal of information, those figures were not—unless I have missed them completely—in the Red Book today.
Steve Baker
This emergency Budget is much needed, and I hope that we can forgive my right hon. Friend the Chancellor if it is missing some of the detail that the hon. Gentleman wants.
Stewart Hosie
I appreciate that this is an emergency Budget. The emergency has been going on for some years. It was foretold by this Government, who said in opposition that they would introduce this Budget. They have had plenty of time to prepare, and they have done so as well as they possibly could. My criticism is that, if the Labour party did not have a comprehensive spending review with the pre-Budget report last autumn and if it did not have one with the Fiscal Responsibility Act 2010, in which it set out £57 billion of cuts in a single year, and if it did not have a CSR with the March Budget, which imposed real-terms cuts on the UK and Scotland this year—that criticism was made by the Tories in opposition, as well as by the Scottish National party, having heard the Chief Secretary’s announcement of £6 billion in early cuts a month ago—perhaps we could have had one with this Budget, but I take the hon. Gentleman’s point that the Government have been in power for only a few weeks.
Given the cuts that we have seen and the growth forecasts that have been laid out by the OBR, my assessment is that they can only add to the cumulative £25 billion shortfall in available public expenditure in Scotland over the next 13 years that is a consequence of the previous Government’s plans. With an accelerated attack on the structural deficit, I fear that that cumulative figure may become worse.
The Chartered Institute of Personnel and Development has warned of overall UK unemployment pushing past 3 million. I genuinely hope that the OBR is right and that unemployment will peak this year at 8.1%. Time will tell, but I suspect that the cuts that we are likely to see will mean that that figure is optimistic. Of course, we hope that those who are in jobs will stay in jobs and that unemployment will not push beyond the forecast peak of 8.1%, because if it does, there will be a reduced tax yield, higher benefit costs and less spending in local economies. In short, today’s plans, like Labour’s at the previous Budget, might make the task of tackling the deficit and debt more difficult.
I suppose that my criticism of this Government is similar to that of the previous Government. We needed a credible deficit consolidation plan that took account of all economic circumstances, rather than a high-risk assault on public sector spending. Given that market confidence is based on the credibility of the deficit consolidation plan, rather than simply the speed of the cuts, I do not understand why the Government chose to use the Canadian model of perhaps 20% reductions over three years, rather than the New Zealand model over the medium term. The New Zealand model was equally successful, and such an approach would have allowed the UK Government to choose to take advantage of £50 billion of medium-term savings by cancelling Trident and its replacement.
The hon. Member for Great Grimsby (Austin Mitchell) made the point that sustained, above-trend growth in the economy is the real solution to the deficit and the debt. Given the tough situation that we are in, we need a proper, serious and sensible discussion about actions that have been taken, and indeed those that have not. Although I recognise that the Budget includes cuts in business tax and I welcome the move to reduce corporation tax, the decrease in capital allowances and the annual investment allowance will take £7 billion from business over the next four years. I wonder whether that approach will have a disproportionate impact on growing businesses that use the investment allowances, while benefiting firms that get on with their business and enjoy the corporation tax benefits but do not necessarily invest and recruit more people.
When the Government took the appalling decision to scrap video games tax relief, why did they not take their own advice, which was published only this month in the spending review framework, to
“Protect, as far as possible, the spending that generates high economic returns”?
One would have thought that we should be protecting and growing investment in that field, because it is exactly the kind of area that could generate the high economic returns demanded in the framework. When the money from the fossil fuel levy is sitting in an Ofgem account, why did the Government not decide to free it up for investment in Scotland’s green future, instead of simply reviewing the position? Why, given that it was Conservative party policy, did the Government not move to introduce quickly a fuel duty regulator that would deliver fairness to business and stability to allow them to plan transport and haulage costs, instead of punting the proposal into the long grass?
It is clear that ordinary people will pay the price for the recession, as we see from today’s announcements on VAT and benefits. The jobs and necessary spending power of ordinary people in the public sector will be lost. Many in the private sector might come under huge pressure when the public sector contracts awarded to the private sector dry up or end.
Much of the Budget might represent short-term thinking. The Public and Commercial Services Union estimates that there is some £123 billion in uncollected tax, yet this Government’s plans, like those of Labour before them, could well lead to a reduction in the head count at Her Majesty’s Revenue and Customs just when such people are needed most to maximise the revenue yield. Although I hope that I am wrong, there is a clear risk that the plan set out in the Budget will lead to a stagnation of growth. Perhaps Lord Mandelson’s threat of 10 years of austerity under Labour will come true, albeit with different parties at the helm.
Whoever is in charge, it is obvious that Scotland can no longer afford to be tied to an economic policy set out in successive UK Budgets that could undermine public services when we need them most, lead to the loss of spending power as public sector employees lose their jobs, and result in public sector contracts in the private sector drying up, and still also be tied to a fiscal regime that, at least under this Budget, fails to deliver the agenda for long-term growth that Scotland and the Scottish economy desperately need.
It is time to take full fiscal responsibility for reshaping and growing the Scottish economy, with the transfer of fiscal powers and responsibility from Westminster to Holyrood; to give the games industry a chance to grow and prosper; to use the fossil fuel levy to invest in our green future; to ensure both that the deficit is tackled properly over the medium term and that we do not take risks with a short-term consolidation. My great fear about the Budget, as was the case with Labour’s plans, is that while recovery is fragile, to suck out consumption, clearly in excess of 3%, 4% or, indeed, 5% of GDP in single years, almost certainly runs the serious risk of tipping the economy back into recession and, as I have said, of making tackling the deficit and the debt, which is important, more difficult rather than more straightforward.
Neil Carmichael (Stroud) (Con)
First, I pay tribute to my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) for an excellent speech on an important subject—regulation and competition in banking—that was worth while and useful to hear. I should like to refer, too, to a comment by the hon. Member for Great Grimsby (Austin Mitchell), about his love of borrowing. Borrowing is not exactly always a bad thing, but there is simply too much borrowing now, and that is what we have to address. We have to remember that £1 in every £4 that we spend is borrowed, which is ridiculous.
The hon. Member for Nottingham East (Chris Leslie) has disappeared, but I want to make two points about his observations. First, he said that we would cut capital expenditure. Actually, we are not doing so. The Chancellor made that perfectly clear, and we must repeat it often, so that people understand that capital expenditure is not going to be cut. Secondly, the hon. Gentleman discussed cuts in Nottingham East in local government and the health service. If he had been in Gloucestershire before the general election, when Labour was in power, he would have noticed that it was subject to cuts, too, in the number of beds in our hospitals. Those cuts, and his cuts, are all about the fact that the Government are facing a situation summed up neatly by the former Chief Secretary to the Treasury, the right hon. Member for Birmingham, Hodge Hill (Mr Byrne), who observed that
“there’s no money left.”
Whichever party, or set of parties, won the general election, there were going to be changes, and I am afraid that we have to face up to the consequences. This is not just a Budget about cuts; it is not just a Budget about being responsible in dealing with those cuts; it is not just a Budget about being fair to everybody, although it certainly is—we are being fair across the board in the amount of expenditure being cut and the changes in taxation; but it is a Budget about growth, and we must remember that. It includes useful tools to encourage small and medium-sized businesses to begin growing again.
Bill Esterson
The hon. Gentleman makes the point that we need a Budget for growth, and has just begun to discuss small and medium-sized businesses, and the important role that they have to play. However, does he agree that if we take the stimulus out too fast, it will prevent those businesses from playing the role they need to play in growing the economy again?
Neil Carmichael
The point I am making is that we are providing stimulus for small and medium-sized businesses to get going. We are not going to increase national insurance, for example, as the Labour Government would have done, which is a significant step in the right direction. We are introducing a green investment bank, to make sure that small businesses can develop new technology, which is good news and a stimulus. We are going to ensure that there is more business rate relief for small businesses.
All those steps will help small businesses to progress, and it is important that we help them to do so, because, if we are really to protect our economy, we must not just deal with the deficit, although that is important, but ensure that we have growth. That growth will come in large part from small and medium-sized businesses. I know that from my constituency, because I keep being told, “We would like to have a simplified taxation system,” and that is what we will introduce through the Budget; I keep being told, “We would like to see lower corporation tax levels,” and that is what we will introduce through the Budget; and I keep being told, “We would like simpler ways of employing people,” and that is what we will introduce. Those measures will help small businesses to deliver the growth that we need and, through that growth, the increased tax receipts that will further help to reduce the deficit.
It is important to emphasise that aspect of the Budget and, indeed, our whole economic plan, but we are going to go further, with the banking levy, which we have briefly discussed. That will be useful, too, because it sends a signal to banks that they must act more responsibly, and obviously as a levy it is also a money-raising measure. I must emphasise that, if we want to create an economy that can cope with the deficit, we must recognise that the ingredients for growth are important, and that the Budget provides them. It is important also to recognise that, throughout the entire time that I have been in the Chamber this afternoon, Labour Members have not talked about that; they have always talked about cuts. Yes, cuts are here; yes, they are quite serious; and yes, they are going to be painful for some. But, it is better to tackle that problem now in a responsible and planned way than effectively to back off and ignore it, because unless or until we start reducing the deficit significantly we will not be able to produce the growth that this country needs.
Bill Esterson (Sefton Central) (Lab)
I have registered in the appropriate place my interest as the director of a small business.
I congratulate the hon. Member for South Northamptonshire (Andrea Leadsom) on her maiden speech. She made some interesting points about the banking system and the need to break up the bigger banks into small banks. Perhaps she will agree that no bank should be too big to fail, as that was one cause of the many problems that we have seen recently.
I should like to discuss the Budget’s likely impact on jobs, businesses and, in particular, my constituency. The Chancellor said that he had a plan to reduce the deficit, yet the Office for Budget Responsibility said that the deficit would have been halved under Labour’s plans. Our plan was to cut spending, but only when the economy was strong enough, and Tory and Lib Dem Members seem to have forgotten a simple rule of economics: the role of government is to intervene in a recession when the private sector is struggling. The evidence from history shows that that works time and again. The time to cut the deficit is once the recovery is strong enough, not when the private sector is still on its knees after the deepest recession since 1931, apart from the one following the war.
The OBR, by the way, is staffed by the same people who wrote the Treasury forecasts. The Tories and Lib Dems have made much of the lower growth rate predicted by the OBR had Labour’s approach continued, but in reality the OBR prediction factored in the market’s reactions on interest rates, which in turn allowed for the £6 billion of spending cuts that the coalition planned. The Financial Times commented that the OBR did not note any fundamental skeletons in the Treasury, so it had taken account of the changes since March’s Budget.
The Chancellor has adopted a programme of austerity. After the war, rationing continued under a programme of austerity. We really were all in it together, unless people bought on the black market, which of course the rich were able to do. For most people, however, it did not matter whether they had money or not, because of rationing: they could not buy things because they were not available. It was austerity based on scarcity. This time it is different. In this kind of recession, austerity hurts only those who are on low or middle incomes.
The increase in VAT will hit people on low incomes, and it will hit small businesses. When Labour cut the VAT rate, we saw a stimulus to the economy. The increase that the Chancellor announced today will have the opposite effect. The cap on housing benefit will also hit those at the bottom most, and reforms to benefits will not provide incentives for people to go into work. Removing tax credits for middle-income families removes a big incentive for many to work, particularly in the south, where middle incomes provide barely enough to get by.
The scale of the cuts is 25% for most Departments. That is a hell of a lot of cuts. It means the loss of front-line jobs, and many people in Sefton, and elsewhere on Merseyside, will suffer as a result.
Steve Rotheram (Liverpool, Walton) (Lab)
Does my hon. Friend agree that the real result of today’s Budget announcement will be huge increases in unemployment, which will have a devastating effect on the areas that we represent on Merseyside? That is something that we both predicted before the election, as did our friends on the Liberal Democrat Benches, who now seem to be siding with their friends in government.
Bill Esterson
I am grateful to my hon. Friend, who is absolutely right. Before the election, in his constituency and mine, the Lib Dems made much of their opposition to cuts in the current year, saying that it would increase unemployment, hit those on low and middle incomes, and increase homelessness and business failures. They were right to say so. When they changed their tune after the election, they did so purely for opportunistic reasons, not because they are interested in representing the people in the sorts of communities that my hon. Friend and I represent.
Mr Stewart Jackson (Peterborough) (Con)
How does the hon. Gentleman account for the fact that in 15 years of economic growth based on the success of the previous Conservative Government, the Government he defended at the election managed to produce social welfare dependency to the extent that more than 5 million people were on social welfare payments, with the corrosive social impact involved in that? Is that something that he defended and lauded to his constituents in Sefton Central?
Bill Esterson
I am grateful to the hon. Gentleman for his intervention. In Sefton, unemployment was running at half the level of what it was during the last Tory recession, as were home repossessions and business failures. That, to my mind, is a sign of economic success. Given that, as I said, this recession is the deepest since 1931 apart from the period after the war, that is a measure of the success of Labour’s policies in seeing off the worst effects of the global recession. That is an important difference between what Labour Members see as the way forward and what the coalition is trying to do.
Mr Russell Brown (Dumfries and Galloway) (Lab)
The hon. Member for Peterborough (Mr Jackson) refers to 5 million people being on benefits. He tends to forget something that my hon. Friend and I, and other Labour Members, recollect; there is collective amnesia about this. People were driven from being unemployed on to benefits—incapacity benefit or disability living allowance—simply to massage unemployment figures. That is what it was all about during the previous recession, and we are hearing the same thing again.
Bill Esterson
I am grateful to my hon. Friend, who is absolutely right. The reason why Labour Members who represent constituencies on Merseyside and elsewhere in the north-west did so well in the election is that people have memories of what Thatcherism meant. As other Opposition Members have said today, this is a Budget of Thatcherism, not one for sustainable growth. That should concern everyone in this country, because the Government are trying to repeat the failed economic policies of the 1980s and early ’90s. My concern is that the cuts that my hon. Friend the Member for Liverpool, Walton (Steve Rotheram) referred to will lead to the unemployment, home repossession and business failures that we saw all too often then, because of the loss of jobs in the public sector and the impact on people with small businesses.
The Liberal Democrats say that this is a Budget for fairness, but how can it be fair that an area such as Merseyside, which has some of the poorest parts of the country, is hit so hard? How can that be anything other than a very unfair way of “sharing the pain”, as coalition Members have rather unfortunately called it?
The review of capital projects, which the hon. Member for Stroud (Neil Carmichael) mentioned, was first announced on 1 January. Unfortunately, the delays in the capital programme have taken out of the economy the stimulus that was following as a result of such projects. That review, announced for October, will mean taking money away from the economy at a time when it would have been most useful to support infrastructure projects and when, as my hon. Friend the Member for Great Grimsby (Austin Mitchell) so eloquently put it, the recovery is fragile. In my constituency, the Thornton relief road is a much-needed bypass that would stimulate the economy by bringing benefits to the construction industry and self-employed traders. I hope that the autumn review will mean a reprieve for a scheme that is much needed by residents and businesses alike.
Although the Chancellor’s announcement that capital totals will not be cut further is welcome, it is bizarre that the capital schemes have been frozen since 1 January. The effect on the construction industry has already been severe. The industry itself says that 50% of construction projects should be publicly funded, as they currently are. The scale of cutbacks as a result of the delays has already had a profound effect, and in the case of schemes such as the Thornton relief road that is having an effect on contractors and subcontractors. They need the certainty of knowing whether the work will go ahead, and the lack of certainty is my concern about the delay.
Self-employed traders in my constituency have told me that trade has been down during the recession, but they are surviving. Unless projects such as the relief road go ahead, more small businesses will suffer. I have mentioned the unemployment figures and the rates of business failure and home repossession, and if we go back into recession, it will be far worse this time because there is not financial support in constituencies such as mine for large capital projects, and because of the level of public sector employment. I therefore urge the Government to bring forward their review of capital projects so that we can have support for the economy now, when it is most needed, in my constituency and across the rest of the country.
The Building Schools for the Future programme is of huge significance in Sefton and elsewhere. Phase 1 was due to start this year in Sefton, but again, the delay in confirming whether the programme will happen is having a huge impact on the children at two schools in my constituency, Chesterfield and Crosby high schools. It has also had a huge impact on contractors and small businesses. The summer holiday is a big opportunity to build schools and carry out the refurbishment and rebuilding work that is part of BSF, but it will be missed this year because of the delay. Projects that were due to start in April cannot now start before November. That will have a profound impact on schools, and businesses, jobs and the wider economy will also be affected.
The Chancellor gave hope when he mentioned the bank levy, but he said that it would raise £2 billion. The VAT rise is estimated to raise £13 billion, while the freeze on housing benefit will yield a further £1.2 billion. What is fair about asking the banks to contribute just £2 billion towards the deficit, while asking those on low incomes, such as pensioners and low income families, to pay far more? The Labour Government rightly bailed out the banks to keep liquidity going in the economy. We had to do that, but, if we are talking about fairness, it is now time to make those responsible for the biggest financial crisis of our age take their fair share.
Cutting free swimming is just mean. It hits the poorest hardest—£3 per child adds up for a family on a low income or a pensioner on a fixed income. What happened to Government commitments to healthy living for young people and pensioners? They did not last when things got tough.
The Chancellor talked about risk and reward, but the reality is that the biggest banks suffer little risk, as the bail-outs show. There are plenty of rewards through bonuses. Those on low and middle incomes have little reward, but face losing livelihoods and homes if the economy goes back into recession. If we really are all in it together, the bank levy should be far higher.
In Sefton, many people work for Departments and many are self-employed. The two are related. The Lib Dem and Tory councillors in Sefton foresaw the scale of Government cuts. They voted for 400 compulsory redundancies and massive cuts in council services, which would hit the most vulnerable, the elderly and the disabled hardest. Labour councillors and the trade unions in Sefton have resisted them so far. If the Government and council cuts go ahead—from Lib Dems and Tories at both levels—thousands of staff will lose their jobs across Merseyside. Those staff will struggle with housing costs and no longer pay into the local economy, hitting local traders. The Budget contained nothing about help for those who face unemployment or struggle with mortgage payments as a result of the proposed measures.
I have mentioned how hard the Budget will hit the area that I represent. The coalition is making a huge mistake by withdrawing the stimulus to the economy this year. The Budget risks pushing the economy back into recession. The deficit can be cut only on the back of a strong economy, which can come only with support from the public sector until the private sector is strong enough to take over.
It is not a Budget for growth. I fear that it will push us back into recession, with misery for people who lose their jobs, homes and businesses.
Mr Speaker
Order. As things stand, no fewer than six hon. Members are seeking to catch my eye. We have about an hour to go and hon. Members can do the arithmetic for themselves.
Gavin Barwell (Croydon Central) (Con)
Thank you, Mr Speaker, for that advice on timing.
My constituents understand that, as a country, we are in a hole. The public sector makes up nearly 50% of the economy, and we have the second highest budget deficit as a percentage of national wealth of any OECD country—it is high not only relative to our competitors, but by historical standards. According to the Library, the deficit was 11.1% last year, compared with previous peaks of 7.7% in 1993-94 and 4.8% in 1980-81. This year, we are in the ludicrous position whereby almost a quarter of all the money the Government spend is being financed by more debt.
According to the OBR, things are worse than the previous Government told us. The structural deficit—the part of the deficit that will not disappear as the economy recovers—which we should focus on, is worse than predicted in the previous Budget. My constituents recognise that the structural deficit is partly the result of a global recession. They and Conservative Members also entirely understand that it is not all the fault of the previous Government, who had to respond to a recession. However, it is also partly the result of the previous Government spending more than they were willing to raise in tax over a prolonged period.
Some Labour Members seem to have convinced themselves that the recession is all the fault of bankers. It is rather ironic for them to blame bankers when we consider that the things the banks did wrong—failure to set aside money in the good years, holding liabilities off balance sheet and constantly going to the markets to raise money—are exactly the policies that Labour pursued in government. The fact is that we were running a structural deficit of nearly 3% from 2002-03 through to the beginning of the recession. We are still waiting for an apology for that mistake, which has contributed to the problem that we face. Indeed, listening to the synthetic anger of Labour Members today has been rather difficult, because the current Government are dealing with the mess they inherited from the previous regime.
Nicky Morgan (Loughborough) (Con)
Would my hon. Friend like to comment on the fact that there is not a single Opposition Back Bencher here today? It may well be a sunny afternoon, but not a single person is here to defend Labour’s record when my hon. Friend is talking about some very serious matters.
Gavin Barwell
My hon. Friend’s question is almost telepathic, because I was about to say that if the anger was genuine, I would have expected the Opposition Benches to be full throughout the debate, but that has not happened.
Gavin Barwell
I would happily give way but I want to make progress, if I may, given the time limit.
My constituents understand that the problem is due partly to the recession and partly to the previous Government. What they were looking for today is the truth, and for the Government to take the right decisions for the long term rather than chase tomorrow’s headlines. They want the deficit to be tackled without undermining the recovery, and as far as possible in a way that is fair to all sections of society and that protects front-line services. In her response, the Leader of the Opposition seemed to agree with those principles—but then told us absolutely nothing about how Labour would do things differently.
Bill Esterson
Last time I checked, I was an Opposition Back Bencher, as are my colleagues sitting next to me. I take exception to comments that suggest otherwise.
Gavin Barwell
Some Labour Back Benchers have attended the debate, but the Opposition Benches have hardly been full. The record is fairly clear.
The hon. Member for Leeds West (Rachel Reeves), who is not in the Chamber, said that it is the responsibility of the Conservatives to come up with the answers. It certainly is, and the Chancellor has discharged that today. However, it is the responsibility of the official Opposition to come up with a realistic alternative if they disagree with his measures. The hon. Members for Nottingham East (Chris Leslie) and for Great Grimsby (Austin Mitchell), who are also not in the Chamber, went much further and suggested that we could just grow our way out of the problem. They seemed not to understand that a structural deficit is one that will not disappear as the economy grows.
The key questions that my right hon. Friend the Chancellor had to answer today were: by how much to reduce borrowing, how quickly to do that, and what should be the balance between spending cuts and tax increases. The previous Government planned to dig deeper still into the hole by the end of this Parliament, and my right hon. Friend made the right judgment when he said that we should be in balance by the end of that period, and that we should have started paying off debt by 2014-15.
To the extent that I understand the Opposition’s position, they seem to be saying that we are doing too much too soon, and with too heavy a reliance on spending cuts. There are no risk-free options—it is actually a matter of judgment of the balance of risks—and there is growing evidence that the real risk to recovery is not robust action, but inaction. Anyone who has got into debt could tell us that the longer one leaves the problem, the worse it gets.
We are not going to convince Opposition Members on that point, because they have convinced themselves that Conservative Members take some ideological joy from cutting public services. It is worth putting on the record that that is complete and utter nonsense. I had lymphatic cancer at the age of seven and the NHS saved my life, and I have two children in a state primary school. My constituents want more police officers on their streets, and road maintenance to improve. I have come to this place wanting better public services, but they can be delivered only within a stable financial setting. That is what Conservatives stand for. There is a growing consensus on this point: the Liberal Democrats have shifted their position in the light of recent events in the money markets, and the Governor of the Bank of England, in a press conference on 12 May, said:
“it is very important that measures are taken straight away to demonstrate the seriousness and the credibility of the commitment to dealing with that deficit… I am very pleased that there is a very clear and binding commitment to accelerate the reduction in the deficit over the lifetime of the parliament, and to introduce additional measures this fiscal year to demonstrate the importance of getting to grips with that”—
problem—
“before running the risk of an adverse market reaction.”
The G20 communiqué a couple of weeks ago stated:
“Those countries with serious fiscal challenges need to accelerate the pace of consolidation. We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their…frameworks”.
On the balance between spending cuts and tax rises, Goldman Sachs published a paper on 14 April that reviewed every major fiscal consolidation since 1975 and concluded:
“we find that decisive budgetary adjustments that have focused on reducing…expenditure have…been successful”
and “typically boosted growth”, and that by contrast, those that rely on tax increases
“typically fail to correct…imbalances and are damaging for growth.”
The Office for Budget Responsibility forecasts, based on the Budget, to which the Leader of the Opposition referred, show a slight reduction in growth this year and next compared with previous forecasts; but then, forecast growth is actually stronger as a result of the measures the Chancellor announced today.
On public services, there are many public sector employees in my constituency and they will be rightly concerned about what the Chancellor’s announcement today will mean for them. I welcome the commitment to protect the NHS, which clearly suffers from inflation above and beyond general inflation in the economy. That protection is well justified. I also believe there is the potential to make cuts without damaging the front line. Lord Myners, the former Financial Services Secretary, said in the other place:
“there is considerable waste in public expenditure. I have seen that in my own experience as a…Minister.”—[Official Report, House of Lords, 8 June 2010; Vol. 719, c. 625.]
Between 26 May and 2 June, the Institute of Chartered Accountants in England and Wales interviewed a number of its members, over 80% of whom believed that further efficiency savings were possible. I point out to the Treasury Bench that we must look at welfare payments, as the Chancellor said we would, over the next few months, because a 25% reduction in departmental expenditure is a significant target.
Let me say a few words about fairness. We need to protect not just the poorest but those in lower-paid jobs, who all too often are the group targeted whenever money needs to be raised. In that regard, raising the income tax threshold, thereby taking 880,000 people out of income tax, is a fantastic measure from the Liberal Democrat manifesto—but one that all Conservatives, I think, are happy to support. I also welcome the one-year council tax freeze. My own Conservative-controlled local authority will take advantage of it, and we hope that the Treasury Front-Bench team will find the money to extend it for a second year, as promised in the Conservative manifesto. On being progressive, I draw Members’ attention to chart A2 on page 67 of the Red Book, which shows that the overall effect of the package of measures announced by the Chancellor is progressive.
Finally, I would like to make a moral point, above and beyond the economic arguments I have tried to advance. Over the past few years, we in this country have been living beyond our means. The current generation is imposing a burden on our children and grandchildren. Above and beyond the economic arguments that will take place on the Floor of the House about that, it is morally objectionable to saddle our children in this way with debts they will spend their entire working lives trying to pay off. Although the measures the Chancellor has announced are tough, he told the truth and struck the right balance. There is a stark contrast between that and the Labour party’s complete lack of recognition of the problem, its lack of responsibility and its failure to apologise.
Jesse Norman (Hereford and South Herefordshire) (Con)
I congratulate those who made their maiden speeches today.
I welcome the Budget. It was extraordinarily wide-ranging, fair and far-sighted, and I particularly welcome its measures to support small and medium-sized enterprises and to raise the tax threshold for the very poorest in our society. I cannot discuss this without mentioning the glorious success of the repeal of the cider tax, which will be of enormous value and very welcome to my constituents in Hereford. If I were to add a small codicil to that, it would be a call for us to look, in the next Budget or the comprehensive spending review, at rebalancing duty in the beer and cider industries from the off-trade to the on-trade, so as to create more supervised and responsible drinking by young people.
I share the view that it is astonishing that just four Labour Back Benchers should be present for a Budget debate, but the person whom we really miss is the former Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown). He should be held to account in this House, and he should apologise. Instead, I think that he is sitting in his cave like Ben Gunn in “Treasure Island”, composing his memoirs and dreaming of a triumphant return while the world moves on. All over the country, the owners of bargain bookshops are looking forward hungrily to his next volume filling up the remainder bins.
We can guess the theme already—that the right hon. Gentleman and his party were right all along, but I draw the House’s attention to an interesting asymmetry. When the British economy was supposedly riding high, the reason was said to be the far-sighted economic management of the Government. Now it is struggling, it is supposed to be entirely due to forces outside the previous Government’s control.
However, the facts tell a different story. We can see that by looking at how the UK was before the crash in 2007-08. Let us not forget that 1997 to 2007 was what the Governor of the Bank of England called the NICE decade—a non-inflationary time of consistent expansion. It was the period when worldwide monetary conditions were extremely favourable, with low interest rates and headline inflation in the major industrial countries generally at post-war lows. That was how the UK economy looked in 1997, as a result of the extraordinary economic inheritance that the last Government received.
Even then, however, economic growth was never as good as the previous Government claimed. Our GDP growth per capita in the period until 2007 was barely better than that of the eurozone countries, which were themselves held back by German unification. It was far worse than in similarly open and mature OECD countries. Australia, Canada, the US and New Zealand—every one of them grew faster over the period 1992 to 2007 than did the UK, and their growth was not concentrated in the period 1992 to 1997, but in the latter decade.
We have all made much of the fact that the former Prime Minister claimed to have abolished boom and bust, but the fact is that he presided over four booms—in Government spending, immigration, house price inflation, and personal debt.
The first of those booms was the massive ramp-up in public spending after 2001, which was financed by a huge counter-cyclical increase in Government debt. In other words, the previous Government were able to run a budget deficit of 3% at a time when the economy was supposedly growing at 3%. If that was how that Government handled the boom time, is it any wonder that we are in such a hole today?
The second boom was in immigration, with as many as 1 million immigrants from Poland coming over in the period 1997 to 2007. They added to GDP, pushed up demand and kept a lid on wage inflation.
The third boom was in house price inflation, with a massive ramping up of house prices and the diversion of personal savings into housing, pushing the savings rate down from 8% in the 1990s to 1.1% in 2007 and clobbering savings as a result.
The final boom was in personal debt, which totalled nearly £1.5 trillion before the crash. In 2007, personal debt for the first time in our history was higher than the country’s entire annual economic output, and 80% of that debt was secured on private property. Is it any wonder that the crash, when it came, was so disastrous?
We have noticed that the Opposition have made great claims that this Government do not have a growth strategy—language that is code for an unwillingness on our part to waste public money as the previous Government did. The Opposition’s claims are untrue, however. Exercising control over debt and public spending will have a positive effect on growth, in and of itself, as will the proposed reforms to education, local government and transport policy. Of course, there is more to do to flesh out those policies over the next few months.
Matthew Hancock (West Suffolk) (Con)
Is my hon. Friend aware that since the announcements in the Budget today, the interest rates charged on medium-term Government debt have already fallen, which adds to a fall that we have seen since the election of a coalition Government who are prepared to deal with our debts?
Jesse Norman
I have been in the Chamber since then, but I thank my hon. Friend very much for that intervention, which brings home the credibility and respect that the Government are already earning in the international capital markets.
The deepest truth is that for all their talk, the previous Government never properly addressed the fundamental drivers of economic growth. Far from it being the case that this Government lack a growth strategy, the previous Government’s strategy over the past 13 years was not sufficient to ensure decent economic growth. The four booms that I have described washed through the economy, leaving us without a world-class infrastructure or adequate broadband coverage, but with a legacy of educational underachievement, low productivity and low innovation—nothing like the energy, competitiveness and entrepreneurship that we need.
Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab)
The hon. Gentleman refers to four booms, the first of which was in public investment. Does he think that the public investment that my local authority made—investment that saw new hospitals built, along with 45 new primary schools and 17 new high schools, and which was funded by the Labour Government—was wrong, when Members from his party were supporting it at the time?
Jesse Norman
I absolutely accept that a lot of that public investment was very well taken and important. I would not demur from that at all, but there is a huge difference between building buildings and building schools. It is noticeable that levels of educational achievement have not kept pace with the staggering amount of money that was spent under the previous Government. If we had paid more attention to institutions and standards, we would now have a higher quality educational sector.
The cancelled comprehensive spending review was not a thing of great honour or glory for the previous Government. It is noticeable that the Office for Budget Responsibility has downgraded its long-term growth forecasts for this country from the trend rates that we have supposedly enjoyed historically over the past 20 years. That is to say that, instead of the growth rates we should have expected—rates of 2.25%, 2.5% or perhaps even 2.75%—we are now expecting a long-term growth rate of 2.1%. That is the tangible quantification of the lack of success of the investment over the past 13 years, so let us hear no more of Labour’s growth strategy, and let us welcome this Government’s willingness—already recognised in the capital markets—to take this massive task in hand.
Pauline Latham (Mid Derbyshire) (Con)
I would like to pass on my congratulations to my right hon. Friend the Chancellor on his prudent emergency Budget, which was so necessary, given the appalling legacy left by Labour. There is one point in particular that I would like to draw to his attention today, although it is about something that will not come into effect until next year, after the proposed rise in VAT. I refer to the listed places of worship grant scheme, which was mentioned in questions earlier and which is due to finish in March 2011. The grant currently enables all listed places of worship across the UK to claim back 100% of VAT incurred on repairs and maintenance.
The scheme is crucial to those places of worship that already require enormous sums for maintenance and repair, of which there are many in my constituency. Since the grant’s introduction in 2001, it has enabled those who look after valuable heritage and community buildings to maintain them for future generations and to ensure that they remain available for use by the whole community. Nationally, £110 million is spent every year on the upkeep of those buildings, and 66% of that sum has to be found by local congregations, the remainder being met by English Heritage’s and the Heritage Lottery Fund’s joint repair grant scheme for places of worship.
Across the country, more people do unpaid work for Church organisations than for any other organisation. Every month collectively, Church of England churchgoers contribute 23.2 million hours of voluntary service to their local communities. At the same time, Church of England congregations give more than £51.7 million each year to other charities, in addition to the large sums raised for local church work.
More than half a million worshippers subscribe to tax-efficient giving schemes. If the listed places of worship grant scheme is not renewed beyond 2011, congregations will have to find an additional 20% of the total cost of repair works, and the impact on them will be huge. That, coupled with the ending of the transitional rate of gift aid for all charities in 2011, means that next year, churches, chapels and other places of worship will effectively face a major financial double whammy.
Many listed cathedrals and churches already have significant maintenance and development programmes, which will begin once they have raised the money. These programmes tend to be quick start and are labour intensive. Often specialist trades are employed. For example, a £100,000 project in a parish church can produce eight or nine jobs for six to 12 months; a cathedral project of, say, £500,000 produces correspondingly more. In terms of job creation in the hard-pressed building industry, one construction job can maintain or sustain up to eight in support services and suppliers, many of which are the small businesses that the Chancellor wishes to help.
That means that, in terms of job creation, repair programmes are much cheaper, quicker, less bureaucratic and simpler than any Government scheme. In other words, the assistance given by the listed places of worship grant scheme is quick and effective, low cost for the employment result and represents extraordinary value for money for those local communities that benefit from the tourist boost and the civil engagement that churches provide.
I know that the Chancellor and his colleagues have had to make very hard choices this year, but I urge him to consider continuing the scheme after March 2011.
Mr Dominic Raab (Esher and Walton) (Con)
This is a crossroads Budget; it sets not just the terms of the next fiscal year, but the policy direction that will determine Britain’s economic competitiveness in the years that lie ahead.
The debt crisis was exacerbated, not created, by the banking crisis. The epic challenge we face today is the result of reckless state spending from 1997. In 1999, the OECD calculated that the British state was spending 38% of the nation’s wealth measured by gross domestic product. By 2008, before the crisis and the banking bail-out, it was 48%—an unprecedented rise of 10%. By 2009, as we all know, the state was eating up over 51% of national income. On these OECD figures, the British state spends more than Portugal, Spain and Greece, let alone Germany, and 10% more of our nation’s wealth than in the United States, Canada or Australia.
We have witnessed a seismic shift in the balance of our economy, which has blunted our economic competitiveness. On the World Economic Forum international rankings for economic competitiveness, Britain was fourth in 1998; today we are 13th. UK tax competitiveness has dropped from 11th lowest in the world to 23rd. According to The Economist rankings, the business environment in Britain has plummeted on its international rankings from seventh to 19th place.
For 13 long years, we were told that all that state spending was really investment, so amidst the shrill cry and synthetic outrage from the Opposition, let us remember precisely what their so-called investments really delivered. Britain has fallen on The Economist innovation rankings, we issue fewer patents, and the productivity gap still haunts the British economy, mainly because of the grotesque underlying inefficiencies in the public sector. In 2002, our roads were the 23rd most crowded in the world; today, they are the 17th most crowded, and our car-to-road ratio is up by 23%. Rail usage is up 17% since 2006, but we have almost 1,000 km less track.
Perhaps the greatest failure has been on Labour’s own terms. Despite unprecedented spending on schools, UK students, measured at 15, have tumbled down the OECD PISA—programme for international student assessment—rankings: from eighth to 24th in maths, from seventh to 17th in literacy, and by a similar measure in science. If social mobility remains an issue in Britain today, as Alan Milburn’s report stated last year, that reflects those basic failings in policy, not spending.
The nail in the coffin of the previous Government’s legacy must be this year’s finding by the National Equality Panel that, after their 13 years in power, inequality has just become worse. Their experiment failed, the spending spree is over, and now, in this Budget, Britain must face up to the reality of the mess that the previous Government left behind.
The OECD has predicted that this will be the last year in which developed countries account for more than half global output. The international competition has well and truly arrived, yet Europe lags well behind the United States in terms of levels of economic growth, and is ill equipped to rise to the challenge presented by new competition from Asia and Latin America.
David Wright (Telford) (Lab)
The hon. Gentleman mentioned the expansion of public spending over the past 13 years. One of the things that public spending does during a recession is blunt—a word that he used—the worst impacts of that recession. Can he cite three projects that he would have cut to provide an economic stimulus at the worst point of the recession?
Mr Raab
I will not mention three specific projects now, although it would be very easy to do a trawl and find far more than three. The previous Government spent billions on quangos, public relations, management and marketing. The basic point, however, is that for far too long the nation has failed to cut its coat according to its cloth, and that must end.
Unless we tackle the legacy of debt that we have been bequeathed by the Labour party, we shall be threatened with high interest rates and even higher taxes, which will mean fewer jobs and fewer opportunities for the next generation. Nor will we reach our economic potential, or keep up with our competitors during the mid-term, unless the weight of taxation and regulation comes down. We must never forget that the economic engine that drives wealth also generates the revenue to pay for our vital public services. This is not a zero-sum game.
While we must act out of necessity, we must also act out of fairness. We should bear in mind that 100% of the contraction in GDP during the recession fell on the private sector. None fell on the public sector, which continued to expand. That is unfair. Median salaries in the public sector are 12% higher than those in the private sector, yet private sector employees work 23% longer hours. That is unfair. In the 11 years up to 2008, the proportion of pensionless employees in the public sector dropped to 16%, while in the private sector it rose to 63%. That too is unfair, and it must change.
This Budget marks the first opportunity for us to change the reckless course of the past 13 years. I commend the Chancellor on his structural reforms, the creation of the Office for Budget Responsibility and the strengthened mandate for the Bank of England, and I welcome his resolve in tackling the deficit. Of course, he is right to cut out the reckless waste in the forthcoming spending review: the billions spent on Government PR and marketing, and the bloated quangocracy. However, I also welcome his resolve in making the tougher decisions today which no one relishes, but the necessity of which must now be beyond doubt. He is right to freeze pay in the public sector and review the structure of pensions. He is right to scale down welfare entitlements that we cannot afford, and which have fuelled a dependency culture that traps too many in a rut that leads nowhere.
Cutting the deficit, however, is only half the answer; we also need a pro-growth Budget. I therefore welcome the cuts in corporation tax and small business rates, and the abolition of national insurance for new jobs created by start-up companies. At last small businesses in this country have a Government who are on their side, not on their backs.
I regret that the legacy of the previous Government has forced us into certain unpalatable choices such as increasing VAT and capital gains tax, and I hope that those measures can be short-lived. Given the global competition, when we protect spending it must be to strengthen our infrastructure or to boost productivity, so I accept that it is right to spare capital spending from further cuts. We must also protect those who are in the greatest need—the most vulnerable. It is absolutely right to lift the lowest paid out of income tax altogether, and to protect public sector workers on salaries of £21,000 or less. The days of tax and spend for the sake of social engineering are, however, well and truly over. The economic costs are too high, the social gains a mirage. So I commend the Chancellor and his team on their first Budget. They must steel themselves with resolve for the long road ahead. Our future economic competitiveness depends upon that.
Margot James (Stourbridge) (Con)
May I congratulate my hon. Friends the Members for Dewsbury (Simon Reevell) and for Bedford (Richard Fuller) on their maiden speeches, and also my hon. Friend the Member for South Northamptonshire (Andrea Leadsom), whose maiden speech, sadly, I missed? I shall have to catch up with it in Hansard tomorrow. I also congratulate any other Members who made their maiden speeches this afternoon.
It is said that “You can’t make a silk purse out of a sow’s ear,” but I must congratulate my right hon. Friend the Chancellor of the Exchequer for doing just that. What a sow’s ear it was, however. Let me revisit the legacy we have inherited from the Labour party. We are borrowing £1 for every £4 that we spend. National debt is running at £3 billion per week. We have a budget deficit of £155 billion, which is 10% of GDP.
As if these headline statistics are not bad enough, there has also been the corrosive effect of some of the shibboleths that the previous Government instilled in our country. My hon. Friend the Member for Esher and Walton (Mr Raab) has just mentioned the fact that public spending grew at a dramatic rate under the previous Government, from less than 40% in ’97 to 48% in 2007. They established the lie that for every social ill—for every problem—there must be a Government solution, and that every Government solution must carry an ever-rising price tag.
The right hon. Member for Birkenhead (Mr Field) has just taken on the dramatic challenge of reducing poverty in our country. He could give a very good answer to the question the hon. Member for Telford (David Wright) asked of the previous speaker about where we might have seen some cuts. The right hon. Gentleman described a situation in his constituency, where children were being sent to school with nothing to eat and having had no breakfast. The Government’s response was instantly to set up a breakfast club—paid for from hard-pressed taxes on people on low pay—thereby undermining the parents who struggle alongside other parents who think it acceptable to send their children out of the house in the morning with nothing to eat. That undermines those parents who struggle and who do provide for their children and do bring them up properly. That is just a small example of additional expenditure that is merely undermining family life.
There is nothing progressive about taxing the next generation for our out-of-control consumption. There is nothing progressive about putting our recovery at risk by continuing the borrowing, and the spending that will inevitably result in higher interest rates and higher mortgages and more people out of work, which all of us in this House are—
Toby Perkins
The hon. Lady mentioned higher interest rates and, of course, her party knows all about that because it was under a Conservative Government that we had record repossessions and interest rates went up to 15%. Is she aware that interest rates under the Labour Government have been lower than at any other time in history?
Margot James
Interest rates reduced partly, of course, thanks to the excellent management of the economy by the former Chancellor of the Exchequer, now Lord Chancellor and Secretary of State for Justice, and also partly because of our exit from the exchange rate mechanism, which I feel all of us on the Conservative Benches were only too relieved to see at the time.
If I may return to the present day, I was pointing out that there is nothing progressive about some of Labour’s policies, and with the interest on our debt heading for £70 billion a year by 2014, we cannot sit here and do nothing. That really is the ultimate hypocrisy given Labour’s fiscal plans, of which we are all aware, and which were revealed in the previous Budget. Some £59 billion-worth of spending cuts and tax increases were made public, but where they would hit was never made clear. My right hon. Friend the Secretary of State for Health was able to unearth some of the detail through freedom of information requests. Many trusts throughout the country revealed exactly where those cuts were going to be made. In my area, the West Midlands strategic health authority was going to make them by ordering cuts in front-line services, hospital beds and the number of nurses and doctors. So we in the west midlands were clear about the nature of some of the cuts that were going to be on order had Labour stayed in government.
Given that we are faced with the terrible legacy that I have just outlined, I applaud the Chancellor for his many acts of brilliance in the Budget, which I shall outline, starting with those concerning pensioners. I am connected with groups that represent older people, and have been for many years. I think that the late, great Baroness Castle of Blackburn would have been very pleased to see at last the restoration of the link between pensions and earnings, for which she long campaigned, but she would have been very sad that after 13 years of Labour Government it has taken a Conservative Chancellor, in his first Budget, to bring that sense of hope back to our pensioner community. Indeed, he has gone one step further by introducing the triple lock of ensuring that, whichever is the greatest of the rise in prices, the rise in earnings or the figure of 2.5% will be our tribute to pensioners, as a minimum, year on year.
On the tax proposals, I can say from the bottom of my heart that none of us wants to increase tax. The VAT rise, which I feel is the legacy of the Labour party, is not such a regressive tax according to the Institute for Fiscal Studies, which makes a greater study of these matters than I do, given that the poorer population spends a greater proportion of its income on items that are exempt from VAT. That is a point worth remembering. I am very pleased that the low paid are being taken out of income tax to the tune of 800,000 people a year, and I acknowledge the presence of the Liberal Democrats in our coalition as the authors of a number of these policies. I am delighted that low-paid people are being helped in that way.
I was one of the Conservative Members who were deeply concerned about the prospect of a rise in capital gains tax, and I am very impressed by how the Chancellor has gone about increasing that tax in a way that protects business assets, protects people at the lower rate of income tax and assigns a more modest increase than we were all expecting to those paying tax at the higher rate. We can all be very pleased by the outcome of the concerns that we expressed on that subject.
I was also delighted to see protection built in for capital spending, which has been really slashed in the past 12 months. I have been lobbying on behalf of the hospice in my constituency, which had received approval for capital funding, not all which was funded—that is a familiar refrain. I was delighted to hear last week that it had received approval in full for its funding. I shall meet the Minister for Housing on behalf of Dudley council to press for the completion of funding for new council housing in the Quarry Bank ward of my constituency, which was promised and partially committed to in funding terms. I was very pleased to see that signal in the Budget.
None of us likes freezes and none of us likes the idea that someone living on benefits will receive a cut, but in the current climate it cannot be right that families with an income of up to £80,000 a year benefit from tax credits. I applaud the Chancellor for bringing in limits for housing benefit, which has risen out of control over the past 10 years.
Overall, I welcome the Budget. Despite some of its measures, which we deeply regret having to take, it rebalances the public and private sectors—not before time. The reduction of corporation tax to 24% by 2012 and its reduction to 20% for small and medium-sized enterprises is very welcome indeed. There are many SMEs in my part of the world, so that measure is marvellous. Manufacturing can continue to claim full allowances for depreciation, albeit over a longer period, and that is welcome news for the manufacturing sector.
I welcome the review of public sector pensions. We will see the detail in due course, but the £25 billion cost to the public purse of unfunded public sector pensions is a great worry. There is deep unfairness. The gap between public and private sector pensions is daylight robbery from people struggling on lower-paid jobs in the private sector. It must be righted. I was horrified to hear the general secretary of Unison say that the Government
“won’t know what has hit them”
if they attempt pension reforms. That bullying defence of vested interests flies in the face of the fairer society that, through the Budget, we are trying to build.
Coming from the west midlands, I warmly welcome the commitment to tax incentives for employment outside London and the south-east. That rebalancing of our economy is long overdue.
The best way to support the crucial public services that we all want—on both sides of the House—is to put them on a sound financial footing, something the previous Government so miserably failed to do. It falls to us to put that vision into practice.
Steve Baker (Wycombe) (Con)
When I came to the House today, I expected to hear a great deal of Keynesian argument and I have not been disappointed. I am sorry that the hon. Member for Great Grimsby (Austin Mitchell) is no longer in the Chamber, as I wanted to congratulate him on his comprehensive grasp of Keynesian arguments. Unfortunately, it was also excruciating.
I am told that Keynes thought that the safe upper limit for the size of the state was 25% of national income. He might have halved the size of Government, so we can applaud the Budget as extremely moderate and thoughtful.
I have to tell those who propose deficit spending that it is inherently unsustainable. When Governments spend with a deficit they are bound to inject funds in a particular location in the economy and that is bound to create a pattern of economic activity that can be sustained only with deficit spending. We all accept that deficit spending cannot go on for ever. As one of my hon. Friends explained earlier this week, last year we were able to borrow only because we created a hole in the market for bonds using quantitative easing. That is so dangerous. In the past the world has seen the effects of printing money to pay off Government deficits, and I would dread to think that this country should live through such a circumstance.
I am reminded of some words published in 1945:
“I see now more clearly than ever before that even our greatest troubles spring from something that is as admirable and sound as it is dangerous—from our impatience to better the lot of our fellows.”
That is a quotation from Karl Popper, who is an interesting philosopher because, like his contemporary, Friedrich Hayek, he was a socialist until he understood where that philosophy went.
I am interested in the general well-being, particularly as Wycombe has not only great wealth but significant poverty and income levels everywhere in between. We must take seriously the realities that we face. I am glad that the Budget has included an announcement that there will be a review of pensions, and I should like to speak on that. I am grateful to my hon. Friend the Member for Stourbridge (Margot James) for having brought up the subject.
The Institute of Economic Affairs published a paper called, “A Bankruptcy Foretold”, in which it explains that the Government use cash-basis accounting, whereas any commercial firm would use an accrual basis. Our accrued pension liabilities are therefore not on the Government’s balance sheet. If they were, at April 2010, the true public liability would be £4,771 billion. The Office for National Statistics has suggested that the banks’ full liabilities should be included in the public liability. That would make it £6.3 trillion. Those numbers are preposterous.
I should like to break down the last number, because it is so preposterous: first, the official debt, £772 billion; the cost of financial interventions, £73 billion; the current accrued public sector pension liabilities, £1,179 billion; liabilities to current pensioners, £1,120 billion; and the liabilities for future basic state pensions, £1,211—I am nearly there—and future additional pensions, £467 billion. Somewhat laughably, we can deduct from that catalogue of disastrous numbers the national insurance fund balance of a staggering £51 billion.
Those numbers have a profound implication, not for this year or the Parliament, but for the next 10 to 20 years. If we are serious about the general well-being, public sector pensions, the state pension and those vulnerable people who will rely on all those things—I include members of the armed forces currently serving us—we will need to think today about how we will fund those pension liabilities. I am glad that there will be a review of this subject and that one of the right hon. Members who sits on the Opposition Benches will head that review.
I should like to turn to our economic future in the international context. The Bank for International Settlements published a paper—working paper 300, which I recommend to hon. Members—that considers the future of public debts, the prospects and implications. In my hand, I have a set of graphs that show the public debt for western European nations, plus Japan and the United States, disappearing exponentially. Hundreds of per cent. of GDP are owed by the nations of the western world, including Europe and Japan. The situation is dire. By 2040, our largely age-related debt is projected to be five times GDP. By 2040, our interest payments would be more than a quarter of GDP. I do not know about the rest of the House, but I do not believe that we will ever get there. Long before interest payments reach 25% of GDP, we will have a social catastrophe. We cannot allow that to happen.
Perhaps bond investors with short time horizons of days and weeks will continue to put their faith in the nation’s ability to repay, and perhaps they will not demand higher interest rates. Perhaps, as some people suggest, debt can be inflated away, but let us not forget that we are talking about index-linked debts; we are talking about pension obligations.
The Bank for International Settlements set out a different view. It pointed out that the path of growth pre-crisis was insufficient to pay those liabilities, but that now our prospects are worse. It pointed out that financial restraint historically has only stabilised the debt, without substantially reducing it. It also pointed out that swings from deficits to surpluses have been historically accompanied by falling interest rates and rising growth. I think that we can rule out the former, and at the moment it seems that our growth prospects are modest.
The Bank for International Settlements explains that it is ultimately not possible to roll over ever higher Government debts and that sooner or later debts are monetised, leading to inflation. It explains that that inflation may or may not be controllable. Perhaps there will be future political pressure to inflate away the debt but, of course, expectations of inflation automatically increase interest rates. In any event, inflation is a poison that hits pensioners, savers, and those on low and fixed incomes hardest. As I said, my concern is the general well-being.
We cannot afford further to distort the structure of our economy with inflation, so what is to be done? It seems that we are at the limits of taxation. We cannot borrow our way out of the problem and nor can we inflate our way out of it. We might well be impatient to better the lot of our fellows, but past impatience to better their lot has created huge liabilities that future taxpayers will have difficulty paying. If Members on both sides of the House are serious about building a better society, we have no choice but to reform radically the size, scope and role of the state. We must urgently see to it that our pension liabilities are funded and that public sector pensions are reformed. I congratulate the Chancellor on an emergency Budget that makes a strong, moderate and reasonable start at dealing with the serious problems that face us not just today, but in the decades ahead.
Chris Heaton-Harris (Daventry) (Con)
I am grateful for the opportunity to say that I am winding up for the Government side of the House in today’s debate. I shall certainly put that in my press release, and I am sure that the Daventry Express will print it word for word.
The emergency Budget was unavoidable because the previous Government’s handling of the UK economy simply failed. Labour did not understand what every business and family throughout the country knows: if money is borrowed, it must be repaid or trouble will come; and it is best for people to live within their means. My constituents and I struggle to comprehend the size of the problem that the Budget sets out to fix. Every minute that passes, the Government spend £80,000 on debt interest, so £800 million a week is spent just servicing our debt. The money that is used for interest payments cannot be spent on things such as education, health, defence or poverty eradication in Sefton.
It was pleasing that today’s measures were at least announced against the backdrop of growth in the economy, which is in spite of, not because of, the previous Government. I have been surprised to hear that Labour Members do not understand that every penny spent by the public sector was initially raised by the private sector.
Stewart Hosie
Will the hon. Gentleman explain what happens to public sector employees’ tax? Where does that go in this pot?
Chris Heaton-Harris
It certainly contributes to tax income, but if we were to rely on only the public sector, an ever diminishing circle of tax income would come into the Exchequer and, in the end, we would not be able to pay for anything.
The way out of this mess is undoubtedly to boost and revitalise the private sector, so I welcomed the announcements in the Budget on regional job creation and the measures to cut waste and unaffordable cost from the public sector. That is exactly what our European partners and competitors are doing. Jean-Claude Trichet, the president of the European Central Bank, told the European Parliament—my old place of work—that firm control of Government spending and tax policies is essential to restore the confidence of households, businesses and investors. He said:
“We are in a situation where a lack of confidence is operating against recovery. A budget policy which you”—
if he were addressing the House, I assume that he would mean Labour Members—
“might describe as restrictive from a certain point of view is in fact a policy which we would call confidence building.”
He went on to say that if public finances continue along an unsustainable path,
“households are going to be frightened. They will not spend or consume as much, companies will not prepare for the future and investors will know they are going to have difficulty getting a return.”
Those investors have choices: they do not have to choose the United Kingdom or, indeed, Europe, as other markets are becoming increasingly attractive. France and Germany—in fact, nearly all our major competitors—have taken tough measures to sort out their public finances, and make their economies strong and attractive to future investors. We would weaken the chances of prosperity for our children if we did not do the same.
As the Chancellor noted, we need to increase the incentives to work. Welfare costs under the Labour Government rose by nearly 40 per cent., but there are still more than 5 million people on out-of-work benefits. Youth unemployment is a massive problem—1.4 million people under 25 are unemployed—and Labour’s spending to alleviate poverty failed, and has fractured society. Many people thought that the previous Government built barriers based on welfare payments that disincentivised individuals from finding a job. At the same time, those who are working pay more in tax, but why should they work hard to do the right things for themselves, their communities and their families when people who choose not to do so seemingly have everything that they do? It is a terrible disincentive.
I am a bit of a supply-side economist. I do not like tax rises, but anyone who looks at our structural deficit will understand that we need to remove as much of it as we can as quickly as possible. I will swallow my pride on the capital gains tax rise, but I note that it is a voluntary tax—people can sit on their hands and not realise the value of their shares, their property or whatever it might be. I certainly welcome the cuts in corporation tax, but I accept that the cuts in departmental budgets will be tough. I suggest that there is a great deal of waste to remove, especially from middle and upper management in some Departments. I recently received a letter from a constituent who works for the Vehicle and Operator Services Agency, who said that the directors, who were all based in the Bristol headquarters, travelled to Edinburgh for meetings, for no reason other than that it was a nice place to go.
Toby Perkins
The hon. Gentleman is raising an issue that many of his colleagues have raised, and said that somehow under a Labour Government there was profligate, wasteful spending that could easily be tidied up—[Interruption.] They all agree, and I am glad to hear it. Why, therefore, have the Government cut not that wasteful spending but the future jobs fund, thus pulling the rug from under the economic recovery? Why has the Sheffield Forgemasters loan been cut? Why do they not cut this waste, rather than all the things that will hit the poorest people most?
Chris Heaton-Harris
If only we had the money to spend on some of those projects, it would be wonderful but, unfortunately, your party spent it all. If you live in Northamptonshire, you can see areas—
Mr Deputy Speaker
Thank you for that. We have to make sure that we are in order.
Chris Heaton-Harris
I apologise, Mr Deputy Speaker. I am new to the conventions of the House.
People who live in Northamptonshire see some parts of government where costs could be removed. Something that I hope will be looked at in the spending review is the cost of quangocracy. I am not against all quangos—some do a good job—but the money spent and the powers wielded by many non-departmental public bodies could, and should, reside with locally elected officials. The budget for those bodies in 2009 was a massive £46.5 billion, although the TaxPayers Alliance pitches the figure a bit higher.
To give a quick example, someone who lives in Daventry in my constituency has a good district council and a county council, but they also have the west Northamptonshire joint planning unit, which tries to impose housing plans and which, as my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) outlined, local people absolutely do not want. They also have the West Northamptonshire Development Corporation—there is also a North Northamptonshire Development Corporation—the East Midlands Development Agency and the Government office for the east midlands. All those quangos do roughly the same thing, so I very much welcome the announcement in the Budget—on page 31 of the Red Book—of local enterprise partnerships, which could lead to excellent consolidation in that field.
One quango that I would very much like to see examined is the National Policing Improvement Agency. Set up in 2007, it now has a budget of more than £500 million. I suggest that those who, like me, are facing cuts in their local police forces, look at the report on that agency, because it is not worth the money.
I certainly welcome the measures on encouraging small businesses—