House of Commons

Tuesday 6th July 2010 Commons Chamber

Tuesday 6 July 2010

The House met at half-past Two o’clock

Prayers

Tuesday 6th July 2010 Commons Chamber

[Mr Speaker in the Chair]

Oral Answers to Questions

Tuesday 6th July 2010 Commons Chamber

The Secretary of State was asked—

[Laura Sandys (South Thanet) (Con)]

1. What his most recent assessment is of the state of UK-Zimbabwe relations.

[Jessica Lee (Erewash) (Con)]

4. What his most recent assessment is of the state of UK-Zimbabwe relations.

[Gavin Williamson (South Staffordshire) (Con)]

8. What his most recent assessment is of the state of UK-Zimbabwe relations.

[The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague)]

We want to do all that we can to support the aspirations of the Zimbabwean people for a peaceful, prosperous and democratic Zimbabwe. We will work with reformers in Zimbabwe and the region to maximise the prospects for achieving the reforms necessary for properly conducted elections.

[Laura Sandys]

What can the British Government do for British nationals who were born in Zimbabwe whose property has been expropriated by the Zimbabwe Government, some of whom live in South Thanet?

[Mr Hague]

We condemn illegal farm and property seizures, which contravene the global political agreement and a Southern African Development Community decision, and which do nothing to advance Zimbabwe’s economy —we should make that very clear. Economic regeneration in Zimbabwe depends on respect for the rule of law, and we urge the Zimbabwean Government to respect the rule of law and to end such seizures.

[Jessica Lee]

In the light of the concerns raised by the UN’s Kimberley process into mining diamonds in Zimbabwe, what measures do the Government have in place to ensure that conflict diamonds do not make their way into the UK?

[Mr Hague]

The European Union, including the United Kingdom, has called for efforts to reach agreement through the Kimberley process so that all mining in the Marange fields in Zimbabwe are subject to it. In that way, diamonds could actually help the economic development of Zimbabwe in future. We would like to sort that out within the Kimberley process, so that those diamonds can then be used productively.

[Gavin Williamson]

What action is my right hon. Friend taking with other African nations to ensure that Zimbabwe adopts a new constitution and ends the endemic corruption within the country?

[Mr Hague]

We work closely with our partners around Africa, foremost among which, of course, is South Africa. We support its efforts and those of President Zuma to engage closely with Zimbabwe and to push it towards reform. We—the UK and other donors—also support, through the UN development programme, the implementation of the Zimbabwean constitution. Given the concerns that my hon. Friend and others have raised, I should say that that happens not through direct funding of the Zimbabwean Government, but through that UN programme.

[Kate Hoey (Vauxhall) (Lab)]

The Prime Minister will know that Morgan Tsvangirai was promised by the African Union and SADC that they would honour the global political agreement and ensure that it worked, but clearly they have not done so. Can we do anything more to put pressure on the AU and SADC, without which we will never get the free and fair elections that will make Zimbabwe once again a flourishing nation?

[Mr Hague]

We can put diplomatic pressure on those organisations—that is the leverage we have. The hon. Lady may think that that is not substantial enough, but that is what such pressure amounts to—working with those countries, particularly South Africa, and of course with reformers in Zimbabwe, to try to ensure that the global political agreement is properly respected. The UK will remain a strong voice for that, but we cannot guarantee it on our own.

[Mr David Hanson (Delyn) (Lab)]

The noble Baroness Ashton, as the EU foreign affairs chief, recently met Zimbabwean Ministers to discuss what she termed human rights abuses and political development. I understand that a €20 million grant is currently being made available to the Zimbabwean authorities as Baroness Ashton seeks to make concrete progress on those political objectives. Does the Secretary of State have any idea what concrete progress means in reality?

[Mr Hague]

I think we can fairly say that concrete progress would be a great deal more than anything that is happening at the moment. There have been no noticeable improvements in the human rights situation in Zimbabwe, and we are deeply concerned about harassment and politically inspired detentions, which continue in that country. Concrete progress means a lot more than anything we have seen so far.

[Dr William McCrea (South Antrim) (DUP)]

Have our Government any new initiatives or plans for such initiatives to deal with Mugabe’s ruthless regime, under which many people are starving or subject to persecution?

[Mr Hague]

It is not within the UK’s power alone to deal with Mugabe’s regime. It is possible to do many things to try to improve the situation, some of which I mentioned in answer to previous questions, such as working with South Africa and other partners in Africa, supporting the implementation of the constitution with development money—my right hon. Friend the Secretary of State for International Development will continue to support that while reviewing the situation—and stressing the need for economic progress and the possibility of economic regeneration in Zimbabwe. It is a case of continuing all those things to try to help the situation in Zimbabwe rather than introducing one bold new initiative.

[Mr William Bain (Glasgow North East) (Lab)]

2. What plans he has for the future of his Department’s strategic programme fund for human rights and democracy.

[The Minister of State, Foreign and Commonwealth Office (Mr Jeremy Browne)]

My right hon. Friend the Foreign Secretary announced a 10% reduction this year in the strategic programme fund for human rights and democracy, as a contribution to reducing public expenditure, while making clear our desire to sustain such programmes in future years. Programme funds are only one way in which the British Government uphold human rights, which are also a major focus of our overall bilateral and multilateral diplomatic activity.

[Mr Bain]

I thank the Minister for that reply, but will he go a little further to allay the concerns of right hon. and hon. Members and say that there will be no further reductions in the funds available for this important project, which boosts human rights, democracy and the abolition of the death penalty in countries such as Iran, China and Russia?

[Mr Browne]

I share all the hon. Gentleman’s objectives, and we wish to minimise the impact of this reduction. We certainly do not seek further reductions. It is worth making the additional point that programme funds are not the only means by which we deliver these policies. Our ambassadors and our network of staff around the world are delivering these foreign policy objectives for Britain every single day.

[Jo Swinson (East Dunbartonshire) (LD)]

Earlier this year, the FCO facilitated a visit by Lord Judd and me to investigate the human rights situation in Chechnya. Sadly, we found evidence of abductions, executions, house burnings and a culture of impunity among the perpetrators. Will my hon. Friend meet me and Lord Judd to discuss our report and how the UK may be able to influence positively the dire human rights situation in Chechnya?

[Mr Browne]

I would be happy to hold a meeting very soon.

[David Miliband (South Shields) (Lab)]

I am happy to welcome the hon. Gentleman to his post.

Nowhere is the battle against corruption and for good governance more important than in Afghanistan, where it is a key part of the combined civilian-military approach. In that context, does the Minister agree with the Secretary of State for Defence that our troops will be the last to leave Afghanistan?

[Mr Browne]

rose—

[Mr Speaker]

Order. I say this with a degree of trepidation, but I am not quite sure how the right hon. Gentleman has managed to shoehorn his inquiry in question No. 2. Could he explain briefly?

[David Miliband]

As I said, the drive for good governance and against corruption in Afghanistan is a central part of our strategy, and it is combined with military effort. I am asking a simple question about whether the Minister agrees with the Defence Secretary that our troops will be the last to leave Afghanistan.

[Mr Speaker]

I am sure that the Minister will wish to focus on the programme fund in his reply.

[Mr Browne]

I will indeed, Mr Speaker. I assure you and all hon. Members that we attach the utmost importance to human rights and democracy in Afghanistan.

[David Miliband]

I am pleased to hear that. The Minister will know that an important part of the programme relates to the development of the peace jirga that was recently held in Afghanistan. The Foreign Secretary said of President Karzai’s peace jirga that it marked a

“comprehensive, inclusive and genuinely representative political process”.

He is certainly right that it is important. However, the two most internationally respected members of President Karzai’s Government—Interior Minister Atmar and spy chief Sahel—have resigned because of the failings at that jirga. Will the Minister explain whether the Foreign Secretary met opposition leader Abdullah when he was in Kabul and what he will do to ensure that these funds continue to be used for the vital task of building a political settlement in Afghanistan?

[Mr Browne]

We continue to work closely with the Afghan Government. On the specific and narrow issue of programme funds, I can again reassure the House that our relations with the Afghan Government and our efforts in Afghanistan go way beyond anything that we are spending on programme funds. It is an absolute central top priority of the British Government.

[Mr Wayne David (Caerphilly) (Lab)]

3. What recent reports he has received on the political situation in the Kyrgyz Republic; and if he will make a statement.

[Mrs Madeleine Moon (Bridgend) (Lab)]

10. What recent discussions he has had with the government of the Kyrgyz Republic on the political situation in that country.

[The Minister for Europe (Mr David Lidington)]

Our ambassador is in regular contact with the authorities in Kyrgyzstan. We are deeply concerned by recent events in that country where the situation remains fragile. Both we and our international partners believe that the political process now under way represents the best chance that we have to ensure peace, the rule of law and democracy for all the people of Kyrgyzstan.

[Mr David]

Clearly, the situation in Kyrgyzstan remains difficult, but does the Minister agree that it is vital that we have maximum co-operation between the Organisation for Security and Co-operation in Europe, the United Nations and the European Union?

[Mr Lidington]

I agree completely with the hon. Gentleman, and I hope that next week, when I attend the OSCE ministerial meeting in Kazakhstan, I will be able to talk to colleagues from all those parts of the world about the way forward.

[Mrs Moon]

I join the Minister in welcoming the outcome of the 27 June referendum, in which the Kyrgyz clearly outlined their desire for a parliamentary republic and a new constitution. However, will he join me in calling on President Otunbayeva to reduce tensions between the Kurds and Uzbeks by initiating an open and transparent inquiry into the killings in Osh and Jalalabad, and by releasing the Uzbek human rights activist Mr Askarov and the journalist Mr Abdusalomov?

[Mr Lidington]

It is precisely because the British Government accept the need for reconciliation between the different communities in Kyrgyzstan that we co-sponsored a resolution on 18 June, at the UN Human Rights Council, calling for a transparent investigation into the events of April and the recent inter-ethnic violence, and urging the Kyrgyz authorities to promote inter-ethnic reconciliation as a key priority.

[Mr Gary Streeter (South West Devon) (Con)]

Has high-level corruption in the political system not been one of the real problems facing Kyrgyzstan since independence? What more can the British Government do, whether through the EU, their own good offices or the Westminster Foundation for Democracy, to promote good governance in this important country in central Asia?

[Mr Lidington]

We in the United Kingdom have to accept that there are practical limits to our ability to put right all the problems that my hon. Friend has identified. Nevertheless, the British Government will continue to do all within their power, not just bilaterally but through the various multilateral organisations to which we are party, to bring about reconciliation and a free and stable democracy in that country.

[Greg Hands (Chelsea and Fulham) (Con)]

I visited the city of Osh eight years ago, and I have to say it was a desperately poor place. The Minister will recall that five years ago, with the Andijan massacre in Uzbekistan, there were international calls for a full investigation that ultimately came to nothing. Will he reassure us that the calls now for an investigation into the present case will lead to fruition and something proper happening?

[Mr Lidington]

I share my hon. Friend’s hope for a positive reaction on the part of the Kyrgyz authorities to the resolution at the UN Human Rights Council. I shall be making that point in my conversations with Kyrgyz and other regional leaders next week.

[Ann McKechin (Glasgow North) (Lab)]

5. What recent discussions he has had with the Rwandan National Election Commission on the forthcoming presidential elections in that country.

[The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr Henry Bellingham)]

We are working with the National Election Commission, encouraging it to implement recommendations of previous EU election observer missions. The recent electoral code addresses most recommendations, but it is important that the presidential elections in August comply with international norms.

[Ann McKechin]

I am sure that the Minister will share my concerns about the increasing reports of incidents of harassment and intimidation of opposition leaders, including the arrest of one of the leaders of the opposition party just less than two weeks ago. Will he impress it on the National Election Commission and the Rwandan Government that such continued reports will stain Rwandan’s reputation, which has made much progress in the past decade, and that it is vital that they show real signs of ensuring that democracy is fully protected?

[Mr Bellingham]

I am grateful to the hon. Lady for that constructive question. I share her concern about the arrest of Victoire Ingabire, who is a prominent opposition leader, and about the fact that her American lawyer, Professor Erlinder, was also arrested on what were basically trumped-up charges. We are also concerned that so far just one party outside the ruling coalition has been registered, and we are applying as much pressure as we can.

[Stuart Andrew (Pudsey) (Con)]

rose—

[Mr Speaker]

I call Andrew Stephenson—[Interruption.] He is not Andrew Stephenson, but he is very welcome. Let us hear from him.

[Stuart Andrew]

Thank you, Mr Speaker. Given that top military officials have also been arrested, does my hon. Friend the Minister see any danger of interference in the elections by the Rwandan army?

[Mr Bellingham]

I am grateful to my hon. Friend for that question. To say that Rwanda has come back from the abyss would be an understatement. We should pay tribute to the extraordinary progress that Rwanda has made. What we want to do the day after the election is call the new President of Rwanda, congratulate him on his election and say that he has enhanced credibility and trust with the world community by winning a completely free and fair election against proper opposition.

[Mr Speaker]

My apologies to Stuart Andrew.

[Mary Creagh (Wakefield) (Lab)]

Does the Minister share my concern about the murder of Jean-Léonard Rugambage, a journalist on the Umuvugizi newspaper—I will pass that name up to Hansard afterwards—who was shot on Friday 25 June? Does he agree that having free, fair and open newspapers is an essential part of ensuring a civil space where democracy can work, and will he do everything he can to press the Rwandan Government to bring that man’s murderers to justice?

[Mr Bellingham]

We have already made our views clear to the Rwandan Government, and we will continue with that dialogue, putting pressure on them. As I said a moment ago, it is essential that there should be not only a free election, but one with proper opposition and open and transparent media reporting it.

[John Robertson (Glasgow North West) (Lab)]

6. What recent discussions he has had with his Israeli counterpart on settlement expansion in East Jerusalem and the west bank; and if he will make a statement.

[The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Alistair Burt)]

We are in regular contact and dialogue with the Israeli Government, particularly on matters pertaining to the peace process. We remain of the view that the moratorium on settlements that is currently in place is the right policy, and we continue to urge all parties not to change any facts on the ground which might undermine the peace process.

[John Robertson]

I thank the Minister for his answer, although I am not quite sure exactly what he means. For those of us who have been over to the west bank and seen the problems there between the people who will not trust those on the other side of the fence, can he tell us exactly what the Government’s policy will be towards the settlements? Will he come out and actually say that they have to be closed down, and that we have to return to the 1967 boundaries?

[Alistair Burt]

I must say as clearly as possible to the hon. Gentleman and to the House that we regard the settlement policy as wrong and not in the interests of the peace process. That is a position that has been made clear to the Israeli Government over a period of time. It is essential, as he mentioned, that confidence measures are built on both sides. This is an immensely complex process, but there is no doubt that the settlement policy has been seen as a bar to progress in the peace talks. We therefore urge that the moratorium on settlements should remain past September, when it is due to come to an end.

[Sir Malcolm Rifkind (Kensington) (Con)]

Does the Minister agree that land swaps of Israeli territory for Palestinian territory, which has already been discussed in the past by Israelis and Palestinians, would form, at the very least, a significant part of a potential solution to the problem outside East Jerusalem? Does he also accept, however, that for the two-state solution to work, the proposed Palestinian state must have a high degree of both territorial integrity and economic viability?

[Alistair Burt]

My right hon. and learned Friend will know better than most—although most of the House knows as well—that one of the great ironies of the situation is that the draft agreement between the two sides is already well enough known. It has been spoken of many times, and land swaps play their part. We remain of the view that a two-state solution is the thing to be sought, with a universally recognised and secure Israel next to a viable and sovereign Palestine. The work being done on the peace process currently, through the proximity talks, is being much encouraged by this Government.

[Mr Ivan Lewis (Bury South) (Lab)]

Improving the situation in Gaza is crucial to building confidence for direct negotiations between Israelis and Palestinians. Will the Minister give a progress report on the implementation of the Israeli Government’s commitment to minimise restrictions on goods and services needed for the reconstruction of Gaza? Will he confirm whether any progress has been made on the proposed deployment of EU troops to assist movement and access into Gaza? Will he also give an indication of what steps Britain and the EU are taking to secure the release of Gilad Shalit?

[Alistair Burt]

I am grateful to the hon. Gentleman for those questions, all of which are pertinent. There has been movement on easing the blockade. Again, one of the ironies of this dreadful situation is that out of some tragedy, there might be some movement in the right direction. The pressure that has been exerted on Israel in recent times by the EU, this Government, the United States and the Quartet for a relaxation on the restrictions in Gaza has had an effect. The hon. Gentleman will know that two days ago—I think—the Israelis announced that they were moving from a list of allowed goods to a list of banned goods, and that reconstruction materials would be allowed through. It remains essential that no weapons get through into Gaza and thereby further destabilise the situation. As he also said, it is crucial that Hamas should release Gilad Shalit as soon as possible and unconditionally, because that will be a further confidence-building measure of the kind that is so desperately needed for the relief of the people of Gaza and the middle east.

[Mr Speaker]

Order. We need shorter answers.

[Sir Menzies Campbell (North East Fife) (LD)]

Does the Minister accept that the moratorium is no substitute for the cessation of a policy that is unequivocally contrary to international law, and whose continuance represents an insurmountable obstacle to the achievement of peace and implies a determination to impose a solution not by agreement but by attrition?

[Alistair Burt]

Again, I would say that we must take this step by step. The current position, in which the moratorium has been observed, has been important in allowing space for the proximity talks to take place, and we hope that those talks will advance into further discussions. I repeat that we believe that the previous settlement policy was a barrier to that process, and that we want to see the current moratorium continue.

[Mrs Louise Ellman (Liverpool, Riverside) (Lab/Co-op)]

I recognise the great importance of a settlement freeze, but does the Minister welcome the decision by the International Trade Union Confederation to urge closer working between the Israeli trade unions—the Histadrut—and the Palestinian trade unions, instead of pursuing a policy of sanctions and divestment?

[Alistair Burt]

Yes, I do. The hon. Lady might like to know that the recent investment conference on the west bank was very successful, and that the Palestinian Authority are now seeing real progress in their own economy. They remain in difficulty, however, as do all the occupied territories, and of course none more so than Gaza. Anything that can be done to stimulate relationships, particularly those relating to trade, with the occupied territories and the west bank, must be good news.

[Margot James (Stourbridge) (Con)]

7. What recent discussions he has had with Her Majesty’s consul general in Greece on the case of Mr Luke Walker.

[The Minister for Europe (Mr David Lidington)]

This is a tragic case, which I have discussed with officials. Our consular staff in Crete have visited Luke Walker in detention, and they are providing him and his family with ongoing assistance.

[Margot James]

I thank my hon. Friend for his answer. Photographs and papers promised by the court in Crete to Luke Walker and his family, which are legitimately required by the UK coroner, are being subject to unacceptable delays. Does my hon. Friend agree that the reluctance of the Greek Interior Department to co-operate with UK coroners in general might be contributing to these delays? Can he assure my constituent, who has now been in prison for 66 days, that all possible steps are being taken to resolve these matters?

[Mr Lidington]

In the case of Luke Walker, consular officials in my Department are doing everything they can to expedite the process, within the limits placed on us by our inability to interfere in the judicial processes of other countries. On my hon. Friend’s more general point, the Foreign Office has established, together with the Ministry of Justice and the Greek Ministry of Justice, a working party that will look at the problem that she has identified—namely, how to ensure that important case documents are shared between the different jurisdictions.

[Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)]

9. What recent discussions he has had on governance of the Turks and Caicos Islands; and if he will make a statement.

[The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr Henry Bellingham)]

I have held a number of discussions about the situation in the Turks and Caicos Islands, including with my right hon. Friend the Minister of State, Department for International Development. Yesterday, I met our Governor, and last week I met a delegation from the Turks and Caicos Islands. The Foreign Secretary, other Ministers and I all want to see the Government restored as soon as possible. The Governor—fully supported by the UK—is working hard to restore key elements of good governance and sound public financial management.

[Tom Greatrex]

I thank the Minister for that reply. May I urge him and his Department to do whatever they properly can to influence the inquiry that is going on in the Turks and Caicos Islands, and to ensure that the people of those islands are able to take part in free and fair democratic elections as soon as possible?

[Mr Bellingham]

I am grateful to the hon. Gentleman for his constructive question, and I agree with him entirely. We want to get the inquiry out of the way as soon as possible, and the special investigation and prosecution team is doing a very good job indeed. It is now at full strength, and we very much hope that it will come up with a number of charges in the near future so that we can get closure following these quite appalling corruption incidents.

[Mike Gapes (Ilford South) (Lab/Co-op)]

The Minister will know that the Select Committee on Foreign Affairs published in its final report in the last Parliament a short update on the situation in the Turks and Caicos Islands, and made a number of recommendations. It expressed concern that the timetable for an election in 2011 might be too early, given that these possible prosecutions might not have been concluded by that time. Are the Government giving consideration to that timetable, and are they prepared to look again at their current approach?

[Mr Bellingham]

We are certainly looking carefully at those particular points. I agree with the hon. Gentleman that we want to avoid the danger of re-electing politicians involved in corruption. That is why the matter is under review. We are looking carefully at the work of the Turks and Caicos Islands Government, and we will report back to the House on progress in due course.

[Miss Anne McIntosh (Thirsk and Malton) (Con)]

11. When he next expects to discuss the European Commission’s work programme for 2011 in the General Affairs Council.

[The Minister for Europe (Mr David Lidington)]

The European Commission will publish its work programme for 2011 towards the end of this year, and I will ask the presidency to table a discussion of it at the following General Affairs Council. I am also looking forward to a debate in Westminster Hall on the Commission’s 2010 work programme.

[Miss McIntosh]

Is the Minister aware that the Commission is agreeing a Green Paper on pensions imminently, which will presumably form part of the work programme for next year? There is an issue about those who are self-employed and those who are employed working in different member states that needs to be addressed. The Green Paper does not address that, however, but other issues such as having a one-size-fits-all for pensions, which is not acceptable. Will the Minister press for the correct law to be in place, not one that we could do without?

[Mr Lidington]

I can assure my hon. Friend that not just I, but my hon. Friends in the Department for Work and Pensions will press to make sure that any proposals suit the interests of the United Kingdom. When the Green Paper is published, it will, of course, be subject to parliamentary scrutiny in its own right.

[Chris Bryant (Rhondda) (Lab)]

One element of the Commission’s work programme is the implementation of treaty change. Will he confirm that the Prime Minister agreed at the June European Council to a special intergovernmental conference, but has yet to notify this House of that matter? That meeting has already taken place. Will he also confirm whether the Prime Minister, or the British representatives at that intergovernmental conference suggested the repatriation of any powers from the European Union to the UK?

[Mr Lidington]

I am sorry if the hon. Gentleman has been dozing a bit. If he had looked at the Order Paper this morning, he would have seen a written statement about the transitionary protocol on the composition of the European Parliament. It is hardly a secret, given that this matter has more than once been referred to on this side of the House in debates about Europe and foreign policy since this Parliament first convened. The proposed small treaty amendment does not involve any transfer of powers from the United Kingdom to Brussels institutions.

[Chris Bryant]

The hon. Gentleman knows perfectly well that I have read the written ministerial statement because I tabled an urgent question about it earlier this morning and I am sure that he was consulted on the matter. However, let me raise another matter that arises from the Commission’s work programme—trade with Latin America. The Minister knows that Labour Members support a free trade agreement with Peru and Colombia, but we know that there are very significant human rights abuses in Latin America, which is why it is important that the text of the trade agreement deals not just with trade issues. Will he make sure that this is ratified not just by the Commission, the European Council or by Europe, but by each member state so that we in this House have a chance to vote on that trade agreement?

[Mr Speaker]

Order. Before the Minister answers, let me say for the record that no reference should be made on the Floor of the House to the fact of an urgent question having been tabled. I say that gently.

[Mr Lidington]

There will be an opportunity for the House to debate the free trade agreement to which the hon. Gentleman referred. The Government’s view, as he knows, is that it is important for the EU to continue to champion free trade agreements with Latin American countries and those in many other parts of the world. He will also know that it is normal procedure for any EU free trade agreement to include a significant clause on human rights.

[Richard Ottaway (Croydon South) (Con)]

12. What recent discussions he has had with his EU counterparts on the EU’s policy on Iran’s nuclear programme; and if he will make a statement.

[The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague)]

I am in regular close contact with key EU partners to ensure that the EU makes clear, through a strong set of sanctions, including and additional to those agreed in UN Security Council resolution 1929, that Iran cannot ignore its international obligations. Tough EU sanctions will show that the EU is determined to play its part in resolving this issue.

[Richard Ottaway]

I welcome the fact that the European Union has decided to go further than United Nations resolution 1929 in imposing sanctions on Iran, especially in the oil and gas sector where it is particularly vulnerable. Does my right hon. Friend agree, however, that sanctions alone will not solve the problems of Iran’s nuclear facility? Following his twin-track approach, what efforts is he making to broker a deal?

[Mr Hague]

I welcome my hon. Friend’s welcome for the statements of the European Union and the European Council last month. My right hon. Friend the Prime Minister was party to them, and we are now working in detail with EU partners on what that will mean in terms of specific sanctions. I hope that those will be agreed at the next meeting of the Foreign Affairs Council on 26 July.

As for the other part of the twin track to which my hon. Friend rightly referred, we remain open to negotiations. The EU High Representative, Lady Ashton, has made it clear—along with many of the Foreign Ministers involved—that we remain open to negotiations about Iran’s whole nuclear programme, and that we look to Iran to enter into such negotiations and co-operate fully with the International Atomic Energy Authority. It has not been prepared to do those things so far.

[Mr Denis MacShane (Rotherham) (Lab)]

I welcome the Foreign Secretary’s robust stance on Iran, but it is a crime against the United Nations genocide convention to incite genocide as well as to commit it. President Ahmadinejad has called for the wiping of Israel off the map of the world. That generally means the extermination of its people. Will the Foreign Secretary consider taking to the United Nations and the International Criminal Court an indictment against President Ahmadinejad for his incitement to the genocide of the Jewish people in the middle east?

[Mr Speaker]

Order. I am sure that the Foreign Secretary is being asked to do that in the context of discussions with his EU counterparts, and in respect of EU policy. [Interruption.] Order. I do not think that I need to hear any more. [Interruption.] Order. I do not need to hear any more.

[Mr Hague]

That is not something that we have discussed in the European Union, because our attention has been so focused on the Iranian nuclear issue. I hope that the right hon. Gentleman will forgive me if I say that, while I entirely share his sentiments about some of the statements from the President of Iran, I think it right for us to concentrate on developing a strong set of sanctions on the nuclear programme and repeating to Iran that it is time to negotiate about that programme. Those things are so important that I do not think we should let anything else get in the way.

[Simon Hughes (Bermondsey and Old Southwark) (LD)]

13. What his foreign policy priorities are for the middle east area.

[The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague)]

Strengthening the United Kingdom’s relations with the countries of the middle east as part of a distinctive British foreign policy is one of the highest foreign policy priorities of this Government. We will work to promote a two-state solution to the Arab-Israeli conflict, and will press for firm diplomacy to resolve international concerns about Iran. We will remain engaged in Iraq, and will help to build stability in Yemen.

[Simon Hughes]

I thank my right hon. Friend for his encouraging answer.

Six years ago this week, the International Court of Justice ruled that the wall being built by Israel was illegal and ought to come down. Will my right hon. Friend make it absolutely clear, while consistent with supporting a continued safe state of Israel and a state for Palestine, that Israel must understand that international law is for all, not some, to obey?

[Mr Hague]

It is for all to obey—that is absolutely right—and, of course, we support a two-state solution created by negotiation and confidence-building on both sides, rather than the creation of facts on the ground that are intended to change the shape of such a solution ultimately. We are very committed to that, as the Under-Secretary of State, my hon. Friend the Member for North East Bedfordshire (Alistair Burt) has already explained. I am in constant touch with Senator George Mitchell, who is working hard in trying to turn proximity talks into direct talks.

[Mrs Linda Riordan (Halifax) (Lab/Co-op)]

What action is the Foreign Office taking to ensure that there is a full, independent, international inquiry into the appalling Israeli attack on the freedom flotilla? Does the Foreign Secretary agree that an internal Israeli investigation alone is simply not acceptable?

[Mr Hague]

The hon. Lady may recall my statement to the House on 2 June, when I explained our policy that there should be a credible, independent, prompt and thorough inquiry. That remains the position of Her Majesty’s Government. The United Nations Secretary-General proposed an international inquiry, which would have been a good thing to do. The Israeli Government have decided to set up an inquiry, but with an international presence. We may not consider such an inquiry ideal, but we should hold Israel to conducting it in an independent and thorough manner, and should judge it according to the way in which it proceeds.

[Daniel Kawczynski (Shrewsbury and Atcham) (Con)]

The previous Government apportioned more than £1 million to the Government of Yemen to help with counter-terrorism. Will my right hon. Friend be able to update us on how that money has been spent and on the progress that has been made in the country?

[Mr Hague]

That is important. It is the sort of funding that is continuing under the current Government. Working with Yemen on countering terrorism and to stress that political reform is needed by the Government of Yemen is an important part of our work. The Under-Secretary of State, my hon. Friend the Member for North East Bedfordshire, has already been to Yemen to see the situation for himself so that we can make our own decisions about these things in the coming months, but that sort of support will continue.

[Mr Andy Slaughter (Hammersmith) (Lab)]

What representations has the Foreign Secretary made to the Government of Israel about the thousands of Palestinians in East Jerusalem who have their citizenship withdrawn every year, about the hundreds who are expelled from the city and, in particular, about the four Palestinian MPs resident in Jerusalem who are due to be expelled this weekend?

[Mr Hague]

That is the sort of issue that we want to resolve. Given that the hon. Gentleman has raised it, I will have a particular look at that and see whether there are additional representations that we need to make over the coming few days. When these things happen, they are unacceptable and they show that we must put as much momentum as possible behind our efforts to broker peace in the middle east. That is why it is such a priority for the Government. I will certainly look to see whether we can do any more about the point that he makes.

[Gordon Henderson (Sittingbourne and Sheppey) (Con)]

14. What recent assessment he has made of the prospects for enlargement of the European Union; and if he will make a statement.

[The Minister for Europe (Mr David Lidington)]

We strongly support further enlargement of the European Union but also believe that countries that want to join must clearly meet the membership criteria. We welcome the progress made during the Spanish EU presidency, including the decision to open negotiations with Iceland, and the progress on accession negotiations with both Croatia and Turkey.

[Gordon Henderson]

Rather than encouraging an enlargement of the EU, will the coalition Government consider helping to reduce its size by holding a referendum that would allow the British people the opportunity to decide whether we remain a member of the EU?

[Mr Lidington]

The Government believe that British membership of the EU is very much in the national interests of the UK, and—[Interruption.]

[Mr Speaker]

Order. Can I just say to the shadow Minister for Europe that I want to hear my constituency neighbour?

[Mr Lidington]

Thank you, Mr Speaker. We believe that EU enlargement, which has been championed by the Governments of Margaret Thatcher and John Major, as well as by the Labour Governments of Tony Blair and the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), has entrenched democracy, human rights and the rule of law in central and eastern Europe in a way that was not achieved throughout the 20th century.

[Mr Frank Roy (Motherwell and Wishaw) (Lab)]

Three months ago, air traffic was brought to a standstill throughout the EU because of the Icelandic ash cloud. What appraisal has been made of the work of the Foreign and Commonwealth Office and of the services given to travellers during that period?

[Mr Lidington]

The matter that the hon. Gentleman has raised relates very much to the work of our consular department rather than to the enlargement process, but I will take advice from consular officials and write to him about the detailed matter that he has raised.

[Mr Adrian Sanders (Torbay) (LD)]

15. What recent representations he has made to the Government of Brazil in support of their efforts to end forced labour.

[The Minister of State, Foreign and Commonwealth Office (Mr Jeremy Browne)]

During Brazil’s most recent UN universal periodic review, the British Government recommended that Brazil invest more rigour in the application of a range of human rights initiatives, including on forced labour. Brazil accepted that recommendation and has made progress. Following the UN special rapporteur’s May 2010 report on forced labour in Brazil, we will continue to work with the Government of Brazil to raise awareness of these issues and to promote compliance with international commitments.

[Mr Sanders]

I thank the Minister for that answer. We like to think that slavery has been abolished, but we need to do more to encourage the Brazilian Government to sign up to the ethical trading initiative, so that fewer people are enslaved in that part of the world.

[Mr Browne]

I am grateful to my hon. Friend for the question. Many hon. Members may not be aware that Brazil became the last nation in the western hemisphere to abolish slavery formally, doing so in 1888. The International Labour Organisation estimates that about 25,000 to 40,000 workers in Brazil are in conditions analogous to slavery. President Lula has, since his election in 2002, made considerable progress and given priority to this issue. I hope and believe that Brazil will continue to do more in the years ahead.

[Mr Adam Holloway (Gravesham) (Con)]

16. What recent discussions he has had on the future of the Office of the High Representative in Bosnia and Herzegovina; and if he will make a statement.

[The Minister for Europe (Mr David Lidington)]

The Peace Implementation Council, which met in Sarajevo at the end of June, discussed progress towards the conditions necessary for the closure of the Office of the High Representative but, as those had not been met, no decision on closure was taken.

[Mr Holloway]

What discussions has my hon. Friend had with his EU counterparts on the future accession of Balkan states to the EU?

[Mr Lidington]

Both my right hon. Friend the Foreign Secretary and I have raised during, I believe, every bilateral conversation we have had with European counterparts and at formal sessions of the Foreign Affairs Council the importance that we accord political and constitutional progress in the western Balkans and the need for the EU to make as one of its highest priorities the strengthening of both the incentives and disincentives in respect of those countries pushing forward with further reform, so that their welcome into the family of European nations can be given as soon as possible.

[Meg Munn (Sheffield, Heeley) (Lab/Co-op)]

T1. If he will make a statement on his departmental responsibilities.

[The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague)]

I wish to inform the House that the Turkish Foreign Minister, Ahmet Davutoglu, will visit London this week at my invitation for a full day of talks. His visit is a sign of the Government’s determination to elevate Britain’s links with key partners. Turkey is a crucial NATO ally, it is Europe’s largest emerging economy and it is a major player in the middle east and the western Balkans. We support Turkey’s aspirations to EU membership and we want to work with its Government on new approaches to the western Balkans, on peace and security in the wider middle east and on bridging the differences between east and west.

[Meg Munn]

I thank the Foreign Secretary for his answer. He will be aware that the Spanish Foreign Minister is due to visit Cuba to increase the pressure for the release of its political prisoners. Can the Foreign Secretary update the House on what the Government are doing to put pressure on the Cuban authorities to release non-violent political prisoners, who have been held in jail for far too long?

[Mr Hague]

That pressure comes from the whole European Union. We discussed the position in Cuba at the Foreign Affairs Council in Luxembourg on 14 June, so the message that we seek the release of political prisoners in Cuba if we are to start improving relations with Cuba in other ways goes out unequivocally from the whole European Union.

[Dr Julian Lewis (New Forest East) (Con)]

T2. Does the Foreign Secretary accept that it is not satisfactory for estimates of how long it will take us to secure our strategic interests in Afghanistan to vary from 40 years in 2009 to four years in 2010? Does he accept that if this circle is to be squared, we will need to have fresh thinking about an alternative strategy that could actually secure our important strategic interests in the area?

[Mr Hague]

It is very important that we ensure that the current strategy succeeds. As my hon. Friend knows, this strategy involves 46 nations in Afghanistan and the United Kingdom is strongly committed to it. It goes alongside building up the capacity of the Afghan state, and I shall be going to the Kabul conference in a couple of weeks’ time to make our contribution to that. As he will know, the Prime Minister is very clear that there will not be British troops in a combat role or in significant numbers in Afghanistan in five years’ time, but we believe that that is part of an internationally agreed objective. The G8 meeting in Canada in June sent a collective signal that we want Afghan security forces to assume increasing responsibility for security within five years.

[David Miliband (South Shields) (Lab)]

The Foreign Secretary knows that the previous Government won United Nations support for an arms trade treaty to establish minimum standards on all conventional arms sales. Thousands of people, including hundreds of UN peacekeepers, die every year because this trade is not properly regulated. The next round of negotiations starts on 12 July, as I am sure he knows. In opposition he said that he supported us on this, so can he explain why the coalition agreement dilutes this commitment to a partial restriction to sales “to dangerous regimes”, rather than a global standard? Is this a distinctive British foreign policy or the same old Tories?

[Mr Hague]

We will be a united coalition on this, as on all other subjects. I stand by everything I have said about the arms trade treaty, and we will be taking an energetic and supportive part in those negotiations from 12 July. We very much support that treaty.

[Brandon Lewis (Great Yarmouth) (Con)]

T5. Can my right hon. Friend the Foreign Secretary update the House on the measures that the Government are taking with regard to our economic development work with Pakistan?

[Mr Hague]

Yes. The International Development Secretary, who will also speak about this, visited Pakistan before my visit earlier in June. He announced a four-year programme of £665 million of British aid for Pakistan. A huge amount of that is dedicated to education— £250 million. Pakistan has literacy rates of only about 50% and raising the quality of education is critical to its economic development.

[Ann McKechin (Glasgow North) (Lab)]

T3. Like the ministerial team, I welcome the recent easing of the blockade in Gaza, but what specific reassurances has the Foreign Secretary received from the Israeli Government that those within Gaza who need to travel outside for medical treatment, including children and elderly and disabled people, will receive unrestricted access out of Gaza?

[Mr Hague]

We have not yet received specific assurances on that, but the hon. Lady is right to raise the issue. It is one of the things that we want to see happen. It should be possible for goods and exports to leave Gaza, but it should also be possible for people such as she describes and others to move freely in and out of Gaza. So that is one of the things that we will continue to press on the Israeli Government.

[James Morris (Halesowen and Rowley Regis) (Con)]

T6. Does the Secretary of State agree with me that part of protecting Britain’s national interests is that Britain should develop relationships with emerging economies to promote new export markets, which will be of great benefit to the small and medium-sized manufacturing businesses in my constituency?

[Mr Hague]

I agree with my hon. Friend. As he will have noticed, this is a key part of our approach to foreign policy. It requires the FCO to be still more commercial and economic in its orientation. It is a critical part of our job to promote investment in Britain and British trade overseas. It is also a critical part of our work to encourage the conclusion of more free trade agreements between the European Union and the rest of the world. So the coalition Government will apply themselves energetically to that task.

[Paul Flynn (Newport West) (Lab)]

T4. Now that Hezbollah, the Taliban and Iran are all expanding their broadcast services, would it not be inconceivable to cut the meagre grant in aid to the BBC World Service, which could lead to the cancellation of a new Urdu service in Pakistan? Is not the World Service independent, authoritative, trusted, respected and a far better way of winning hearts and minds than bombs and bullets?

[Mr Hague]

I agree with much of the last part of the hon. Gentleman’s question. I would not say that the grant is meagre—£229 million of taxpayers’ money. I do not know what he calls meagre, but it is a little more than meagre. It is important that the BBC World Service is able to maintain a presence around the world. I often think of its crucial role in our soft power, which is what the hon. Gentleman is talking about. That is not to say, however, that that grant can never be varied or that the service can never make efficiencies. There will, of course, be great pressure across the whole of the public sector for that to happen.

[Several hon. Members]

rose—

[Mr Speaker]

Order. Several more colleagues want to get in. I remind Members that short questions are needed. I would also say to those on the Treasury Bench that the one-word answer yes or no is not disorderly.

[Chris Skidmore (Kingswood) (Con)]

T7. Last week the Secretary of State stated his intention to establish a National Security Council. Will he explain to the House what its remit might be?

[Hon. Members]

Yes.

[Mr Hague]

What if I said no, Mr. Speaker? The National Security Council was established by my right hon. Friend the Prime Minister on the day we took office, and it started proceedings on that day to ensure that within the Government we look at all issues of international relations and national security in the round. It had its ninth meeting earlier today, so my hon. Friend can see how active it is. What I was explaining last week was the part that the council plays in elevating key bilateral relations around the world.

[Siobhain McDonagh (Mitcham and Morden) (Lab)]

What discussions has the Foreign Secretary had with the Government of Pakistan about the murder on 28 May of some 98 Ahmadiyya Muslims in two mosques in Lahore; and will he make special reference to the position of Ahmadiyya Muslims in Pakistan today?

[Mr Hague]

Yes, of course I discussed that with Ministers throughout the Pakistan Government when I visited that country two weeks ago. We absolutely the deplore the atrocities that took place in Lahore, about which I was able to hear quite a lot during my visit. Our views on the matter are well known. Our efforts to improve stability in Pakistan are linked with the development effort I talked about earlier, and those efforts will continue.

[Mr Christopher Chope (Christchurch) (Con)]

T8. What alternative arrangements are being made to ensure that an inter-parliamentary scrutiny role is carried out in future, which is currently carried out by the European Security and Defence Assembly? What is being done to make sure that that vacuum is not filled by the European Parliament?

[The Minister for Europe (Mr David Lidington)]

My hon. Friend is right to identify that need. We are considering a number of options for scrutiny involving different national Parliaments. We will bring in our proposals for debate by the House as soon as we are able to do so.

[Natascha Engel (North East Derbyshire) (Lab)]

I have a specific question about a former constituent of mine, Matthew Cryer, who, aged only 18, was unlawfully killed on the island of Zante in Greece. What are the consular services doing to ensure that bereaved families in the UK get the justice in Greece that they deserve?

[Mr Lidington]

I would be happy to discuss that case further with the hon. Lady, if she would find that helpful. What I hope the working group of the UK and Greek Ministries of Justice and the Foreign and Commonwealth Office will achieve is to make it much easier to transfer evidence from one jurisdiction to another, so that fair and swift trials become the norm.

[Andrew Bridgen (North West Leicestershire) (Con)]

T9. Will my right hon. Friend the Foreign Secretary please inform the House of the next option for Her Majesty’s Government when sanctions against Iran fail?

[Mr Hague]

As I explained earlier, sanctions are part of a twin-track approach in which the peaceful and legitimate pressure on Iran of sanctions is intensified, but we remain open to negotiations about the whole of Iran’s nuclear programme. Although we have never as a Government ruled out military action or supporting any military action in future, we are most definitely not calling for that at this time, nor advocating it. It is precisely to avoid conflict that we want the situation to be resolved peacefully, through sanctions and negotiation.

[Mrs Sharon Hodgson (Washington and Sunderland West) (Lab)]

What effect does the Secretary of State think the recent cuts to the Chevening scholarships will have on Britain’s reputation abroad, especially given what I have just heard about placements being cut for candidates who had given up other scholarships or, indeed, work? I have written to the right hon. Gentleman about this. Will he reconsider the decision for those who had already accepted placements?

[Mr Hague]

I will look at the hon. Lady’s letter, although I do not think the decision should affect anyone currently going through the Chevening scholarship process. It is of course a great pity to have to make any such reduction, and I do not do it lightly, but we have to remember that we have inherited, across all Departments, a situation in which the Government of this country were borrowing £3 billion a week and all Departments have to play their role in trying to sort that out.

[Charlie Elphicke (Dover) (Con)]

T10. What lessons for operations in Afghanistan may be learned from the case of Bill Shaw? I beg your indulgence, Mr Speaker, in paying the highest of tributes to the Minister responsible for the middle east and to Afghanistan and the FCO officials who worked so hard to ensure that justice was done in Afghanistan in that case.

[The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Alistair Burt)]

I am very grateful to my hon. Friend for such generous comments. I think the lessons to be learned are about the importance, in building up the Afghan state, of our commitment to the values and the rule of law and to ensuring that there is an anti-corruption policy in place, which we can rely on the Afghan authorities to administer. Our consular service worked extremely hard in the circumstances to support Mr Shaw and his family, and I am pleased that that work appears at this stage to have been successful. Like the family, we hope to see Mr Shaw home very soon.

[Angus Robertson (Moray) (SNP)]

Today, Her Majesty the Queen addresses the United Nations General Assembly as the Head of State of 15 independent countries. Will the Foreign Secretary confirm that that arrangement involves co-operation between 15 realms, showing that it is an attractive, workable model for normal nations within the Commonwealth?

[Mr Hague]

Yes, Her Majesty has been very proud to address the United Nations on the part of so many different realms, but that does not mean that the rest of us have started to agree that breaking up individual realms is a good idea, so we will continue to oppose the hon. Gentleman on that.

[Tim Farron (Westmorland and Lonsdale) (LD)]

How will the Foreign Secretary assist Mr Netanyahu to resist demands from within his own Government for the building of illegal settlements to recommence by September?

[Mr Hague]

We have to continue to try to convince the Israeli Government—my right hon. Friend the Prime Minister and I have been active in that already—that it is fundamentally in the interests of Israel to do everything that it can to secure a two-state solution, that time for that might be running out, and that such a solution is in the interests of Israel’s long-term security. Winning that argument is very important, and we will continue to try to win it.

[David Cairns (Inverclyde) (Lab)]

Given that a great deal of the credit for the steady if unheralded progress on economic and security issues on the west bank, in such matters as the dismantling of blockades, belongs to British military officers and former police officers, who have played a very important role there, will the Foreign Secretary reassure the House that the Government remain committed to supporting the work of our armed forces and former police officers on the west bank, as well as, of course, the excellent work of Tony Blair?

[Mr Hague]

Yes, very much indeed. I never thought that I would say in this House that I support the excellent work of Tony Blair, but I do. I have had many phone conversations with him over the past few weeks, and a meeting with him last Friday, about Gaza and building up Palestinian institutions. He is doing a very good job on that—notwithstanding all our disagreements in the past.

We will of course continue to support the wider work to which the hon. Gentleman refers. A great deal of progress has been made on the west bank, and economic progress, which shows the signs that it is possible to have a functioning state, is a very important component of driving forward the middle east peace process.

Petition

Tuesday 6th July 2010 Commons Chamber

Greg Mulholland (Leeds North West) (LD)

- Hansard - - Excerpts

May I say that despite the childish, tedious and repetitive attempts of Labour Members to silence the people of Adel—

Mr Deputy Speaker (Mr Lindsay Hoyle)

- Hansard - - Excerpts

Order. This is a petition, and you are meant to speak to the petition. You may have your own views about tonight, but you cannot use them now; please address the petition that you are putting before the House.

Greg Mulholland

- Hansard - - Excerpts

I was simply saying, Mr Deputy Speaker, that the people of Adel would not be silenced.

The petition is about the proposed development north of Holt avenue in Adel. It is against the previous Labour Government’s entirely bureaucratic, unnecessary, centralised and over-ambitious targets for housing in the regional spatial strategies, which cause a legal loophole that can allow developments such as the one north of Holt avenue in Adel potentially to go ahead, against the wishes of local residents, local residents associations and Leeds city council. I am delighted to present this petition against that, and, of course, to welcome the coalition Government’s commitment to abolishing these targets.

The petition states:

The Petitioners therefore request that the House of Commons urges the Secretary of State for Communities and Local Government to use all his powers to review the previous Government’s targets for housing.

Following is the full text of the petition:

[The Petition of residents of Adel and Wharfedale, the surrounding area, and others,

Declares that the petitioners have serious concerns about the previous Government’s overly ambitious targets for housing; and further declares that the petitioners believe that these targets will lead to unwanted developments—for example, the proposed development for the land north of Holt Avenue in Adel.

The Petitioners therefore request that the House of Commons urges the Secretary of State for Communities and Local Government to use all his powers to review the previous Government’s targets for housing.

And the Petitioners remain, etc.]

[P000841]

Treatment of Detainees

Tuesday 6th July 2010 Commons Chamber

15:32

[The Prime Minister (Mr David Cameron)]

I am sure that the whole House will wish to join me in paying tribute to the Royal Marine who died on Thursday, the soldier from the Royal Dragoon Guards who died yesterday, and the soldier from 1st Battalion the Mercian Regiment who died from wounds sustained in Afghanistan in Birmingham yesterday. We should constantly remember the service and the sacrifices made on our behalf by our armed forces and their families, keep them in our thoughts and prayers and thank them for what they do on our behalf.

With permission, Mr Speaker, I would like to make a statement on our intelligence services and allegations made about the treatment of detainees. For the past few years, the reputation of our security services has been overshadowed by allegations about their involvement in the treatment of detainees held by other countries. Some of those detainees allege that they were mistreated by those countries. Other allegations have also been made about the UK’s involvement in the rendition of detainees in the aftermath of 9/11. Those allegations are not proven, but today we face a totally unacceptable situation. Our services are paralysed by paperwork as they try to defend themselves in lengthy court cases with uncertain rules. Our reputation as a country that believes in human rights, justice, fairness and the rule of law—indeed, much of what the services exist to protect—risks being tarnished. Public confidence is being eroded, with people doubting the ability of our services to protect us and questioning the rules under which they operate. And terrorists and extremists are able to exploit those allegations for their own propaganda.

I myself, the Deputy Prime Minister and the coalition Government all believe that it is time to clear up this matter once and for all, so today I want to set out how we will deal with the problems of the past, how we will sort out the future and, crucially, how we can make sure that the security services are able to get on and do their job to keep us safe. But first, let us be clear about the work that they do. I believe that we have the finest intelligence services in the world. In the past, it was the intelligence services that cracked the secrets of Enigma and helped deliver victory in world war two. They recruited Russian spies such as Gordievsky and Mitrokhin, and kept Britain safe in the cold war. They helped disrupt the Provisional IRA in the 1980s and 1990s.

Today, these tremendous acts of bravery continue. Every day, intelligence officers track terrorist threats and disrupt plots. They prevent the world’s most dangerous weapons from falling into the hands of the world’s most dangerous states. And they give our forces in Afghanistan the information that they need to take key decisions. They do this without any public—or, often, even private—recognition, and despite the massive personal risks to their safety.

We should never forget that some officers have died for this country. Their names are not known; their loved ones must mourn in secret. The service that they have given to our country is not publicly recognised. We owe them, and every intelligence officer in our country, an enormous debt of gratitude. As Minister for the intelligence services, I am determined to do everything possible to help them get on with the job that they trained to do and that we desperately need them to do.

However, to do that, we need to resolve the issues of the past. While there is no evidence that any British officer was directly engaged in torture in the aftermath of 9/11, there are questions over the degree to which British officers were working with foreign security services who were treating detainees in ways they should not have done. About a dozen cases have been brought in court about the actions of UK personnel—including, for example, that since 9/11 they may have witnessed mistreatment such as the use of hoods and shackles. This has led to accusations that Britain may have been complicit in the mistreatment of detainees. The longer these questions remain unanswered, the bigger will grow the stain on our reputation as a country that believes in freedom, fairness and human rights.

That is why I am determined to get to the bottom of what happened. The intelligence services are also keen publicly to establish their principles and integrity. So we will have a single, authoritative examination of all these issues. We cannot start that inquiry while criminal investigations are ongoing, and it is not feasible to start it while so many civil law suits remain unresolved. So we want to do everything that we can to help that process along. That is why we are committed to mediation with those who have brought civil claims about their detention in Guantanamo. And wherever appropriate, we will offer compensation.

As soon as we have made enough progress, an independent inquiry, led by a judge, will be held. It will look at whether Britain was implicated in the improper treatment of detainees, held by other countries, that may have occurred in the aftermath of 9/11. The inquiry will need to look at the relevant Government Departments and intelligence services. Should we have realised sooner that what foreign agencies were doing may have been unacceptable and that we should not have been associated with it? Did we allow our own high standards to slip, either systemically or individually? Did we give clear enough guidance to officers in the field? Was information flowing quickly enough from officers on the ground to the intelligence services and then on to Ministers, so that we knew what was going on and what our response should have been?

We should not be for one moment naive or starry-eyed about the circumstances under which our security services were working in the immediate aftermath of 9/11. There was a real danger that terrorists could get their hands on a dirty bomb, chemical or biological weapons, or even worse. Threat levels had been transformed. The urgency with which we needed to protect our citizens was pressing. But let me state clearly that we need to know the answers, if things went wrong, why, and what we must do to uphold the standards that people expect. I have asked the right hon. Sir Peter Gibson, former senior Court of Appeal judge and currently the statutory commissioner for the intelligence services, to lead the inquiry. The three-member inquiry team will also include Dame Janet Paraskeva, head of the Civil Service Commissioners, and Peter Riddell, former journalist and senior fellow at the Institute for Government.

I have today made public a letter to the inquiry chair setting out what the inquiry will cover, so Sir Peter Gibson can finalise the details with us before it starts. We hope that it will start before the end of this year and report within a year. This inquiry cannot and will not be costly or open-ended; that would serve neither the interests of justice nor national security. Neither can it be a full public inquiry. Of course, some of its hearings will be in public. However, we must be realistic; inquiries into our intelligence services are not like other inquiries. Some information must be kept secret—information about sources, capabilities and partnerships. Let us be frank: it is not possible to have a full public inquiry into something that is meant to be secret. So any intelligence material provided to the inquiry panel will not be made public, and nor will intelligence officers be asked to give evidence in public.

But that does not mean we cannot get to the bottom of what happened. The inquiry will be able to look at all the information relevant to its work, including secret information; it will have access to all relevant Government papers, including those held by the intelligence services; and it will be able to take evidence—in public—including from those who have brought accusations against the Government, and their representatives and interest groups. Importantly, the head of the civil service and the intelligence services will ensure that the inquiry gets the full co-operation it needs from Departments and agencies. So I am confident the inquiry will reach an authoritative view on the actions of the state and our services, and make proper recommendations for the future.

Just as we are determined to resolve the problems of the past, so we are determined to have greater clarity about what is and what is not acceptable in the future. That is why today we are also publishing the guidance issued to intelligence and military personnel on how to deal with detainees held by other countries. The previous Government had promised to do this, but did not, and we are doing it today. It makes clear the following: first, our services must never take any action where they know or believe that torture will occur; secondly, if they become aware of abuses by other countries, they should report it to the UK Government so we can try to stop it; and thirdly, in cases where our services believe that there may be information crucial to saving lives but where there may also be a serious risk of mistreatment, it is for Ministers, rightly, to determine the action, if any, that our services should take. My right hon. Friends the Foreign Secretary, Home Secretary and Defence Secretary have also today laid in the House further information about their roles in those difficult cases.

There is something else we have to address, and that is how court cases deal with intelligence information. Today, there are serious problems. The services cannot disclose anything that is secret in order to defend themselves in court with confidence that that information will be protected. There are also doubts about our ability to protect the secrets of our allies and stop them ending up in the public domain. This has strained some of our oldest and most important security partnerships in the world—in particular, that with America. Hon. Members should not underestimate the vast two-way benefit this US-UK relationship has brought in disrupting terrorist plots and saving lives.

So we need to deal with these problems. We hope that the Supreme Court will provide further clarity on the underlying law within the next few months. And next year, we will publish a Green Paper which will set out our proposals for how intelligence is treated in the full range of judicial proceedings, including addressing the concerns of our allies. In this process, the Government will seek the views of the cross-party Intelligence and Security Committee. I can announce today that I have appointed my right hon. and learned Friend the Member for Kensington (Sir Malcolm Rifkind) as the Chair of that Committee for the duration of this Parliament.

As we meet in the relative safety of this House today, let us not forget this: as we speak, al-Qaeda operatives in Yemen are meeting in secret to plot attacks against us; terrorists are preparing to attack our forces in Afghanistan; the Real IRA is planning its next strike against security forces in Northern Ireland; and rogue regimes are still trying to acquire nuclear weapons. At the same time, men and women, young and old, all of them loyal and dedicated, are getting ready to work again around the world. They will be meeting sources, translating documents, listening in on conversations, replaying CCTV footage, installing cameras, following terrorists—all to keep us safe from these threats. We cannot have their work impeded by these allegations, and we need to restore Britain’s moral leadership in the world. That is why we are determined to clear things up, and why I commend this statement to the House.

[Ms Harriet Harman (Camberwell and Peckham) (Lab)]

May I join the Prime Minister in paying tribute to the Royal Marine who died on Thursday, the soldier from the Royal Dragoon Guards who died yesterday, and the soldier from 1st Battalion the Mercian Regiment, who died from wounds sustained in Afghanistan yesterday? Our thoughts are with their grieving families.

I am grateful to the Prime Minister for his statement. The use of torture is morally abhorrent and has no place in this country or in any civilised society. It is against our law in this country, and indeed it is one of only a small number of offences that can be brought to court in this country no matter where in the world the offence was committed. It is a grave crime against humanity, and its prohibition is embodied in international law. There must be no hiding place for those who practise it and no excuse for those who turn a blind eye to it. The United Kingdom should always be at the forefront of international efforts to detect and expose torture and to bring those responsible for it to justice. To play our part in leading the world, we must lead by example.

I reiterate our condemnation of the US Guantanamo detention centre. It is clearly in breach of the law, which is why it is not on the US mainland and why we made great efforts to secure the release of British nationals and British residents from Guantanamo—the only country that successfully brought back its citizens. With our having secured the release of all our citizens and all but one of our residents, may I ask whether the Prime Minister is continuing the efforts that we made to bring back the final remaining British resident who is still detained?

May I agree with the Prime Minister that it is right that anyone who takes part in or aids and abets torture is criminally liable and must be accountable for their actions and responsible to the criminal courts? There is, of course, a criminal investigation under way, which was referred to the police by the then Attorney-General Baroness Scotland. Will the Prime Minister confirm that that investigation will proceed to its conclusion independently and unimpeded?

I agree with the Prime Minister that it is right that we have proper accountability for our security services, and I reaffirm our support in that respect for the work of the Intelligence and Security Committee. I welcome his appointment of the right hon. and learned Member for Kensington (Sir Malcolm Rifkind) to chair the committee. He will undertake that important work with the integrity and commitment for which he is respected in all parts of the House, ensuring that the ISC plays its part in the strong framework of accountability that includes accountability to Ministers; to the heads of the agencies; to the two commissioners for the intelligence services, both retired High Court judges; to the independent reviewer of terrorism legislation Lord Carlile, to whom I also pay tribute; and to the courts.

I welcome the publication today of consolidated guidance for intelligence officers and the military on the questioning of suspects held overseas. That was a complex process, which we committed to and was under way, so we are pleased that it has been completed with publication today.

I hope that the administrative inquiry led by Sir Peter Gibson, who is one of the Intelligence Services Commissioners, which the Prime Minister has announced today, will help bring the matter to a conclusion. Can he tell the House a bit more about the terms under which the inquiry will be conducted? What will it be able to do that the Intelligence and Security Committee is not able to do? Will the inquiry have extra powers that the ISC does not have, and if so, what?

The Prime Minister has told the House that the inquiry will be able to have some of its hearings in public; the ISC, of course, can do that. He has told the House that the inquiry will be able to look at all the information relevant to its work, including secret information. As I understand it, that is the case with the ISC. He says that it will have access to all relevant Government papers, including those held by the intelligence services, and I very much hope that that will be the case for the ISC. He also says that it will be able to take evidence in public, including from those who have brought accusations against the Government and their representatives and interest groups. That is, of course, the case with the ISC too. He concluded that the inquiry would have the full co-operation of the civil service and intelligence services, and of course we hope that that is always the case with the ISC.

The Prime Minister has confirmed that concluding the question of criminal responsibility will take precedence, and that the administrative inquiry will start only when the criminal investigation and any proceedings thereafter are concluded. As he said, there are currently under way a number of cases in the civil courts in which former detainees are taking action against members of the security services. Can he clarify more specifically the effect of the mediation in advance of the administrative inquiry on these cases? Can he confirm that those cases will not be superseded by the inquiry, which would need the consent of the plaintiffs and any future plaintiffs? Can he clarify the circumstances in which compensation might be awarded if the courts ultimately found that there was no liability?

Will the Prime Minister acknowledge the importance of the Human Rights Act 1998, which enshrines in British law the European convention on human rights and the protections that article 3 affords:

“No one shall be subjected to torture or to inhuman or degrading treatment or punishment”?

Will he affirm to the House today his support for the Human Rights Act, which ensures that, when there is a breach of human rights, including the right not to be tortured, the victim can take action in our courts rather than spending up to seven years taking the case to the European Court of Human Rights in Strasbourg? Will he reaffirm that it is never right for us to deport from this country those who would face torture in their home country?

I invite the Prime Minister to reaffirm the UK’s support for the work of the United Nations to end torture, including the convention against torture and the 2002 optional protocol, which establishes an international system of inspections for places of detention.

So that the security services can proceed with their important work to protect this country, with all inquiries concluded, will the Prime Minister confirm how long he expects the inquiry to take from when it starts work? He said that it would take no longer than a year. We hope that it can start as soon as possible, but will he explain how he believes that it will be able to start before the end of the year?

I endorse the Prime Minister’s support for the difficult and often dangerous work of our security services. The whole country has reason to be grateful to officers from all branches of the intelligence services for their fearless work throughout the world to keep this country safe.

[The Prime Minister]

May I thank the right hon. and learned Lady for her response and questions? She is right to pay tribute to the security services. It is because we revere and respect what they do that we want to get on with the inquiry and get it done. To answer one of her questions, that is why it is limited to a year, and I hope that it gets started before the end of the year.

Let me deal with the questions in turn. I agree with the right hon. and learned Lady about torture—we have signed countless prohibitions against it, we do not condone it anywhere in the world, and we should be clear that information derived from it is useless. We should also be clear that we should not deport people to be tortured elsewhere, but we should redouble our efforts—my right hon. Friend the Foreign Secretary will be doing that with the Home Secretary—to ensure that we can have guarantees from other countries so that we can deport people to them knowing that they will not be tortured.

On Guantanamo, we are making efforts on behalf of the case that the right hon. and learned Lady mentioned. As she probably knows, it involves a UK resident rather than a UK national.

On whether the current criminal case can continue unimpeded, yes, of course it can. It is a matter for the police and the prosecuting authorities.

The right hon. and learned Lady made several points about the Intelligence and Security Committee. I thank her for her comments about my right hon. and learned Friend the Member for Kensington. He will do an excellent job and it is an important committee. However, in answer to why there is an inquiry rather than the Intelligence and Security Committee doing the job, the inquiry will be led by a judge and will be fully independent of Parliament, party and Government. That is what we need to get to the bottom of the case. The fact that it is led by a judge will help ensure that we get it done properly. Although I have ultimate respect for the Intelligence and Security Committee, during the previous Parliament, there was such a run-around between the Government and the Committee—not about holding an inquiry, but about publishing the guidance—that I wonder whether the right hon. and learned Lady is taking the right line on that. It is much better to have a judge-led inquiry—[Interruption.] She has not taken a position, and I am pleased to hear that.

The right hon. and learned Lady asked why we should try to mediate civil cases. We want to clear the decks, get the inquiry done and sort out the problem, so why not try to mediate the existing civil cases, roll them up, deal with them, hold the inquiry, get to the bottom of what happened, and set out the guidance for the future so that we remove the stain on Britain’s reputation and ensure that our security services can get on with the work? I do not see an alternative; I think that the Government have gripped the matter quickly and comprehensively. I think that is the right answer so we can move on.

[Sir Menzies Campbell (North East Fife) (LD)]

Anyone who has been a member of the Intelligence and Security Committee would want to join in the tributes to all three services that the Prime Minister and the acting leader of the Labour party paid. The Prime Minister has struck a delicate balance between competing interests. Perhaps the most powerful reason for having a judge rather than the committee—apart from the volume of material that must be examined—is the primary need to ensure public confidence and an outcome that satisfies the public that everything has been done fully and impartially to get to the bottom of the allegations.

[The Prime Minister]

I am very grateful to my right hon. and learned Friend for the way he puts that. Public confidence is essential and there are competing interests. I do not want to hide that from people. That is the reason for not having a full judicial inquiry. We want a judge-led inquiry, but at the same time, we need to have regard to the importance of the security services and their work, and to the fact that a lot of what they do must, by its very nature, remain secret.

[Mike Gapes (Ilford South) (Lab/Co-op)]

The Prime Minister referred to his hope that the inquiry could be established by the end of the year if the mediation process leads to the court cases being removed from the equation. Is not that very naive? What possible incentive would people have to come to an agreement unless they are to be given very large amounts of money? At this time of public concern about the finances, will he clarify what he is proposing? How much money will be available, and what happens at the end of the year if people do not accept a mediation process? Does no inquiry start?

[The Prime Minister]

I have to say to the hon. Gentleman that what would be naive is to try to mediate in public, which he is inviting me to do. I do not think that that would be sensible. To try to answer his question as directly as I can, I think there are two things that those involved in such cases might want, one of which is compensation if they feel that they have been mistreated. Mediation can deal with that, but the second thing they might want, which the inquiry goes to, is some recognition of what went wrong—if something went wrong—and to know what we are going to do about it. Therefore, the two-stage process of the mediation and the inquiry is the right answer.

[Richard Ottaway (Croydon South) (Con)]

May I welcome the Prime Minister’s statement and in particular the warm and justified support that he gave to the intelligence services? In the previous Parliament, the Intelligence and Security Committee produced two reports, neither of which was published. The first was into the rendition and interrogation of Binyam Mohamed, and the second was into the guidance and treatment of detainees. Will he confirm that both reports will be made available to the inquiry? Will the guidance that he is publishing today be the same guidance that was in force for the past decade, or will it be the revised guidance to which the Home Office and Foreign Office were opposed until as recently as last April?

[The Prime Minister]

My hon. Friend served on that Committee and knows its work extremely well. To answer his questions, it is right that the reports to which he refers will be made available to the inquiry. The guidance we are publishing today is neither the past guidance nor the guidance the ISC looked at: it is indeed new, amalgamated guidance, which is public, and I urge him to read it. We are not publishing the ISC report from the previous Parliament on the last set of guidance, because that would be slightly misleading—it is a report into guidance that no longer exists. That is the right approach, and I ask him to look at the guidance to see what he thinks.

[Hazel Blears (Salford and Eccles) (Lab)]

I welcome the Prime Minister’s statement and in particular his support for, and reaffirmation of, the very brave work of the security services. He will be all too well aware of the likely impact of the inquiry on communities here in Britain, because of the events that it deals with. As the inquiry progresses, I ask him to be conscious of the need to explain, to be as transparent as possible, and to be aware of the impact on our communities here in Britain of some of the allegations that may be made in relation to events that occurred elsewhere.

[The Prime Minister]

The right hon. Lady makes an extremely good point, and all right hon. and hon. Members can play their part. Different communities in our country will welcome what has been said today as an effort to get to the truth and the facts, and to find out what happened to make sure it cannot happen again. That will be welcomed, and I am sure she will be able to play her part in that.

[Mr Andrew Tyrie (Chichester) (Con)]

I warmly welcome the Prime Minister’s statement. It was courageous and very thoughtful, and the inquiry is a huge step forward as it can draw a line under a sorry affair that has been eroding public confidence in our security services, which do such good work on our behalf. Will he clarify that the remit that will be given to the inquiry will be broad enough to encompass all allegations of complicity in rendition, including on rendition flights, the use of Diego Garcia and the transfer of prisoners in theatre?

[The Prime Minister]

Yes, I can confirm that the inquiry will be able to look at all those issues, including rendition, extraordinary rendition and the case that my hon. Friend mentions involving Diego Garcia.

[Mr George Howarth (Knowsley) (Lab)]

As a former member of the Intelligence and Security Committee, I welcome the Prime Minister’s statement today. What he proposes to deal with the past is correct and what he proposes for dealing with the future is correct. However, I have some concerns about the present. Before the inquiry is established, some cases will arise in which there may be some doubt about an issue that has arisen and the dangers to public safety in this country. Can he give the House an assurance that when ministerial involvement is necessary—and I accept that that is a good way forward—it will, in such cases, be dealt with speedily?

[The Prime Minister]

The right hon. Gentleman makes an important point. All the published guidance in the world cannot deal with all the incredibly difficult circumstances in which our brave intelligence officers find themselves in different parts of the world. The guidance is there as guidance. It is as clear as it can be, but it is right that there are circumstances in which decisions are referred to Ministers. In the end, Ministers are accountable in Parliament and are able to make those decisions. The right hon. Gentleman’s point is a good one: if that happens, it may need to happen very speedily, and we will put in place arrangements so that that can happen.

[Mr David Davis (Haltemprice and Howden) (Con)]

I commend the Prime Minister on coming to such a fast decision on this important issue and I support what he had to say today, including his commendation of our intelligence services. Will he reinforce what I think underpinned much of what he said, which was that this tribunal will be able to follow the evidence wherever it goes; that it will not only have access to people and papers, but to in camera court records that relate to this; and, when it comes to conclusions, it will be the decision of the tribunal, and the tribunal alone, as to what is published in the national interest?

[The Prime Minister]

I thank my right hon. Friend for those points and for his support on this issue. It was important to reach a speedy conclusion, because this has been hanging over us for too long. We are not dealing with issues that we have inherited from 2007, 2008 and 2009. These go back some way, to after 9/11, and it is important that we grip them. He asked whether the inquiry would be able to look at court records, and I am sure that the answer to that is yes. As for what will be made public, it will be for Sir Peter to draw up his report. He can follow the evidence exactly where it leads, he can look at secret documents and all the intelligence information, but the report will be to me—and in the end, as Prime Minister and Minister for the intelligence services, I have to make a decision about what should be put in the public domain. It is my intention to publish the report—that is what I want to do—but I have to have regard for what is in the national interest and in our security interest, and that is something that I will have to decide.

[Mr David Winnick (Walsall North) (Lab)]

On the eve of the fifth anniversary of 7/7, no one in this House is likely for one moment to underestimate the acute terrorist threat, but is it not a matter of great concern that one of our most senior judges, the Master of the Rolls, said this year in court that British security officials

“appear to have a dubious record when it comes to human rights and coercive techniques”?

Did not experience in Northern Ireland over 30 years demonstrate time and again that torture only helps terrorism, and certainly does not help to undermine it?

[The Prime Minister]

There is no suggestion that British agents, officials or security service personnel were in any way involved directly in torture. It is important that we get it straight that that is not what is being said. The hon. Gentleman’s general point is right: we do not keep ourselves safe and secure—or promote the things in which we believe—if we drop our standards. We both served on the Home Affairs Committee that met in those difficult days straight after 9/11, and I remember—I am sure that he does, too—the great pressure there was on everybody to find out what was going to happen next. We should remember, as we carry out this inquiry, the pressures that were on security services across the world to try to prevent a repeat of those dreadful events.

[Sir Alan Beith (Berwick-upon-Tweed) (LD)]

Will the previous findings of the Intelligence and Security Committee on all these matters be, partly, the building blocks of the inquiry? Will the Prime Minister also concede that the test that he has rightly reserved to Ministers represents a classic moral dilemma, because while taking every possible step to ensure that Britain has in no way assisted or abetted torture, a decision has to be made on how to relate to the services of regimes whose conduct we do not trust, but who may hold information vital to the safety of the people of this country?

[The Prime Minister]

The right hon. Gentleman is right that the previous ISC findings will be enormously helpful to the inquiry. However, let me try to clarify a bit further what Ministers would have to decide—although hon. Members can also read the guidance published today. It is not that Ministers would be consulted in cases of torture, because torture is ruled out completely. This difficult matter refers to cases of so-called mistreatment, of which there is no proper definition: it can range from things that we would probably consider to be torture, such as waterboarding, to factors such as an inappropriately sized cell. That is why there is some need, in the very difficult circumstances with which one of our agents could be faced, for that level of discretion. That is the sort of moment we have to try to consider and get right, and not be over-bureaucratic about.

[Keith Vaz (Leicester East) (Lab)]

I welcome the establishment of this inquiry and the appointment of the right hon. and learned Member for Kensington (Sir Malcolm Rifkind). The Prime Minister is right to praise the work of the security services, but will he also acknowledge the work done by the Metropolitan police counter-terrorism unit? Given that, as a distinguished former member of the Home Affairs Committee, he has accepted one of the Committee’s recommendations—the establishment of the National Security Council—will he consider the second recommendation in that area, which is for the Government to allow intercept evidence in court proceedings?

[The Prime Minister]

I am very keen on recommendations of the Home Affairs Committee. Another of its excellent recommendations was a border police force. On intercept, we all, I think, want to see that happen. We all want more of those accused of terrorism to go through the court process, and to be tried, convicted and imprisoned—and intercept evidence would be hugely helpful. However, it is extremely difficult to do. One of the greatest enthusiasts in the last Parliament—apart from myself—for intercept evidence being available in court was the former Member for Folkestone, Michael Howard. He was on that Committee, but did not find a way to make this happen, so let us not overestimate how easy it is to do; it is not easy at all.

[Mr John Redwood (Wokingham) (Con)]

I strongly welcome the Prime Minister’s approach. Does he agree that recent years have shown that targeted surveillance and intelligence are much more successful at defending a free society than an ever greater extension of guards, guns and gates? This is why his work is so important. We need intelligence services that command universal respect and get to the truth as quickly as possible.

[The Prime Minister]

My right hon. Friend is completely right. We need a robust and hard-nosed defence of our liberty, which means having security services that can work properly. That is why today’s announcement is important. However, we do not need what I would call ineffective authoritarianism, of which we had a bit too much under the previous regime—although I do not want to get political, as this is not a political day.

[Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)]

Holding the Executive to account is supposed to be the role of Parliament, not of judges or independent inquiries. Does the Prime Minister not think it about time, therefore, that the Intelligence and Security Committee was made a Committee of the House, appointed by the House, not one appointed by, and reporting to, him?

[The Prime Minister]

I have only been doing this job for a few weeks, and I am very happy to look at that issue. I know that it has been discussed before. Can we change the nature of the Intelligence and Security Committee? Can we help it to do its job even better? I am very happy to look at that. However, I do not think for a moment that we should believe that the ISC should be doing this piece of work. For public confidence, and for independence from Parliament, party and Government, it is right to have a judge-led inquiry. I say to Opposition Members who take a different view that these events relate to 2002-03. If the ISC was the right answer, why on earth did it not come up with it in the previous years?

[Mr Ben Wallace (Wyre and Preston North) (Con)]

The gathering of intelligence is not the same as the gathering of evidence: sometimes intelligence is required much more urgently and in a hostile environment. Could the Prime Minister give the House an assurance that after the inquiry is over, he will think very carefully before reintroducing any extra guidelines or regulations for our intelligence services that might prevent them from doing the job that they do so well at the moment?

[The Prime Minister]

I know that my hon. Friend has experience of these issues and thinks about them a lot. All I would say is that there is no doubt that there are serious allegations about what happened in the past. I do not want to pre-empt the report, but one thing that it needs to do is ask how we stop such things happening in future. One way to stop them is by having better guidance, so that our security services have a clearer understanding of what is and is not acceptable. That is not easy, and inevitably some people will say that the guidance is quite bureaucratic. I totally accept and understand that, but we have to have some way of trying to prevent what happened from happening again.

[Valerie Vaz (Walsall South) (Lab)]

Does the Prime Minister know how many civil cases there are, and what the position would be if claimants did not wish to go to arbitration?

[The Prime Minister]

There are about a dozen cases, as I understand it. Obviously it will be better if the mediation is successful, those cases are rolled up, and we then go into the inquiry. Clearly the police have a view that the inquiry should not start until the criminal case is completed. I would hope that the civil cases can be dealt with through mediation, but if they are not, we will have to come back and consider what is appropriate.

[Mr Bernard Jenkin (Harwich and North Essex) (Con)]

I commend the Prime Minister for his excellent statement, which I am sure will be greeted with some relief by the intelligence services, not least because he is standing by the control principle, which it is so important to restore—that is, the principle that intelligence lent to us by our allies should not be passed on, leaked or released through the courts, as has been happening, thereby damaging our intelligence relationships. Will he give an assurance that if it becomes necessary to amend the operation of the Human Rights Act 1998, he will not flinch from doing so in order to protect our relationships with our allies?

[The Prime Minister]

The intelligence services do welcome the statement today; obviously I have worked closely with them on this issue. From their perspective, what I have announced will not be without difficulties or a painful process of examination, but it will get them to a better situation—one in which we can deal with this stain on Britain’s reputation and allow their officers to get on with the vital work that they do. My hon. Friend is right about the control principle. It is a simple point: if other countries do not feel that we will protect the intelligence information that they give us, they will not give it to us any more—and if they do not give it to us any more, we will not be as effective at keeping people safe. The control principle is therefore vital, although I do not think that it has anything to do with the Human Rights Act. We shall address that matter next year, through a Green Paper that can be debated and discussed in the House, because it is not easy to find a way to protect secret information in an open liberal democracy, but we have got to do it.

[Ian Paisley (North Antrim) (DUP)]

I, too, welcome the statement by the Prime Minister and pay tribute to the gallant, dangerous and largely unrecorded work of our security services, which has saved the lives of many individuals, including people in this House. Will the Prime Minister ensure that the inquiry is short and sharp, and is not allowed to drift beyond the remit that he has outlined in his statement today or sap the morale of our security services, which can be put down by inquiries that are largely used as propaganda tools by their enemies? On the judicial proceedings, will the Prime Minister ensure that, like the previous Administration, he will consult, and that the right hon. and learned Member for Kensington (Sir Malcolm Rifkind) consults Privy Council members from Northern Ireland on security and intelligence matters, so that their voice is heard on those points?

[The Prime Minister]

I am sure that my right hon. and learned Friend the Member for Kensington will have heard what the hon. Gentleman has said. As for the reassurances that he seeks from me, first he asked whether the inquiry would be short and sharp. The answer is yes: it is limited to a year. Do we want to make it clear that the inquiry will not sap the morale of intelligence officers? Absolutely: the purpose of getting on with the process within the first couple of months of a new Government is to try to clear this issue away. It is not easy and it will take some time, but it is better to start now, with an ordered process—the mediation, the public inquiry, the guidelines for the future—in order to try to put our security services and our safety on a much better footing.

[Tom Brake (Carshalton and Wallington) (LD)]

If the inquiry team believes that, for the sake of the credibility of the inquiry, intelligence material should be put into the public domain, and if it is safe to do so, can the Prime Minister confirm that he will allow that to happen?

[The Prime Minister]

That is a very good question. The answer is that if it is safe to do so, yes of course. This is not some political witch hunt to get at Ministers from a previous Government; that is not what this is about. Likewise, it is not about trying to cover up bad things that might have happened. It is about trying to get to the bottom of what happened, to explain the context and to get the information out there. As the Minister for the intelligence services, however, I have to have regard to what it is safe to release, and that is a responsibility that I have to take very seriously.

[Mr Geoffrey Robinson (Coventry North West) (Lab)]

Is the Prime Minister aware, from the general tenor of the questions this afternoon, that his statement is very welcome throughout the House? He is to be commended for it. Can he confirm that the 46 documents originating from the CIA—about which there has been a lot of discussion—will be made available not only to the inquiry but perhaps more widely as well?

[The Prime Minister]

The point is that the inquiry can follow the evidence wherever it leads—but let me be clear that it is not an inquiry into what the US authorities have done. It is an inquiry into what UK personnel may or may not have done. It is important that we get that straight. The stain, if you like, on the British situation is the allegations of complicity, and of what our personnel might have witnessed or in some way been complicit in. That is what we have to deal with. We are not trying to have some great inquiry into the practices and procedures of other intelligence services; that is not what the inquiry is about.

[Jane Ellison (Battersea) (Con)]

I very much welcome my right hon. Friend’s statement. It will be even more warmly welcomed by Mrs Zineera Aamer and her children —the family of Shaker Aamer, the last UK resident in Guantanamo Bay. They are also my constituents. They are British citizens, and they have suffered greatly over the past eight years. Does my right hon. Friend agree that it adds urgency to the case that, in the event of the inquiry deciding that it wants to take evidence from Mr Aamer, he should, ideally, be available to give it?

[The Prime Minister]

My hon. Friend makes a very good point on behalf of her constituents. As I said in my statement, there will be opportunities for public evidence to be given to the inquiry, including from those who are making allegations against UK personnel. It is important that that is available, but as I said, a lot of this inquiry will not be held in public, because of the nature of what it is investigating.

[Mr Denis MacShane (Rotherham) (Lab)]

I congratulate the Prime Minister and wish him well with the inquiry. I think that it is the fifth to have been set up since 9/11 and Iraq. If this one can bring some closure and draw a line, we would all be a lot happier. He made a point about mediation. Could part of that process involve encouraging certain gentlemen not to go out around the country supporting Islamists and jihadi principles and practices? That is a real problem. If they are free in our country, it is better that they do not encourage others to do things that are not very helpful.

[The Prime Minister]

The right hon. Gentleman and I would probably agree on the need to confront and defeat those who put forward extremist Islamist arguments. That is something that we have to do for the good of our country and for the good of the world. He asked whether an inquiry could draw a line under all this. All I would say is that I do not think there has yet been a proper attempt to look systematically at the set of allegations about whether British personnel were in any way complicit because of the things that they witnessed or were involved in. That has not been done, and it needs to be done. I would ask people who disagree: what is the alternative? Do we really want to let the civil cases roll on year after year, and have the people in our security services jammed up with paperwork trying to fight them? It is much better to clear them away and get to the bottom of this, to ensure that those people can get on with the job that they do so well.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

I think that many hon. Members on both sides of the House will understand the approach to mediation in some of the civil cases, but does the Prime Minister accept that the situation is a bit more controversial when it comes to compensation, particularly if no wrongdoing on the part of the security services has been proven? Will he therefore agree to having at least some level of transparency after these processes have been completed, perhaps by publishing the amounts of compensation involved—or at the very least by not exempting that information from the Freedom of Information Act 2000?

[The Prime Minister]

The hon. Gentleman is right to say that this is a difficult process. Nobody wants to pay compensation that is not warranted. I would say two things to him, however. One is that it is getting increasingly difficult for the security services to defend themselves in the civil actions, because the information that they would use to defend themselves would then be made public. They do not want that to happen, so they do not bring the information forward and they cannot therefore win the case. The second thing that I would say to him is that the point about mediation is that it is a private process, and if we start advertising our mediation strategy—or, indeed, our mediation outcome—it is not necessarily going to make mediation very easy in future.

[Pete Wishart (Perth and North Perthshire) (SNP)]

I, too, very much welcome the statement, and I find it extraordinary that, after the Labour years, a Conservative Prime Minister is making it. The Prime Minister says that he does not want to be political, but perhaps I can encourage him just a little bit. Given the Labour party’s refusal, when in government, to accept claims of torture, and its various attempts to try to make all this go away, does he not believe that former Ministers and Secretaries of States should appear before the inquiry?

[The Prime Minister]

It will be a matter for the inquiry to decide who it wants to see as witnesses, and it will be able summon whoever it wants. Let me stress again that this is not some attempt to draw former Ministers into some great argument; that is not what it is about. If the inquiry wants to talk to Ministers to ask them what information made it, or did not make it, to their Departments, of course it can. Above all, this is a clear attempt to get to the bottom of what happened in those very difficult years in very difficult times when allegations were made which, as the hon. Gentleman says, need to be addressed. I am pleased that our new Government have set up what I think is the right process for doing that.

[Several hon. Members]

rose—

[Mr Speaker]

Last, but certainly not least, I call Mr. Mark Durkan.

[Mark Durkan (Foyle) (SDLP)]

I thank the Prime Minister for acknowledging dimensions of this issue that the previous Government either denied or dithered about. Does he also accept, however, that not all of us can join in the canonisation of the security services, because many of us believe that they were complicit in some of worst crimes carried out by both loyalists and republicans in Northern Ireland? Can the Prime Minister address the peculiar sequence that now seems to be in front of us: mediation, compensation, then investigation by this inquiry—and then, presumably, adjudication and publication thereafter? Might that not be a self-frustrating sequence?

[The Prime Minister]

I hope that it is not. We have spent some time looking at this issue, trying to find the right way to deal with it, and we think that mediation, followed by the judge-led inquiry, is the right way to get to the bottom of it. On the hon. Gentleman’s point about the security services, I would ask him to take a wide view and look across the years, across the history and across what the security services do today—not just in Northern Ireland but right across our world—to help keep people in this country, and indeed in this House, safe. I think we should end on the note of paying tribute to those brave men and women—they are never known about, and some of them die in this cause and cannot be mourned properly by their families—and of thanking them for what they do on our behalf.

[Several hon. Members]

rose—

[Mr Speaker]

I can see that the House is hungry.

Points of Order

Tuesday 6th July 2010 Commons Chamber

16:23

[Vernon Coaker (Gedling) (Lab)]

On a point of order, Mr. Speaker. Yesterday the Secretary of State for Education made his chaotic announcement about decimating the Building Schools for the Future programme. It now transpires that a list naming the schools affected, which should have been available to Members during the debate, contained errors, and a revised list had to be sent out. There are also some authorities that think they might be affected, although they are not named.

As you can imagine, Mr Speaker, this has caused considerable anxiety and confusion. Is it not essential that on such a sensitive subject, this House must have timely and accurate information? Is there any way in which you can request the Secretary of State to come to the Chamber and account for this totally unacceptable situation? At the same time, can he also account for the serious allegations that he made yesterday against the former Secretary of State, who he claimed had made

“unsustainable and irresponsible promises that he knew no Government could keep”,

while also saying that

“£2.5 billion of unfunded commitments is evidence of scandalous irresponsibility”—[Official Report, 5 July 2010; Vol. 513, c. 54.]?

We now know, thanks to a letter from the permanent secretary at the Department, who is the chief accounting officer, that that was not the case and that the current Secretary of State was totally wrong. Mr. Speaker, should not the Secretary of State come to this House, set the record straight and apologise?

[Mr Speaker]

I am grateful to the hon. Gentleman for his point of order, and for advance notice of it. First, I reiterate what I said yesterday—that, of course, statements to this House should be both timely and accurate. Secondly, I think it only fair to point out to him that matters relating to the content of statements are not matters for the Chair. Thirdly, he drew attention to the letter sent by the permanent secretary to the right hon. Member for Morley and Outwood (Ed Balls). He referred to that letter very specifically in a point of order to me last night. It is possible that he felt that it deserved a larger audience today, but Members can consult yesterday’s Hansard. I do not think it would be proper for me to add anything more, but the hon. Gentleman is certainly an enthusiastic pugilist.

[Paul Flynn (Newport West) (Lab)]

On a point of order, Mr Speaker. The practice of reading out the names of the fallen is a welcome new tradition in the House, and is greatly appreciated by their loved ones. We know the special intense silence that greets such readings. Last Monday and today, the names of the fallen were read out as part of statements—on the G20 last Monday, and on extraordinary rendition today. I know that there is no Member in the House who would want to seem to downgrade the gratitude, appreciation and respect that we feel for those who have given their lives, but if we move the reading to another time, it could be interpreted as an attempt to bury bad news. Will you consider that, Mr Speaker, and make representations to ensure that the names of the fallen are read at the time of maximum attendance in the House, and at the time when the House receives maximum attention from outside?

[Mr Speaker]

I am grateful to the hon. Gentleman for his point of order. I do not think that anyone would want to downgrade the significance of what has taken place, or the importance of informing the House of the details of those who have perished. The Prime Minister, on a number of different occasions and at different times of the week, has given the House such details, and I know that he has done so in all solemnity. I do not think it would be right for me to add anything further at this stage, but I am happy to reflect on the hon. Gentleman’s point, and I know that others will do so as well.

[Mr Tom Watson (West Bromwich East) (Lab)]

On a point of Order, Mr. Speaker. Young people in my constituency were reassured yesterday when they were told that the schools there would not be affected by the Building Schools for the Future cuts. I have now been informed that the organisation Partnerships for Schools has contradicted the statement that the Secretary of State made to the House, and that Manor, George Salter and Menzies schools face an uncertain future. People make mistakes, Mr Speaker, but is it not unreasonable for the Secretary of State not to put the matter right? If he is indeed wrong and Partnerships for Schools is right, those young people in my constituency deserve an apology for having their hopes raised and then cruelly dashed 24 hours later.

[Mr Speaker]

I am grateful to the hon. Gentleman for his point of order, and also for giving me advance notice of it. He will understand that I am reluctant to be drawn into the detail of the debate, but I will say this to him. As I have already indicated, statements to the House should be both timely and accurate. Obviously, if something said to the House is misleading—that is a strict and tough test—it should be corrected; if any apology is required—I do not know whether it is—I hope that it will be forthcoming.

I did comment yesterday on the difficulties for the House of learning about detailed announcements when a Secretary of State possesses full details and the House does not. I made very clear my view that in the name both of courtesy and of effective scrutiny, if a Minister making a statement possesses a list, he or she has a duty to put that list on the Table of the House or in the Vote Office or both, at the start, not the end, of the statement.

It may also be helpful if I say to the hon. Gentleman and the House both that his point will have been heard on the Treasury Bench—I am delighted to see that the Leader of the House is present—and that there will be further opportunities to take up the matter, not least during oral questions to the Department for Education next Monday, 12 July. I have not, however, been notified of any further statement to be made on this subject today.

[Helen Jones (Warrington North) (Lab)]

On a point of order, Mr Speaker. It has been said on a number of occasions from the Treasury Bench that the previous Government made unfunded spending commitments. Labour Members have repeatedly asked Ministers to produce, if that were the case, the letter to the permanent secretary giving a ministerial direction for those things to take place. Is there any way that you, as Speaker, can ensure that a Minister comes to the House and produces that letter of direction—or, if not, that Ministers apologise for the slurs that they have placed on Members?

[Mr Speaker]

The hon. Lady is a very wily and experienced operator, and she knows that I could be forgiven for concluding that she is attempting to continue a debate started yesterday by the right hon. Member for Morley and Outwood, the shadow Secretary of State for Education, and continued with some poise and persistence by the hon. Member for Gedling (Vernon Coaker), who is still sitting on the Front Bench. In fact she may, for all I know, be engaged in a double act with the hon. Gentleman. However, she has made her point with her customary eloquence, and it is on the record.

Finance Bill

Tuesday 6th July 2010 Commons Chamber

Second Reading

16:31

[The Chief Secretary to the Treasury (Danny Alexander)]

I beg to move, That the Bill be now read a Second time.

The emergency Budget takes tough action at a critical time for the British economy. The Bill implements many of the necessary measures in the Budget. As my right hon. Friend the Chancellor of the Exchequer said in his statement:

“The coalition Government have inherited from their predecessors the largest budget deficit of any economy in Europe, with the single exception of Ireland. One pound in every four we spend is being borrowed.” —[Official Report, 22 June 2010; Vol. 512, c. 166.]

The gap stands at £149 billion for this financial year alone. Yet the previous Government left us with no credible plans to reduce their record deficit. Nothing at this time is more urgent for Britain than setting out a tough, realistic and fair plan that demonstrates how we will regain control of the public finances.

[Kelvin Hopkins (Luton North) (Lab)]

Would not a better plan be for the Government to try to collect some of the taxes that are not paid, rather than cutting the wages and jobs of people in the public sector?

[Danny Alexander]

I am grateful for that intervention. Of course the hon. Gentleman will know that the Bill includes some anti-avoidance measures, to which I will come in my speech. I trust, therefore, that he will welcome those measures.

[Mr Kevan Jones (North Durham) (Lab)]

The right hon. Gentleman just told the House that the previous Government’s plans for a reduction were not credible, but how can he say that when the Office for Budget Responsibility’s latest independent analysis found that the Labour reduction plan would have more than achieved the target to halve the deficit over four years from 11.1% in 2009-10 to 5% in 2013?

[Danny Alexander]

I am grateful for that intervention. As the OBR set out both in its pre-Budget forecast and in the forecast published with the Budget, the comparison that the hon. Gentleman is seeking to make is based on interest rate assumptions that took into account market expectations under this Government’s measures, not market expectations of the measures that the previous Government were taking. He should read the OBR report if he does not agree, because that is an accurate account of what it says. It is clear that, had the previous Government carried on with their plans, interest rates would have been different. The risks that we are seeking to avoid through the Budget are those of higher interest rates, lower growth and fewer jobs, which I believe would be the consequence.

[Clive Efford (Eltham) (Lab)]

In light of that answer, what are we to make of Sir Alan Budd’s resignation today? The right hon. Gentleman puts much store by the OBR’s reports, but did they not contribute to Sir Alan relinquishing his post? He said that this was the greatest challenge of his professional career. He must have an extremely exciting career that he can give up that post so quickly.

[Danny Alexander]

I am grateful to the hon. Gentleman for giving me the opportunity to place on the record my thanks and those of this Government to Sir Alan Budd for his superb work in establishing, in a short period, an independent Office for Budget Responsibility with a strong reputation. It was always known that he intended to move on after a short period—a few months—in his post, and that is what he is doing. In a short time, he has established greater independence of the forecasts that go with the Budget than the previous Government managed in 13 years.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Sir Alan Budd is leaving the Office for Budget Responsibility, so to ensure that that organisation is seen to be independent, will the right hon. Gentleman give the House of Commons the power to appoint the successor or is he going to keep that for himself as a Minister?

[Danny Alexander]

I am not sure that that power ever rested in the hands of the Chief Secretary but, as the hon. Gentleman knows from the Gracious Speech, the Government intend to implement legislation to put the OBR on a statutory footing. He will have the opportunity to make that point in considering that legislation, and I am sure that he intends to do so.

[Several hon. Members]

rose—

[Danny Alexander]

I would like to make progress.

We have considered the plans of the previous Government and it is clear that they left us open to the risk of ending up in an even more serious crisis than that which we currently face. Such a crisis could ask questions of the kind that some other European countries face today, with higher interest rates—I mentioned those to the hon. Member for North Durham (Mr Jones)—more businesses going bust and higher unemployment. That is not a risk that we are prepared to take. The Budget takes the tough action necessary, but it does so with fairness, protecting the most vulnerable, including children in poverty and pensioners. In his emergency Budget, my right hon. Friend the Chancellor has set out clearly how we will pay for the bills of the past and start to plan for the future. This has already had an impact on the credibility of and confidence in the British economy.

[Helen Jones (Warrington North) (Lab)]

On fairness, it is clear that the measures that the right hon. Gentleman is enacting mean that the poorest 10% of people lose in percentage terms twice as much of their incomes as the richest 10%. What definition of fairness is he using when he says that that is fair?

[Danny Alexander]

I am sorry, but I do not accept the figures that the hon. Lady set out. If she looks at the information presented in the Red Book, she will find that it shows that the richest 10% of the population pay the greatest contribution, both as a share of their income and in cash terms. That is what I mean by fairness, and that is what we have set out. It is worth pointing out to her that this is the first time that a Government have chosen to set out in detail in the Budget documentation the distributional impact of the Budget measures. That is not a measure that the previous Government took, for example, when the 10p tax rate was being abolished.

[Mr Kevan Jones]

rose—

[Yvette Cooper (Normanton, Pontefract and Castleford) (Lab)]

rose—

[Danny Alexander]

I will give way to the hon. Gentleman and then to the right hon. Lady.

[Mr Jones]

I know that the right hon. Gentleman is doing his apprenticeship, but does he not understand the difference between the proportion and the actual tax take? Surely for a family in my constituency who are earning the minimum wage, the VAT situation alone will mean that the effect on the proportion of their income will be larger. If he looked at the research paper that has been ably produced in the House of Commons, he would find that it points out that fact.

[Danny Alexander]

I ask the hon. Gentleman to look at the tables on page 67 of the Red Book. I draw his attention to chart A2, which is on the

“Impact of all measures as a per cent of net income by income distribution”.

He will find that it makes it clear that the impact on the top decile is the highest as a share of income. Other charts make it clear that it is the highest in cash terms and that the impact is broadly progressive across income distribution.

[Mr Liam Byrne (Birmingham, Hodge Hill) (Lab)]

rose—

[Danny Alexander]

I give way to the right hon. Member for Normanton, Pontefract and Castleford (Yvette Cooper), who tried to intervene first.

[Yvette Cooper (Normanton, Pontefract and Castleford) (Lab)]

I am rushing to get to the ballot box—[Interruption.] The right hon. Gentleman is welcome to come to the ballot box too, if he so wishes. He will know that not only does chart A2 include the Labour measures from the March Budget, but it does not go beyond 2012-13 and does not include housing benefit. Is he also aware that the House of Commons analysis has shown that more than 70% of about £8 billion of direct tax and benefit measures introduced in his Budget are being paid by women? What figure does the Treasury put on the proportion of those direct tax and benefit measures being paid for by women?

[Danny Alexander]

There were a lot of questions there but not a single apology for the record of the previous Government. The single measure announced by the previous Government that is included in the charts in the Budget Book is the national insurance change. We have chosen to introduce that measure, so it is legitimate that we have included it in the charts. Other measures that affect people on higher incomes such as the increase in capital gains tax for higher rate taxpayers, which the previous Government never chose to introduce, cannot be included in the tables, so the impact on the wealthiest may even be greater than is illustrated in the charts.

[Matthew Hancock (West Suffolk) (Con)]

Does not the Minister, like me, find it a bit rich that Opposition Members look only at part of the Budget, not the whole, after 13 years in which they did not once introduce a distributional table?

[Danny Alexander]

I agree with the hon. Gentleman. It is a bit rich coming from the Opposition, given that we have set out for the first time in any Budget its distributional impact.

[Mr Byrne]

Will the Chief Secretary give way?

[Danny Alexander]

I wish to respond fully to the intervention. I will come to the right hon. Gentleman in a little while.

We have taken a number of measures in the Budget, such as the earnings link with pensions, with a triple lock of earnings, prices or 2.5%, which the previous Government never managed in 13 years. That is a record of which we can already be proud. I give way to the former Chief Secretary.

[Mr Byrne]

I wish to pursue the question asked by my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper). What is the Treasury’s analysis of how much of the £8 billion in tax and benefit measures will be paid for by women?

[Danny Alexander]

As I understand it, the House of Commons analysis does not include the impact of all the measures in the Budget. VAT is paid much more in cash terms––that has been accepted by the Institute for Fiscal Studies––so it is paid more by the wealthiest. The analysis that we should rely on is that which is presented in the Budget because it shows that the distributional impact of the Budget measures hits those on highest incomes hardest. That is the relevant measure and the one that I intend to draw attention to.

[John Thurso (Caithness, Sutherland and Easter Ross) (LD)]

I commend my right hon. Friend on the fairness that he has ensured runs right through the Budget, especially in respect of pensioners, but may I draw his attention to one small potential unfairness that may have crept in? Pensioners who are on a modest works pension and the state pension will pay £100 more in tax this year than they did last year because of the difference in the thresholds. I am sure that this was inadvertent. Will he look again at that particular issue?

[Danny Alexander]

I am grateful for that intervention. I am sure that my hon. Friend will have the chance to raise that point either in Committee or on the Floor of the House when the Bill is considered.

[Barry Gardiner (Brent North) (Lab)]

Has the Chief Secretary analysed the impact of the Budget measures on women? If not, will he commit to doing so?

[Danny Alexander]

I can confirm that we have carried out an analysis of the Budget across the income distribution to evaluate its fairness. We have also conducted an analysis of the impact on child poverty, which is the most important aspect. We have ensured that, even in the toughest Budget since the second world war, there will be no impact on measured child poverty—something that could not always be said of the previous Government’s Budgets.

[Ben Gummer (Ipswich) (Con)]

Opposition Members like talking about apprenticeships. I am a relative newcomer to the House so can my right hon. Friend enlighten me? What happened to the gap between rich and poor under the previous Government? For my information, did it get wider or narrower?

[Danny Alexander]

The hon. Gentleman is clearly not as much of an apprentice in this House as he claims to be. The gap between rich and poor got wider during the previous Government’s term.

The measures in the Budget have already had an impact on the credibility of and confidence in the British economy. As the director general of the CBI, for example, has said:

“This budget is the UK's first important step on the long journey back to economic health.”

The Fitch rating agency said:

“The path of deficit reduction and public debt projections set out in”

the

“Budget statement are materially stronger than that set out in the March 2010 Budget.”

On fairness, the chief executive of Barnardo’s said:

“we recognise the Government has done what it can to protect the most vulnerable.”

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

Will the right hon. Gentleman give way?

[Danny Alexander]

I will make some progress and give way to the hon. Gentleman later.

The Bill shows how the Government will carry out Britain’s unavoidable deficit reduction plan in a way that strengthens and unites the country. The Budget and the Bill stand for three things. The first is responsibility—taking action to eliminate the structural deficit. The second is freedom—helping the businesses on which we all rely to rebuild our broken economy. The third is fairness—protecting the most vulnerable, while ensuring the contribution of all. Those principles are at the centre of the Bill before the House today and I shall address each in some detail shortly.

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

The right hon. Gentleman mentioned fairness and businesses, and I would like to draw his attention to rural areas. He will understand that the increase in VAT will affect fuel prices in rural areas. Would it not be right to have a rural fuel derogation pilot in place before the VAT increase takes effect?

[Danny Alexander]

I am very grateful for that intervention. The hon. Gentleman knows that we are investigating a rural fuel derogation of some sort—that was repeated in the Budget statement. Although I cannot make a commitment on timing, as he knows, I am personally very enthusiastic about such a measure and I will continue to work with my colleagues on it.

[Stewart Hosie (Dundee East) (SNP)]

Will the right hon. Gentleman give way?

[Danny Alexander]

I want to say a word or two about the process of the Finance Bill.

[Chris Bryant (Rhondda) (Lab)]

Will the Chief Secretary give way?

[Danny Alexander]

No, I want to make some progress.

The Finance Bill before the House today seeks to ensure that the Government’s key tax priorities as set out in the emergency Budget are put on the statute book as swiftly as possible. This year, however, we face exceptional circumstances owing to the timing of the general election, which resulted in a curtailed Finance Bill following the previous Government’s March Budget and a relatively short timetable between our emergency Budget and the summer recess. There remain a number of minor and technical measures that we inherited from the previous Government and which must be legislated for before 2011. We shall therefore introduce those measures in a further Finance Bill in the autumn. Consistent with our aim of greater scrutiny of tax legislation, again set out in the Budget, we shall publish all those measures in draft for consultation before the end of July.

[Chris Bryant]

The right hon. Gentleman says that he is thinking about a derogation for rural areas in relation to VAT on fuel. May I point out that not a single house in the Rhondda is more than half a mile from a farm, so will he include the Rhondda in a derogation not only from VAT on fuel but from everything else as well?

[Danny Alexander]

The hon. Gentleman has misunderstood what is being discussed, which is no surprise, given the previous Government’s attitude to the idea, as the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) knows. We are not talking about a VAT derogation; the proposal relates to fuel duty.

[Ms Angela Eagle (Wallasey) (Lab)]

I was involved when the Treasury last looked at that idea. As the hon. Member for Na h-Eileanan an Iar knows, there are real hardships and we were very sympathetic. However, the Chief Secretary must admit that there are difficulties with developing such a policy, not least because of the potential for smuggling and fraud.

[Danny Alexander]

The hon. Lady says she was sympathetic—I attended a meeting where she expressed that sympathy—but no action by the previous Government resulted, despite the matter being pressed for a number of years. I am sure that my hon. Friend the Exchequer Secretary will look at all the issues as the question is investigated.

[Mr MacNeil]

rose—

[Danny Alexander]

I hesitate to take further interventions, as we are somewhat outwith the scope of the Bill, but I will give way once more to the hon. Gentleman.

[Mr MacNeil]

I ask the Chief Secretary to consider this question. With rural fuel priced between £1.30 and £1.35 a litre, were a rural fuel derogation to apply in Na h-Eileanan an Iar, to where might we smuggle fuel? I would struggle to find anywhere where fuel is more expensive. That smuggling would be a problem is a ridiculous proposition. We had 13 years of nothing but sympathy from the last Government, with absolutely no action. I hope that this Chief Secretary does not make the same mistake.

[Danny Alexander]

I am grateful for the intervention, in both senses.

Returning to the Bill, I should say that our plan stands first and foremost for responsibility, because a failure to deal with the deficit is the greatest threat to our economy and to the well-being of our nation. A failure to act now would mean higher interest rates hitting businesses, hitting families and hitting the cost of repaying the Government’s debt. That would mean more business failures and sharper rises in unemployment, and it would risk a catastrophic loss of confidence in the economy. The Budget’s forward-looking fiscal mandate will eliminate the deficit in five years and put us on track to have the debt falling by 2015.

The Office for Budget Responsibility forecasts that the measures in our Budget will lead us to meet that challenge one year early and the bulk of the reduction will come from lower spending, rather than from higher taxes. My right hon. Friend the Chancellor announced that the spending review will conclude with an announcement on 20 October and address precisely how we will bring down spending.

[Mr Michael Meacher (Oldham West and Royton) (Lab)]

If the Budget is to meet the objectives that the right hon. Gentleman has in mind, where exactly does he expect growth to come from over the next five years?

[Danny Alexander]

I draw the right hon. Gentleman’s attention to the Budget measures forecast, which the OBR published. It demonstrated significant growth in the private sector, based at least in part on measures, which I shall come on to describe, in the Budget and in the Finance Bill.

[Several hon. Members]

rose—

[Danny Alexander]

I am going to press on.

[Barry Gardiner]

Will the right hon. Gentleman give way?

[Danny Alexander]

I have given way already to the hon. Gentleman.

Let me turn to the first of the measures in the Bill.

[Stewart Hosie]

Will the right hon. Gentleman give way?

[Danny Alexander]

I shall, as I have not yet given way to the hon. Gentleman.

[Stewart Hosie]

The Chief Secretary to the Treasury makes the point about growth, but he has not really answered the previous question. The OBR suggests that business investment will increase by 8% to 11% almost every year, but can he tell us of any period of two, three or four years when business investment grew by 8% to 11%—particularly given that we are coming out of the deepest recession that anyone in this Chamber has ever seen?

[Danny Alexander]

Those are not my figures; those are the figures that the independent Office for Budget Responsibility produced. By the way, the figures that the previous Government put forward contained hopelessly over-optimistic forecasts for economic growth. In this Budget, we are taking measures to reduce corporation tax, to reduce the small companies rate of corporation tax and to tackle the Labour jobs tax on national insurance, all of which will help to support business development. Those measures, which I shall come on to if I get the chance during my speech, will all help to stimulate economic growth in the private sector, and that is the best way to lead this country out of the economic mess that we are in.

[Mr Byrne]

Perhaps I can help the Chief Secretary. There is a precedent for business investment matching the figures in the OBR’s forecast: it has occurred once in the past 40 years. That is the rarity of the precedent on which he now relies for his future growth plan.

[Danny Alexander]

I am not sure that the right hon. Gentleman can do anything to help me, given that he left the note saying that there was no money left, and that his decisions led the country to that position. I hope that in response to this debate he chooses to apologise for the mess in which his Government left the country.

[Owen Smith (Pontypridd) (Lab)]

Will the right hon. Gentleman give way?

[Danny Alexander]

I shall give way once more and then make some progress.

[Owen Smith]

Precisely further to my right hon. Friend’s point, can the Chief Secretary point to any five-year period in the past 40 years when 2.5 million private sector jobs have been created—any one period?

[Danny Alexander]

My point is that that forecast was made by the independent Office for Budget Responsibility. In the previous Government’s March Budget, their growth forecasts, which were not independent in that sense, were over-optimistic, and I am prepared to accept the forecasts of the independent Office for Budget Responsibility.

[Derek Twigg (Halton) (Lab)]

Will the right hon. Gentleman give way on that point?

[Danny Alexander]

No, I am going to move on.

Let me turn to the first of the measures in the Bill. Given that the structural deficit is some £12 billion larger than the previous Government told us, we have to make difficult choices—whether to fill the black hole with yet more spending cuts or increase taxes. Further spending cuts would have made it impossible for the Government to protect the country’s most essential services in the spending review. The only other option would have been to raise taxes on companies or on personal income, reducing the rewards for work at a time when hard work and endeavour must lead the recovery.

The VAT rise is unavoidable. As I said in the Budget debate, it is Labour’s inheritance tax. Clause 3 increases the standard rate of VAT from 17.5% to 20% from 4 January 2011. Everyday essentials such as food and children’s clothing, as well as newspapers and printed books, will remain zero-rated throughout the Parliament, protecting those on lower and middle incomes. Domestic consumption of fuel and power will remain subject to VAT at 5%.

[Mr Love]

rose—

[Danny Alexander]

I shall give way to the hon. Gentleman, as I did not do so earlier.

[Mr Love]

Can the right hon. Gentleman point to any indication in the manifesto of either coalition party that there would be a VAT increase of the type he has just suggested?

[Danny Alexander]

No party proposed an increase in VAT at the election, and no party ruled one out. The Liberal Democrat manifesto—[Interruption.] If Opposition Members will listen, I will explain the situation. In the Liberal Democrat manifesto, we made it clear that we would seek to reduce the deficit through spending measures alone, unless, on grounds of fairness, it was necessary to increase taxes. That was a clear statement in our election manifesto. The rationale that I have just set out is based on the decision that we made. We felt that, given the £12 billion of extra structural deficit left us by the previous Government, the right decision was a rise in VAT rather than increased spending cuts.

[Kate Green (Stretford and Urmston) (Lab)]

I am grateful to the Chief Secretary for explaining his approach to fairness. Can he explain why it is fairer to cut spending on public services, on which the poorest rely most, than to use a progressive system of taxation? Why does the balance have to be 20% in favour of taxation and a whopping 80% in favour of public spending cuts?

[Danny Alexander]

In a way, the hon. Lady makes my point for me. The point that I just made is that given the additional £12 billion of structural deficit, as revealed by the OBR forecast, that was left us by the previous Government, we had to decide whether to make £12 billion of further spending cuts or to establish a tax measure to fill the gap. We made the right decision. The tables in the Budget book show that the overall impact on fairness—particularly for children living in poverty, which is a long-standing concern of the hon. Lady’s and on which she has a strong track record—is minimised.

[Ian Lucas (Wrexham) (Lab)]

rose—

[Charlie Elphicke (Dover) (Con)]

Will the Chief Secretary give way?

[Danny Alexander]

I am going to make progress for a few moments, or the former Chief Secretary will never get a chance to have his say.

Clause 4 takes further action to tackle the deficit by increasing the standard rate of insurance premium tax from 5% to 6%. The higher rate of insurance premium tax will increase from 17.5% to 20% from 4 January 2011, to bring it into line with the new VAT rate. The increases are both fair and sustainable.

[Chris Leslie]

rose—

[Danny Alexander]

I am going to make some progress.

[Chris Leslie]

On insurance premium tax?

[Danny Alexander]

I give way on insurance premium tax.

[Chris Leslie]

Is it fair to increase the higher rate of insurance premium tax to 20% on travel insurance, which is vital for many ordinary working people as they take a break and go on holiday? They may be able to do so for only one or two weeks a year. If they do not have travel insurance, that could leave them in significant jeopardy. Will the increase not prevent or deter people from taking out travel insurance?

[Danny Alexander]

I am sure that the hon. Gentleman is right to exhort people to take out travel insurance. As he will know, when insurance premium tax was established, both its lower and higher rates were linked to VAT. It is therefore right that they go ahead together on the same basis.

We have inherited plans to limit tax relief on pension savings for the wealthiest. We have concerns about the complexity of the changes and their potential consequences for pension saving, UK competitiveness and the complexity of the tax system. However, given the state of the public finances, we cannot be blind to the £3.5 billion of revenue that the policy was set to raise. Therefore we have set out our commitment to protecting the public finances by pursuing an alternative approach that raises no less revenue than existing plans, potentially by reducing the annual allowance. We will therefore engage employers, pension schemes, experts and other interested parties to determine the design of an alternative scheme. To keep our options open, clause 5 provides the power to repeal the regime that was legislated for in the Finance Act 2010.

Secondly, our Budget stands for fairness. This is a Budget that protects the most vulnerable, especially children in poverty and pensioners, while ensuring that those with the broadest shoulders take the greatest share of the burden. As my right hon. Friend the Chancellor said in his Budget statement, it is a progressive Budget.

[Derek Twigg]

rose—

[Danny Alexander]

I hope that the hon. Gentleman will admit that fact.

[Derek Twigg]

As regards fairness, is it fair to my constituents and to the construction industry that the Chief Secretary has already stopped £168 million of expenditure on Building Schools for the Future projects and postponed the Mersey Gateway project? Total expenditure on those projects would have been £500 million. How does that help the construction industry?

[Danny Alexander]

I think it was irresponsible to make commitments to those sorts of projects, which could not be funded on the basis of the previous Government’s plans for halving capital spending over the next few years while building into their plans ever further, unsustainable commitments.

[Derek Twigg]

rose—

[Danny Alexander]

I will press on, if I may.

As my right hon. Friend the Chancellor said, this is a progressive Budget.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

Will the Minister give way?

[Danny Alexander]

I am going to make some progress, but I will give way to the hon. Gentleman in a moment.

The Budget includes progressive measures such as increasing the rate of capital gains tax by 10 percentage points for higher rate taxpayers while keeping it the same for basic rate taxpayers. Clause 2 increases the rate of capital gains tax to 28% for higher rate income tax payers, but basic rate taxpayers continue to pay an 18% rate. The entrepreneurs’ relief lifetime limit will be extended from the first £2 million to the first £5 million. That implements the commitment in the coalition agreement to provide generous exemptions for entrepreneurial businesses.

[Ian Lucas]

rose—

[Derek Twigg]

Will the right hon. Gentleman give way?

[Danny Alexander]

I am going to finish this section, and then I will give way to both hon. Gentlemen.

These changes—

[Derek Twigg]

On a point of order, Mr Deputy Speaker. The Chief Secretary hinted a few moments ago that the money was not available for Building Schools for the Future projects in my constituency, yet the shadow Education Secretary has had a letter from the permanent secretary at the Department for Education saying that the money was available. Also, I know for a fact that the money was there for the Mersey Gateway project, yet the Chief Secretary said it was not. Can we have some consistency in the accuracy of answers?

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

That is not a point of order. If the hon. Gentleman wants to intervene, it is up to the Minister to give way if he wishes.

[Danny Alexander]

I have given way a great deal, and I now give way to the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards).

[Jonathan Edwards]

On geographical fairness, does the right hon. Gentleman agree with the recommendations of the final Holtham report, published today, which calls for an immediate Barnett floor to protect Wales from further convergence, the implementation of transition mechanisms towards a needs-based formula, and a place at the table for the Welsh Government in discussions on fiscal autonomy for Scotland?

[Danny Alexander]

I am grateful for that intervention. I have not yet had a chance to read the second Holtham report, which is published today. However, in the course of a meeting with the Welsh Finance Minister, I undertook to meet Mr Holtham once he had published his second report, and I look forward to doing so and having a chance to discuss it directly with him. At this stage, I will not make any commitments of the sort the hon. Gentleman wants, except to note that on the path of public finances as they are at the moment, further convergence is not forecast over the next few years.

The changes to capital gains tax help to pay for further progressive measures such as our increase in the income tax personal allowance, which takes almost 1 million of the lowest-earning income tax payers out of income tax altogether. It also increases the incentive for people on low incomes to get a job. That is fairness.

[Ian Lucas]

Will the right hon. Gentleman tell me how many standard rate taxpayers paid capital gains tax in the past year?

[Danny Alexander]

Approximately half the people who paid capital gains tax in the past year were basic rate taxpayers—

[Ian Lucas]

How many?

[Danny Alexander]

I do not have the figure to hand, but I will happily let the hon. Gentleman know at a future date or write to him with the precise figures he is looking for.

The measures that we are taking, rightly, close the avoidance issue that arose under the system put in place by the previous Government, whereby someone who was taking a substantial bonus, for example, in capital gains could pay less tax than the person who cleaned their office. [Interruption.] I am being asked if that was fair. I certainly do not think it was fair—it was highly unfair. That is why we have chosen to try to reduce that avoidance risk. The hon. Member for Wrexham (Ian Lucas) will know that the yield from the measures that we have taken comes in large measure from income tax, which reflects the fact that that sort of avoidance was going on.

[Yvette Cooper]

I thank the Chief Secretary for his generosity in giving way. I will give him one more chance to answer this important question: has the Treasury done any analysis of the direct impact of the tax and benefit measures on women, separately from men? Does he know?

[Danny Alexander]

I am not sure that that analysis was carried out under the previous Government. We are the first Government to have published analysis of the impact across the income distribution, and we have conducted specific analysis of the impact on child poverty. It is notable that the House of Commons analysis assumes that women will be the only people affected by changes in benefits that are targeted on families. It does not make any allowance for the way incomes may be shared within the household, and as a result it may well exaggerate the impact of Budget measures on women’s incomes.

The Budget includes a number of measures to ensure fairness for pensioners. For example, it locks in an annual increase in the state pension in line with earnings, prices or a 2.5% increase, whichever is the highest—the so-called triple lock—to the benefit of 11 million pensioners. It also enables individuals to make more flexible use of their pension savings. The Government intend to end the existing rules that create an effective obligation to purchase an annuity by age 75 from April 2011. Clause 6 provides interim measures to raise the age at which a person is required to purchase an annuity, or otherwise secure a pension income, from 75 to 77. That is to protect those who might otherwise be forced to annuitise before the new rules that we are seeking to introduce come into place. We will consult interested parties on the detail of that change later this month.

[Stewart Hosie]

I welcome the age increase to 77 to allow flexibility, but a constituency query regarding that matter has emerged in the past 48 hours. If someone has already reached 75 and their annuity was going to be so miserable that they chose not to buy it yet, will they be covered by the new rules or will they fall in a hole in the middle in which, if there is anything left in their pension pot in the future, it will be subject to inheritance tax?

[Danny Alexander]

If the matter that the hon. Gentleman mentions is a constituency case, I suggest that he write to my hon. Friend the Financial Secretary, who will be able to address the matter in detail.

[Mr Love]

Will the right hon. Gentleman give way?

[Danny Alexander]

I will, on grounds of fairness.

[Mr Love]

I thank the right hon. Gentleman. With regard to the triple lock, does he accept that under the rules setting out an increase of 2.5% or RPI, pensioners will lose out for the first two years? They will actually have a cut rather than an increase.

[Danny Alexander]

No, I do not accept that. In fact, the increase next year will be protected. According to the forecasts for average earnings, the increase in the following year, 2012-13, would have been 2.4%, so our floor of 2.5% will ensure that the increase in the second year is higher than that forecast by the previous Government.

[Mr Love]

Will the right hon. Gentleman give way?

[Danny Alexander]

Once more, then I will press on.

[Mr Love]

May I urge the right hon. Gentleman to look at the figures? I understand that under RPI, in both years the increase would be 3.1%. Are pensioners not going to lose out?

[Danny Alexander]

I have looked at the figures, and I stand by my previous answer.

[Mr Iain Wright (Hartlepool) (Lab)]

Will the Chief Secretary give way?

[Danny Alexander]

No, I am going to make some progress. I have given way a great deal and an awful lot of questions have been asked, and no apology has been heard from any Opposition Member for the dreadful mess they left the economy in.

Fairness in the tax system is also about ensuring that everyone pays their fair share of taxes due. Too many individuals and firms in Britain today exploit the tax system through tax avoidance, a practice that ultimately means the rest of us have to pay more tax. The Bill puts in place measures to protect about £200 million of revenues per annum from tax avoidance. Clause 8 sets out an anti-avoidance measure to prevent matched income and expenses from being derecognised in a company’s accounts. That will ensure that income from financial instruments such as loans and derivatives can no longer be excluded from the accounts and go untaxed.

Clause 9 sets out a further anti-avoidance rule, building on section 47 of the Finance Act 2010 to prevent life insurance companies from avoiding tax on previously unrecognised profits. It will do so by ensuring that section 47 will be effective in cases in which life insurance business is transferred to another company. We will take further measures in future to tackle avoidance. In particular, a consultation on a general anti-avoidance rule was announced in the Budget.

[Kate Green]

How will the welcome measures to reduce tax avoidance be squared with job cuts in HM Revenue and Customs?

[Danny Alexander]

On the plans for HM Revenue and Customs, I am confident that the anti-avoidance measures are deliverable and can be expected to yield the amount that I described.

[Kelvin Hopkins]

Will the Chief Secretary give way?

[Danny Alexander]

No, I have given way nearly 30 times already.

Thirdly, the emergency Budget stands for freedom because it frees businesses to go for growth. A genuine and long-lasting economic recovery must have its foundations in the private sector. That is where jobs will come from, and we will do everything we can to support their creation. That is why the Budget sets out a plan to open Britain for business once more.

We will open Britain for business by creating a more competitive system of corporation tax, reducing the rate from 28% today to just 24% over four years. It will give us the lowest rate of corporation tax of any major western economy, and one of the most competitive rates in the G20.

[Stephen Timms (East Ham) (Lab)]

Why does the Bill legislate for only one of those changes, not all four?

[Danny Alexander]

It is good to see the right hon. Gentleman in his place; I welcome him back to the House after the experience that he had, for which Members of all parties feel enormous sympathy.

As I understand it, the practice in Finance Bills is to legislate one at a time for the changes that are needed in the following years. The Chancellor’s commitment in the Budget speech was for year-on-year reductions, and we will fulfil it.

[Stephen Timms]

I thank the Chief Secretary for his kind remarks.

I think the precedent was set in 1984, when the now Lord Lawson reduced corporation tax over a series of years, and the Finance Act 1984 legislated for them all. Why is that not being done in this Bill?

[Danny Alexander]

I am grateful for the further intervention and it is interesting to hear the right hon. Gentleman cite Lord Lawson. I am not sure that the Labour party cited that example in its Budgets. There are various technical reasons, which have just been discussed, and which my hon. Friend the Exchequer Secretary will explain in his closing speech. The basic point is that our method is more business-friendly.

As a first step, clause 1 reduces the main rate of corporation tax from 28% to 27% from 1 April 2011. Consequently, the corporation tax of around 47,000 companies will fall. The Budget also supports Britain’s small businesses by cutting the small companies rate of corporation tax from April 2011, reversing the previous Government’s plans to increase the small companies rate. That will benefit some 850,000 companies. The Budget takes action to stop the previous Government’s job tax by increasing the threshold for employers’ national insurance contributions, thereby lifting 650,000 employees out of that tax. Of course, a separate Bill will deal with that.

Taken together, those measures offer a stable and consistent platform for a private sector recovery.

[Clive Efford]

rose—

[Helen Goodman (Bishop Auckland) (Lab)]

rose—

[Danny Alexander]

I will not give way.

Clause 7 amends the tax rules for the expenses incurred by Members of Parliament, following the creation of the Independent Parliamentary Standards Authority. I know that that is of interest to many Members. The clause will broadly have the effect of maintaining the tax system and treatment that applied to similar expenses paid under the previous regime.

[Mr Kevan Jones]

rose—

[Danny Alexander]

I will not give way on that. The hon. Gentleman can make his points in the debate.

The emergency Budget takes decisive action to tackle the deficit that we inherited and to confront the greatest economic risk to our country. It is tough, but it is fair. We have set the course for a balanced budget and falling national debt by the end of the Parliament. We have to pay the bills of past irresponsibility, but in doing that, we have ensured that those with the broadest shoulders carry the greatest share of the burden.

The Budget and the Bill represent a break with past traditions. They demonstrate a genuine shift in approach from that of the previous Labour Government. Our decisions are in the best interests of the economic cycle; those of the previous Government were dominated by the news cycle. Our actions are based on hard facts and the real world; theirs were based on wishful thinking and, in some cases, complete denial of the economic reality. We have been guided by independent forecast, not political whim. We are acting responsibly; they remain in the mindset of profligacy, which led them to make spending promises that they knew could not be kept while they were in government.

The Opposition now say that they will oppose many of our measures, but without giving any indication whatever of what they would do instead—not a single suggestion. They are in denial; the Government are facing up to reality. The provisions in the Bill are fair. They will help to put our public finances on a solid footing and provide a strong platform for economic recovery. I commend the Bill to the House.

[Several hon. Members]

rose—

[Mr Deputy Speaker]

Order. I should inform the House that Mr Speaker has not selected the amendment.

17:15

[Mr Liam Byrne (Birmingham, Hodge Hill) (Lab)]

May I begin by putting on record the Opposition’s thanks to Sir Alan Budd for his excellent work in the short months that he has served the Government? May I also congratulate the Chief Secretary, who is rapidly becoming one of the Chancellor’s longest-serving advisers? After his performance this afternoon, I think we can see why that is. He is pursuing what is now a noble Liberal Democrat tradition of fronting up some of the Government’s nastiest and most regressive policies in the House. His speech was a Liberal Democrat defence of an emergency Budget—an emergency so great that the Chancellor could not be bothered to join us this afternoon to listen to the House’s deliberations.

It is fair to say that since we met last week to debate the Budget, the economic horizon has darkened. British families and businesses fought so hard in the past year and a half for this country’s recovery, but the Bill puts all that at risk. We can see from the Bill that the Chancellor would like us to believe that size is not everything—although it is very thin, it is none the less very dangerous.

We all enjoyed the Chief Secretary’s summary of business opinion, but Opposition Members thought it odd that he missed some of the news that has appeared since the Chancellor gave his Budget speech. The truth is that, as we warned last week, the dangers in the global economy have become not less visible—they have not ebbed away—but, if anything, become more visible and more dangerous. This week, for example, the news from our trading partners and from the United States, which is our single biggest export market, has not been good. Factory orders in May dropped after eight consecutive months of improvement, and confidence surveys last week showed the biggest falls for some time—far bigger than expected.

Last week, we heard that the number of Americans in work has fallen by almost the largest number since 1995, and new figures for the eurozone show unemployment stuck at more than 10%. The news from new markets is likewise not great. China’s stock exchange hit a 15-month low yesterday, and confidence surveys have reported the worst outlook for a year and a half. Therefore, we cannot blame British businesses, investors and exporters for being somewhat depressed. They know that the odds of success in the gamble on which the Chancellor has embarked are slim, and they know very clearly who will pay the price for his failure.

[Mr John Redwood (Wokingham) (Con)]

The previous Labour Government said that they would halve the deficit in four years. What spending cuts and tax increases would they have introduced if they do not like ours?

[Mr Byrne]

The right hon. Gentleman has today put out a number of very constructive suggestions—for example, urging people hit by budget cuts to wear more clothes, to turn down the thermostat and to eat more vegetables—[Hon. Members: “Withdraw!”] I am merely quoting the Daily Mail, which is a source I trust—it is, of course, beyond reproach.

[Mr Deputy Speaker]

Order. Obviously the right hon. Member for Birmingham, Hodge Hill (Mr Byrne) used the Daily Mail. I am sure that it was not meant with intent, and that we can be a little more careful in the way that we proceed.

[Mr Byrne]

I will learn never to trust a word I read in the Daily Mail ever again—

[Mr Redwood]

The Daily Mail withdrew the article from its website because it was untrue.

[Mr Byrne]

Well, that rather proves my point—[Interruption.]

[Mr Deputy Speaker]

Order. The right hon. Gentleman should withdraw that comment if it has been withdrawn from the website.

[Mr Byrne]

I am happy to withdraw comments published in the Daily Mail.

The point that I was about to make was that the business community, having had a chance to reflect on the Budget, has come to some conclusions, and I was surprised not to hear about them in the Chief Secretary’s remarks. A fortnight ago, the Chancellor told us that the Budget was

“a balanced package that will send the signal that Britain is open for business.”—[Official Report, 22 June 2010; Vol. 512, c. 176.]

In the weeks since, it is fair to say that business has not been hanging out the bunting. The stock market has now recorded its worst quarterly fall for eight years, as it fell to its lowest point for 10 months. Goldman Sachs has warned that tighter fiscal policy now

“would make it hard to deliver improving growth for all, or possibly any”

country. The chief economist of the British Chambers of Commerce has said that the scale and severity of the Budget

“inevitably increases the danger of an economic setback”.

The Chartered Institute for Purchasing and Supply has said that its managers have

“voiced grave concerns that budget cuts and VAT will tip the scales and amplify the likelihood of the UK slipping back into recession”.

The confidence of Britain’s finance directors has fallen to a 12-month low—just one in four is optimistic, and two thirds say that tighter fiscal policy will hurt their business. Yesterday, the confidence of Britain’s supply chain had its largest monthly fall since 1997. It is for those reasons that a wise man once said that

“the next government has to recognise the fragility of the economy and not take action which would precipitate a double dip recession leading to more unemployment and even bigger budget deficits.”

That was, of course, the Business Secretary in April—once a prophet and now a lost cause.

[Mr Kevan Jones]

Does my right hon. Friend agree that one of the important sectors in the economy is the service sector? Has he seen the Markit/CIPS purchasing manager index this month, which has recorded its largest drop in confidence in the last 14 years?

[Mr Byrne]

That news was somehow absent from the Chief Secretary’s remarks. He and the Chancellor may now think that everything is fine. I know whose verdict I would rely on, and it is not the Chancellor’s.

I do not want to depress the House unduly and I have a little bit of good news—

[Barry Gardiner]

Will my right hon. Friend confirm that the real point is that if we should slip back into a double-dip recession, the coalition’s efforts will be null and void, because they will not have been able to address the deficit as a proportion of GDP?

[Mr Byrne]

That is precisely right and I will have more to say on that in a moment.

I promised a ray of good news among all the bad news and depressed expectations from the business community. A command paper was sneaked out last week. It had barely a press notice—it ran to a grand total of six lines—and there was no written ministerial statement with it. What could justify such secrecy? All is revealed on page 52 of the public expenditure survey, published last week, wherein we discover that Departments under Labour’s management underspent their budgets last year by £5 billion. Anyone would think that the Government wanted to keep that news secret. In a knee-jerk response yesterday, they decided to cover it up by announcing another £1.5 billion of spending cuts instead.

[Derek Twigg]

In Halton, £168 million of the Building Schools for the Future project was cut yesterday. The Mersey gateway has been postponed, and if it is cut it will take the total loss of investment—in that one area—to £0.5 billion. In an area like Merseyside and Cheshire, which especially needs that investment, that will be a massive blow to the construction industry. Does not it also underline the fact that public expenditure provides private sector jobs?

[Mr Byrne]

One of the great flaws in the Budget is that the Government are relying on a bounce-back in private investment, for which there is barely a precedent, and nor is there any evidence from the business community that it might happen.

Make no bones about it, since the Chancellor sat down a fortnight ago, the gloom has grown. However, the Finance Bill does not adjust the Government’s strategy. All we have heard from the Chief Secretary this afternoon is a very clear economic credo: where there is worry, let us spread fear, and where there is risk, let us bring danger. Whereas the Labour Government planned to halve the deficit in four years—a plan that the Chancellor’s own independent advisers said we were on track to deliver, and which the G20 said met its timetable—this Chancellor has added nearly £40 billion in new tax rises and spending cuts. He has locked us on a course to slash away come what may, and, in a world full of risk, he is now preaching to others to do the same.

[Mr Jim Cunningham (Coventry South) (Lab)]

Do the recent figures for the motor car industry not show that the previous Government were on the right course for an economic recovery, and does my right hon. Friend not agree that a £360 million cut in Coventry’s schools programme will have a devastating effect on the schools and construction trade there? I am sure he knows that the construction trade always leads economic recovery.

[Mr Byrne]

My hon. Friend is right. One reason the British supply chain is now so worried about the Government’s intentions is that it has seen these knee-jerk reactions, such as yesterday’s decision, of which the Chief Secretary was so proud he did not dare come to the House to say a word about it.

I want to make a point that follows on from what my hon. Friends have said. Rather than balancing spending over the economic cycle, we now have, in the Budget, a plan to eliminate in just five years the structural deficit. However, the Finance Bill ignores the question of what happens if growth is weaker than expected. It is worth for a moment the House exploring the economic consequences of this Chancellor’s proposals. If growth fails, the structural deficit as a percentage of our economy goes up, yet the timetable for its elimination remains unchanged, so the Chancellor’s only course of action is to cut deeper and deeper. If growth falters or the economy shrinks, the Chancellor cannot stimulate the economy, but can only respond with cuts. It is not a plan to manage the economic cycle; it is a plan for an economic death spiral. Like some kind of self-flagellating penitent who believes borrowing is so morally wrong, he responds to any new urges with another bout of whipping. He might feel it gets him to heaven a little faster, but I am afraid it is no way to run an economy.

[Charlie Elphicke]

I enjoy the right hon. Gentleman’s thirst for talking down the economy, but how many independent economic forecasters are predicting the double-dip recession that the Labour party seems to constantly hope and pray for?

[Mr Byrne]

I note that the hon. Gentleman was so eager to participate in this debate that he missed the beginning of it. The words I used were not my words, but the words from a wide section of the British business community. [Hon. Members: “Who?”] Well, Goldman Sachs, the Chartered Institute of Purchasing and Supply, and the judgment of the stock market. This is not a perspective held by a narrow corner of the business community. The judgment on this Budget is widely shared across this country.

[Ben Gummer]

Will the right hon. Gentleman confirm whether it was Goldman Sachs or the chief economist at Goldman Sachs who made those comments? It is an important distinction.

[Mr Byrne]

Absolutely. Jim O’Neill is a very respected economist, he is chief economist at Goldman Sachs, and his opinion was echoed by the chief economist at the British Chambers of Commerce. So this is not a narrow perspective from any one particular corner of the business community. This view is widely shared.

[Phil Wilson (Sedgefield) (Lab)]

We have to accept that the Prime Minister has kept one promise. He said that the cuts would affect the north-east of England the most, and that has been proved to be true. The Government have cancelled a new hospital, abolished One NorthEast and stopped nearly 100 Building Schools for the Future projects, which would have created many construction jobs in the private sector. Is it not a shame that the Prime Minister did not keep the other promise, which was that cuts would not affect the front line?

[Mr Byrne]

My hon. Friend is absolutely right. Like so many words that we heard during the election from those now in government, those ones turned out to be rather empty.

Perhaps we would not be quite so worried about what we have heard from the Chief Secretary this afternoon if we did not know that the risk of failure for this Budget was so great. The Office for Budget Responsibility, which is supposed to know, has said that there is just a 40% chance of the Chancellor hitting his growth forecast for next year, yet the VAT increase in the Bill will tax consumption so hard that we will be forced to rely on a history-making burst of exports and business investment. Last week we heard that just once since 1966 have we had the kind of rise in investment and exports on which the Chancellor will be banking in each of the next three years. The House would therefore be right to ask what measures exist in the Finance Bill to help. On close inspection, there appears to be no help at all for exporters, yet the Chancellor needs Britain’s exporters to grow their trade abroad by £100 billion for his plan to come true. That is the equivalent of our trade with America rising threefold, our trade with China rising by 20 times or our trade with India rising by 40 times. It is fair to say that that is not a bet that any of us would take.

[Kevin Brennan (Cardiff West) (Lab)]

Was my right hon. Friend surprised when he saw the Deputy Prime Minister in Germany—he is obviously fluent in German, but not in economics—persuading the Germans to cut their expenditure, when Germany is exactly the sort of market that we rely on for export growth?

[Mr Byrne]

Precisely. We need the German Government to contribute to growth right across the European area. One would have thought that the Deputy Prime Minister might have a word to say about encouraging the German Government to do more to help British exporters, but there we are—not a word about that from him.

[Stewart Hosie]

Although the right hon. Gentleman’s excoriating attack on the coalition Government is pretty accurate so far, will he confirm that we had a balance of trade deficit in goods last year of some £82 billion, that Labour lost 1 million manufacturing jobs before the recession and that the impact on GDP growth was to suppress it every year since 2000? Just for the sake of accuracy, will he confirm that those figures are right?

[Mr Byrne]

I have not brought those figures with me to the Chamber, but the hon. Gentleman will know that exports from this country have grown strongly over past years. That is precisely why, as we came through the crash, we said that we needed to rebalance our economy, which is why we fought so hard for investment in companies such as Sheffield Forgemasters and why we said that we needed new investment in manufacturing—all investment that has now been cut back.

[Stewart Hosie]

Will the right hon. Gentleman give way?

[Mr Byrne]

No, I am going to make another important point, on which the hon. Gentleman might want to comment. The question of business investment is vital—it relates to the argument at the heart of the Budget—and I hope that we will have a good debate on it this afternoon. Business investment is the subject of clause 1, which offers, I am afraid to say, no salvation through investment allowances, which drive up investment and which manufacturers say make the world of difference. This is what the senior economist of the Engineering Employers Federation had to say about investment allowances:

“For smaller companies…there will be cashflow consequences …that will hurt their ability to reinvest in their own competitiveness.”

That is because the Government have withdrawn such allowances.

What, then, of corporation tax? We were promised in the Budget a four-year plan to bring down the rate of corporation tax to 24%, but clause 1 offers us just a one-year plan. We do not know whether that is a wheeze to avoid an unhelpful valuation of deferred tax assets—the Chief Secretary to the Treasury was silent on that point—but is it not more likely that the Treasury is simply hedging its bets? The Government promised us certainty on corporation tax, and all we have got is more risk. The truth is that business is not going to bet on a one-year deal when this country’s recovery demands a longer-term planning horizon. The Chancellor might be a gambler, but Britain’s business community is not.

[Stephen Hammond (Wimbledon) (Con)]

The business community are not gamblers. In this Budget, they will see encouragement for the bedrock of our economy—namely, small and medium-sized enterprises. Measures in the Budget such as the small profits rate of taxation will help 800,000 small businesses across London and the south-east, and the small business rate relief will help 48% of the businesses in the region. Is that not the kind of investment that will encourage exports?

[Mr Byrne]

It would be, but it appears to be absent from the Bill.

The economic gamble that the Chancellor has taken in the Budget is quite clear to the business community and, I think, to the House. There is also the question of who pays. The Chancellor is fond of taking the approach that we are all in this together. One writer called that the equivalent of a chorus line from “High School Musical”. However, the Finance Bill disabuses us of any notion that that claim might actually be true. It is now quite clear that the price of this Budget will be paid by people’s jobs, and that the greatest price will be paid by the poorest in this country.

[Mr MacNeil]

For the past five years, the poorest in my constituency were paying the highest level of tax per litre of fuel in the UK. Is the shadow Chief Secretary in any way embarrassed or ashamed that a Labour Government let that happen? Or does he now repent and support a rural fuel derogation?

[Mr Byrne]

I look forward to hearing the hon. Gentleman’s contribution to the debate a little later. It was not quite clear whether he was talking about marginal deduction rates or other impacts of the tax system but, like me, he will have noticed table A3 on page 69 of the Red Book, which shows that the marginal deduction rates for people on a 90% deduction rate, for example, have not gone down as a consequence of the Budget; they have gone up.

[Stephen Hammond]

We know from the note that the right hon. Gentleman left for the Chief Secretary that it clearly would not have been he who paid. Will he tell the House exactly where the £50 billion of cuts would have come from under a Labour Government, and how the deficit would have been reduced? Who would have paid in those circumstances?

[Mr Byrne]

Of course—I shall talk about that at length in a moment.

[Simon Hughes (Bermondsey and Old Southwark) (LD)]

Does the right hon. Gentleman accept that his attacks might just begin to be credible if Labour’s record were not so dreadful? Inequality increased, the link between earnings and pensions was never delivered, child poverty was not reduced over the whole period of the Labour Government, fuel poverty increased and poor people on low incomes were not taken out of tax. Where is the credibility in that? This Budget will clearly deliver a fairer outcome than the one that his Government left us with.

[Mr Byrne]

I was empathising with the hon. Gentleman until his final sentence. As he will know, over the past 10 to 15 years up to 2006, just four countries out of the entire 20 or 30 members of the OECD succeeded in reversing inequality. They were Turkey, Ireland, Mexico and the United Kingdom. The attack on inequality was always a central mission for the Labour Government. Yes, of course we wanted to go further, but we were proud of our record of lifting 900,000 pensioners and 500,000 children out of poverty, of legislating to restore the earnings link and of introducing innovations such as tax credits. In constituencies like mine—and, I suggest, the hon. Gentleman’s—which suffer from a high rate of unemployment, that help is beginning to make a difference. That is why we are so passionate in our objection to the attack on the poorest people in this country contained in this Budget.

[Simon Hughes]

I respect the right hon. Gentleman for his constituency commitment to dealing with the poor. Over the period of the Labour Government—during which not everything was done wrongly—the greatest failure of all was that inequality was not reduced over the entire 13 years; in fact, it increased. The rich became richer, the very rich became very much richer, and the people at the bottom—pensioners in particular—did not have the protection from a Labour Government that history suggests they could have expected.

[Mr Byrne]

I look forward to the hon. Gentleman telling us later how the increase in VAT is going to support the argument that he is trying to prosecute. I hope that he will also reflect on the cost of this Budget to jobs. The official figures for job cuts as a result of this Budget are bad enough, but the real figures are even worse. We have already watched the extraordinary spectacle of the Office for Budget Responsibility tell the Chancellor that employment will be 100,000 lower as a result of Budget measures, but then the real figures were published in The Guardian—not in this House, but in The Guardian—from which we learned that secret Treasury papers say that the Budget will cost 1.3 million jobs over the next five years. When the Chancellor stood at that Dispatch Box a couple of weeks ago, he told us that he would not hide things in the “small print” and that he would give it to us “straight”; he was so straight and so open that he kept the Treasury advice out of the Budget altogether. Yet even that picture might not reflect the entirety of the Budget’s impact.

[Toby Perkins (Chesterfield) (Lab)]

Does my right hon. Friend agree that the Liberal Democrats’ comments would have more credibility if they had not spent the six or eight weeks before the general election arguing very accurately and articulately against the very Budget they have just helped to deliver?

[Mr Byrne]

My hon. Friend is absolutely right. Some Front-Bench Labour Members believe in redemption, and we have not given up on the hon. Member for Bermondsey and Old Southwark (Simon Hughes). That is why we are looking forward so much to hearing his contribution later this evening. [Interruption.] I hope he is not going to dispel the image I have of his virtue and integrity.

[Simon Hughes]

: We all believe in redemption.

[Mr Deputy Speaker]

Order. I hope that we can stick to the Bill. We are getting carried off in many directions, and I am sure that hon. Members will not want to do that.

[Simon Hughes]

May I say to the right hon. Gentleman and the hon. Member for Chesterfield (Toby Perkins) that the four major proposals on tax, finance and equality with which we went into the election have been delivered in the Budget? The only one that was not delivered was value added tax. The right hon. Gentleman knows that there is concern about its increase, but he has heard me say that I believe that, in the event, rather than making further spending cuts, it was the least worst option.

[Mr Byrne]

I will cling on to my image of the hon. Gentleman’s integrity and await his contribution a little later. I remain convinced that, for him, redemption is still possible.

I was about to say in response to my hon. Friend the Member for Chesterfield (Toby Perkins) that the reality is that the impact on jobs might be even worse than we saw in the Red Book, or even worse than we read about in The Guardian, because the Chartered Institute of Personnel and Development tells us that it forecasts that unemployment could continue to rise up towards 3 million.

This Finance Bill hits growth so hard—this is a point that I hope the hon. Member for Bermondsey and Old Southwark in particular will reflect on—that, buried in the back of the Red Book, we learn that the Chancellor has had to raise £9 billion of extra taxes to pay for the lost growth. That is not cutting public debt, but adding to it—in pounds and pence and in the unquantifiable misery of wasted human lives. It is, I am afraid, a philosophy that is all too familiar. It is a distant echo of 1992, when a Tory Chancellor told us that unemployment was “a price worth paying”. Back in 1989, another Tory Chancellor, the now noble Lord Major—

[Simon Hughes]

Sir John Major.

[Mr Byrne]

Quite right. Sir John Major told us:

“If it isn’t hurting, it isn’t working”.

This Bill, and this Budget, will hurt all right—hurt the recovery; hurt families; hurt pensioners; and it will not work, as it will put people out of work.

[Charlie Elphicke]

Perhaps I am just confused, but I am looking at the OBR table C.2 and it seems that ILO unemployment and the claimant count will be falling over the course of this Parliament. Will the right hon. Gentleman confirm if I have misread the table?

[Mr Byrne]

In preparation for this debate, the hon. Gentleman will have compared those employment forecasts with those in the March Budget and will have noticed, like the rest of the world, that they are now 100,000 lower.

[Mr Kevan Jones]

Does my right hon. Friend agree that the Chartered Institute of Personnel and Development not only made predictions on unemployment, but also said that the Government’s targets for job creation were not achievable? Its chief economist, John Philpott said:

“There is not a hope in hell’s chance of this happening.”

[Mr Byrne]

My hon. Friend is absolutely right. Very few people in the country believe the Budget’s forecasts for employment growth, which is not surprising given how hard the Budget is hitting growth.

I want to move on from the economics of the Bill, and the possibility that it may work, to a wider question that I know we will want to debate this afternoon.

[Danny Alexander]

rose—

[Mr Byrne]

I refer to the question of fairness, about which the Chief Secretary will perhaps say a word.

[Danny Alexander]

The right hon. Gentleman began, quite rightly, by paying tribute to the Office for Budget Responsibility and the work that it has done. Does he accept that the OBR forecasts make it clear that over the period of the Budget, growth will rise and unemployment will fall? That confirms—if we are trading quotes—the view of the secretary-general of the OECD, who has said that the Budget

“provides the necessary degree of fiscal consolidation over the coming years to restore public finances to a sustainable path, while… supporting the recovery.”

That is what the Budget does, and the right hon. Gentleman should be welcoming it.

[Mr Byrne]

The Chief Secretary is a politician who is paid to go to work to make his own judgments in his and the country’s best interests. He will have noted reference to the growth of business investment and exports in the OBR’s report and its projections for the future.

[Danny Alexander]

rose—

[Mr Byrne]

In a moment. He will know, too, that in only one year since 1966—which is when the Library started to compile figures for business investment—

[Danny Alexander]

rose—

[Mr Byrne]

In a moment. In only one year, 2005, did business investment grow by 1.7%.

[Danny Alexander]

rose—

[Mr Byrne]

I ask the Chief Secretary to be patient for a moment. The last year in which exports grew as a percentage of our economy in anything like the way that the OBR projects for the next few years was 1974. The Chief Secretary is relying on a unique combination of the business investment that we saw in 2005 and the exports that we saw in 1974. He is assuming that they will come together in perfect harmony in each of the next three years. I must say to the Chief Secretary, very gently, that that is a bit of a gamble for him to take.

[Danny Alexander]

Does the right hon. Gentleman accept that it is the independent Office for Budget Responsibility—which I think he welcomes—that forecasts that growth will rise over the current Parliament and that unemployment will fall? Does he accept that, yes or no?

[Mr Byrne]

It is not a great triumph for unemployment to fall as an economy returns to growth. The point that I was making is that employment in this country is lower as a result of the Chief Secretary’s Budget, that growth is lower as a result of his Budget, and that the Budget hits the economy so hard that he must raise another £9 billion of taxes, although the Chancellor refused to admit it at the Dispatch Box.

I now wish to turn to a question to which I hope we will devote quite some time today: the wider question of why this Finance Bill is so unfair. We now have the judgment of the Institute for Fiscal Studies, which tells us that the Budget is so regressive that its only redeeming features are Labour policies. Age Concern tells us—clearly, starkly, urgently—that it will put older people’s lives at risk. The Child Poverty Action Group tells us that it will drive poorer parents into the arms of loan sharks. The House of Commons Library tells us that nearly three quarters of the £8 billion tax and benefits bill will be paid by our country’s women—and that is before we get to VAT.

Clause 3 is the clause that deals with VAT, and I think it fair to say that it is the clause without a mandate. I have come to learn that, after nearly 30 years in the House, the hon. Member for Bermondsey and Old Southwark did not get where he is today without knowing what makes his party tick. I believe that when he said, a week before the Budget,

“I hope we don’t have a VAT increase because it is the most regressive form of tax”,

he spoke for the majority of his party’s voters and his party’s members. Before too long, those words will come back to haunt the Chief Secretary and the rest of the occupants of the Treasury Bench.

Back on 7 April, the Deputy Prime Minister warned us about hikes in VAT. He said:

“let’s remember, it is a regressive tax”.

He was right: it is a regressive tax, and we now know that he is a regressive politician for supporting it.

I think that it is fair to say—I feel that I can say this among friends—that I know a thing or two about writing something and regretting it later, but the Liberal Democrats did not just write a silly note. They unveiled a whacking great poster on a lorry saying, “Tory VAT bombshell”. Little did we know that they would be the ones not only to prime it, but to set it off.

[Mr Redwood]

Will the right hon. Gentleman give way?

[Mr Byrne]

I will in a moment.

If Members go to the Deputy Prime Minister’s website—for those who do not have the address, let me be helpful, it is nickclegg.co.uk; it is not a site that I visit quite as much as I used to—they will see that that famous poster saying, “Tory VAT bombshell” is still on the website, available to download. The Liberal Democrats cannot kick the habit of saying one thing and doing another.

[Mrs Anne McGuire (Stirling) (Lab)]

Does my right hon. Friend share the astonishment of the 87% of the electorate in the Chief Secretary’s constituency who did not vote Tory at the last election but see him fronting up a VAT rise to 20%?

[Mr Byrne]

Yes, and the electorate will hold the Chief Secretary to account at the next election.

[Mr Redwood]

Can the right hon. Gentleman explain why putting VAT up by 2.5% before the recession was scarcely over, as the Labour party did in government, was a good idea and did not destabilise the recovery, but putting it up another 2.5% to pay all the previous Government’s bills, which Labour still will not tell us how it would pay for, is a bad idea?

[Mr Byrne]

Let me come to that point in a moment because—[Interruption.] I will answer the right hon. Gentleman’s question after touching for a moment on some of the questions that we will raise in this debate and in Committee next week. We will want to press the Government on their clause without a mandate. We will want to know what studies have been conducted, as will many Back-Bench Members in the coalition party, on the impact of the new VAT on Britain’s poorest families. We will want to know the impact on pensioners, children and child poverty. We will want to know whether all zero-rated goods will remain zero-rated for the course of the Parliament. We will want to know whether all exempt goods and services will remain exempt for the course of the Parliament. We will want to know how much the Chancellor has short-changed our pensioners by uprating pensions this September and then legislating for higher prices in January. We will want to know his estimate of the growth in black market trading by increasing the rewards for unregistered traders. We will press the Government on those questions during discussion of clause 3.

We will also want to know the answers to questions on other clauses. Why does clause 1 make corporation tax less certain when we were promised clarity? Why is the measure silent on the regime for North sea oil? Why does clause 2 complicate the tax system when we were promised simplicity? In respect of clause 4, what assessment has been made of the impact of insurance costs for low-income families? Will the reform of pension tax relief bring in as much as Labour budgeted for? Will the plan be as fair?

The great tragedy of the Budget and the Bill is that there is an alternative, so let me deal directly with some of the questions raised by Government Members. In March, my right hon. Friend the shadow Chancellor set out the fastest and clearest deficit reduction plan of any country in the G7.

[Lorely Burt (Solihull) (LD)]

There wasn’t any detail.

[Mr Byrne]

I hear what the hon. Lady says, but she has of course read chapter 6 of the Budget of March 2010 and, like me, she will remember that there was £3.5 million in savings by holding down public sector pay; there was £1 billion in savings through the reform of public sector pensions; there was £5 billion in savings through cuts to lower-priority programmes; and there was £11 billion in savings by revolutionising Whitehall. There was also the promise of a benefits bill that would have been £14 billion lower through falling unemployment, which was only possible as a consequence of growth. She will also remember the precision with which we set out £19 billion-worth of tax increases, which unlike this Bill, did not hit the poorest in her constituency or mine.

We know that Governments have to govern, so our opposition to the Bill will be careful, but Labour Members will stand up for jobs and for fairness. That is why we will vote against the Second Reading of the Bill.

17:54

[Lorely Burt (Solihull) (LD)]

The Bill is short, and I will keep my remarks short in keeping with the Bill’s size. This is a coalition Bill, just as the Budget was a coalition Budget. It incorporates Liberal Democrat policies such as our policies on capital gains tax, raising the earnings threshold and the restoration of the earnings link. It also incorporates elements of Conservative policy, which is right because that is what a coalition does. In some respects it is a bit like Hovis, which calls its mix of white and brown bread “Best of both”. That is what we have in the Bill.

Among the Bill’s main elements is the capital gains tax increase from 18% to 28%. The Liberal Democrat policy would have taken it further, but we could run into the law of diminishing returns. We need to be not only practical but fair. It is fair because the well-off, who pay less tax than those who clean their offices, will start to pay a lot more tax. That loophole was never closed by the Labour party, and the measure will make a big difference in fairness and in the level at which those well-off people pay tax.

The entrepreneurs relief should be welcomed by hon. Members on both sides of the House.

[Mr Kevan Jones]

Does the hon. Lady agree with the Deputy Prime Minister, who before the election, on the Radio 4 “Today” programme on 7 April, described VAT as a “regressive tax”?

[Lorely Burt]

I am grateful to the hon. Gentleman for that intervention. I am dealing with entrepreneurs relief at the moment, but I will be pleased to deal with VAT, which I will speak about quite fully, later. I know that the Labour party has had great fun bashing the Liberal Democrats over VAT, so I look forward to being taken to task on that.

The entrepreneurs relief is the reward that business owners are due. They often put everything into building a business. That should be recognised. We greatly welcome the continuance of the 10% rate and the increase in the lifetime limit for gains from £2 million to £5 million.

On corporation tax, the reduction from 28% to 27% in 2011, the 1% reduction in each of the following three years to 24%, and the small business rate tax cut, contrast greatly with Labour’s tax on jobs. It means that we now have the ability to stimulate business, which generates the wealth that we need to pay for the services that we need. We need secure growth for business. Business needs the confidence to invest in that growth.

I come now to VAT. I am sure that the hon. Gentleman—

[Mr Jones]

Will the hon. Lady answer the question put by my right hon. Friend the Member for Birmingham, Hodge Hill (Mr Byrne), who said that the measure in the Bill is for one year only? How will that give confidence to any business wanting to invest? It will have to take decisions on a one-year basis.

[Lorely Burt]

I am glad that the hon. Gentleman raised that point, and that I gave way to him. This is a commitment. The four-year commitment is in the statement. It is in the Budget.

[Mr Jones]

One year.

[Lorely Burt]

The four-year commitment is in the Budget itself. As the Chief Secretary said, the normal way of doing it is one year at a time. The hon. Gentleman can look forward next year, and the year after that and the year after that, to a further 1% reduction.

[Jonathan Edwards]

Does the hon. Lady agree that the regionalisation of corporation tax would be a more helpful way to assist the most disadvantaged parts of the United Kingdom?

[Lorely Burt]

The hon. Gentleman asked me about the regionalisation of corporation tax, but these are UK taxes so it is inappropriate to regionalise. He makes an interesting point that I have not considered before, but I am sure that my hon. Friends will take an interest in the idea if it has merit.

[Simon Hughes]

My hon. Friend is right. I just wish to say to the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) that, as he knows, my party has been supportive of increasing autonomy and self-government in Scotland and in Wales. That has happened in Scotland and it is on the agenda for Wales, and he knows—[Interruption.] It is on the agenda for Wales; it is not agreed and it is not committed, but it is under discussion in relation to Wales. He knows that my party has always been positive towards the idea of allowing greater self-government, both in Scotland and in Wales, but that is different from the regionalisation of UK taxes such as corporation tax.

[Mr Kevan Jones]

On a point of order, Mr Deputy Speaker. Is it in order that the Liberal Democrats should now have two Front-Bench spokespeople on the Treasury? Is it completely out of order for the hon. Member for Bermondsey and Old Southwark (Simon Hughes) to be rescuing and answering on behalf of his party?

[Mr Deputy Speaker (Mr Nigel Evans)]

If I had seen anything out of order, I would have called hon. Members to order myself.

[Lorely Burt]

Thank you, Mr Deputy Speaker. The hon. Member for North Durham (Mr Jones) has intervened on me twice, so perhaps he would like to join me on these Benches and make his contribution. I am sure that he will be making his speech later, and I will have the greatest pleasure in intervening on him then.

VAT is to increase to 20% with effect from 4 January 2011. This is another issue on which the Liberal Democrat bashing by the Labour party has been lengthy.

[Clive Efford]

rose—

[Lorely Burt]

Perhaps the hon. Gentleman would allow me to make a little progress first. [Interruption.] I am not giving way now, but I promise that I will do so. I might even say something that he likes; one never knows. Like my hon. Friend the Member for Bermondsey and Old Southwark, I do not think that anyone on either the Conservative Benches or the Liberal Democrat Benches is filled with any enthusiasm for increasing VAT. However, I am not going to rehearse all those arguments, because we know that Labour left the finances in a far worse state than we originally anticipated. The structural deficit is £12 billion greater than we were led to believe, so whichever way we look at it, the options are invidious. A VAT increase has therefore had to be the least worst option, as my hon. Friend has said. There are mitigating factors, because the VAT rise will not come into effect until 2011. Therefore there will be a short-term boost; consumers who want to spend money, particularly on large items, will be able to do so before that increase comes into effect.

[Mrs McGuire]

Is the hon. Lady seriously recommending that to mitigate the impact of the VAT increase to 20%, consumers should wander round Currys and all sorts of other places before Christmas buying up all the washing machines, tumble dryers, fridges and all the rest of it, just to salve her conscience?

[Lorely Burt]

The right hon. Lady answers her own question, although I was just coming on to this subject. When I had lunch with the manager of my local branch of John Lewis last week I asked him what difference the VAT increase would make to purchases at his store. He said, “Well, when it went down it didn’t make a whole lot of difference to sales. When it goes up we don’t necessarily think it’ll make a whole lot of difference, either.”

[Several hon. Members]

rose—

[Lorely Burt]

I have given way previously, so I ask hon. Members to allow me to make a little progress. A lot of people want to speak—[Interruption.]

[Mr Deputy Speaker]

Order. The hon. Lady is not giving way.

[Lorely Burt]

Thank you, Mr Deputy Speaker. The other point that I want to make is that the purchases that represent more disproportionately a part of the income of lower-paid people tend to be zero-rated.

[Kate Green]

It is clear that this is the story that we are going to hear again and again: we are going to be told that the items that the poorest need to buy are zero-rated, so the VAT rise does not hurt them. How can the hon. Lady say that essentials for families, such as saucepans and clothes for work, are items that the poorest do not have to find the money for? This is a regressive tax.

[Lorely Burt]

The hon. Lady misunderstands me. I understand that people have to buy all those capital items, and I know that this is going to be regressive in that respect. [Hon. Members: “Oh!”] There is no question or doubt about that. I said to the House a moment ago that nobody likes the idea of having to increase VAT.

[John Cryer (Leyton and Wanstead) (Lab)]

The hon. Lady says that the VAT increase is the least worst option. Could she list the worst options?

[Lorely Burt]

Well, we could have some further job cuts; that would not help. We could just not stimulate business; that would not help. We could charge lower earners more income tax. Hon. Members should not forget that this is the coalition Government who have raised the level of tax for the lowest-paid earners—something that the Labour party did not do in 13 years of government.

Income tax is a very important area in addressing issues that the hon. Member for Stretford and Urmston (Kate Green) and several other Labour Members have raised. We want to ensure that people can keep more of their own money that they have earned. The raising of the income tax threshold towards our Liberal Democrat target of £10,000—it increases to £7,475—takes 880,000 people out of tax altogether and means that 23 million people will gain an average of £176. That is really important to local people.

[Mr Iain Wright]

Does the hon. Lady think that the coalition Government’s policy on personal allowances for the over-65s is the right approach?

[Lorely Burt]

As I understand it, they are unaffected. I wish to say a word about pensions: is it not strange that in Labour’s 13 years in government the earnings link was not restored? This coalition Government have introduced that in their first weeks in government. We have the triple lock: we have 2.5% or earnings or prices—

[Clive Efford]

rose—

[Lorely Burt]

I am going to make a bit of progress. Before Labour Members leap to their feet to criticise, they should reflect on the fact that they had 13 years in power and they leave a shameful legacy. It required this coalition Government to come into office to introduce that, and we are doing so in such a short period.

[Mr MacNeil]

rose—

[Mrs McGuire]

rose—

[Lorely Burt]

I have given way to the right hon. Lady already, so I shall give way to the hon. Gentleman.

[Mr MacNeil]

I have listened to the hon. Lady’s arguments for accepting the VAT increase, but over the financial year the projected deficit fell by about £15 billion to £20 billion. Surely that blows apart the Liberal Democrat case for accepting a 2.5% increase in VAT.

[Lorely Burt]

Yes, the hon. Gentleman is right in saying that, but at the same time we have since discovered that a lot more money is not available to us for use. It is not there. Therefore, in order to balance the books it has been necessary to increase VAT.

[Mr MacNeil]

Will the hon. Lady give way?

[Lorely Burt]

I am not going to indulge the hon. Gentleman again, I am afraid.

We also welcome the postponement to 77 of when an individual can take an annuity, and of course we welcome the closing of loopholes and the anti-avoidance legislation; everyone should pay their share. That is something that we as a coalition Government will work hard to ensure.

We need tax to be simple and fair and to help us along the road to recovery. We need the stimulus for business, because business will be the engine that pulls us out of recession. We need fairness on income. We need to close the loopholes; they are already partially closed, although more work needs to be done. The least well-paid will at least be able to spend more of their own money. So we on these Benches support the Bill.

18:11

[Helen Jones (Warrington North) (Lab)]

It is a pleasure to be able to speak in this House again after several years of being allowed to say only things like, “Beg to move” and, “Tomorrow”. I crave the indulgence of the House, as I am not used to making substantial speeches any more.

I want to go back to what we have heard over the past few months from both the Prime Minister and the Chancellor. It has been a constant refrain of, “We’re all in this together.” Now that we have seen their Budget and the Finance Bill, we can see how hollow that soundbite was. What is taking place under this Con-Dem Government is very simply an attack on the poorest people in this country conducted by people who think poverty is not being able to afford the uniform for the Bullingdon club. It is an attack on working families on low wages conducted by people who are the inheritors of trust funds. It is an attack on jobs fronted up by two people—a Prime Minister who got his first job after a phone call from Buckingham Palace, and a Deputy Prime Minister who got into the European Commission because his next door neighbour knew the right man to ring. If only it was as easy for everyone else out there.

It is clear from a simple analysis of the Budget that the poorest are affected three times as much by the increase in VAT as the richest; that the poorest 10% of the population lose as a percentage of their income twice as much as the richest 10%. It is significant, when we look at the measures in the Finance Bill, that a private client partner from Ernst and Young was quoted in The Guardian as saying:

“the fiscal impact on the higher earners is largely restricted to the increase in CGT together with some fiscal drag caused by the freezing of the higher rate threshold.”

That is what we are seeing in this Bill.

[Mr Kevan Jones]

Has my hon. Friend seen the excellent Library note on VAT? Does she agree that the lowest 10% of households are worse off because they pay some 18% of their disposable income in VAT while the richest spend less than 10%?

[Helen Jones]

My hon. Friend is right. It is often forgotten in the discussion on VAT that much of the spending of the richest households is discretionary, while the spending of the poorest households is necessary. That is what the Government propose to tax.

[Mrs McGuire]

Given what my hon. Friend has said, and what my hon. Friend the Member for North Durham (Mr Jones) said about the Library note, was she not as surprised as I was that when I asked something similar of the Prime Minister, he tried to suggest that somehow the increase in VAT would not disadvantage the poorest 10% and that the top 10% spent more not only in real terms but as a proportion of their income in VAT? That has obviously been discredited by the Library note.

[Helen Jones]

My right hon. Friend is absolutely right. That serves to show us the ignorance on the Government Benches of the lives of some of the poorest people in this country. I could forgive them if their Budget and Finance Bill were simply the product of ignorance, but they are the product of ideology. It is the Government’s decision to take £40 billion out of the economy, to raise VAT and to cut investment allowances for business, and it is a purely ideological decision. They pin their hopes on an increase in growth, yet even their own leaked Treasury figures tell us that we will lose 1.3 million jobs as a result of these measures, not only in the public sector but in the private sector.

We know already the plans of the Government parties for jobs. They began early on by cutting the future jobs fund—118,000 jobs for young people, 18,000 in a region such as mine, wiped out. I want to quote what the Liberal Democrat candidate in my constituency, described on his leaflet as the strong local candidate, said before the election. He was so strong that he managed to come third in the parliamentary election and third in what was previously a Liberal Democrat council seat. He said:

“Lib Dems believe that if you are unlucky enough to lose your job you should be helped there and then to get another one.”

Yet the measures in the Bill and the Budget will destroy jobs and introduce no measures to create them.

[Mr Kevan Jones]

Does my hon. Friend agree that the problem with the cuts announced yesterday in Building Schools for the Future and the massive cuts in local government is the belief “public sector bad, private sector good”? A couple of weeks ago, I met the Civil Engineering Contractors Association in the north-east, which told me that its members were relying on BSF and investment in roads. The cuts will have an impact not just on their businesses but on jobs in my constituency.

[Helen Jones]

My hon. Friend is right. The Treasury’s own forecast shows a huge loss of private as well as public sector jobs. Many private firms depend on public sector contracts to keep going. More to the point, enterprise does not flourish when so much money is taken out of the economy that it becomes devastated. If the Government cut benefits, freeze wages and cut public sector jobs, that does not lead to a vital entrepreneurial culture but to a culture of fear in which people do not take risks.

Let me take one example of the way in which the Government have failed to consider the knock-on effect of the Finance Bill. They propose to increase VAT. That will have a damaging effect on the retail sector, yet that sector provides many entry-level jobs and jobs for women who wish to combine work with looking after children. It provides jobs for the women whom the Government want to get back to work when their children go to school. If those jobs are not there, where will those women go? There is simply no joined-up thinking here.

[Clive Efford]

My hon. Friend has moved on from investment in the construction industry, but I wanted to point out that that industry accounts for 10% of our gross domestic product and public sector expenditure accounts for 40% of the activity in the construction industry. That shows up the regressive decisions made by the Government.

[Helen Jones]

I could not have put the point better than my hon. Friend has.

[Simon Hughes]

Will the hon. Lady give way?

[Helen Jones]

In a moment—I will make a little progress first.

Something interesting is happening on the Government Benches. We used to hear from the Con bit of the Con-Dem alliance simple, open hostility to the public sector and the welfare state. Now, most of them are becoming a little more sophisticated and wrapping it up a little better. The Chancellor says constantly, “The things I’m having to do are dreadful. I don’t really want to make these cuts. However, if I could cut benefits more, it wouldn’t be so bad.” It is an interesting exercise in shifting the blame. The implication is that responsibility lies not with the Government’s decisions, but with those in receipt of benefits.

[Phil Wilson]

In the March Budget, the then Chancellor offered reform of housing benefit that would have saved about £250 million a year. This Government have brought in cuts of £1.8 billion. That is not reform; it is an ideological cut in welfare, which will hit some of the poorest people in this country. That proves that these are cuts of choice—they did not have to make them to cut the deficit.

[Helen Jones]

My hon. Friend is absolutely right, and I shall talk about the effect after giving way to the hon. Gentleman.

[Simon Hughes]

I did not want to lose the hon. Lady’s point about jobs. She is being neither entirely fair nor entirely accurate. If she reads the Office for Budget Responsibility report at the back of the Red Book—the independent assessment—she will see it clearly stated on page 82 that

“the more rapid increase in employment is sufficient to lower unemployment, so that the ILO unemployment rate falls to 6 per cent in 2015. Claimant count unemployment continues to fall throughout the forecast period.”

The projection—not Government or party political—is that over that period unemployment will go down and employment will go up.

[Helen Jones]

If the hon. Gentleman is so confident about that, perhaps he will get his right hon. Friend the Chancellor to publish the Treasury forecasts that he is currently failing to publish. The OBR figures are based on forecasts of growth that I do not believe we will achieve because, to be frank, those forecasts have never been achieved in 40 years.

[Clive Efford]

Does my hon. Friend find it as curious as I do that the figures leaked from the Treasury are produced by the same people who produced the figures for the OBR, and yet those figures conflict? Is she confused about that?

[Helen Jones]

I am extremely confused and rather surprised that, although the Chancellor said that he would make sure that nothing was hidden in the small print and that he would show us all the figures, he declines to publish the Treasury’s own forecasts.

[Mr Redwood]

Will the hon. Lady give way on that point?

[Helen Jones]

I want to finish my point first. We are talking about an attempt by the Government to switch lane by saying that what is happening is not a decision of the Government, nor the fault of the banks, which brought us into global economic meltdown because of their irresponsible lending and reliance on financial instruments that they did not understand. The Government’s treatment of the banks compared with their treatment of some of the poorest people is significant.

The Chancellor made great play of his levy on the banks, which will raise £2 billion a year, but the big five banks alone will gain £1.6 billion from the changes he set out to capital gains tax. No attempt has been made to rein in City bonuses—in fact, rather than coshing the banks over the head, he tickled them with a feather duster. So good was the news for the banks that their shares actually went up.

Compare that with the treatment that the Chancellor has meted out to industry. We hear much about the fall in capital gains tax, although the Government are legislating that for one year only. What we do not hear is that that is being paid for by cuts in investment allowances, which hit manufacturing the hardest. There we have it: those who want to invest for the long term and capital intensive industries that want to create jobs in the future will be hit. This is a Bill for industries that are less capital intensive but that are making vast profits—industries that, as the Institute for Fiscal Studies said, are “typified by the financial sector”. What we have here is simple: rewards for those wanting to make a fast buck and a hit for those who are interested in long-term investment. It is the Del Boy Bill—it could have been written by Trotter’s Independent Trading. I am only sorry that Rodney has disappeared from the Dispatch Box.

[Mr Kevan Jones]

Does my hon. Friend agree that those same banks are continuing to build up their balance sheets by not lending to small businesses—precisely the businesses that need investment now to grow, if we are to achieve the growth forecasts? There is nothing in the Budget that will force the banks to make sure that vital capital is supplied to those growing industries.

[Helen Jones]

Indeed—that is correct. What is more worrying is that linked with that is the Government’s failure to provide in the Bill any hope or assistance for British firms that want to compete in the global market and create jobs in the long term. It is a tale of two cities: on the one hand, there is the City of London; on the other, there is Sheffield—what the Deputy Prime Minister called throughout the election, “my city of Sheffield”. Well, we have seen what he plans for Sheffield—absolutely nothing. The Government’s attitude can be summed up in two words: Sheffield Forgemasters. There is nothing in the Bill or in the Budget that helps manufacturing industry in the long term.

[David Wright (Telford) (Lab)]

The problem with the Bill is that it is coupled with the total destruction of regional economic policy. It is not just Sheffield and the north-east that will suffer; every region will suffer because of the virtual destruction of the regional agencies that provide business support and advice and grants to businesses in communities such as Telford.

[Helen Jones]

My hon. Friend is right. The Bill goes with the destruction of the regional development agencies, which were vital to regions such as mine. As my hon. Friend the Member for Halton (Derek Twigg) said earlier, it goes with huge cuts in programmes such as Building Schools for the Future, which were vital to the construction industry in our area.

[Simon Hughes]

As one of the three MPs representing the borough of Del Boy, may I say to the hon. Lady that we on these Benches are clear that the bankers’ bonuses need to be curbed and reduced further and we will continue to press for that? The people who contributed hugely to our present troubles should pay the price to a much greater extent than anybody else.

[Helen Jones]

I am grateful to hon. Gentleman for intervening, because I want to say to him that his party is in government. If the Liberal Democrats want to do something about that, they can, but they have singularly failed to do so.

Let us consider the people who are paying the price of this Finance Bill—those who will be affected by the rise in VAT and who are already being hit by the cuts announced by the Government in their Budget. The Chancellor talks a lot about those on benefits. The implication, unstated but always there, is that they are all scroungers. Nothing could be further from the truth. Most people who will be hit by the cuts that he has announced are from hard-working families on low incomes. He has already announced that those on family incomes of a little more than £15,000 will see their tax credits cut. By 2012-13, anyone with a family income of more than £30,000—£15,000 each—will lose their tax credits. Child benefit has been frozen, which is an effective cut of £116 a year, but those people will have to pay the VAT increase that the Government have imposed on their spending.

[Mr Kevan Jones]

Is my hon. Friend also aware of the fact—unannounced, I think, because it did not get many headlines—that the Government are going to cap mortgage interest relief for those who become unemployed? That will affect hard-working people who, through no fault of their own, become unemployed, and it will lead to evictions. That is in stark contrast with the previous, Labour Government, who protected those people.

[Helen Jones]

Indeed, and if my hon. Friend will permit me I shall come on to that issue in a moment.

Before I move on, I want to mention the cuts that will specifically hit families with young children, including the scrapping of the baby element of child tax credits and the scrapping of the new toddler credits for one and two-year-olds. That will cost an eligible family more than £1,000 a year, even before they start paying the price of the VAT rise.

[Helen Goodman]

My hon. Friend is absolutely right to point out the devastating impact on families. Has she looked at the serious impact of the cuts in housing benefit on households with people who are in work and households with old-age pensioners? From the housing benefit cuts alone, it looks as if 1 million people will suffer further reductions of between £500 and £1,000 in their incomes.

[Helen Jones]

My hon. Friend is right, because some of the nastiest, meanest cuts in the Budget are to housing benefit and mortgage support. Mortgage interest support will be limited to the average mortgage rate, meaning many families will no longer be able to meet their payments. If someone is unlucky enough to lose their job and be out of work for 12 months, even if they have done their level best to find a job and applied for everything going, and even if there are no jobs, their housing benefit will be cut by 10%. That is not a work incentive, as the Government seem to think; it will lead to a spiral of repossessions, homelessness, family stress and breakdown, which will simply increase the cycle of worklessness.

Is that really what the Prime Minister meant when he said that this Government were going to be the most family-friendly Government on record? They will not be for families in my constituency.

[Lyn Brown (West Ham) (Lab)]

Does my hon. Friend agree that it is not cost-effective to split up families and treat them in that way? The very circumstances that she describes actually cost the state more money.

[Helen Jones]

My hon. Friend is right. If families have to be split up, put into emergency accommodation or are trapped in the cycle of worklessness and poverty, because not having a home makes it much harder to get a job, that not only inflicts appalling circumstances on them, but costs the taxpayer far more money in the long run.

[Andrew Bridgen (North West Leicestershire) (Con)]

I hate to bring the hon. Lady back to reality, but the previous Government halved the amount of manufacturing in our economy, from 22% to 11%. Under them, we built the least number of houses since 1922 in order to support the construction industry, and history will view many of their so-called investments rather harshly and, perhaps, as the biggest Ponzi scheme ever, because they did not stand up for long once the economic winds shifted against them. Will she please remember that? She will be pleased that one thing that we are not cutting is the health budget. As for those suffering from mental health problems, especially selective amnesia, I can see plenty in this Chamber.

[Helen Jones]

The hon. Gentleman ought to be wary of making jokes about mental health. I entered this House from a constituency where children growing up in 1997 had never known what it was to see someone in their household go to work. A Labour Government changed that and invested in decent homes, but Liberal and Tory councils constantly sold the pass on affordable homes by allowing developers to buy themselves out of their obligations, so we will take no lectures from him on employment or housing.

The National Housing Federation states that the Government’s planned housing benefit cuts alone will put 200,000 more people at risk of homelessness and concentrate social and economic problems in the more deprived areas. It is the ultimate Tory nimbyism to want to move people out of city centres. They used to say, “Get on your bike and look for work.” They now say, “Get on your bike and get out of my sight, because we don’t want to know anymore.”

Someone in London with rent of £350 a week would lose £35 in housing benefit if they were unemployed for 12 months. I ask Government Members what is the jobseeker’s allowance for a single person? Anyone? No, I thought not. It is £65.45 a week. If those people meet the shortfall in their rent, they will be left with £30.45 to live on, to buy food and clothes and to pay for utilities and the increased VAT rate that this Government will impose on them. Not only is that not the mark of a civilised society, but it leaves those people with less money to live on in a week than many Government Members would spend on a meal—a lot less in some cases.

[Mr Kevan Jones]

My hon. Friend provides the example of London, but on Friday I met the chief executive of a local housing organisation who told me that she is unsure of what the cap will be on rents in Durham. If it is as low as £57 a week, which has been mooted, she says large numbers of individuals will have to make up the difference and some, including pensioners, will be evicted.

[Helen Jones]

My hon. Friend is right. It will also cause huge damage to social housing providers, who will face more and more arrears. That is the problem with the Finance Bill and with the Budget. They do nothing to create the jobs that the Government tell us we need, and they squeeze the poorest.

Let us look at what the Government plan for disabled people. The vast majority of people with disabilities would like nothing better than to have a job, and the previous Government did much to get them back into work. However, this Government plan what they call a simpler process—something that they say will reduce dependency and promote work. But the major flaw is that getting people with disabilities back into work is not a simple process. What happens to those with fluctuating conditions or mental health problems? They cannot be assessed by a simple test; that is exactly the point. We are bound to conclude that it is simply an exercise in cutting the budget by £1.4 billion.

There will be no jobs if we go down the road suggested by the Bill. At the end of that road, we encounter the risk of a double-dip recession, billions being taken out of the economy, the poorest and their spending attacked and reduced, and major cuts in benefits. That will not support the economy; it will undermine the growth of the economy. I say to my hon. Friends that this Finance Bill risks devastating the economy, dividing communities and producing the kind of recession that we saw in the 1980s. That is not a risk that we Labour Members are prepared to take, and that is why we will vote against the Bill.

18:40

[Mr John Redwood (Wokingham) (Con)]

I remind the House that in the Register of Members’ Financial Interests I have declared that I offer business advice to an industrial and an investment company.

In this debate, the Labour Treasury spokesman wanted to talk the economy into a double dip. He was trying to create a mood of gloom and doom. He rejected the independent forecasts provided in conjunction with the Budget and the many independent forecasts put together by people outside the House, and sometimes outside the country, which all say that a recovery is expected for the British economy over the next five years and that that recovery will be led by investments and exports.

Obviously, the scepticism among those on the Opposition Benches arises because Labour Members have not understood one fundamental thing. The economy was so badly damaged and devastated by what happened in 2008-09 that it can indeed, I am pleased to tell the House, have a recovery based on higher exports, higher manufacturing output and higher service sector output—because the outputs were so badly hit in ’08-’09. That does not mean that we will go into a new utopia or suddenly into overdrive with superbly high growth rates; it means that we will start recovering from a disastrous banking crisis and recession, which some of us felt were made far worse by the policies and antics of the Labour party when it was in office.

To try to buttress its double-dip case, the Labour party is now saying that the true Treasury forecast says that, far from there being a drop in unemployment, there will be 1.3 million job losses and that somehow my right hon. and hon. Friends at the Treasury are trying to conceal that. As I understand it, the leak to The Guardian was misjudged because it was a working paper with lots of errors in it. The proper expression of Treasury opinion was passed to the Office for Budget Responsibility, which is manned by people of independent judgment who could ask the Treasury for all the details that they wanted about its workings, and could use the Treasury’s own models. They came to the perfectly sensible conclusion, shared by most other forecasters, that there will be nothing like that degree of job loss and that unemployment will indeed fall over the period of the forecast.

[Kelvin Hopkins]

The right hon. Gentleman has paid a glowing tribute to the Treasury. Was it not the Treasury that advised the 1979 Conservative Government, who drove us into a massive recession, with 3 million unemployed? Was it not the Treasury that advised the then Conservative Government to go into the exchange rate mechanism and cause 2 million to be unemployed? Did not the Treasury get things wrong time and again? Is the right hon. Gentleman not praying in aid an organisation that has demonstrated its failure over and over again?

[Mr Redwood]

The hon. Gentleman is making my case for me; I am saying that the 1.3 million forecast figure was an error, and that it will be seen as such. He rightly says that the Treasury can make mistakes. On this occasion, we are pleased to say that an independent judge outside is reviewing all the facts and figures and the working papers and coming up with a forecast that reflects the views of many more people outside the Treasury.

[Owen Smith]

Given the right hon. Gentleman’s admission that the OBR’s forecast on job losses may be wrong—[Interruption.] Well, if he was not implying that, that is what I took him to be implying. Irrespective of that, I want to ask about the OBR forecast’s and the leaked Treasury document’s anticipation of increases in private sector jobs over the next five years. Given the right hon. Gentleman’s long experience of economic matters, will he comment on the plausibility of that suggestion, given that during no period in the past 40 years has that volume of private sector jobs been created, apart from in the early 1980s—and then only through the fiction of the privatisations.

[Mr Redwood]

The point that I have been making for the Labour party’s benefit is that I think it is possible to get a reasonable private sector-led recovery from here, because the private sector was so gravely damaged and battered, and the figures were so awful, in ’08-’09. We are talking about rates of change from a very low base, so it is quite possible for things to get going.

[Clive Efford]

rose—

[Grahame M. Morris (Easington) (Lab)]

rose—

[Mr Redwood]

I should like to finish my point.

At the moment, there are worries, reflected in the comments made by the shadow Chief Secretary to the Treasury, that the clouds may be gathering again in the international community, and we need to watch that. I suggest to those on the Treasury Bench that we need to do more work on ensuring that our banks are capable of lending in sufficient quantities so that all the private sector projects we need and all the private capital we need for the public projects as well can go forward as rapidly as possible.

We can encourage that to happen in many ways. An important part of the policy is that when we get some control over public spending and the public deficit, to instil confidence in the markets, we use those markets for a well financed private sector-led recovery, so that we can surprise on the upside in comparison with the fairly cautious figures given by the OBR. I am certainly not challenging the OBR figures, which are the best available at the moment. I would like to think that we could improve on them over the five years. If we do more about how the banks work and are regulated, so that we can accept that they have enough cash and capital for this stage of the cycle, and if we allow them to get on with the job of lending more money to businesses and worthwhile public projects, we can make progress.

We can also make a lot more progress in the public sector in respect of the public spending plans published in the Budget. Those public sector spending plans show public spending going up every year in cash terms over the five years to which the Finance Bill relates and is trying to finance. The increases are not very big, so if there were lots of wage increases and a lot of price inflation for the things bought by the public sector, and if there were the explosion in benefit claims that Labour is wrongly forecasting, there would of course be a big squeeze on much valued public services. We Government Members do not wish to see that any more than Labour Members do, and I wish that they would not keep pretending that somehow we want to cut the services, because we do not.

[Grahame M. Morris]

Two simple decisions arose from the Budget: the new £464 million hospital north of the Tees and the £500 million Building Schools for the Future projects in County Durham were cancelled. All would have been built by the private sector. How will those cancellations assist the growth in the private sector, particularly in respect of jobs in my constituency?

[Mr Redwood]

As the hon. Gentleman should be aware, the outgoing Government’s capital spending plans have not been changed by this Government. We have to accept the previous Government’s plans for a modest increase in the capital stock of the state over a period of great stress in the budgets. But the cancellation of the Building Schools for the Future programme and its replacement with a programme that gives better value for money is exactly what we want. The trouble with Building Schools for the Future was that there were three years of delay and £10 million of consultancy costs before bricks and mortar or steel and glass could even start to be laid.

What my right hon. and hon. Friends rightly want to do is cut out all that nonsense, stop wasting all the money on the documentation, delays, consultancies and all the rest of it, and have a more straightforward approach, so that a bigger proportion of the inherited capital expenditure budget can be spent on bricks and mortar and bricklayers’ wages, as the hon. Gentleman wants.

[Owen Smith]

Is the right hon. Gentleman worried in any way by the remarks, made during the radio discussion that he took part in this morning, about the £50 billion of contracts that would be taken out of the construction industry as a result of the cancellation of the Building Schools for the Future programme? Will that not have a detrimental impact on the economy—specifically, on jobs in construction?

[Mr Redwood]

Once again, the hon. Gentleman is not listening. I was explaining that the coalition Government have made no change to the capital expenditure line that they inherited from the outgoing Government. What they will do is get more bang for the buck—to get more spending on construction, relative to the total investment line in the Budget. On the radio this morning, I was able to satisfy the other people in the discussion; the independent forecaster’s overall forecasts for the economy say that investment is going to rise. There will be an overall increase in investment because more homes will be built over the next five years than the pathetically low figure that was reached under Labour. There will be more investment in housing improvement, and more investment by the private sector. That more than offsets the decline in the investment programme in the public sector inherited from Labour.

[Mr Meacher]

The right hon. Gentleman’s fantasy that there will be a continuation of or an increase in capital investment is completely belied by the OBR forecast on page 90 of the Treasury Red Book, which shows that net investment will fall from £49 billion in the current year to £21 billion in 2014-15. That is a colossal drop.

[Mr Redwood]

Those are Labour’s figures for the public sector. I have just told the House that I am talking about total investment across the economy. Overall, the right hon. Gentleman will find in the Red Book that it is anticipated that the rises in investment elsewhere will more than offset Labour’s cuts in the capital programme, which we have decided to live with. I should also tell him that he is quoting the net line when he should be quoting the gross line. In other words, he is knocking off the depreciation, whereas we are interested in the total spend—the gross line, which is much higher than the figures that he has inadvertently, I think, given the House in error.

[Mr Meacher]

How can the right hon. Gentleman believe that private investment will remotely compensate for this enormous fall in public sector net investment, given that household consumption is falling, particularly with the increase in VAT, the banks are not lending, and export markets are fading because of the situation in the eurozone? Why should the private sector invest in those circumstances?

[Mr Redwood]

That is what I have been explaining to the right hon. Gentleman. We are in this position because everything has been so awful. The private sector has just been through a couple of years when it has invested practically nothing because companies could not get any money and were not making much profit. Now, profit margins are growing, there is a bit more money around and they are getting more confident for the future.

It would be much better if Labour Members got behind their voters and constituents, who want the jobs that we wish to see created, got behind the recovery that everybody else is forecasting, and started to live in the real world. They presided over the collapse. Throughout their years in office, manufacturing fell, whereas in the Tory years before that, manufacturing rose. We want to get manufacturing rising again. From that point of view, the one good thing that they did was to preside over a collapse in the value of the pound. They probably allowed it to collapse a bit too much, and it is beginning to rise again under the new Government. That gives those in manufacturing a huge opportunity to make better profit margins, to invest more money, and to produce more. That is exactly what they are beginning to do, and there will be a beneficial effect.

[Owen Smith]

In the light of what the right hon. Gentleman suggests about manufacturing, is he not worried when he sees the prediction in the Deloitte manufacturing index that over the next five years our manufacturing will decline, not grow, and that we will shift from our admittedly low position of 17th on that index to 20th?

[Mr Redwood]

A shift in the relative position predicted by someone else does not necessarily mean that manufacturing is going to decline. The figures in the official forecast, and I think in most sensible forecasts outside, show that manufacturing will recover from the very low base that it reached in 2009-10. That is what is needed, and we need to have policies that do just that.

[Mr Meacher]

rose—

[Mr Love]

rose—

[Mr Redwood]

I am going to conclude, because many people wish to participate in this debate. Labour Members may want to be here until 3 o’clock in the morning, but they never used to when they were in the dock and did not allow us the time to debate these things properly.

The Budget is a necessary evil to clear up the mess inherited from the previous Government. This is a necessary task to instil confidence and to avoid interest rates going through the roof. Labour Members should look at what has happened in Ireland. Ireland had extremely big cuts—bigger, I am pleased to say, than those in this Budget. In the last quarter, the Irish economy started to grow extremely well, which is exactly what Labour Members are predicting cannot happen if one starts to get control of public spending.

I urge the Government and the whole public sector to work strongly together to ensure that these modest increases in cash spending translate into maintained and improved public services, as they can if we take the right action over pay rates, efficiency levels, improved process, investment in technology and so forth. I hope that we will get the banks working better by creating a more competitive environment so that we can then have the investment we need in the private sector to fill the gap and create the jobs. This is a doable task and a feasible profile, and it is backed by the independent forecaster. We need to be very sure that we are going to pump everything into that task, because recovery is what we all want.

[Vernon Coaker (Gedling) (Lab)]

On a point of order, Mr Deputy Speaker. Has the Secretary of State for Education indicated to you any desire to come to this Chamber to explain the situation that has arisen? Following the points of order that were made by me and two of my hon. Friends, a further list of schools affected by the Building Schools for the Future cuts was published this afternoon. That third list reflects 22 errors from the first list, which means that a significant number of communities up and down the country have been affected by the chaotic statement about schools made yesterday by the Secretary of State. Are we to expect a fourth list, given that there are still some concerns that even the latest list may not be totally accurate? If not this evening, then tomorrow, we should expect the Secretary of State to come and explain what on earth is going on in respect of the cuts that are being made to a programme that is welcomed in communities up and down the country.

[Mr Deputy Speaker]

I have not received any information as to whether the Secretary of State for Education wishes to make a statement this evening. I remember that in the hon. Gentleman’s first point of order for me he said that he had not received any list; he now appears to have three. I understand that the Speaker has already made a ruling on this matter. I am sure that if the Secretary of State does at some stage wish to make a statement, this House will be informed.

18:56

[Stewart Hosie (Dundee East) (SNP)]

I intend to finish my remarks by talking about the performance of the Chief Secretary, but I will start by commenting on what the shadow Chief Secretary said. He rightly pointed out that if the Government did not get the growth forecasts that they expected, the only option that they would have in meeting their deficit reduction targets would be to cut more. However, Labour’s policy to halve the deficit, again in a fixed time scale, suffered from precisely the same problem. If the growth forecasts of 3.25% for four of the next five years had not been met—indeed, if there had been a downturn—there would have been no room not only for a fiscal stimulus but, perhaps, for the use of the automatic stabilisers. The Government’s plans and Labour’s previous plans have that problem in common.

Let me start by commenting on the things that we agree with in this very thin Finance Bill. I am pleased that the Bill seeks to bring down corporation tax. The phased reduction in the headline rate will provide an incentive for businesses to locate in the UK, although I am not convinced that paying for this through the changes to investment and other capital allowances might not yet prove to be a problem for growing businesses. As the hon. Member for Warrington North (Helen Jones), who is not in her place, said, this may help businesses that are up and running, but not those that seek to grow. I am disappointed that she is not here, because if she were, I would have the opportunity to ask whether she now regrets the Labour Government’s abolition of the industrial buildings allowance—another key allowance to help industrial investment that went some time ago.

[Mr Redwood]

The hon. Gentleman and I made common cause against the previous Government for not adjusting for the cycle in their Budget plans. I believe that this Government have said that if things were to go wrong and we headed into another global recession, they would adjust the plans accordingly for the cycle.

[Stewart Hosie]

Indeed. It is worth making the point, though, that on paper there is a rigidity about this. I remain concerned that if growth forecasts, downrated sensibly, are not met, there will have to be these necessary adjustments.

I welcome the phased reduction in corporation tax, but question whether it makes sense to pay for it through changes to capital and other investment allowances. The Road Haulage Association has said:

“We are concerned about the reduction of the investment allowance for small firms to £25,000 from £50,000 which will have a detrimental impact on small haulage companies.”

That trade body probably speaks for many in its approach to the change to the annual investment allowance.

I am pleased by the way in which the Government have handled the capital gains tax changes, keeping the rate unchanged for basic rate payers to encourage and allow modest investment but increasing the rate for higher taxpayers. Closing the gap removes a perverse incentive to take income that could be taxed as capital rather than through income tax, but keeps a sufficient distance between the rates of income tax and capital gains tax to encourage real investment. That was handled quite well.

I have a question, though, about the rationale for the increase in insurance premium tax. I heard the explanation that it has previously mirrored the VAT rate, but there is no reason why that should still be the case. It will bring in some £2 billion in additional tax over the next five years, and I can only hope that that decision does not come back to haunt this Government in the way that the abolition of advanced corporation tax on pensions came back to haunt the Labour Government. The Conservative party in particular has made a great many criticisms about how that pension change was made and the impact that it had. Indeed, it was a smash-and-grab raid that the Chancellor described as “disastrous” in Accountancy Age last year. I hope that the insurance premium tax increase will not be described in that way in future.

Incidentally, in the same interview, on 6 October, the Chancellor also stated his aim to get the country saving again, which makes it even more difficult to explain the coalition Government’s intention to scrap the child trust funds. We have spoken about savings and savings ratios in the past, and the Red Book forecasts future ratios of just over 5%. However, that is about half the savings ratio that the Labour Government inherited and about the average through the whole of 2004 and 2005. It is not particularly ambitious, if the Government’s intention was to get the country saving again.

However, the real damage in this Finance Bill, as many Members have mentioned, is the determination to put up VAT. That directly contradicts the stated intention of both coalition parties to create a fairer society. Although it may well be the case that in cash terms the wealthiest will pay more VAT, it is clear that the poorest 10% will pay nearly three times higher a percentage of their disposable income than the richest 10%. That is all because of the wrong-headed view, to some extent shared by Labour, that deficit consolidation must be achieved quickly. That is based, I believe, on a flawed assessment of the Canadian model, rather than a credible one perhaps based on the New Zealand model, which certainly worked. The consequence of the VAT changes, at least according to Save the Children, is that the VAT bill for the poorest could rise to more than £31 a week.

[Mr Kevan Jones]

The hon. Gentleman mentions the Canadian model, but does he agree that what we are seeing today is very similar to the Canadian model in that it was not necessarily just about deficit reduction, but was ideologically driven to reduce the size of the state in Canada?

[Stewart Hosie]

I think that was certainly a consequence of the actions that were taken, but the reason I say that the assessment was flawed is that Canada sat on the northern border of a booming American economy, and its recovery was export-driven. That was a sensible approach to take. I would love our economy to be export-driven as well, but given that the European Union is our biggest trading partner with more than 60% of our goods by volume going there, I cannot see how an export-driven recovery can be achieved to the extent that is hoped for. I would love it to be, but from looking at the numbers, I cannot see how it will happen.

[Kelvin Hopkins]

The hon. Gentleman mentioned deficit reduction. Does he recall that in the post-war era successive Governments, Labour and Conservative, maintained a policy of full employment, which saw a gigantic deficit way beyond anything that we are seeing at the moment being seriously reduced? Does he accept that full employment, not cutting spending, is the way to reduce deficit?

[Stewart Hosie]

I certainly agree that long-term, sustained and sustainable above-trend growth is the real answer, but that is not to minimise the problem of the deficit and the impact that it can have on market credibility and the cost of money. I am not one to say that we need deficit or debt at any cost; I am arguing for a credible deficit consolidation plan as opposed to a fixed-term plan that is inflexible and will not work.

The current situation has led to the VAT increase, and given that the poorest families may now pay more than £31 a week, I want to think about the impact on those families. Their unemployment benefits may be reduced in real terms, their tax credits cut and their housing benefit put under real pressure, particularly in areas where rented housing is expensive. That part of society will suffer most from the VAT rise. According to Shelter, nearly half of local housing allowance claimants are already making up a shortfall of almost £100 a month to meet their rent. Socially, a VAT increase for people who are that hard-pressed at the moment might be considered unforgivable.

[Mr MacNeil]

One of the fig leaves that the Liberal Democrats have used to accept the VAT increase has been the argument that they did not understand the nature or size of the deficit until they got into bed with the Conservatives. However, a glance at the pre-Budget report and the Budget shows that the deficit is actually £20 billion to £30 billion lower, thereby surely blowing holes in the Liberal Democrats’ argument for accepting a 2.5% VAT increase, which will hit the poorest in our society.

[Stewart Hosie]

That is absolutely correct. It is a pity that there is merely one Liberal left in his place to hear that argument. My hon. Friend makes a very good point that the deficit forecast now is less than that forecast in the Budget and the pre-Budget report. That certainly confirms the case that we made for a fiscal stimulus. Another criticism that comes from his intervention is not simply that Liberals do not understand the numbers but that the Labour Government left the UK as one of only two countries in the G20 without a fiscal stimulus, fully withdrawing it in 2010 before recovery was secure.

To wind gently back to VAT, I said that the increase would perhaps be socially unforgivable. It also makes little sense in economic terms. The British Retail Consortium has described it as “disappointing”, which was something of an underestimate given that it went on to state, bluntly:

“We didn’t want a VAT increase. It’ll hit jobs.”

Simon Newark of UHY Hacker Young warned that the rise could push up prices on the high street by about 2%, which could have a significant impact on inflation. He went on to warn:

“Higher inflation could trigger interest rises, risking the spectre of the double dip recession.”

Still others are warning that the rise will exacerbate cash flow problems.

[Mr Kevan Jones]

I wonder whether the hon. Gentleman read The Herald of Scotland this morning. He knows that I read the newspapers carefully. It states that because of the VAT increase, the Commonwealth games in 2014 will cost an additional £20 million?

[Stewart Hosie]

That is absolutely right, and VAT will not just hit building and the purchasing of supplies for the Commonwealth games or the Olympics, and it will not just hit the private sector and families. It will hit the public sector, which buys VAT-rated supplies and goods of all sorts. It will effectively mean spending power going out of the economy and straight to the Treasury.

[Mr MacNeil]

Such as £26 million on health.

[Stewart Hosie]

As my hon. Friend says, it will mean £26 million extra on the bill to the NHS in Scotland alone. We can easily add up the figures for all the public bodies and find out what the real cost of the VAT rise will be area by area, but we know that it adds up to £13 billion in total. It makes up more than a quarter of the additional £40 billion of fiscal tightening that the Government wish to see in 2014-15. That is £40 billion in that single year, on top of the cuts and tax increases inherited from the Labour party that they intend to keep. There is a huge problem with the VAT component of this Finance Bill.

[Andrew George (St Ives) (LD)]

By and large, I must commend the hon. Gentleman for a constructive contribution to the debate—we have not had many so far. Given the amendment that I tabled last Monday about impact assessments on VAT, what alternative would he recommend to fill the hole that would be left by not increasing VAT by 2.5%, or does he not recommend an alternative?

[Stewart Hosie]

I suffer from the advantage of tabling many new clauses and new schedules to the Fiscal Responsibility Bill to establish a medium-term fiscal consolidation precisely to avoid the slash-and-burn approach of a massive hike in the most regressive form of tax. Instead of the VAT increase, I would not tackle the deficit and debt over a fixed term—certainly not a short fixed term such as the Government propose—but do it in the medium term, not least to benefit from the £50 billion of medium-term savings from cancelling and not replacing Trident. The Liberals appeared to be in favour of that midway through the election campaign, but were not towards the end, when it looked as if their leader would be in a position of some influence and power. I will stop there because the Liberals have had a hard enough time, but I will return to the subject shortly.

It is not simply what is in the Bill that causes problems, but what is not in it, and the missed opportunities that that represents. The reasoned amendment outlines those. For example, the Bill could have taken its lead from the second and final report of the Holtham commission—the Independent Commission on Funding and Finance for Wales—which repeated its call for an immediate “Barnett floor” on departmental expenditure limit payments to Wales. My hon. Friend the Member for Carmarthen East and Dinefwr (Jonathan Edwards) mentioned that earlier. That came a year after the commission’s first report recommended that such a floor, which would prevent further convergence between Wales and the England average, should be a multiple of 114% spending in Wales for every 100% in England. The Scottish National party and Plaid Cymru were delighted that the Chief Secretary confirmed earlier that there would be no further convergence in funding for Wales in the next few years at least. I am sure that my hon. Friends in Plaid Cymru will hold the Government to that.

The Bill also missed an opportunity to deliver real progress on intergovernmental relations with Scotland. The Government could have ensured the release of the fossil fuel levy—nearly £200 million sitting in a bank account—without a corresponding cut to the Scottish block. Such a move would have been welcomed, and have provided a much-needed boost to the Scottish Government’s attempts to secure economic recovery and kick-start jobs in the green economy. Better still, the Government could have moved to a position of full fiscal responsibility for Scotland, so that Scotland would make all its tax-and-spend decisions and find its own solutions to ensure that we did not enter another recession.

There was also an opportunity to deliver a fuel duty regulator—a fuel duty stabiliser—and fair play on fuel, not least for the haulage sector. Instead, the Chancellor plans to go ahead with Labour’s inflationary package of three fuel duty increases in the next year. The Road Haulage Association’s chief executive said that that

“will simply further widen the gap between UK diesel duty and that of our EU competitors.”

As my hon. Friend the Member for Na h-Eileanan an Iar (Mr MacNeil) said several times, the Government have missed an opportunity for a fuel duty derogation now for remote and rural areas. I hope that that idea has not been kicked into the long grass, never to be seen again, and that the Liberals in the Government might find a little steel before they are ground down completely, and deliver something beneficial to remote and rural areas throughout the UK.

[Mr Kevan Jones]

Does the hon. Gentleman agree that the proposals in the Bill for insurance premium tax will affect many of my rural constituents, who rely on cars as their sole form of transport? Youngsters will be particularly hard hit because they pay a larger percentage through high premiums than other drivers. Cars are not a luxury in rural communities; they are essential items.

[Stewart Hosie]

They are absolutely not a luxury. Insurance not only on cars but on homes and foreign travel, particularly for those who are slightly frail, is a vital matter. Taking £2 billion out of that sector is damaging enough, but if it is a disincentive, which stops people taking out the appropriate insurance, we could experience all sorts of difficulties in future.

Let me revert to the fuel duty derogation, and read out a quote:

“The case for a fair fuel deal for remote and rural communities is absolutely clear. People face longer journeys, much higher pump prices and few if any public transport alternatives. A lower rate of fuel duty is already available for remote and island areas in many other European countries.”

Those are not my words, but those of the Chief Secretary to the Treasury less than three months ago on 12 April. I hope that he reads today’s Hansard, remembers those words and begins to deliver.

There was an opportunity, had the Government chosen to take it, to stick to their own recently published stricture in the Spending Review Framework,

“to protect, as a far as possible, the spending that generates high economic returns”.

They could have done that by keeping tax relief for the video games industry, protecting more than 2,000 jobs and creating 1,400 new ones; saving £300 million in investment and encouraging £146 million more; protecting £282 million in revenue yield and increasing that by £133 million. However, they did not, and that is hugely disappointing for that sector and for growth in a modern industry in this country.

[Mr MacNeil]

My hon. Friend mentioned the rural fuel derogation. It is important that the House understands exactly why we in the islands in Scotland feel that we deserve it. We pay more tax per litre than any other part of the UK, and, therefore, for parity, equality and fairness, a rural fuel derogation might rectify the position till we approach something fair. I stress the word “approach”.

[Stewart Hosie]

Given that the Bill’s Committee stage is three days on the Floor of the House, it is impossible to amend it as we have previously amended finance measures to introduce fuel duty regulators or derogations, but my hon. Friend is right, particularly when he talks of fairness, which is one of the alleged underpinning principles of the coalition—I hope that members of the Treasury Bench are taking note of all the matters on which they could deliver fairness, and for which they may yet be held to account if they do not.

The Chief Secretary was unconvincing in his opening speech. The Bill is thin and the VAT increase hits the poorest—that is unforgivable. Of course, the Budget may well prove economically foolish, risking inflation, higher interest rates and recession, and making tackling the deficit and the debt more difficult rather than easier. The Chief Secretary said that what was being done is unavoidable. None of this is unavoidable. It is a political choice. The proposals are political choices, and I believe that the Government have made the wrong choices. We in the Scottish National party and Plaid Cymru will oppose Second Reading.

19:18

[Stephen Barclay (North East Cambridgeshire) (Con)]

Thank you, Mr Deputy Speaker, for the opportunity to make my maiden speech.

If hon. Members googled my name as a new MP, the first website they would find is that of Steve Barclay, the comedian and cabaret entertainer. I can assure the House that that is not me in an unregistered second job. My speech sadly lacks the zany comedy and musical backing that his performances offer, and the current headline on his website,

“Barclay storms the cabaret floor”

is one that my local paper—the Cambs Times—will never ascribe to my performance in the House.

It is the custom to pay tribute to one’s predecessor, but in my case, it is a real pleasure. Malcolm Moss represented the constituency of North-East Cambridgeshire for 23 years with great distinction. He served first as a town, district and county councillor before going on to defeat the talented Clement Freud. He was a Northern Ireland Minister in the previous Conservative Government before holding a variety of shadow roles, including playing a key role on the Licensing Bill. He was also a senior member of the Foreign Affairs Committee in the previous Parliament. Malcolm was widely liked in the House and locally and he will be very much missed.

North East Cambridgeshire stretches from the Lincolnshire and Norfolk border all the way down to the edge of Ely and Peterborough. It is the largest constituency in Cambridgeshire, which is the fastest-growing county in the country. It is perhaps better known by its former constituency name—the Isle of Ely—although it is better known still as the fens.

As I am sure all hon. Members will know, the fens were first drained in the mid-17th century to produce the fertile farming land we have today. It is a distinct landscape, with endless fields, and big skies hosting blood-red sunsets, beneath which traditional festivals such as the straw bear festival and the rose fair take place. Farming remains a crucial part of our economy, and as food security becomes ever more important, it is a vital national asset. Our fields and homes are protected by the work of the Middle Level Commissioners and the many internal drainage boards. I urge the Under-Secretary of State for Environment, Food and Rural Affairs, my hon. Friend the Member for Newbury (Richard Benyon), not to interfere in those internal drainage boards, as proposed by the previous Government. That is currently under review.

I want to focus my remarks today on a second drainage that is taking place in the fens. This drainage leaves not fertile land, but barren areas, as more and more assets are centralised in our cities, paradoxically as houses are being built in rural communities. There is a misconception that all rural areas are rich. Eighteen of the 25 most deprived wards in Cambridgeshire are in fenland, and one in 10 people in my constituency have used the excellent services of the citizens advice bureau in the past 12 months alone, 43% of whom did so for advice on personal debt—the manager, Linda Hutchinson, does a formidable job. Prosperous areas mask pockets of deprivation in rural communities, and often float us above the aggregate score on which national funding is usually targeted.

The drainage of our amenities continues at a frightening pace: we recently lost our driving test centre even though it cost only £11,000 a year in rent; our new further education college was scrapped a month before building work was due to begin; and local pubs are closing. There is a battle on to save them, not least Claire Hammond’s fight to save the Nag’s Head in Eastrea. We now face the risk of the closure of our magistrates court, adjacent to which is our police station, the cells of which have already been closed. I will discuss this closure with Ministers in the weeks ahead. As a community, we pay twice as much to the Exchequer in business rates as we receive back in the local settlement grant. It is time that the funding imbalance between the rural shires in England and elsewhere in the United Kingdom is looked at again.

I want to resist the temptation today to focus on the previous Government’s legacy. Anyone in any doubt can look at that temple of waste, the regional fire headquarters in Cambridgeshire, which was built at a cost of £23 million and stands empty because the emergency phone lines cannot be made to work. Instead of large regional projects, we need to focus spending much more effectively to deliver the jobs and services that we need in rural communities such as mine.

First, we need to target money more wisely. The Budget was painful but necessary. However, I still feel that there are areas where policy needs to catch up with the new reality. Constituents in North East Cambridgeshire are staggered that we borrow money simply to give it away to countries such as China and India, which can afford their own space programmes. Likewise, factory workers in my constituency in food packaging, who are on modest incomes, wonder why councils can put as much as 20% of their total income into staff pensions.

Secondly, we need a clearer distinction between investment and spending—the lines have been deliberately blurred in recent years. The fens are only 100 miles from London, yet they are held back by the chronic lack of transport infrastructure. Wisbech, the capital of the fens, has no rail line when it used to have two train stations. There is a single-carriageway road, the A47, which has not been improved in decades. Its port—the only one in Cambridgeshire—was more used even in Roman times than today, and some of our villages around Wisbech get just one bus a week.

Money needs to be focused on things that can deliver economic return, including transport and our further education college. We also need to use money where it will directly save lives. I commend the campaign of my constituent Graham Chappell, who has done so much work to highlight the issue of deep waterways adjacent to fen roads, where we have had so many fatalities.

Thirdly, we need to empower our small business base far more. North East Cambridgeshire is not just about farming. We have many small and medium-sized businesses, such as the high-value engineering firm Metalcraft in Chatteris. I am delighted that we are expanding the apprenticeship scheme, but grants can also have a positive effect. In the commercial world, the aim is always to make it easier for customers to access products, and the public sector needs to do the same. It needs to cut the duplication and time-consuming paperwork so that small businesses that do not have specialised staff can access grants.

In more than 80 years, my constituency has had just four Members of Parliament. I hope that it is a tradition my constituents will continue. I will speak up for this forgotten fen landscape, which is distinct and beautiful and is not currently getting its fair share of resources. We need to target Government spending more effectively, so that we can unlock the potential that the fens offer and deliver the growth our economy needs.

19:27

[Nic Dakin (Scunthorpe) (Lab)]

I compliment the hon. Member for North East Cambridgeshire (Stephen Barclay) on an excellent maiden speech, which gave us a clear vision of the opportunities and challenges of his fenland constituency. His contribution was clear and measured.

I thank you, Mr Deputy Speaker, for allowing me to make my maiden speech just 23 years to the day after my predecessor, Elliot Morley, made his. What is more, 6 July appears to be a popular day for novice MPs from Scunthorpe—it was the day on which Michael Brown, who now scribbles so ably for The Independent, made his maiden speech. Elliot Morley served the constituency for nearly a quarter of a century as a respected, hard-working MP. He rightly gained a national and international reputation for his steadfast work on animal welfare and climate change. His record in helping to create a better world should not be lost in the wake of recent events.

I am the first MP for 80 years to represent the constituency after an adult lifetime of living and working in it. It is my adopted home town, and I love it. The first Labour MP for the area, David Quibell, was elected at the age of 50. He was born in Messingham, which still lies within the constituency boundary. A passionate early socialist who was active within the trade union movement and Independent Labour party, he, like me, knew the constituency inside out when he was elected in 1929 and took his place on the Labour Government Benches in an interlude between failing coalition Governments.

A contemporary of Quibell said:

“He was a revolutionary and a rough customer. If, at his meetings, anyone at the back interrupted, he would not think twice about getting down off the platform and thumping the interrupter.”

You will be pleased to hear, Mr Deputy Speaker, that I do not plan to imitate Mr Quibell’s style in that respect. My friends tell me that, if anything, I am too consensual in my approach. In that respect, I follow more in the footsteps of Ian Cawsey, who was the MP for Brigg and Goole until the election. Thanks to boundary changes, I inherited the village of Scawby from him. Ian demonstrated the power of cross-party working when he persuaded three other MPs—a Welsh Labour, a Scots Nat and a well spoken English Conservative—to join him in the band MP4. Out of those discordant political notes, musical harmony came forth, and I am told that their CD, “Cross Party”, can be bought for just £10.99. It is still in stock in Oxford street’s HMV, with all proceeds to Help for Heroes. I hope that hon. Members will not all rush off just yet.

I must also mention my friend, neighbour and mentor John Ellis, who represented Scunthorpe from 1974 to 1979. He does his level best to keep me on the straight and narrow, but has his work cut out, despairing from time to time at what he sees as my new Labour pragmatism.

The industrial garden town of Scunthorpe always surprises new visitors with its fine parks, green open spaces and magnificent floral displays. Its people are hard-working, neighbourly and welcoming. There is much to be proud of. It is home to the world-famous Corus steelworks, whose track record in producing high quality steel at competitive prices is second to none. There are vibrant businesses large and small, from the construction and logistics giant Clugstons to the organic farm shop, the Pink Pig, where you can buy, among other things, pink pigs—the soft, cuddly variety. All these businesses are witness to the innovation, hard work and enterprise of local people.

Scunthorpe boasts a Championship football team—up the Irons—and a rugby union team that achieved promotion to the national leagues this year, as well as a fine speedway outfit and a range of other great sports clubs. The area also has a vibrant arts, drama and musical community and is home to last year’s BBC choir of the year, the Scunthorpe Junior Co-operative Choir. It has good schools and two high performing colleges, one of which, John Leggott, is renowned for the excellence of its education and which I have been privileged to lead as principal for the last four years.

In addition to those already mentioned, the constituency includes more fantastic towns and villages, Bottesford, Kirton, Redbourne, Hibaldstow, Gainsthorpe, Holme, Manton, Cadney and Howsham—all great places to live.

All of us, regardless of party or seniority, should have the humility to listen carefully to the people we seek to serve. The parties opposite are right when they say that Labour lost the election. We did, but let us be completely honest—no party won the election. Labour lost, the Conservatives lost and the Lib Dems lost. We all lost the election. Deals done behind closed doors put together the present ruling coalition, a coalition that—we were promised—would act in the national interest and be committed to protecting the vulnerable. Already, few believe that to be true. VAT destroyed that illusion. The hon. Member for Dundee East (Stewart Hosie) described the increase in VAT as “unforgivable” and has already mentioned the analysis of Save the Children. Only yesterday Flora Alexander of Save the Children said:

“VAT is a regressive tax, affecting those on low incomes disproportionately. The 2.5% increase will mean families living in poverty will be put under even more pressure.”

Save the Children is calling for the poorest not to have to pay the price for the economic crisis.

Neither party opposite told the electorate, “Vote for us and we’ll put up VAT to 20%, vote for us and we’ll cut public spending by 25%, vote for us and we’ll cancel Building Schools for the Future.” My electorate in Scunthorpe was certainly not told this by my Conservative and Lib Dem opponents.

The argument that we need to cut fast and cut furiously, as if it were some virility test, does not have the support of the electorate. The electorate rejected this Conservative argument—which was well put by the Conservatives during the election—just two months ago, and instead supported proposals to tackle the deficit in a measured, proportionate way.

We should all have the humility to recognise that there is no mandate for the Budget proposals before us today, no mandate for fast and furious cuts and certainly no mandate for a huge rise in VAT or for the freezing of child benefit—measures at the heart of this unprincipled Government’s approach. Both the Labour and Lib Dem parties made it clear—and the public agreed on 6 May—that the British economy is too fragile to bear these cuts without plunging us back into recession. That is why the electorate rejected the Tory offer at the polls. The public know full well that cuts in the public sector lead to job losses in the private sector. The public are not daft—they know that the private sector prospers when it is able to sell its goods and services. With Europe’s economies contracting and the squeeze put on the UK economy, individuals and companies will stop spending and jobs will be lost in the private sector to add to job losses in the public sector. That is what the leaked Treasury papers said last week and that is what I fear—I hope that they and I am wrong. I would rather that the analysis of the right hon. Member for Wokingham (Mr Redwood) were correct, but I fear that it will prove to be false and flawed.

There is no justification for what is about to happen. The well respected economist, David Blanchflower, has said:

“Economic policy in the UK is being run by a bunch of ideological amateurs who are destined to fail, at enormous cost to the British people.”

The so-called black hole in our finances is an invented story to camouflage the truth and to wriggle out of promises made to the electorate at the election. It is a story that I have heard before. I heard it on North Lincolnshire council when the Conservatives briefly took control and went on about a black hole in its finances. It was not true then and it is not true now. It is a story, a figment, a fantasy. It is something to con themselves with—I think that they have achieved that—and then con everybody else. It cuts no ice with me, nor with the people of Scunthorpe. While at present it might resonate with some people, it will reverberate in a most hollow way if this Budget ends up devastating people’s lives. I sincerely hope that it does not, because there is no mandate for this and there is no need for this.

I urge all Members of this House to vote in line with the manifestos on which they were elected just two short months ago. I urge all Members of this House to be true and faithful to their promises. I am immensely proud to have been chosen by the voters of Scunthorpe county constituency to represent them in this Parliament. I will carry out my duties in line with the promises that I made to them. To that end, I will vote against the measures in this Finance Bill and I call on all honourable Members to do the same.

19:38

[Ben Gummer (Ipswich) (Con)]

I should first of all pay tribute to the hon. Member for Scunthorpe (Nic Dakin), who showed in his maiden speech that he will be a robust defender of his constituents, even though—if I may say so—his grasp of accountancy as it pertains to the Finance Bill and the proposals of the coalition Government bears similarities to that of his predecessor in his seat.

This is a vital Finance Bill: it is one of the most important Bills to come before this House in decades. The reason for that—contrary to the speeches that we have heard from Labour Members so far—is that it puts right the unsustainable spending that has been the characteristic of Government in the past few years. Not only that, it takes the opportunity—which presents itself rarely to Governments—to reshape the nature of the relationships between the state, families, individuals and communities. Such opportunities are rare, and it is clear from the votes cast at the general election that that is a move that the country wishes to see, whether the votes were cast for one party in the coalition or the other.

Many Members have not yet grasped the fact that not to use this opportunity would be to condemn future generations to the poverty of opportunity that all of us in our work here wish to eradicate. I ask, therefore, that everyone support those measures in the Finance Bill—of which I, for one, believe there are a great many—that are beneficial to the economy. I am not saying that this is a new problem, nor one that has not presented itself to this country before. One of my esteemed predecessors as Member of Parliament for Ipswich was a gentleman called Nathaniel Bacon, who was elected to the 1660 restoration Parliament. At that point, the town had two Members—one a cavalier and one a roundhead, which is a good simile for the coalition now assembled on the Government Benches. In his treatise on government, which was well thumbed at the time—it is less so now, but I recommend it to all Members—he wrote that

“it befalls some Princes, as other men, to be sometimes poor in abundance, by riotous flooding treasure out in the lesser currants; and leaving the greater channels dry. This is an unsupportable evil, because it is destructive to the very being of affairs, whether for War or Peace.”

That was true then, as it is true now, because the investment we need to make now to ensure that our economy, locally and nationally, grows in the years ahead is prejudiced and put at risk by precisely the irresponsible spending that we have seen. That is because by increasing the amount of money we have to put into the revenue account, we deny the money that we should put towards capital expenditure. That is what I would like to address in my first remarks to the Front-Bench team.

Ipswich and elsewhere, including other parts of the east of England, need greater investment in transport infrastructure, as my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay) said. Without investment in the road and rail infrastructure serving Ipswich, the many opportunities that the town has cannot be fully realised. This is about opportunity. I am not talking about the global sums in the Budget, with which I heartily agree, but I do seek to press Ministers as far as possible to do all they can to bear down on revenue spending, so that as much as possible can be released within the budget in the years ahead for investment in infrastructure.

Both side of the House agree on opportunity—something that Ipswich has in abundance. It is a famous manufacturing town, and was the origin of many of the tools and much of the machinery that brought about the agrarian revolution. Since then it has become a significant service centre with a beautiful medieval centre that describes well the town’s historical importance. Most importantly, it has a significant and important spirit to succeed. It is a quiet, East Anglian spirit, but it is a spirit none the less—and it is one that I experienced during my campaign to save the local hospital, which I conducted throughout my candidature and which I hope is about to come to fruition.

In that campaign I differed from my predecessor, Chris Mole, to whom I pay tribute for bravely giving the ground to me, as a candidate, and allowed me to debate these things robustly in public when many other opponents would have denied me that opportunity. That showed determination and an interest in the democratic process that is entirely to his credit. Neither was that his only contribution as a Member of Parliament for Ipswich. He made many such contributions to the people of that town. He was a Minister of the Crown, he served on many Select Committees and, most importantly in my mind, he sponsored the Legal Deposit Libraries Act 2003, which enforced the digital deposit of records in the British Library, giving the nation an endowment of which he should be justly proud.

I am proud of how, during the campaign, we both led constructive and robust campaigns in which we discussed issues openly, without ever digressing into unpleasantness. That quality is present in this coalition, which is why I support it so wholeheartedly. Frankly, the great majority of the public, who have little interest in the eccentric mechanics of politics that interest us so much, cannot understand why we are so obsessed with bickering among ourselves. Through the mere act of overcoming our differences in the coalition, we are finding common cause on the many things in which we have a far greater interest: narrowing the gap between rich and poor, the re-establishment of the free market economy and all the other things that we are doing in the coalition. We are doing those things through mature discussion, and already my constituents and others to whom I have spoken are thanking us for that.

I like to think that Ipswich gives us a considerable precedent for the sense of amity between our parties. Not only do we have a Liberal-Conservative coalition on the borough council that has achieved considerable success, but we had two of Gladstone’s brothers as Members of Parliament in the 19th century. One of them, John Neilson Gladstone, was described by a biographer—I could not resist this—as follows:

“He took no strong independent line such as would anger his father but accepted his minor role in the scheme of things.”

I can assure the House that on the former point it should have no fear whatsoever, and on the latter point, I believe that all of us will succeed only if we show the independence and courage of our convictions—something that the coalition must show in abundance.

We have heard much over many previous years of the tough decisions that face us, but now is the time to take them, and no issue is more important, pressing or necessary than penal reform. The Secretary of State for Justice, my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke) outlined brilliantly and bravely last week a vision for sentencing and for the prison system that I, and many on both sides of the House, would wish to endorse.

Yet to achieve that, we need to find common cause on two things: the first is on the budget for the Ministry of Justice and prisons. It goes without saying that it is clearly a gross and offensive waste of public money to be warehousing prisoners in buildings of little utility save for the security they afford the public in incarcerating criminals, which in the end produce men and women who come out with a staggeringly low possibility of finding a job, succeeding in a relationship, building a family or contributing to society, and a staggeringly high probability—the highest in Europe—of going on to reoffend and contribute once again to the crime rate.

Opponents of reform must consider carefully whether it is right to continue with a system in which half of prisoners cannot read at the level expected of an 11-year-old, 65% cannot count at that level, and 82% cannot write at that level. I do not understand how they can possibly contribute to their communities, build relationships and sustain their families with that level of underachievement. Future generations will look upon our treatment of prisoners in much the same way as we now look upon how the Victorians established workhouses—as a near barbaric mechanism to deal quietly with one of society’s problems without facing up to the real issues that it presents.

We can, I hope, overcome that problem in two ways. The first is to protect in the Ministry of Justice’s budget the excellent plans, which we on the Conservative Benches have had for some years, for the complete restructuring of the prison estate. Hon. Members might wish to know that 16 prisons in the prison estate predate the reign of Queen Victoria, and there are many others that were built in her reign. Those prisons are not only completely unsuitable for rehabilitation, but consume massive amounts of manpower, which reinforces my earlier point about the unnecessary waste of money that goes on revenue spending, rather than on capital expenditure, which actually produces results.

The second thing that I would ask of hon. Members—and of the media—is to accept that it would be a good thing if we were to enjoy the kind of consensus that I have praised in the coalition, on the matter of penal reform across the House. Too often the sentiments expressed by the Secretary of State for Justice last week have been uttered by Members in all parts of the House, but they have fallen prey—because they are perennially vulnerable—to cheap political point scoring of a short-termist nature, which has done us enormous damage. I hope that those who wish to oppose the reforms that are necessary understand that to do so would be to condemn families, victims, perpetrators and communities to the repeated misery that we now have a golden opportunity to prise ourselves away from.

A maiden speech is a privileged opportunity to outline some of the issues that interest a new Member. It is a greater privilege, needless to say, to represent our constituents—in my case, the people of Ipswich. Almost all new Members come to this House lauding their new constituency, professing an ardour that I would not wish to impugn. All I would say is that I cannot claim to be Ipswich born, even though it is my local town and has been all my life, but I can increasingly claim to be Ipswich bred. It is a town that I have come not only to respect but to love. It is the most profound honour to serve the people of Ipswich, who put their trust in me in the election that we have just had. I shall do all I can in the coming years to repay that trust, and help us all to realise the considerable opportunities that lie—tantalisingly—ahead of us.

19:52

[Mr Michael Meacher (Oldham West and Royton) (Lab)]

I pay tribute to the three maiden speakers whom we have just listened to: the hon. Members for Ipswich (Ben Gummer) and for North East Cambridgeshire (Stephen Barclay) and my hon. Friend the Member for Scunthorpe (Nic Dakin). I am always struck by how confident, forthright, quite often amusing and, on occasion, even inspiring maiden speakers are. I am sure that we shall hear a great deal more from them all. I also noticed that they all touched on issues of policy. When I first came to the House, it was a custom that maiden speakers talked about their constituencies and their predecessors, but skirted round any question of policy. I am pleased that that rule is obviously now more honoured in the breach, and I hope that we shall hear much more about policy from all the maiden speakers whom we have heard this evening.

On the Finance Bill, let me start by agreeing with what I can—this part of my speech will be very short. I agree that the deficit is too large and that it needs to be reduced. On every other issue—the size of the cuts, their composition, their impact on growth, the balance between tax increases and spending cuts, and the whole question of fairness—I think that the Budget judgment, as expressed in the Finance Bill, is fundamentally and manifestly wrong.

First of all, as some of my hon. Friends have also said, the Chancellor made great play of the idea that his Budget to eliminate the structural deficit within five years was unavoidable. That is absurd. Balanced budgets are the primitive 1920s economics of Montagu Norman in this country and Herbert Hoover in the United States, and in both countries they led directly to the great depression. Capitalism is driven by cyclical forces that need constant regulation, not balanced budgets irrespective of the economic cycle. The truth is that the Chancellor has gone overboard on austerity. The cuts are as tough as those that the IMF is imposing on Greece, which is on the verge of bankruptcy, which we certainly are not. They are also twice as tough as the Canadian measures that the Chancellor has repeatedly prayed in aid to justify what he is doing, three times as tough as Sweden’s measures in the mid-1990s and much tougher even than the IMF measures in 1976.

Then there is the question of how the deficit should be reduced—as I have said, no one disagrees that it needs to be. There are three ways of reducing the deficit: not only through tax increases or spending cuts, but through economic growth as well. Before the Budget, the OBR estimated that UK growth this year and over the succeeding four years would be slightly less than 2.5% on average. As each 1% of growth adds an annual £15 billion to UK income, the OBR forward projections of economic growth imply an increase in UK income over the next five-year period—the perspective of the Bill—of between £150 billion and £180 billion.

Because all Governments take roughly 40% of any increase in UK income, those figures imply an increase of revenues to the Government of around £70 billion to £75 billion over this five-year period. That would be enough virtually to halve the current budget deficit over that period, which hugely reduces the need for spending cuts. I do not say that I am against spending cuts totally. Indeed, when it comes to Trident, ID cards and some of the extraordinarily wasteful Government IT databases, there is plenty of room for cuts. However, the figures that I have quoted raise starkly the question of whether the Chancellor’s enormous spending cuts will squash out the growth-generating potential of the economy—something that, frankly, would make the cuts simply counter-productive.

Indeed, those figures also raise the central issue, which had something of an airing between those on the Front Benches in the earlier debate, of where the Chancellor expects the growth to come from over the next few years. Household consumption, which accounts for two thirds of national output, is now almost certain to fall, particularly with the increase in VAT. Any growth in wages after inflation is already weak and is likely to weaken further as unemployment rises, which it will. According to all surveys, consumer confidence is fading, while some 60% of UK exports go to the eurozone, which as we all know is in considerable disarray. So where exactly is the growth going to come from?

I give the right hon. Member for Wokingham (Mr Redwood) credit for being the one Government Back Bencher who tries to make a case for the Budget, but he seems to have forgotten the prime rule of computer projections, which is: garbage in, garbage out. If we feed in dodgy premises, we get out dodgy conclusions. Government Members keep quoting the OBR as though it is independent—I do not think that Sir Alan Budd is actually independent, and the OBR is next to the Treasury, so it is not exactly independent—but that is not the point. The key point is that the OBR projections are based on certain premises that are––I say this without exaggeration—fantasy.

[Richard Graham (Gloucester) (Con)]

Given the strength of the right hon. Gentleman’s views on the neo-Keynesian economics that effectively advocate keeping on spending because that is the only way to grow the economy, what does he think of the performance of the Irish economy? In 2009, Ireland managed to reduce state spending by 7% as a result of stringent measures involving public spending and public sector salaries, yet, in the first three months of this year, its economy grew by almost 3%. Does that not demonstrate to him and to other Labour Members that it is a false assumption to say that reducing public sector pay will shrink the economy, and that cutting back can in fact provide an opportunity for the private sector to grow again?

[Mr Meacher]

The opposite conclusion should be drawn from the Irish economy. The Irish Government made huge, swingeing cuts of 12% to 15%, which absolutely decimated that economy. Sooner or later, of course there will be a revival in all economies, but at a fearful cost. We shall very much be going down the route of the Irish economy if this Budget goes through. If the hon. Gentleman were to go to the Republic of Ireland and ask people’s view of the finance budget of three or four years ago, I think that he would get a very different impression.

[Helen Goodman]

I support my right hon. Friend’s interpretation of what has been going on in Ireland. The construction industry has been completely destroyed, and there are empty shells of houses all around the countryside. Unemployment is sky high and, for the first time in many decades, people are emigrating from the Republic.

[Mr Meacher]

My hon. Friend helpfully assists my argument.

I want to be fair and point out the Government’s proposals on corporation tax and the small companies tax to get firms investing, as well as the national insurance cuts for firms outside the south-east to aid new hiring. That is all very welcome, but those measures will be more than cancelled out by the additional Tory spending cuts of £32 billion a year by 2014-15, and the additional £8 billion in tax increases. Let us take a highly topical example. It has been pointed out that the construction industry gets 40% of its work from public sector contracts. The 700 cutbacks in the schools building programme announced yesterday, and the nadir in house building, which is now at its lowest ebb since 1923, will almost certainly cost tens of thousands, if not hundreds of thousands, of building workers their jobs over the five-year period.

I shall give the House another example. According to the Treasury Red Book, the OBR forecast for public sector net investment is that it will be flattened from its current level of about £49 billion to just £21 billion in 2014-15. That is a staggering drop. It is not just a marginal change or a change in direction but a staggering reduction. So I repeat, where is the growth going to come from, especially as the banks are not lending? The Bank of England reported a fortnight ago that the flow of net lending to UK businesses was still negative. In other words, people are repaying money to the banks, rather than the banks handing out money to businesses. That compares with the situation in the first half of 2007, when there was annual growth of 20% in the relevant M4 figures for banks lending to businesses.

The great fallacy of the Bill—the fantasy black hole at the centre of the Budget—is that as the devastating public spending cuts take effect, the private sector will expand its hiring and investing to compensate. That is the Government’s argument, but the premise is completely indefensible. Why should the private sector do that? The only reason that private businesses invest is because they see the possibility of profitability and expansion, but where will that come from when consumption is falling, when the banks are not lending and when export markets are fading? Where is the growth to come from? All the coming misery is allegedly unavoidable because there is a crisis in the bond market, which there is not, and because the UK is supposedly like Greece, which it certainly is not.

Many of my colleagues have pointed out the real risk involved in this deficit-cutting fixation to shrink the state. Let us make no mistake, this cannot be justified economically; it has ideological motive. That is the fundamental bottom line in assessing this Budget. It will impale Britain on a very low growth path for years ahead, with rising joblessness and stagnant gross domestic product, even if the country does avoid a double-dip recession, although the Lord Chancellor and Secretary of State for Justice admitted the other day with typical frankness that that remains an open possibility.

Even in the Chancellor’s own framework for the Budget, there remains the question of striking a balance between tax increases and spending cuts. The Chancellor chose an 80:20 ratio, but that is far more heavily weighted against public spending than in previous economic episodes of this kind, including under previous Tory Governments, such as that of the early 1990s. Poorer households will unquestionably be the main victims of the spending cuts, and even the tax increases—notably VAT—will of course impact most harshly on the poorer half of the population. This is anything but a fair Budget.

Even the two new taxes that impact directly on the rich will have little effect on them. The £2.5 billion bank levy will mainly be offset. There has been no mention of this, but it is fixed at the very low rate of 0.07% of eligible liabilities. One could hardly find a tax rate lower than that. One can be sure that it will be largely avoided through balance sheet adjustments away from short-term wholesale funding, together with other devices such as group restructuring and de-leveraging.

The second tax change that will affect the rich is the increase in capital gains tax to 28%, but that still takes it only halfway to parity with higher rate income tax, which is where it ought to be, and where Nigel Lawson—Nigel Lawson!—left it in the 1980s. The change will still allow people with very high incomes to dress up their income as capital gains so as to halve the tax that would otherwise be payable. The idea that the rich are making an equivalent sacrifice and—to use the mantra that I think will come back to haunt the Government—that we are all in it together is nothing more than a sick joke.

[Martin Horwood (Cheltenham) (LD)]

I have some sympathy with what the right hon. Gentleman is saying, because the Liberal Democrats were also inclined to support a higher rate of CGT. But does he still support that proposal, given the evidence that it would raise less income and thereby impose harsher penalties on the public sector than if it were left at 28%?

[Mr Meacher]

I have never believed what some Laffer economists say, which is that increasing taxes on the rich results in a reduction in the net income. I believe that that is based on a false premise.

[The Economic Secretary to the Treasury (Justine Greening)]

Can the right hon. Gentleman explain why his Government failed to narrow the gap between rich and poor?

[Mr Meacher]

I regret that the Labour Government did not succeed in narrowing the gap between rich and poor. However, they did something quite remarkable in reducing the number of children in poverty by 600,000. No, it was not enough, and we fell below our target. I can tell the hon. Lady why the gap widened, however. To cite a phrase that was used early on in the Labour Government, new Labour took the attitude that it was fairly unconcerned about people becoming filthy rich. That was a serious mistake, and the increase in the wealth of the tiny top segment of the population has been enormous. That is the reason that the gap increased.

[Charlie Elphicke]

I am interested to hear the right hon. Gentleman raise the issue of child poverty. Can he explain why in the last Parliament it went up by 300,000 on every single measure?

[Mr Meacher]

Indeed. The hon. Gentleman is wrong on the figure; the last figure available for when Labour were still in government suggested an increase of about 100,000. That, of course, was the result of a recession caused by the bankers. The Labour party protected the poor and the unemployed to a significant degree, as those groups are about to find out from the very different treatment meted out to them by this Government.

[Kate Green]

I have no idea what statistics the hon. Member for Dover (Charlie Elphicke) is looking at. Over the period Labour were in power, between 1997 and 2010, child poverty fell by 500,000 on every measure. While it is true that it rose in one or two years, it still finished significantly lower than it had been at the beginning of the first Labour Government’s term.

[Mr Meacher]

I think I must move on—and we must move on—from debating poverty between the parties. Since I have the privilege of speaking, however, I have the last word. The fact is that the Thatcher Government tripled poverty to more than 3 million over the period between the early 1980s and the end of the 1990s; Labour reduced that significantly, but did not, in my view, do as much as it could have done to reduce the enormous gains of the wealthy.

As always, it is the dog that did not bark in the night to which we should give most attention. There is nothing in the Bill about a financial activities tax on financial speculation, which is a domestic version of the Tobin tax. Considering that the banks’ recklessness was a major contributor to the crash, that would have a significant reforming potential as well as being a major revenue earner. There is nothing for a really tough crackdown on tax avoidance, which is still estimated to cost the Exchequer some £25 billion a year, nor is any action being taken on the indefensible non-dom loophole. Nor is there any reference to a wealth tax, which might have seemed reasonable when, according to The Sunday Times rich list—not a trendy-lefty organisation—the top 1,000 richest multimillionaires, a minuscule proportion of the population, have nearly quadrupled their wealth over the last decade and a half by no less than £335 billion. This was all in The Sunday Times rich list two or three months ago. In the last year alone, their wealth increased by £77 billion. The fact that they are not being required to make any significant sacrifice at all, when everyone else is—

[Andrew Bridgen]

Will the right hon. Gentleman give way?

[Mr Meacher]

No, time is going on and I want to conclude.

The fact that those people make no sacrifice while everyone else is being hit extremely hard makes an utter mockery of any idea of fairness in the Budget. This is not an honest Budget or an honest Bill. It was born of an ideological fixation to shrink the state well below 40%. The facts and arguments have been massaged to fit around this preconceived idea, and the methods used—draconian cuts to produce a balanced Budget—remain a throwback to the reactionary and ultimately disastrous economics of the 1930s. It will fail, but the risk is that it will drag down Britain with it.

20:14

[Graham Evans (Weaver Vale) (Con)]

I am grateful for this opportunity to make my maiden speech, and I offer you my belated congratulations on your new appointment, Mr Deputy Speaker.

Despite not being the first Member to represent Weaver Vale, I am the first ever to give a maiden speech. My predecessor, Mike Hall, had already given his maiden speech as the Member for Warrington, South five years before this constituency was created in 1997. Although it is conventional to pay tribute to one’s predecessor in a maiden speech, Mike, who was never one for convention, said of his Conservative predecessor for Warrington South, Chris Butler, after what must have been a particularly bitterly fought contest, that

“it would be hypocritical of me to pass favourable comments on Mr. Butler.”—[Official Report, 6 May 1992; Vol. 207, c. 123.]

However, during my three years as a candidate trying my best to unseat Mike Hall, he was always extremely courteous to me, and I do not believe it would be hypocritical of me to pay tribute to the work that he did for the constituency. Although perhaps not the most high-profile of Members here in Westminster, he was highly regarded as a hard-working constituency MP for Weaver Vale. We shared similar interests in football and military history. Despite the views of his Labour colleagues on Halton council, we were in wholehearted agreement in our opposition to wind turbines being built on Frodsham marshes, as well as to the numerous incinerator applications across Cheshire. I was sorry to learn that Mike was forced to stand down owing to ill health and I wish him and his wife Lesley a long and happy retirement.

Weaver Vale is a rather unusual constituency in both its shape and character. Thanks to its ambiguous name, many Members have expressed a little confusion as to its whereabouts. The seat is located in the heart of Cheshire, focused around the River Weaver, a tributary of the River Mersey. It stretches from Northwich in the south-east to Runcorn in the north-west. It is a source of considerable pride that, on this side of the House, I am the sole representative on the Mersey estuary, although I am delighted that the right hon. Member for Birkenhead (Mr Field) is to be working with the coalition.

Weaver Vale has an impressive and proud industrial history. Northwich, the largest town, is based on salt mining, which started in pre-Roman times. Imperial Chemical Industries was started in Northwich and one of its founders, Sir John Brunner, was a former Member of Parliament for the area. While ICI may be no more, Brunner Mond is still based in Northwich, and the chemical industry is still going strong in Runcorn, as well.

While traditional heavy industry is very much part of the landscape in the constituency, we have the added benefit of a wide range of high-tech industries at Daresbury, including robotics and nanotechnology. Indeed, Global BioDiagnostics has just announced that it will be moving its research and development to Daresbury, making it the home of the global fight against tuberculosis. The laboratory and the science and innovation campus are at the cutting-edge of science, as well as an essential provider of local jobs.

I firmly believe that these genuinely wealth-creating industries, both old and new, are going to be instrumental in leading the recovery. With this in mind, I am delighted to be giving my maiden speech in this debate on the Finance Bill, following the emergency Budget which has already helped to restore considerable market confidence with the message that Britain is open for business again. In particular, the plans for a regional growth fund and the substantial reduction in employer national insurance contributions in targeted areas demonstrate that this Bill is good news for industry and for the north of England.

Besides its industry, Weaver Vale has some of the most beautiful countryside and picturesque villages anywhere in the country—villages such as Crowton, Acton Bridge, Kingsley, Norley and Manley. Most distinctive of all is Helsby Hill and the surrounding settlements of Helsby and Frodsham. However, Weaver Vale is also a seat of sharp contrasts. Besides vibrant enterprise and leafy villages, there are areas of severe deprivation. Within Runcorn alone, the disparity is breathtaking. In the Windmill Hill area, only 8.1% of pupils achieve 5 GCSEs including maths and English. Those pupils can expect to live for nearly 10 years less and to earn an average of £30,000 a year less than my constituents who live in the more prosperous parts of Runcorn.

The gap would be even wider if Windmill Hill were compared with some of the prosperous commuter villages such as Hartford or Kingsmead. After 13 years of a Labour Government, this is quite simply a disgrace and should act as a constant reminder to those on the Labour Benches, who have already begun looking back on their time in government as some sort of golden age in which poverty and inequality were abolished. Sadly, the truth is that, under Labour, the poor got poorer while the debt grew bigger. Labour Members will almost certainly be spending the next few years in hysterical opposition, attacking the Government for fixing the mess they created, completely oblivious to the reality that we cannot help the most vulnerable in society by basing the economy on debt. Without wealth creation, we cannot achieve the social justice that we all want.

Before I finish, I would like briefly to express my thanks to my constituents, who have sent me here to represent them. It is the greatest honour and privilege of my life to serve the people of Cheshire. It has been quite a long and personal journey here, as well. I was born on a council estate in Cheshire, as the youngest of four children. My father was a wages clerk, but he died when I was young, and my mother worked in a series of local shops and pubs to make ends meet. I left my local comprehensive school with few qualifications and got a job stacking shelves at the local supermarket, but I was fortunate to have the chance to study business at night school, and went on to have a successful manufacturing career working in sales. I should like to think that I was one of those slick salesmen whom the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) liked to attack on such a regular basis in the last Parliament.

I have always enjoyed serving my local community, spending four years as a special constable in the Cheshire police and 10 years as a local councillor. I have no idea how long I will serve in the House—that will be up to the people of Weaver Vale—but I hope that if I am to leave this place sooner rather than later, I will be able to help, in a small way, to put the “great” back into Great Britain. In that vein, I commend the Bill to the House.

20:20

[Mr David Lammy (Tottenham) (Lab)]

Let me begin by congratulating the new hon. Member for Weaver Vale (Graham Evans) and expressing some solidarity with him, given what he said about his background and experience of growing up on a council estate. I am sure that his constituents will be very well served by the effective way in which he makes his remarks.

In a few days it will be my birthday, and as I inch towards the fourth decade of my life, it occurs to me that the economic downturn that we are experiencing now is also my fourth. The truth is that I do not remember the first recessionary period in the early 1970s, but I have strong memories of the recessions of the early 1980s and early 1990s. I think back to what it was like growing up poor and black in my present constituency in Tottenham, and the hardship experienced by my family and many others at the time. I remember my father losing his business in the early 1980s, and the depression and the booze that followed.

Children do not always quite understand these things as they are growing up, but I remember, in about 1982 or 1983, coming to understand that there was far less money in the home. The fridge seemed much less full, and—although I do not want to suggest that my parents were not generous—the presents at Christmas were not what we might have seen in the commercials on television, and not what we might have liked. I think that the VAT rise had something to do with it. Although Margaret Thatcher had said that she would not change the rate before the election, she raised it from 8% to 15%. I also vividly recall the freezing of child benefit for successive years, and how hard that was for my mother. More than anything, however, I remember the restlessness, the fecklessness and the worklessness of the broader community and the explosion of violence that we experienced in my community as a direct result of that, leading to some of the worst images that this country has ever seen or experienced.

[Richard Graham]

Does the right hon. Gentleman agree that, in that context, it is particularly regrettable that the Government of the last 13 years left us with more than 1 million unemployed young people—an absolute record?

[Mr Lammy]

Unemployment at that time in my constituency was running at 20%, and in some communities, particularly the black community, the rate was double that. It is because of the situation then that young people like me, growing up in constituencies like Tottenham, forged such a huge solidarity with colleagues and friends in different parts of the country. Although those areas seemed very different from Tottenham, the assault on manufacturing industry and the attitude to former mining and steelworking towns led us to forge a solidarity that remains on these Benches today.

In the 1990s I qualified as a young lawyer, but I did not go straight into employment because, yet again, the country was in recession and the employment was not there. I went to the local unemployment benefit office hoping that I might become a barrister, but not sure whether that would actually happen. My mother was now struggling on her own with a 15% interest rate, and the shops up and down Tottenham high road were boarded up because of bankruptcy. That was the backdrop in the 1990s. We experienced two recessions that had huge social consequences—social consequences that I deeply fear could be repeated as a result of this Finance Bill.

[Richard Graham]

The right hon. Gentleman is very generous in giving way. Given his experience in the early 1990s, is it not an absolute tragedy that he was part of a Government who, having promised to abolish boom and bust, landed us with the largest recession not just in his lifetime, but in the lifetimes of three generations?

[Mr Lammy]

The hon. Gentleman paints a fantasy picture of history, and takes the banks out of context. I will return to that in a few moments.

[Phil Wilson]

I agree with 100% of what my right hon. Friend is saying. Back in the 1990s, 11% of young people were out of work; in the 1980s, the figure was 12%. As a proportion of the work force, the unemployment rate was much higher than it is now, and 40% of those people had been out of work for 12 months or more. That figure too is much higher than the figure today. In my own constituency the unemployment is just over 1,000, but at the height of the recessions in the 1980s it was 5,500. The main reason for the difference between what we have experienced over the last year and what we experienced then is what the Labour Government did to ensure that ordinary people up and down the country did not suffer.

[Mr Lammy]

My hon. Friend is absolutely right. That is why Members on the Government Benches should be reminded that employment in my constituency was running at 20% in the recession of the 1980s and at 28% shortly before we cane to power in 1997, and that although my constituency now has the highest unemployment rate in London, it is currently running at 9%. I say “currently” because it will surely rise as a result of this Finance Bill. The consequences—the social consequences —of what we are debating today, and what we will vote on in a few hours’ time, will be so significant that it is hard to put words to them, but they will be real and stark.

[Andrew Bridgen]

The right hon. Gentleman is speaking passionately about his opposition to unemployment. Surely he must be ashamed to be a member of a party that has formed Governments many times over the past 70 years and that, every time it has left office, has left unemployment higher than when it came to office.

[Hon. Members]

It is not higher.

[Mr Lammy]

That is patent nonsense, which is why so many hon. Members are shouting from a sedentary position.

What we see in the Bill is absolutely ideological. It is not the first time that the House has debated such ideological decisions, which have huge social consequences for people a long way from Westminster. On one side, we have an orthodoxy, a Conservative position, that says that we must reduce deficits at all costs, despite the social consequences. Behind that there is a desire to reduce the state and welfare at the same time. On the other side, consistently, over generations, we have progressive parties, and at the centre of those is the Labour party, which understands that the private and public sectors are co-dependent. They rely on each other.

There are times during difficult recessionary periods when the public sector must borrow to ensure growth. That is why I am hugely proud of the future jobs fund. That was a classic example of our Government borrowing £1 billion to create jobs and to ensure that the social plight that constituencies such as mine have seen in the past did not come to pass again. What an outrage. What a shame. How can hon. Members look at the young people of Tottenham, who now do not have that scheme and who will join the unemployment queues as a result of yet another catastrophic decision? We on the Labour Benches remember the failed youth training scheme, a joke scheme that was not really about jobs; it was about gerrymandering the figures, which started to look so bleak in the depths of unemployment in the 1980s and 1990s.

[Mr Kevan Jones]

Does my right hon. Friend agree that the VAT increases that are in the Budget will make it worse for the poorest in his constituency—not only the unemployed but those on low pay and on limited incomes?

[Mr Lammy]

My hon. Friend is absolutely right. In the midst of a growth in unemployment, which has been predicted by the OBR, there is a VAT rise that will affect the poorest families.

In debating the Budget, we have to defend the hope and prospect that there is a different economic way. That is articulated not just by the usual suspects—economists such as David Blanchflower have been mentioned in the debate—but Martin Wolf in the Financial Times, Samuel Brittan and George Joseph Stigler. A number of economists are saying that this is the time for fiscal stimulus, for an FDR-type new deal, for an LBJ-type offer. This is the time for that big society that they dreamed about.

When this country lay in rubble after the second world war, we did not shrink back. The Attlee Government invested. We built the NHS, we built housing, we built schools. That is the example that we should be following. Instead we get this false smoke-and-mirrors game.

[Charlie Elphicke]

rose—

[Mr Lammy]

I will not give way at this moment.

Politically one has to applaud, in some senses, the Government for the way in which they have changed the debate that was about fiscal stimulus, support, opportunity and hope, despite these difficult times. The country had a focus on the banking sector in this country, in particular, but that has been turned into solely a debate about deficits; that is the only discussion taking place. I say, as a Labour Member who is proud of my party’s tradition, that the discussion had not solely been about the recovery; it had also been about what had led us to this position. That was a discussion about materialism, consumerism and excess, but all we hear now is this emphasis on cuts, cuts, cuts and deficits. The Government are wrong, as was made clear in the G20 meeting and the letter that President Obama wrote shortly before it. They have taken the wrong position for ideological reasons, which will have grave social consequences.

The Government have said that this Budget is unavoidable, but of course it is not, for the reasons that I have set out. It is not unavoidable, because the previous Budget, in March, made it clear that we intended to cut the deficit over the next Parliament in a measured way. This Budget is not progressive. How can one describe a Budget that means that unemployment will rise and growth will shrink as “progressive”? This is a total twisting of the word “progressive”. We have a dictionary on the table in front of the Economic Secretary, so I invite her to pick it up and look at what “progressive” means. It certainly does not mean what is in this Budget. This Budget is not fair to many people beyond this place.

[Martin Horwood]

Does the right hon. Gentleman think that taking nearly 1 million people out of income tax altogether, a measure of which the Liberal Democrats are immensely proud, is progressive or not?

[Mr Lammy]

The hon. Gentleman knows that this is robbing Peter to pay Paul—I am sure that his mother said that to him. One cannot give to people on the one hand and take a damn sight more in VAT on the other, and he knows it. I am talking about people such as the Uddin family, who live on the Broadwater Farm estate in my constituency. I am grateful to the TreeHouse charity for asking me to spend a Friday afternoon with a family in my constituency, dealing with the issue of autism. Because of the context of this Budget and the Finance Bill that flows from it, I was, of course, examining the wider issues that surround this family.

It was privilege to go to the Broadwater Farm estate, which I have known all my life, as I grew up and spent many years there. It was a privilege to go up the stairwell to the 15th floor to spend time with the Uddin family. In that two-bedroom flat was Mr Uddin and his wife, a family of five children and a niece. There were eight of them in this flat surviving on income support of £322 a week and struggling with a five-year-old autistic child. I was the bearer of bad news, because I had to explain to them that Mr Uddin, who cannot work as a result of an injury at work—he was a chef in an Indian restaurant and he had a serious back injury—would face a new medical test in order to get the disability living allowance that made up that £322. I had to explain to them that once again—I recalled this from my own background—their child benefit would be frozen. I had to explain to them that the price of living would go up because extra VAT would be whacked on their household goods and items such as school uniforms. I had to explain to them that the toddler element of the child tax credit and the element for their new five-week-old baby had been taken away. That was worth £1,000 to many families across the country. The Uddin family would be experiencing huge hardship as a consequence of this Budget.

It gets worse. What the Uddin family would dearly love of course is better housing. The prospect of better housing in London as a consequence of this Budget is dark indeed. That brings me on to the real test of what is progressive and what is fair. The cap on housing benefit will have the most pernicious effect in this city. Rents in London boroughs such as Islington, Camden and Westminster can run into the many hundreds of pounds, so there will inevitably be an exodus from zones 1 and 2 to zone 3. My constituency already has 20,000 on the housing list, more than 3,000 in temporary accommodation and, as I speak, more than 800 in emergency accommodation. It will become even more crowded. There will be no prospect of the Uddins moving anywhere, particularly when, as we would expect, Conservative local authorities in London continue to refuse to build. Guess what? Westminster council built just 200 affordable homes in the last year for which there are records. The Royal Borough of Kensington and Chelsea built just 100; Richmond built 127; Wandsworth just over 300. That is the record on affordable housing. It is very bleak indeed. The Mayor has made not one representation on the housing consequences of this Budget.

[Gavin Shuker (Luton South) (Lab/Co-op)]

Does my right hon. Friend agree that beyond metropolitan areas such as London the Government’s decision to take away the regional spatial strategies that allowed councils to work together to deliver affordable housing will have a profound effect on the way in which we manage the problem of affordable housing?

[Mr Deputy Speaker]

Order. That was wide of the mark. May I ask hon. Members from time to time at least to mention things contained in the Finance Bill.

[Mr Lammy]

My hon. Friend makes a good point, which I hope he will have an opportunity to develop later. I want to make it clear that, as a result of the housing benefit cap, there will be an exodus from zone 1 to zones 3 and 4 and areas such as mine. I predict as a consequence something similar to what we see in Paris—suburbs that are most often brown, black and other ethnic minority in complexion and are crowded, cramped and dangerous. The decisions made in the Finance Bill will lead to social unrest.

Liberal Democrat colleagues in London, especially the hon. Members for Hornsey and Wood Green (Lynne Featherstone), for Brent Central (Sarah Teather) and for Bermondsey and Old Southwark (Simon Hughes) should hang their heads in shame if they vote for the Bill tonight. Working people voted for them on the basis of the platform on which they stood. They know that people will suffer as a consequence because benefits will be cut and housing benefit will be capped. People who voted for them in good conscience will suffer.

[Mr Deputy Speaker]

Has the hon. Member finished his speech?

[Mr Lammy]

No. I am giving way.

[Martin Horwood]

I am sure that if my hon. Friend the Member for Hornsey and Wood Green (Lynne Featherstone), who is being attacked in her absence, were here to defend herself, she would do a very good job of it. Does the hon. Gentleman accept that one of the consequences of very high housing benefit payments in central London has been, in effect, to line the pockets of private landlords with public money? Even if he does not accept the solution presented in this Budget and Finance Bill, does he not think that something needs to be done to address the problem?

[Mr Lammy]

I commend the hon. Gentleman for his defence of his hon. Friend, who, let us face it, is having a bad few days. This is not the moment to say that the private sector should step in. What are the chances of one of my constituents wanting to go into the private sector, as many of us have encouraged our constituents to do, given the uncertainty about what will happen to their housing benefit? None. The people who are in social housing will stay there, despite conditions such as those that I have described.

This is the time to walk the walk, I say to the Liberal Democrats. This is the time to demonstrate compassion, care and empathy—to walk alongside those who are poorest in our community. That is test of whether this is an effective Finance Bill, and it does not meet that standard.

[Mr Kevan Jones]

It will not only be private sector tenants who are affected. If a cap is introduced either in London or in my North Durham constituency and that cap is less than the current social market rent, the gap will have to be filled by the tenant. Some will be unable to afford it, and they will either be evicted or have to move out.

[Mr Lammy]

My hon. Friend is absolutely right. There will be a significant increase in evictions as a result of the housing benefit measures. Many Members will remember London in the 1980s and the early ‘90s. We remember what it was like walking under Waterloo bridge—sometimes it seemed as though whole families were living there, homeless. We remember the stories of “cardboard city”. That is what we remember, and that is what we will see again as a result of this Bill.

To say it is fair if a Bill places a £2 billion levy on the banks but imposes on hard-working people cuts and VAT rises that combined in total come to £24 billion is to treat people like fools. Of course it is not fair. How could it possibly be fair? That is why I repeat that Members who know a lot better and who have relied on the votes of those hard-working people should be ashamed of voting for this Finance Bill. I urge them, in the time left as we continue to debate the Bill, to hear those voices in this place and beyond that say that this moment, as tough as it is for our economy, can be a moment of hope, can be a moment of growth and can be a moment of fiscal stimulus. I urge those Members not to line up alongside the ideological orthodoxy that always sees the opportunity not just to cut a deficit but to cut the state and to cut welfare, but to say once again, as we have in progressive moments in the past: no, we can act differently. I am proud and very lucky to stand here having grown up in a constituency such as mine was in the past, but there are many young men and women who faced years of unemployment and many who, sadly, spent too many years serving at Her Majesty’s pleasure, as a direct consequence of decisions that were made about our economy at that time.

20:49

[Jacob Rees-Mogg (North East Somerset) (Con)]

May I begin by congratulating hon. Members on a series of excellent maiden speeches? My hon. Friend the Member for Weaver Vale (Graham Evans) spoke. I did not know that area of the country at all before he did so, and I feel much better informed as to its great beauties. The hon. Member for Scunthorpe (Nic Dakin) told the House, to its considerable relief, that he is not going to be a pugilist, as one of his predecessors once was, so I am glad to note that, if he disagrees with my speech, I may not end up with a broken nose—[Interruption.] I could not quite catch that, and I expect the Hansard reporters could not, either. My hon. Friend the Member for Ipswich (Ben Gummer), as Edmund Burke said of Pitt the Younger, is not so much a chip off the old block, as the old block itself. And finally, my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay) told us that he was—on the internet, under the same name—a cabaret artist. I may be rare in the country at large, but in this House probably not, in that I much prefer a political speech to a cabaret artist, so I am very glad that we had the wrong website for him.

Let me come to the matter at hand, the Second Reading of this incredibly important Finance Bill. It is, like the one in 1981, of considerable controversy but great importance. We have heard at length, but interestingly, from Opposition Members that, actually, this is not a serious circumstance, and that, if we pay off the debt, though a bit too high, in dribs and drabs, all will be well. Sadly, that just is not correct. The deficit that we have faced has reached levels that in peacetime we have never had, and a key factor about the funding of the deficit last year has been missed. It was that almost all the gilts that were issued were bought by the Bank of England under its programme of quantitative easing. That programme has now stopped.

Even with this Finance Bill, we face an increase in the amount that the Government need to raise from £40 billion to £160 billion, and if we had stuck to the Opposition’s proposals it would have been higher still. Where does that money come from? Who is willing to give this country £160 billion? As it is collected, who finds it harder to borrow? The answer is the very businesses that Opposition Members say find it difficult to make investment decisions. If we borrow and borrow, and the Government use up all the money, we force up interest rates for mortgage holders and squeeze out the investment that private companies need to make.

[Helen Goodman]

Will the hon. Gentleman give way?

[Jacob Rees-Mogg]

It will be an honour to give way.

[Helen Goodman]

I am trying, but I am having great difficulty following the hon. Gentleman’s train of thought. On the one hand, he says, rightly, that the deficit and the debt stock are too large, but he then connects that with extremely high interest rates. We do not have extremely high interest rates; we have record low interest rates at the moment.

[Jacob Rees-Mogg]

I am sorry to say that the hon. Lady left my train of thought at the wrong station. The point I was making was that, if we carry on issuing gilts at an even faster rate, long-term interest rates will rise, and it is on long-term interest rates that mortgages end up being priced. If we look at the gilts market, we see that the very thought—the prospect, the hope—of a Conservative Government saw it rally, therefore reducing the cost of borrowing to people in this country, whether Her Majesty’s Government or private individuals. So yes, we have very low overnight rates, but the long-term rate set by the gilts market is more important for mortgages.

[Chris Leslie]

Will the hon. Gentleman give way?

[Jacob Rees-Mogg]

It would be a privilege.

[Chris Leslie]

But surely the hon. Gentleman, as a sensible and grounded individual, will recognise that there is a world of difference between the Greek situation, to which some of his more hot-headed colleagues have compared our country, and the rather sturdy and well managed way in which we deal with our debt and gilts issuance in this country.

[Jacob Rees-Mogg]

I do not believe that I had mentioned Greece in the few words that I had spoken. I would say, however, that it is better to cut before getting into a Greek situation. I admire my right hon. Friend the Chancellor of the Exchequer because, in his foresight, he has brought forward action early. Countries in a Greek situation find that they can get no money from the financial markets and have to go cap in hand to the International Monetary Fund or the European Central Bank. How much better it is—how much more “prudent”, to use a word once popular with Labour Members—to get our house in order before reaching that state of desperation.

[Kate Green]

rose—

[Jacob Rees-Mogg]

Of course I will give way.

[Kate Green]

I am following the hon. Gentleman’s argument, I think, thanks to the probing questions of my hon. Friends. Are we not talking about a balance between getting the long-term interest rates sufficiently low and not overreacting and over-dramatising, which I fear the hon. Gentleman is in danger of doing?

[Jacob Rees-Mogg]

The hon. Lady ought to allow me to get over-dramatic before accusing me of being so. Her point is to some extent valid; of course we need to consider these things rationally and deal with them in a sensible and prudent fashion. That is exactly what we have done. The point that I am trying to establish is that the level of debt needs to be tackled urgently. I am not saying that the United Kingdom is bankrupt; there are studies that show that there has been no default on our debt since 1688. I do not believe that the situation was going to lead to a default on gilt-edged securities. We had not reached that stage.

[Mr Kevan Jones]

rose—

[Jacob Rees-Mogg]

However, I do not believe that it would have been impossible, purely because of our strong history, for us to have reached that stage if we had not done something early—sooner rather than later. Does the hon. Member for North Durham (Mr Jones) still want to intervene? I shall be delighted to give way.

[Mr Jones]

Is it not the case that the average maturity of UK debt is some 14 years, as opposed to two years in Greece?

[Jacob Rees-Mogg]

The hon. Gentleman is absolutely right. That is why, as I was saying, it is right to address the problem now, when we are in a strong enough position to do it and take the pain. Nobody denies that cutting is painful. It is always difficult.

Having, I hope, established the seriousness of the situation, I want to move on to the balance between tax rises and spending cuts and why I think, once again, that Her Majesty’s Government have exactly the right balance. One figure has not been drawn out in these debates, but it is noteworthy. If we take net tax receipts and national insurance contributions as a percentage of GDP, we see that they will reach 36.4% in 2013-14. That level has not been achieved in any single year of socialist government from 1970-71 onwards. We are having the highest level of taxation as a percentage of GDP because of a Conservative Budget, of all things. Incidentally, the same figure was reached under the chancellorships of Lords Howe and Lawson. So the Conservatives are willing to tax when it is necessary to ensure the financial stability of the country.

[Owen Smith]

Will the hon. Gentleman give way?

[Jacob Rees-Mogg]

Of course—with pleasure.

[Owen Smith]

Given the manifest command of economic history that the hon. Gentleman is showing, will he answer a question that the Chief Secretary to the Treasury could not answer when I asked him earlier today? It was about growth. Can the hon. Gentleman name one five-year period during any of the past 40 years when we have seen the level of growth projected by the OBR—in particular, the level of job creation in the private sector?

[Jacob Rees-Mogg]

The hon. Gentleman asks the wrong question, for a very straightforward reason. I would happily ask a question back. Can he point to a deeper recession in the history of the United Kingdom? The fact is that recovery rates from very deep recessions are much faster than those from shallower recessions. That is the point that my right hon. Friend the Member for Wokingham (Mr Redwood) made earlier. We get very strong recoveries after a very serious downturn, and the seriousness of the recent downturn goes back to the 1930s, as the right hon. Member for Edinburgh South West (Mr Darling) so rightly pointed out.

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

The hon. Gentleman asked whether it was possible to name any recession in which there has been such a recovery. What about the 1930s? I understand that it was only through rearmament that Britain recovered from the deepest recession of all.

[Jacob Rees-Mogg]

I do not believe that the hon. Gentleman is accurate about the recovery in the 1930s. There is a common misconception that the recession of the 1930s was the same in the United Kingdom as in the United States, but that is not correct. What really happened in the 1930s is that when we came off the gold standard, there was a gigantic monetary stimulus, and that led to the recovery. The one thing that is of crucial importance, but outside the strict remit of this debate, is that we must maintain a loose monetary policy, which will be supportive of the recovery, as it was in the 1930s.

[Gregg McClymont]

I thank the hon. Gentleman for that answer. However, my understanding is that we had mass unemployment until the war took its course and we had to rearm. Am I not right in saying that the unemployment problem that emerged after 1929, and particularly after 1931, was not solved until rearmament and the war occurred?

[Jacob Rees-Mogg]

The hon. Gentleman is absolutely right about the problem of unemployment in the 1930s, although the situation began to recover in the United Kingdom considerably earlier than in the United States. I accept that in the United States, rearmament led to recovery, but I suggest that in the United Kingdom the recovery resulted from coming off the gold standard and the boost to trade that that provided.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

Will the right hon. Gentleman give way?

[Jacob Rees-Mogg]

The hon. Gentleman has promoted me, but I will give way for the flattery.

[Mr Bailey]

I am sure it is only a matter of time.

Does the hon. Gentleman acknowledge that the diminution in unemployment that took place in the 1930s was largely a result of Government public spending, particularly on public sector housing?

[Jacob Rees-Mogg]

I think that Neville Chamberlain managed to balance the budget, so we had a Chancellor who was a Conservative doing quite a good deal of work in the 1930s. However, we may be getting a little abstruse and far away from the 2010 Finance Bill.

[Chris Leslie]

Can I ask one last question on the 1930s?

[Jacob Rees-Mogg]

I know that I am accused of being old-fashioned, but I do not want to conduct the whole debate in the 1930s.

Let us move back to 2010 and the need for the tax rises to be as they are, not higher. Clearly, at 36.4% of GDP, we are at a tax level that it is very difficult to surpass. I remind Labour Members who disparage the great Professor Laffer that when tax rates were at 83%, they still failed to get above 36.4% of GDP, so taxation is as high as it can be.

My final point is on spending. The problem with spending is that it got out of control post the period when Labour followed the Conservative plans for public spending. It is simply not sustainably to have Government spending at 48% of GDP when the tax base is 36.4% of GDP.

[Grahame M. Morris]

If that is the case, why did the Conservatives support the Labour Government’s spending plans until 2008? In fact, my recollection is that there were demands for more spending—more police numbers, more support for carers, and so on.

[Jacob Rees-Mogg]

There were political reasons, I think it might be said, for supporting those spending plans. I was not a Member of the House at that time, and it is a bit harsh for me to be expected to take responsibility. I think a lot of people, not only in this House, held to the mistaken idea that the economy was going to carry on growing for ever. I have always thought that boom and bust is a fact of life. We always have booms and we always have busts, and we will have them again. One can look at studies of financial cycles going back to biblical times, so the thought that there would always be growth was simply wrong, and to try to match Labour’s spending programme was a mistake. However, even Homer nods. The point is that spending was out of control and had to be cut, and taxation is at its limit.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

I know that the hon. Gentleman keeps quoting the figure of 36.4% of GDP, but is that not dependent upon what GDP actually is? According to the coalition Government’s prospectus, GDP will actually go down.

[Jacob Rees-Mogg]

The hon. Gentleman ought to bear in mind that we will achieve growth if we leave some money for business to borrow rather than it all being pinched by the state. That was the point that I was making at the beginning—if the state borrows all the money that is going, in the absence of quantitative easing, it crowds out private investment.

I know that Members do not want to listen to me all evening, so I shall—[Hon. Members: “No, more!”] Well, as I understand it, if I go on long enough tomorrow’s business is forfeit, and that is an Opposition motion, so I will conclude.

We know that the situation is serious and that tax is as high as it can be, therefore spending must be cut, however difficult it is. I commend the Liberal Democrats for their courage in supporting that and facing up to the realities of government, which they have not needed to do for a few decades. If I were wearing my hat, I would take it off to the Liberal Democrats.

21:06

[Mr Kevan Jones (North Durham) (Lab)]

I congratulate the hon. Member for North East Somerset (Jacob Rees-Mogg) on his contribution. I am really pleased that the Rees-Mogg family are all in this together with us in the tough times ahead, and I hope that the financial strain that the Rees-Mogg family will have to face will not mean that the hon. Gentleman’s tailor is somehow deprived of business.

It is a pleasure to speak with you in the Chair for the first time, Mr Deputy Speaker. This is the first time that I have spoken in a debate in this Parliament, and it is an opportunity not just to recognise the dangers of the Budget but to pay tribute to the benefits that we in North Durham received from the 13 years of the Labour Government.

I congratulate the hon. Member for North East Cambridgeshire (Stephen Barclay), my hon. Friend the Member for Scunthorpe (Nic Dakin) and the hon. Members for Ipswich (Ben Gummer) and for Weaver Vale (Graham Evans) on their excellent maiden speeches. They all rightly paid tribute to their predecessors, and will be strong advocates for their constituencies.

This Finance Bill is a bit odd in that it is a two-stage Bill. Some of us have been used to having the Second Reading debate on the Floor of the House, and then the Members who had either upset the Whips or were financial saddos went into a Committee Room for several weeks for the Committee stage.

[Chris Leslie]

It’s a shame.

[Mr Jones]

My hon. Friend says it is a shame that that is no longer the case. I know that when he was a Back Bencher two Parliaments ago he was an assiduous Member, perhaps with the sad anorak tendency of those on the Finance Bill Committee.

[Barry Gardiner]

He used to take notes.

[Mr Jones]

He did. We are now to have all stages on the Floor of the House, which I greatly welcome. I look forward to exploring the Bill in depth in the next few weeks, as I am sure many other Labour Members do.

[Mr Love]

Does my hon. Friend agree that all the damage that we know will be done will come in this Finance Bill?

[Mr Jones]

It will, and I shall refer to that later. It will affect many people in my constituency, including some of the poorest.

In introducing his Budget, the Chancellor said:

“This emergency Budget deals decisively with our country’s record debts. It pays for the past, and it plans for the future. It supports a strong, enterprise-led recovery, it rewards work and it protects the most vulnerable in our society. Yes, it is tough, but it is also fair.”—[Official Report, 22 June 2010; Vol. 512, c. 166.]

His apprentice, in the form of the Chief Secretary to the Treasury, came before us today. He is wheeled out every time the Conservative party wants to do a nasty deed. I would have thought that he would wake up to the fact that the Conservatives use him and the Liberal Democrats as a shield.

[Helen Goodman]

It is cruel.

[Mr Jones]

I am not sure that it is, because the Chief Secretary knows what he has signed up to. With his great experience as press officer for the Cairngorms national park, I am sure that he knows danger when he sees it. We need to expose the Liberal Democrats’ rank hypocrisy. They went into the election campaign arguing against most of the things to which they have now signed up. They have abandoned decades of commitment to some of the poorest in our society.

Those actions are predicated on a myth. The hon. Member for Dundee East (Stewart Hosie) identified it earlier when he mentioned Canada. That is a worthwhile example, because if we want to explain what is happening, we need to examine in detail what happened in Canada in the 1990s. The Government are copying not only every single measure that the then Canadian Government introduced but the tactics, including the great consultation with the Canadian people about how to cut the budget.

[Clive Efford]

I am interested in my hon. Friend’s argument, particularly his comparison of the consultation that is about to take place with what happened in Canada. Will he confirm that the consultation in Canada took place on the basis that the Government would reinvest in the public sector after they had got through their budget deficit, whereas this Government are making an ideological change whereby they will cut back the state for ever? They are inviting people to take part in a consultation not to ascertain where we should take short-term measures, but to cut from the state services that people will never see again.

[Mr Jones]

My hon. Friend is right, but in Canada people fell for the trick, because they cut back and did not reinvest.

The Budget is ideologically driven. It is not about deficit reduction, but about driving down the state and ensuring that we can somehow con the British public into accepting the unthinkable.

We must always have someone with whom to compare ourselves and say, “We could be like that.” The current tendency is to compare us with Greece, whereas in Canada in the 1990s, New Zealand was used an example. The process followed the same pattern as today. The starting point is to convince the public that the debt is so horrendous that there is no alternative to ideologically driven debt reduction; some hon. Members have claimed that today. The next step is to whip up the media and get a friendly think-tank or other supportive organisation to put forward selective facts about the size of the deficit. To crank up the national debt as high as possible, everything is added in, including future private finance initiative funding. Revenue accounting is added to capital costs, without explaining to people that capital investment is investment in this country’s economy. That is how to try to scare the public.

As happened in Canada, the next step is to say that if the cuts are not made, the consequences will be dire. Guess what the Canadian Liberals did? They threatened, “If we don’t do this, the IMF will come in tomorrow.” We heard that during the election campaign. There is nothing new about what is happening here. The Conservative party has clearly copied the Canadian model, and even adopted the playbook. Unfortunately, it has been able to con the Liberal Democrats into being its human shield.

[Mrs McGuire]

Does my hon. Friend agree that some of the leaks that apparently came out of the Government in the past two or three days concerning 40% cuts are designed to set the context of fear that he is describing? When interviewed at the weekend, one senior Government Minister said that nobody would be asked for 40% cuts, and that that was only scenario planning. Are the Government trying to set the context so that people might be relieved that the cuts are less severe than those paraded in the media?

[Mr Jones]

As a former trade union negotiator, I can tell my right hon. Friend that that is an old trick. People go into negotiations asking for 50% knowing that they will come out with 5%. It is exactly as she portrays.

If anybody wants to read about the Government’s game plan, or war plan, I recommend an excellent book—someone sent me a copy from Canada—called “Shooting the Hippo” by Linda McQuaig. It is nothing to do with wildlife, and I say to the more delicate individuals in the Chamber that it is not actually about murdering hippos, but where the title comes from is interesting. Part of the media hype in Canada centred on the example of the baby hippo that would have to be shot because the zoo could no longer afford the size of compound it needed. We thereby get into a self-fulfilling prophesy, in which there is somehow no alternative.

Hon. Members have mentioned the comparison with Greece; the Canadians used the example of New Zealand. The Tories and the Liberal Democrats have justified the emergency Budget by talking about our “sovereign debt crisis” as though it were the same as Greece’s, or that of some other southern European country. That has been the entire justification for the proposals. The hon. Member for North East Somerset referred to gilts and other investments as though they would be at risk if nothing were done, and actually claimed credit for the Government for the change in the gilt yield. However, the 10-year bond yield in the UK today is around 4.5%, but it actually dropped to 3.5% in February, way before the election.

[Jacob Rees-Mogg]

rose—

[Mr Jones]

To somehow attribute that decline to— [Interruption.] From a sedentary position, the hon. Member for Chelsea and Fulham (Greg Hands) asks me to give way. I am glad he is now either a Parliamentary Private Secretary or some other kind of bag carrier on the Back Benches, because it will stop him making his fatuous contributions. I hope that the Exchequer Secretary is a good Minister to carry bags for, unlike the Minister for Equalities or one of the other Liberal Democrat Ministers. I shall give way with pleasure to the hon. Member for North East Somerset.

[Jacob Rees-Mogg]

The financial markets in February had the intelligence to work out that there was an election in May and to consult the opinion polls. It was not exactly a case of consulting Mystic Meg.

[Mr Jones]

The financial markets obviously and clearly got it wrong, so I am not sure what point the hon. Gentleman is making. The idea that the Labour Government left us in such a dire situation is absolute nonsense. It, too, is part of the scare agenda.

[Andrew Bridgen]

The hon. Gentleman seems to have the impression that the world has an insatiable appetite to buy UK Government debt. If that is the case, why did at least one Treasury gilt sale fail to be fully taken up?

[Mr Jones]

How many sales were there? We were rightly trying to raise money, but to give the impression that UK Government debt is a bad investment is completely ludicrous.

[Helen Goodman]

I am sure my hon. Friend is aware that a large proportion of British Government debt is bought by domestic savers rather than overseas savers. That is another reason why the British Government are much less at risk from the international markets.

[Mr Jones]

I am grateful to my hon. Friend for raising that point. A Bank of International Settlements report that I looked at this morning—it is worth looking at, and I suggest that anyone who has a spare half hour, or who suffers from insomnia later tonight, read it—contains an interesting graph showing exactly where debts are: 70% of Greek debt and 50% of US debt is held by non-residents, but for the UK the proportion is 30%. That makes my hon. Friend’s point well.

Ministers increasingly raise the spectre of Greece. For example, last week the Secretary of State for Energy and Climate Change said that the Chancellor had said that the Budget was necessary because otherwise Britain would be in danger of not being able to pay its way in the world. Public debt in Greece is the highest in the euro area at about 120% of GDP. It also has one of the highest fiscal deficits in the OECD, with 14% of GDP. I do not seek to minimise the UK’s debt—it needs to be dealt with, and we set out a clear plan to tackle it—but it rose 20% in the last couple of years for a very good reason. We faced a massive economic downturn, and investing the money was the correct thing to do to ensure that we did not go into not only a recession, but a long-term depression. I remind new Conservative Members that when those who are now in government were in opposition, they got it wrong on Northern Rock and wrong on how to deal with the banking crisis. Did they ever oppose anything that we did on that? No, they did not; they supported our measures. Their approach would have got us into a complete mess.

The UK debt is 68% of GDP, which is much lower than the euro area average of 79%. Our fiscal deficit is 11%. However much people try to portray our borrowings as on a par with those of Greece or some of the other basket cases—as the press call them—that is just not so. It is the same with the return on bonds. In the US it is 3.58% and in Germany 2.5%. In addition, we have to recognise what type of debt we have. Those who are following the war plan to frighten everyone might fall for the suggestion that somehow our debt has to be repaid tomorrow. We are even hearing some of the nonsense that we heard in the Thatcher era about the idea that the UK economy—or a business—should be run like a personal bank account. That is complete nonsense. If people look at the chart on page 68 of the Bank for International Settlements report, on the maturity of debt, they will see that for the UK it is 14 years. In the US and Germany it is under nine years, and Greece has some debt on short-term loans of two years, with an immediate requirement to repay. The idea that we are in such a mess that we have to repay debt now, and so need this emergency Budget—with all the damage that the VAT increase and everything else will do—is utter nonsense.

[Sajid Javid (Bromsgrove) (Con)]

While what the hon. Gentleman says about the duration of the Government’s debt is correct, what is of more importance now is the amount of borrowing that the Government have to do on a weekly basis because of the size of the deficit, which is—at 13% of GDP—the largest in Europe. We are borrowing roughly £3 billion a week, and that has nothing to do with the duration of the debt. Regardless of the duration, if the deficit is not addressed we will still be in the market trying to borrow £3 billion a week. That is one of the reasons why the auction that my hon. Friend the Member for North West Leicestershire (Andrew Bridgen) mentioned earlier failed in the markets.

[Mr Jones]

The hon. Gentleman misunderstands. No one is suggesting that we do not need to reduce the debt: the Labour Government did reduce the debt. I know that during the election the stock in-phrase was “Labour didn’t mend the roof while the sun was shining”. Well, I am sorry, but we did. We actually paid off debt. For example, the 3G licences for mobile phones raised in excess of £20 billion, which went directly to paying off debt. However, we are now in danger of doing what happened in the 1980s with the Thatcher Government: borrowing money not to invest, which we were doing, but to pay unemployment and other benefits. The Government are going to slash welfare benefits, exactly as happened in Canada, and blame the poor. It was not the poor, unemployed or disabled in my constituency who got the debt this high; it was the international bankers and the people who are now to be rewarded by the Budget proposals on corporation tax as part of this stimulus.

[Phil Wilson]

On the 3G licences, is my hon. Friend also aware that we paid back more debt then than all the Governments since 1945 put together?

[Mr Jones]

Yes, we did, and that was the responsible thing to do. My right hon. Friend the shadow Chancellor set out what our Government reductions were going to be.

On the recession, if anyone says we are out of the woods, they should look at the provisional gross domestic product figures: 0.3% growth in the first quarter of this year, and 0.4% growth in the final quarter of 2009. The new Office for Budget Responsibility thinks that the economy will grow by 1.2% in 2010, and by 2.3% in 2011. So the Budget is a great gamble. However, this is not just about what is in the Budget and the Finance Bill, which will take money out of the economy at this crucial time when we need to put money in; the Government are also gambling on the complete and utter nonsense that there are two different economies in the country—the private sector, which is good and which we look up to and say, “It’s a wonderful thing,” and the public sector, which is bad and which we boo whenever we talk about it—and that somehow we can separate the two. I shall return to that point in a minute.

On the proposed deficit reduction, the Government’s fox has been shot by their own Office for Budget Responsibility. Its independent analysis is that Labour’s deficit reduction plan would have more than achieved the target of halving the deficit over four years, from 11.1% in 2009-10 to 5% in 2013-14. The OBR also said that the Labour plan would reduce the structural deficit by nearly three quarters, from 5.2% of GDP in 2010-11 to 1.6% in 2014. The plan as outlined to halve the budget deficit within four years would have met the timetable set out at the recent G20 summit on 27 June 2010. Government Members and commentators say that the previous Government did not have a plan, but they did, and even the Government’s own Office for Budget Responsibility recognise that. That plan, however, is now being crammed into two years, which cannot be done without a cost to jobs.

[Mrs McGuire]

Does my hon. Friend agree that, given the scenario he has painted and the fact that the previous Government’s budget deficit plan would meet the international criteria, one would suspect that the current plan is more about ideology than economics?

[Mr Jones]

My right hon. Friend is right as usual: the Government’s plan has nothing to do with that, but is being used as an excuse for an ideological attack, because what they actually want is a smaller state in this country. I return to the point that the Government’s plan is about saying, “Private sector good; public sector to be sneered at, public sector workers to be denigrated and not valued,” and that if we reduce the size of the state, that will somehow lead to nirvana, at which point we can all go off into the sunset and live happily ever after. However, the Government suddenly announced yesterday that they were basically going to shelve the Building Schools for the Future programme, affecting exactly those jobs that the local construction industry—I met the Civil Engineering Contractors Association a few weeks ago—was relying on to ensure that the recovery continues. Therefore, to argue that we can somehow cut back the public sector without having any effect whatever on the private sector is complete nonsense.

We all know that in regions such as mine in the north-east, as well as those in Northern Ireland and others that have a larger public sector dependency than other areas, the effect of what is outlined in the Budget will be even worse. However, I give hon. Members this warning: we ain’t seen nothing yet, because the Finance Bill will work by salami slicing, which is a technique that the Government are using to slip the news out. The biggest crackdown will come—we all know this—with the public sector spending round in October. That is when the real cuts in both capital budgets and other investments will be made.

[Phil Wilson]

I thank my hon. Friend for giving way again, and he is absolutely right. The Government have an objective of trying to create a big society, but does he agree that if we continue down this road, what they will produce is a little Britain?

[Mr Jones]

Yes, they will, and there is something else that they will do. Interestingly, the hon. Member for Ipswich, who made an excellent maiden speech, talked about prison reform, saying things that he really meant, on an issue to which he is committed. However, he will soon be disabused of that, when he finds that the prison reforms being put through the Ministry of Justice have nothing at all to do with the penal system, and everything to do with budget restraint.

As for the other measures , the VAT increase will have a disproportionate effect on my constituents and those in regions such as mine, because it is, in part, one of the poorest communities. As for the Liberal Democrats—we saw a half-hearted attempt earlier to defend the increase in VAT—the measure will indeed affect the poorest.

[Grahame M. Morris]

On the point raised by Government Members about the impact assessment, will my hon. Friend comment on the impact of the VAT increase on the third sector? I had meetings at the weekend, and I know that many in the voluntary and community sector rely on trading activity and are concerned about what the increase will do to their income levels.

[Mr Jones]

The increase is going to affect every single organisation that provides public services, including local councils––the increase will cost them a lot of money. As we saw earlier, certain commitments were given on VAT, and I have here the Liberal Democrat poster from 8 April—and I must say that it is very good. I am sorry if I am going to pour more scorn on to the Liberal Democrats, but I enjoy doing it, and I am sure that some of their Tory colleagues will enjoy it as well. The poster says:

“Tory VAT bombshell.

You’d pay £389 more a year in VAT under the Conservatives”.

The Deputy Prime Minister, the right hon. Member for Sheffield, Hallam (Mr Clegg) made quite a few comments on VAT before the election. He referred to it on the “Today” programme on 7 April 2010, saying that VAT

“let’s remember, is a regressive tax”.

What has changed since then? What is being proposed will affect the poorest in our society.

The Deputy Prime Minister is not the only one who has form in this area. When the then Leader of the Opposition appeared in Exeter in something called Cameron Direct on 8 May 2009, he said:

“You could try as you say put it on VAT, sales tax, but again if you look at the effect of sales tax, it’s very regressive, it hits the poorest the hardest. It does, I absolutely promise you.”

So what is different now? What has actually changed, apart from the fact that the Government now have their posteriors on the Treasury Bench and in their ministerial limousines?

[Ms Angela Eagle]

My hon. Friend is making a perfectly good point and an extremely good speech. I should like to update the House about the website of the Deputy Prime Minister. The “Tory VAT bombshell” poster, which was on the website until very recently, has just been removed.

[Mr Jones]

I congratulate the hon. Member who raised the matter earlier. Someone obviously had to scurry away and take the poster down very quickly.

[Tom Blenkinsop]

In my constituency, I recently met representatives of the North East Federation of Small Business, who were concerned about their members who worked in retail on the high street. The increase in VAT to 20% will affect them very badly.

[Mr Jones]

I will come to that in a moment. Let me be honest—I have never considered shopping a leisure activity, and I think people are quite strange if they do. Unfortunately, my family and large numbers of my constituents think that it is. The VAT increase will have an effect on that leisure activity, which will have a direct effect on jobs that occupy a large proportion of the local economy in many areas. My hon. Friend’s constituency has been affected by events at the Corus steelworks, and one possible result of that is that people will be looking for other jobs, including in retail, but those jobs simply will not be there.

[Mrs McGuire]

My hon. Friend said that we needed to look at the whole package. Will he reflect on the fact, linked to some of the cuts in maternity benefits, that new parents will have to pay 20% VAT when they buy a pram, for example? The VAT increase will apply not only to the big common items such as fridges, washing machines and cars but to basic goods that families have to buy daily.

[Mr Jones]

That will be a double whammy for those new families. Something like 30,000 children in the north-east will also lose out through the abolition of the child trust fund. Their families will then be hit by the VAT increase, on top of the huge expense of a new child, which will have a disproportionate effect, as my right hon. Friend points out. It will have an even greater effect on low-income families and people who are on benefits.

We spoke earlier about where the burden of the cuts will fall. It was obviously a first outing for the hon. Member for Solihull (Lorely Burt), and the Government have obviously run out of people to put on the Front Bench, judging by the performance that we saw. She tried to argue that VAT was not a regressive tax, although the Liberal Democrats said throughout the election campaign that it was. She also tried to argue that the increase would not affect the poorest in society.

One of the great things about being a Member of Parliament is that we have access to a great Library here. I suggest that all hon. Members go and take a look at the excellent document on VAT and the new standard rate of 20%. Turn to page 4, which has a very useful graph that shows that, as a result of this increase, the poorest will pay some 19% more as a proportion of their net household income, while the richest will pay less than 11%. People in North Durham who are on benefits and those made unemployed over the last few weeks will find themselves being hit straight away next year by this tax. Also affected will be a lot of small businesses, shops and others.

[Kate Green]

Does my hon. Friend agree that the reason why the poor are hit so particularly hard is that for them this is not discretionary spending, but spending on essentials? While the rich might face paying out a higher proportion of their expenditure, that is because they choose to incur that extra expenditure, while poorer families are being fleeced for expenditure on items for which they have no choice but to spend.

[Mr Jones]

My hon. Friend makes a very good point. Unlike the hon. Member for North East Somerset, who might be able to forgo a visit to the tailor once this year, some of the families he is talking to will not have a choice about whether to buy a new pram or other essential equipment for their baby. I have some further examples to put to the House.

[Mr MacNeil]

I am grateful to the hon. Gentleman for letting me into the debate. The reason I often hear from the Liberal Democrats for their support for the increase in VAT is that the figures were far worse than they expected them to be. However, the pre-Budget report said that the deficit would be £176 billion, yet when it came to the Budget proper, it was £149 billion. In the build-up to the election, the Budget deficit was greater than anticipated and the Liberals were against the VAT rise; then, when they found a decrease in the deficit, they were suddenly for the VAT rise. I am perplexed. Can the hon. Gentleman help me understand those figures?

[Mr Jones]

What I am going to say to the hon. Gentleman in response might come as a bigger shock to him than when he first found out that Father Christmas did not exist.

[Mr MacNeil]

What?

[Mr Jones]

The Liberal Democrats do say one thing and do another. As I say, that will come as a great shock to the hon. Gentleman, but let us be honest, anyone who has fought Liberal Democrats in local government is used to them saying one thing and doing another locally, as well as nationally.

[Mr Love]

Does my hon. Friend agree that the biggest shock of all was the statements made by the Chancellor immediately before the Budget to the effect that he had no plans to raise VAT?

[Mr Jones]

Yes, we have been asked directly whether this came suddenly as a shock. The hon. Member for Na h-Eileanan an Iar (Mr MacNeil) has just raised the very clear point that the actual size of the deficit was smaller than projected. No, this is a coalition deal, as we all know, by the push-me, pull-me coalition. We obviously have two leaders who can hardly be told apart in terms of political objectives, and we have some very unhappy individuals, such as the hon. Member for St Ives (Andrew George). When he made his speech trying to justify this in the House last week, he looked very uncomfortable. I feel for him; all I would say is that if he feels so unhappy, he should come and join us.

[Barry Gardiner]

My hon. Friend is making a tremendous speech and I hope he goes on making it for a good deal longer. He talked about the impact of VAT on small businesses, but does he agree that one of the most damaging effects on those businesses in his part of the world will come from the loss of One NorthEast? The very support that businesses in his area require is going to be lost.

[Mr Jones]

Yes, another myth that people have been peddling is that development agencies like One NorthEast were somehow profiting and spending. I will tell anyone what One NorthEast did in my constituency. It helped out a perfectly viable business in the middle of the recession, which could not get a £2 million loan that it needed to be underwritten. When One NorthEast stepped in, 20 extra jobs were created in that small business and another 50 were safeguarded.

[Chris Leslie]

Are not small businesses doubly affected because of the cash-flow problems that they may experience? With VAT at 20%, it is difficult to persuade customers to pay up on time. Many businesses may go to the wall, and insolvencies may arise as a result of the VAT change.

[Mr Jones]

That is a very good point. The Budget offers no help whatsoever for the small businesses to which my hon. Friend referred. However, it is not just small businesses that are affected. Some supermarkets are very wary about the increase because of what they fear will happen to their businesses. The finance director of Tesco has called on the Government to freeze VAT at 17.5% because, he says, the economy is very fragile, saying:

“The recovery is happening but it’s fragile and therefore the balance is important”.

He says VAT

“is going to be part of the austerity package but it is a question of when you do it. The best thing would be to wait a bit.”

Let me also give Sainsbury’s a mention. According to Eye Spy MP, the Chief Secretary has been shopping there and buying Quavers. I am not sure whether they were intended to sustain him during tonight’s debate. Justin King, the chief executive of Sainsbury’s,

“warned the incoming UK government to refrain from increasing VAT amid speculation it could be an option considered by”

the coalition Government.

As has been pointed out, the VAT increase will have a real effect on retail business large and small. As for the consumer viewpoint, Mike O’Connor, chief executive of Consumer Focus, has said:

“Thousands of the things we buy every day are going to get more expensive. The VAT rise will hit the poorest consumers hardest as people who earn least already spend proportionately more of their income on VAT and it will be even more important for consumers to shop around for the best bargains.”

[Lilian Greenwood (Nottingham South) (Lab)]

Will not many of the poorest families be doubly hard hit? Not only will they face rising prices as a result of the VAT increase, but at the same time their benefits will be uprated in line with the consumer prices index rather than as previously with the retail prices index.

[Mr Jones]

There will indeed be a double effect on those families. It is all very well saying that people can shop around, but in my constituency—a rural constituency but, as I said in my maiden speech, one with urban problems—they cannot do that when they have no access to a car and the only option is public transport. Those are the communities who will be hit hardest, and I am sure that they exist in all constituencies. The new hon. Member for North East Cambridgeshire, for instance, spoke of the pockets of deprivation in his own constituency. Those rural poor families will be hit harder than most.

[Grahame M. Morris]

The VAT increase will have an impact not only on small businesses and enterprises, but on working men’s clubs. Tonight there was a meeting of the all-party parliamentary group on non-profit making clubs, which is very concerned about the increase. Many clubs in our area are operating on the margins, and it will have an immediate impact on their costs because the transport costs are all passed on to them. Has my hon. Friend any thoughts about the impact on such clubs, which provide a real social centre for many people?

[Mr Jones]

As a member of the Sacriston workmen's club, I have to concur with my hon. Friend. As he knows, following the smoking ban, the change in the way people access alcohol and supermarket price cutting, many such clubs in the north-east of England have been struggling. Many have closed, sadly, in my constituency. We hear a lot about rural pubs, but we hear very little about the Club and Institute Union movement. In many places, including his constituency and mine, those clubs are the centre of the community. Once they have gone, they will not be replaced. The VAT increase will be a severe blow for them at this difficult time, when they are struggling already.

[Barry Gardiner]

My hon. Friend has been most generous in giving way. Before he moves on from VAT, has he had the opportunity to consider the costs to businesses of reprogramming their tills for the change in VAT? My understanding is that many of the large supermarket chains find that that process costs them millions of pounds. That is a real cost to the economy that does not seem to be factored in.

[Mr Jones]

My hon. Friend makes a good point. There will be a cost not only to large businesses but to small businesses. That brings me neatly on to the British Retail Consortium, which has grave concerns about the VAT increase. It recently said that it could cost up to 163,000 jobs and affect some £3.6 billion of spending. Again, in many communities those jobs are vital. This is on top of the very difficult economic climate that businesses are facing. In my constituency, retail-led development is a catalyst for regeneration. If, for example, the new Tesco in Stanley does not go ahead because of these proposals, it will have a knock-on effect on the regeneration of an entire town.

[Nadhim Zahawi (Stratford-on-Avon) (Con)]

On that point, I wonder whether the hon. Gentleman protested as much when the previous Government raised VAT on businesses? Did he make that point in the Chamber?

[Mr Jones]

The hon. Gentleman has to realise that these are his Government’s proposals. I have the luxury of being in opposition, where I can oppose the Government.

[Nadhim Zahawi]

For a long time.

[Mr Jones]

The way the Government are going with this Budget, I am not sure that it will be. The hon. Gentleman will have to get used to the fact that we will question the Government on the proposals because they will have a draconian effect on my constituents in North Durham.

I must refer not just to the retail trade or charities, but to the Conservative grass roots. Tim Montgomerie, on his website ConservativeHome, said:

“First, it hurts the poor most of all and, second, both the Conservatives and the Liberal Democrats said they had ‘no plans’ to increase this tax. At a time when trust in politics is so low we don’t need ‘plans’ to emerge tomorrow.”

That was in advance of the announcement that is contained in the Bill.

The other sector that the Bill will have a dramatic effect on is the construction sector. Yesterday, we saw the Building Schools for the Future programme decimated, directly affecting thousands of jobs. I am glad that my hon. Friend the Member for Halton (Derek Twigg) is back. He mentioned the decimation not only of BSF in his constituency but of other projects that have been put forward. Again, business and construction will have to carry the cost of the VAT increase.

Another sector that will be affected will be charities and the work that they do. I know that under the new Conservative approach, as part of the big society, charities are supposed to be stepping up to the mark, but they will be the ones that will be affected.

[Helen Goodman]

Has my hon. Friend noticed with respect to charities that the Government have now proposed to let welfare-to-work contracts on such a basis that only large companies with a lot of capital will be able to deliver them to unemployed people, thereby ruling out the voluntary sector from being involved in that worthwhile work?

[Mr Jones]

Exactly, and if these bodies are then to be burdened by this VAT increase, that will severely affect them.

On the VAT issue, I wish now to discuss an excellent document, which I believe has been sent to all hon. Members, produced by Save the Children and headed “Why the rise in VAT must be cancelled”. It makes all the arguments that the excellent Library note makes about the poorest being affected the worst, but it also gives some very good examples. A table on page 3 shows that the essential items to which my hon. Friend the Member for Stretford and Urmston (Kate Green) was referring are not luxuries but items that a family would require. I am talking about things such as washing machines, electric ovens and hobs and children’s bed frames, which will all be affected by this increase. The hon. Member for Solihull said that people should rush out to buy these things now to avoid the VAT increase in January. What she does not understand is that some individuals do not have the disposable income to be able suddenly to go out, shop around and get them. Many of these people rely on credit, so they face a double whammy of credit, usually at a high interest rate, and the effect of the coming VAT increase.

The Liberal Democrats should hang their heads in shame for supporting this Budget and especially these proposals, which are not progressive but will hit the hardest up in our society. I just hope that when it comes to the votes on the VAT increases they have the courage to oppose them; otherwise, they will have an electoral price to pay at the ballot box in local elections and others.

The proposals in the Budget to increase the insurance premium have not been given a lot of attention tonight.

[Chris Leslie]

It is a stealth tax.

[Mr Jones]

From a sedentary position, my hon. Friend rightly says that this is a stealth tax, and again, it will affect some of the poorest in our community. Earlier in the debate, we were talking about the level of fuel duty and rural communities where a car is not a luxury but an essential item that enables people to get around. This Budget will increase the insurance premiums for those drivers, with young drivers being particularly affected. Just because of their age, those drivers pay the highest premiums and they will have to pay an extra 1% under this Budget. In some cases, that will stop young drivers being able to get access to insurance.

[Helen Goodman]

On that point, does my hon. Friend agree that this will inhibit young people from learning to drive? Being able to drive is often an extremely important skill for people to have when looking for a job.

[Mr Jones]

Well, it is. In a constituency such as mine, driving is an essential tool for young people in getting to work and other places. My fear is that this will lead—

[Mr Speaker]

Order. I apologise for interrupting the hon. Gentleman, but a very large number of private conversations are taking place and there is a substantial hubbub in the Chamber. It is as though, after the first 53 minutes of his speech, the attention of the House has wandered a little. However, I know that a hushed atmosphere will be resumed and the House will want to hang upon his every word.

[Mr Jones]

What this proposal will lead to—this is my fear—is an increase in the number of uninsured drivers in those communities, and thus to the prospect of many people endangering not only their own lives but those of the people involved in their accidents.

My hon. Friend the Member for Nottingham East (Chris Leslie) referred to the tax on travel insurance as a stealth tax. It will be a tax on individuals, but it has also been condemned as a tax on the industry, although the industry thought the tax would be higher. It is an example of the Government’s negotiation tool of leaking or briefing that something is going to increase by x and then introducing a smaller increase as if somehow that is a great concession. Insurance premium tax will increase from 5%, but the higher rate of IPT for travel insurance will increase from 17.5% to 20%. That will have a direct effect on every constituent who goes on holiday next year. I fear that people will go abroad without proper travel insurance, and the taxpayer will have to pick up the bill in many cases.

[Chris Leslie]

My hon. Friend is right. Often the taxpayer is lumbered with having to rescue people abroad who have found themselves in precarious situations owing to the lack of proper insurance. Does my hon. Friend agree that this rather mean-spirited holiday tax will have all sorts of unforeseen consequences?

[Mr Jones]

Yes. For many of my constituents a holiday is one of their largest annual expenditures. So if an extra tax is added there will be a danger that people, especially the young, will not take out proper holiday insurance and the taxpayer will have to pick up the bill on occasions. There is also the distress caused to families.

There is a little-known item on MPs’ expenses in the Bill. I tried to ask the Chief Secretary a question about it early on, but he ignored it. I know we should not be speaking about our expenses and that many hon. Members cannot mention the IPSA word without using unparliamentary language. I am not going to do that; I actually got some money out of it yesterday.

The proposals in the Finance Bill allow our expenses to be treated as they were before in terms of their tax status. I cannot understand why the deposit that we are to be given for the rental of our second homes in London is taxable. I do not know whether it is a mistake or why that has been excluded. I am sure that if we send a tax bill to the Independent Parliamentary Standards Authority it will not pay it.

Already we are treated for tax purposes as though we run a small business. Before, we were allowed to claim legitimate expenditure for the filing of tax returns. IPSA has taken that away from us and we now have to pay that cost, which in my case will be something like £600 next year. I would like to see all our expenditure such as that on equipment, on which there is capital depreciation, taken out of tax. That would solve the issue in terms of our being looked at as small businesses.

I rued the day a few years ago when I knocked the door through in my office and found out that I had a tax liability for it of more than £1,000. Do not ask me what I will do with the door in the office when I stand down as a Member of Parliament, but I have paid that tax. I jest, but I seriously suggest that we need to look at this area. Clearly, IPSA and the court of public opinion said that we could no longer claim for legitimate tax advice. That is fine. I do not need a tax adviser, unlike some hon. Members, to handle my personal tax affairs. So we need to have a look at that point.

Finally—[Hon. Members: “No—more!”]—I come to corporation tax and an issue that has emerged from tonight’s debate. The Budget statement said that corporation tax would be reduced over a four-year period, but the Bill reduces it for only one year. What confidence does that give businesses looking to make long-term investments? Are we to have some sort of assurance, or is the Bill to be amended to ensure that corporation tax is reduced to the 24p proposed?

I have never spoken about Northern Ireland affairs, but I thought this one was too good to miss. There is an issue that affects Northern Ireland more than other parts of the country: the possibility of driving corporations south to the Republic of Ireland. The Chief Secretary said how wonderful it is that our corporation tax rate will be among the lowest, but the rate in Ireland is 12.5%. I know that Members of the Northern Ireland Assembly are concerned that, even with the decrease, it might be attractive for businesses to move from the north to the south. When the Government look at how to rebalance the Northern Ireland economy, it will be important to take that point on board.

The pain in the Budget will affect many constituents of mine. Thirteen years of Labour Government transformed the infrastructure of North Durham. We have two new hospitals, five new primary care centres and GP surgeries, new dentists and new schools. Not only did that have a beneficial effect on the life chances of many of my constituents, but it put money into the local economy. Now, with yesterday’s announcement on Building Schools for the Future, we see that that tap is to be turned off. We are going to go back to the days when I was chair of school governors in Newcastle. Yes, as the Secretary of State for Education said yesterday, education is about good teaching—I passionately believe that—but teachers cannot do that if they have to have a bucket to catch the water leaking through the roof.

The other measure that will have a big impact on my constituents is the freeze in public sector pay—something I feel passionate about. When I was a Minister, I helped not only Labour Members but all Members in standing up and arguing for our servicemen and women. Frankly, the pay freeze announced by this Government is a disgrace. When we have people risking their lives in Afghanistan, to impose a pay freeze on them is a disgrace.

I thank everyone for listening tonight. I shall enjoy the debates on this Finance Bill, because it is right that it gets proper scrutiny and that we explode the myths that are being propounded. That way, when people in my constituency and elsewhere are having their housing benefit cut and they are being evicted, they will know the reasons why. It is more important that we stop some of the more horrendous measures in the Bill happening at all, but if they do happen, we need to be able to lay the blame in the right place. We expect this from the Conservatives. The north-east suffered under the Conservatives for 18 years. What we do not expect is the collaboration that we are seeing from the Liberal Democrats in the coalition, or the pathetic excuses we heard the hon. Member for Solihull give to justify the horrendous measures that are coming my constituents’ way and hers as a result of this Budget.

[Mr John Denham (Southampton, Itchen) (Lab)]

On a point of order, Mr Speaker. At about 4pm today I was rung by a reporter from The Daily Telegraph, Mr Christopher Hope, and asked to comment on the reply to a written question that he said would be answered tomorrow. I assumed that the question had been answered and would be reported in Hansard tomorrow. However, when I checked with the Library, it confirmed that no answer had been received. I have also checked with the hon. Member for Perth and North Perthshire (Pete Wishart), who tabled the question. He had checked his pigeon hole at about 4pm, and at that time he had not received a reply. At 7pm, the Library told me that the question had still not been answered.

Is it in order for the Secretary of State for Communities and Local Government or his agents to give a parliamentary answer to the press before making it available to the hon. Member who asked the question or, indeed, to the whole House? What remedies can we have for those Ministers who have such low regard for this House and its Members?

[Mr Speaker]

I am grateful to the right hon. Gentleman for his point of order and for advance notice of it. It is, of course, essential that answers are given, first, to the Member concerned, although it sometimes happens that answers go innocently astray. Ministers on the Treasury Bench and the Government Whip have heard the point of order and will no doubt ensure that the Department discovers what took place. When that is ascertained, and it should not take long to do so, I would like to be informed. I am grateful to the right hon. Gentleman for putting a serious matter on the record.

Just before I call Mr Andrew George, I simply point out to the House that a very large number of Members are still seeking to catch my eye, and I know that Members will regard it as most helpful, with no reference to any particular speech that the House has heard, if I remind it that the Finance Bill is a relatively narrow Bill of, I think, 11 clauses and five schedules. It is approximately 30 pages, and the thrust of it depends upon, and is relevant to, I think, seven resolutions of the House. I thought that that might give it a bit of context and reference.

22:12

[Andrew George (St Ives) (LD)]

It is a pleasure to follow the hon. Member for North Durham (Mr Jones). If I pick my way through the hyperbole and the political points that he sought to make, I find that there were a number of very telling and important facts and figures. Indeed, it was a thoughtful and constructive contribution in many ways, if a rather encyclopaedic one. When he opened his remarks, he described it as his first speech—his maiden speech—since the general election, but next time he is about to speak, I must remind myself not to be the next speaker.

This debate about the Finance Bill—and I accept your strictures, Mr Speaker—can probably be characterised by the to-ing and fro-ing between Members on the Treasury Bench and Opposition Members. Members on the Treasury Bench have characterised the emergency Budget and the Finance Bill that underlies it as an unavoidable and regrettable necessity, given the public finances and the circumstances in which the country finds itself. On the other hand, Opposition Members have predictably and quite understandably characterised it as entirely ideologically driven and an example of political opportunism.

In my brief contribution, I want to try to acknowledge that, first, as Members on the Treasury Bench have said, we are all in this together. The nature of today’s debate is that we are all in a political mire of tribal point-scoring and translucent evidence, and that has not shown the House or this debate in a good light. We should be trying to get to the nub of the evidence that drives us towards the correct answers; we, as politicians across the political spectrum, are seeking to assist the country. People witnessing the debate will not have been enlightened by many of the contributions because of the tribalism into which the House has fallen. [Interruption.] Hon. Members may well not like that comment.

Having said all that, I should add that there were four beacons of hope in the maiden speeches this evening, made by the hon. Member for Scunthorpe (Nic Dakin) and my hon. Friends the Members for North East Cambridgeshire (Stephen Barclay), for Ipswich (Ben Gummer) and for Weaver Vale (Graham Evans).

I suppose that I have been implying that I oppose any ideologically driven contribution, but I actually want to make one myself.

[Mrs McGuire]

rose—

[Mrs Madeleine Moon (Bridgend) (Lab)]

rose—

[Andrew George]

May I make this point about the ideologically driven element of the debate? I strongly endorse an element of it. There is a welcome on the Government Benches, and even on the Opposition Benches, for elements of the Finance Bill and the Budget that preceded it. I am thinking of the rise and ultimately the further ratcheting up of the personal tax allowance, of the triple lock that will ensure that pensioners get a decent annual pension increase and of the closing of the tax loophole that has existed for many years.

The loophole was created by Labour’s reduction of capital gains tax to 18%. That has now been increased to just 28%, and we will certainly have an opportunity to debate that issue in the coming weeks. It was an important contribution. Furthermore, a banking levy has been introduced. It is important that the sector that dropped us into the mess should make a significant contribution towards helping us get out of it; I would argue that at this moment its contribution is still not sufficiently significant.

The hon. Member for North Durham’s last comments were about public sector pay. In the Budget, we have been seeking to protect the lowest-paid in the public sector.

[Mr Lammy]

rose—

[Mrs McGuire]

rose—

[Andrew George]

I shall give way to the right hon. Lady, but I want my contribution to be short.

[Mrs McGuire]

I fully understand some of the hon. Gentleman’s comments about matters of judgment. I also understand that he thought that the £1,000 increase in the personal tax allowance was important. I have observed him for many years in the House, and he is an honourable person. Will he help Opposition Members to understand why since April and early May, when he was so violently against any increase in value added tax, he has started supporting a regressive increase in that tax? It would help break down some of the barriers that he senses if we could understand the thought process involved and the discussions that drew him into the VAT spider’s web.

[Andrew George]

I am grateful to the right hon. Lady for that intervention. She has come to the nub of the dilemma in which a number of other hon. Members and I find ourselves. Yes, the VAT increase was not part of the coalition agreement. I presupposed that it would inevitably be regressive and that I would automatically oppose it. The right hon. Lady will be aware that last Monday, I tabled an amendment on the Order Paper that sought to get the Treasury to provide the necessary impact assessment of the 2.5% VAT rise as it applied to families across the income spectrums, to charities and to businesses. There was mention of the rural travelling public as well.

[Clive Efford]

Will the hon. Gentleman give way?

[Andrew George]

I will just make this point, if I may.

There are very significant questions to be asked about this issue. On page 67 of the Red Book, the changes to VAT are described as “progressive”. I question whether it is entirely accurate to describe a VAT rise as being, on balance, progressive. [Interruption.] I am trying to make a constructive contribution to the debate; I am not taking a tribal view of this issue.

[Clive Efford]

rose—

[Andrew George]

I am going to finish making this point about VAT, if the hon. Gentleman does not mind.

The best source that most people pray in aid when engaged in Treasury and Finance Bill debates is the Institute for Fiscal Studies, so I looked at the evidence that it has gathered on VAT. The hon. Member for North Durham referred to that in the context of the graph on page 3 of the Library note. The IFS makes it clear that, taking a snapshot in time, those who are engaged in the highest expenditure will be most affected by changes in VAT.

[Several hon. Members]

rose—

[Andrew George]

I will take more interventions when I have responded to the right hon. Member for Stirling (Mrs McGuire), who asked a very significant question that deserves an answer and is the nub of the point that I wish to make.

The IFS says that not only do the highest spenders pay the most VAT, but that it is in relation to their incomes. Therefore, as the useful graph in the Library note shows, the highest contribution is made by the lowest-income households, which inevitably, under its definition, are those with the highest expenditure in relation to income. The IFS goes on to say that we should look at the impact on lower-income households from the perspective not just of a snapshot in time but across a longer period, if not entirely a lifetime. In other words, its conclusion is much more equivocal. In view of that, we need to understand to a far greater degree the extent to which the VAT rise is regressive or progressive. I think it is reasonable—

[Kate Green]

rose—

[Mr Lammy]

rose—

[Andrew George]

Just let me finish my sentence. When I have made this point, I will give way to the hon. Member for Stretford and Urmston (Kate Green).

I welcome annex A of the Red Book and congratulate those on the Treasury Benches on introducing it. For the first time, it provides an impact assessment and evidence of the kind that Labour Members must accept that they did not provide in the past. However, I still do not think that it is enough—it is too superficial. I have asked a large number of questions of the Chancellor of the Exchequer, as hon. Members will know, because I believe that it is important that we understand a great deal more about the impact of the VAT rise on low-income households, charities, businesses and others.

[Kate Green]

I am very grateful to the hon. Gentleman for giving way, and I hope that my sentences will be a little shorter than his.

Is it not the case that in a complex argument, we are beginning to unpick the cumulative effect on lower-income households? It is a combination of a hit on their expenditure—not on their luxury spending but on their essential spending—and a reduction of their income if they rely on safety-net benefits, because of the future link with the consumer prices index, as well as the risk of their falling out of work and having at least a period of unemployment. I believe that the hon. Gentleman is rightly striving to describe that cumulative effect. I very much welcomed his amendment on looking at the impact of the VAT measures on those households.

[Andrew George]

I am very grateful to the hon. Lady, and we will have to compete on sentence lengths in future. Given her experience on the issue, it is worth while to quote once again the Save the Children briefing note that was circulated to the House, as the hon. Member for North Durham did. As the hon. Lady says, there is a cumulative effect, but if any amendments are tabled to the Finance Bill, they will be directly related to VAT and other matters will have to be considered in other ways, not necessarily under the Bill.

The Bill is rather narrowly set, and the Budget mentioned other measures, which must presumably come forward in another Finance Bill that will be presented to us in the autumn, so I assume that there will be a further opportunity for those issues to be examined, because only seven measures are contained in the 11 clauses of this rather narrowly drawn Bill.

I realise that I have just committed myself to another very long sentence with an enormous sub-clause in it, but I said that I would quote from the evidence presented to us by Save the Children, which is important. It states:

“Increasing VAT will simply widen inequalities and entrench the unfairness that exists in the tax system...It is also worth noting that data from the Office for National Statistics shows that, on average, the wealthiest households contain fewer children than poorer and middle income households, meaning that the unfairness of the tax system is weighted against children.”

Further to the point about whether the increase will have an impact on low-income households, Save the Children therefore rightly raises another issue. I should like the Treasury Ministers, in response to my questions and those that others will no doubt raise, to elucidate on that a little further.

What we need in this debate and in the further stages of scrutiny that the Bill will necessarily go through is a lot more information. I would describe the situation as a tribal mire in which there is translucent evidence, and that evidence needs to be much clearer.

[Glenda Jackson (Hampstead and Kilburn) (Lab)]

I am most grateful to the hon. Gentleman for giving way, and I admire his mea culpa—is it St Sebastian, the man who stands there with all the arrows? Certainly the hon. Gentleman has portrayed that for us this evening. However, with respect, the issue is not simply VAT. In his opening remarks he said he supported the Budget and the Finance Bill because we are all in this together, but we are not.

No one sitting in this Chamber or within the environs of this Chamber is in danger of losing their home because of the changes that his Government are bringing in with regard to housing benefit, but 303 of my constituents are in danger of losing precisely that. They are not alone in London or the country at large. The hon. Gentleman gave a very good mea culpa on VAT, but the complicity of his party with what the Conservatives are going to do to our country is not absolved, however long his sentence.

[Mr Speaker]

Order. May I just say to the hon. Lady that I could listen to her, almost without interruption, for some hours, but that shorter interventions would be helpful? It is always a pleasure to listen to her fantastic enunciation.

[Andrew George]

I think that we are all competing in sentence length—perhaps the hour is causing us to use sub-clauses. [Interruption.] I know that I am not the most articulate Member—I have a speech impediment; please bear with me.

The hon. Member for Hampstead and Kilburn (Glenda Jackson) made a decent point. If she listened carefully to my opening remarks, she would realise that my reference to the “we’re all in it together” theme was intended to criticise us all for being in it together by missing the point and making tribal remarks about the other side, but not being in it together with the country at large, which will suffer through some of the Budget measures. She made further points about my keeping narrowly to the subject of VAT. Interventions in my speech have been only about VAT, and I wished to make a brief contribution, which turned out to be much longer than I expected, on VAT. It is important, having commenced on that path, to continue on it and examine that provision in isolation. I know that it cannot be taken in isolation by the families, businesses and charities that it will affect. However, I still believe that it is important to consider it on its own.

The other issues, such as housing benefit, that the hon. Lady mentioned, are not in the Bill. I hope that the House will have a good opportunity to debate public sector spending and benefits, including disability benefit issues, which were announced in the Budget and clearly need to be debated later, with all the facts made available to us. We currently have a translucent position with regard to the evidence before us.

[Several hon. Members]

rose—

[Andrew George]

I want to draw my remarks to a close.

[Mr Love]

You haven’t said anything yet.

[Andrew George]

The hon. Gentleman has obviously not been listening. He is incapable of listening to anything.

We require honest and transparent information from the Treasury to help us reach a conclusion about the VAT measure’s other impacts. I hope that Treasury Ministers will revisit the issue, perhaps having undertaken further modelling and commissioned further studies on its impact on low income families, charities and businesses. I hope that they will be prepared to revise their position, if necessary during the Bill’s passage.

Several hon. Members have mentioned the rural fuel derogation and the opportunity for that to be introduced. The Chief Secretary promised to go away and make some further inquiries about that. I encourage members of the Treasury Bench to examine that carefully because the impact on rural areas will clearly be significant. The Chief Secretary made a commitment this evening to undertake further studies.

[Mr MacNeil]

rose—

[Andrew George]

How can I possibly resist?

[Mr MacNeil]

While awaiting the big answer to why the hon. Gentleman is supporting the VAT increase, I ask him whether he agrees that a rural fuel derogation should be introduced before the VAT increase. After all, the rural fuel derogation is mentioned in the coalition Government’s programme, whereas the VAT increase is not. The Government have moved lightning quick on VAT; let us hope that they move as quickly on the rural fuel derogation. Will he support me on that at least?

[Andrew George]

The hon. Gentleman makes a good point. I remain agnostic about the process whereby the goal is achieved, but I wish him well with the aim and share his view, because the issue affects the very rural communities of west Cornwall and the Isles of Scilly in the same way as it affects the Scottish islands.

[David Wright]

rose—

[Andrew George]

I am going to draw my remarks to a close, so I will take no further interventions. My proposal was purely for VAT impact assessments, and through questions to Ministers, I am seeking further information on the impact of the VAT increase.

[Mr Byrne]

I am grateful to the hon. Gentleman for giving way—the House has been following his remarks with some care. Before the Liberal Democrats gave their consent to the proposals in the Budget, they will have discussed the matter. In the interests of the debate that he is trying to stimulate, was it ever explained in those discussions that an extra £9 billion of tax must be raised by the Budget because its overall effect is to slow the recovery to such a serious extent?

[Andrew George]

If the right hon. Gentleman does not mind, I will move on. That is part of the debate that he will no doubt continue with Treasury Ministers. If Labour Members wish to avoid a VAT increase such as that proposed in the Bill, they need to propose alternatives. Those might include a further increase in the banking levy or an increase in capital gains tax, or perhaps VAT increases could apply to luxury goods but not to others, but alternative measures to fill the £13 billion hole in the public sector accounts would be needed.

I hope that future stages of the Bill will provide a more constructive environment in which to debate VAT and other matters.

22:37

[Clive Efford (Eltham) (Lab)]

I congratulate my hon. Friend the Member for Scunthorpe (Nic Dakin), and the hon. Members for North East Cambridgeshire (Stephen Barclay) and for Ipswich (Ben Gummer), on their maiden speeches. The description of the blood-red sunsets by the hon. Member for North East Cambridgeshire showed his passion for his constituency, and my hon. Friend spoke well of his predecessors and his love of his adopted town. The hon. Member for Ipswich, if I may say, spoke very little about his constituency for a maiden speech. It was none the less a maiden speech, and I congratulate him on it.

Nothing sums up the Budget more than the Financial Times headline the morning after: “Well paid breathe collective sigh of relief”. The article discusses the impact of capital gains tax, stating:

“Higher earners expecting to bear the brunt of the chancellor’s tax rises were breathing a collective sigh of relief yesterday, having been spared major increases to capital gains and income tax in the emergency Budget…Capital gains tax rates of 40 or 50 per cent and further restrictions to pension tax reliefs had been forecast by tax advisers in the weeks after the general election. When a smaller increase in CGT - just for higher-rate taxpayers - and a consultation on allowing pension contributions of £45,000 a year were announced, many were pleasantly surprised.”

The director of RBC Wealth Management is quoted in the article. She said:

“Many higher earners will be breathing a sigh of relief.”

The Fair Investment Company, an independent financial advice company, made similar exaltations:

“CGT has not been raised up to 50 per cent as speculated and the exemption allowance has not gone down to £2,500 like the Lib Dems proposed, so many higher-rate taxpayers will be breathing a sigh of relief”.

We were told that the Lib Dems and the Tories want to raise £1 in tax for every £4 they cut in public expenditure, but where is the mandate for making those cuts? At the general election, the majority of the electorate voted for parties that opposed drastic cuts, including an increase in VAT and the proposed austerity Budget to cut public services.

[Stephen Williams (Bristol West) (LD)]

The hon. Gentleman appears to be lamenting the fact that capital gains tax was not increased by more than proposed in the Budget. At which point during the 13 years of Labour Government, when capital gains tax was decreased from 40% to 18%, did he protest that?

[Clive Efford]

The hon. Gentleman misses the point. The point is what the Liberal Democrats said about capital gains tax before the election and what has happened afterwards. I cannot find any record of anybody saying, “Thank God we have the Liberal Democrats to water down this horrible Tory Budget.” No one is saying that—[Interruption.] As much as the Liberal Democrats try to dance on a pinhead over the VAT increases and how they have looked for an investigation into VAT so that they can all cuddle up at night and sleep well knowing that they have not made life awful for poor people—they claim that they have forced the Government into a review—what will they really do about it?

[Mr Kevan Jones]

In fact, the hon. Member for Solihull (Lorely Burt) not only did not make excuses for the increase, she tried to justify it.

[Clive Efford]

What we have heard in several debates is so much hand wringing that I have almost started to feel sorry for the Liberal Democrats. They must be in agony from all the crushed fingers they have from wringing their hands so tightly in trying to explain away the impact of the VAT increase.

[Toby Perkins]

Was my hon. Friend as surprised as I was that during the Budget debate the hon. Member for Bromsgrove (Sajid Javid) said:

“Opposition Members have accused us of being ideological about the matter, but how can we be anything else? They are absolutely right, and there is no shame in it”?—[Official Report, 24 June 2010; Vol. 512, c. 515.]

He was clear that it was a Thatcherite Tory Budget that he was proud of. The Liberal Democrats are being used as a sort of human shield to defend a Budget that in other circumstances would have appalled them.

[Lorely Burt]

That’s an old phrase!

[Clive Efford]

Well, I am sorry, but the hon. Lady will hear it again and again, because it happens to be true.

During the general election the Prime Minister—he was Leader of the Opposition at the time—said to Jeremy Paxman on “Newsnight” on 23 April:

“We have absolutely no plans to raise VAT. Our first budget is all about recognising we need to get spending under control rather than putting up tax”.

In his closing remarks in the leaders’ debate, he said that he believed that the test of a good society is how it looks after the poorest and most vulnerable in difficult times. Well it did not take him long to fail that test. He promises good times ahead and a clean break. Who for? It is certainly not for the poorest in our communities.

The Deputy Prime Minister—I remind the House that he was the leader of the Liberal Democrats in opposition—said during the election campaign:

“The Conservatives have made a series of uncosted tax promises, tax bribes.”

That was referring to Tory promises to recognise marriage in the tax system, limit the national insurance rise, freeze council tax, and raise inheritance tax thresholds. He continued:

“The only way that they are going to deliver their tax promises is by dropping a tax bombshell, a VAT bombshell of £389 a year on every household in this country.”

What changed his mind? Was it when the ministerial Prius turned up outside his house or was it before that?

The Liberal Democrats launched their London election manifesto claiming that under them Londoners would save some £700 a year. They said that tax cuts would be paid for by “closing loopholes” and “increasing aviation pollution taxes”. They said their tax reform would be the most radical in a generation—any takers on the Conservative Benches for a radical change from the Liberal Democrats? I think not! Their manifesto also included a pledge

“to put 600 more police on the capital’s streets and an extra £520 million a year in London schools.”

Instead, however, we have seen a cut in Building Schools for the Future and in police numbers, and we are going to see a rise in unemployment as a result of their support for the Budget.

[Mrs Moon]

Is my hon. Friend, like me, going back to his constituency and finding a high level of concern, fear and anxiety about the future? This is not just about the VAT proposals in the Finance Bill; people are nervous about the future, their budgets and their capacity to spend and have a secure future. People are nervous about, and afraid of, every aspect of the Con-Dem coalition.

[Clive Efford]

My hon. Friend is right. That applies not just to individuals but to businesses. Many people are expressing concern about the impact of this emergency Budget.

On 8 April, the Deputy Prime Minister said on Sky News:

“We will not have to raise VAT to deliver our promises. The Conservatives will. Let me repeat that: our plans do not require a rise in VAT. The Tory plans do.”

Well, we all know it is a Tory plan now, do we not? And we all know who is voting for it.

What are the public to make of this sudden about-face? Who has the moral mandate for this level of tax increase and for taking this proportion of tax to pay for the deficit as opposed to rolling back the state? Where is the mandate for making the poorest pay for this Budget as they will? More importantly, however, where is the contribution from the banks?

[Dan Byles (North Warwickshire) (Con)]

The hon. Gentleman has given us an interesting list of quotes and dates. Will he point to the date on which his own Front-Bench team ruled out raising VAT during the general election?

[Clive Efford]

The hon. Gentleman is new to the House—and he might well be new to politics—but I am sure that, if he looks in his history books and reads all the quotes, he will find that most parties going into an election do not rule out such an increase, unlike in the foolish statements made on “Newsnight” by the now Prime Minister and during the general election by the Liberal Democrats.

Now there is trouble at’ mill—we have some problems here—because Sir Alan Budd has resigned. Can anyone tell me how a man who only a short while ago described his job as

“the most exciting challenge of my professional life”

can have given up so quickly? This man must have the most exciting job coming up to give up such a prospect already. How have we lost the head of the Office for Budget Responsibility so quickly? Perhaps my right hon. Friend the Member for Birmingham, Hodge Hill (Mr Byrne) can tell me whether there is a revolving door at the Treasury. We lost the first Chief Secretary to the Treasury and now we have lost the head of the OBR. They are going in and out so quickly that, if they have not got a revolving door, they should put one in pretty quick. It would make it much more efficient for people when leaving their posts so quickly.

What has changed Sir Alan Budd’s mind? Has he changed his mind? The Treasury is assuming that growth in the private sector will create 2.5 million jobs in the next five years to compensate for the spending squeeze. Can the Minister tell me when since the second world war the private sector has ever grown that quickly? When has it ever created that many jobs? We have had unprecedented growth over the past 13 years, and it only just created that many jobs in that period. How can these projections point towards the creation of 2.5 million jobs? Perhaps the Liberal Democrats are going to tell us, because they had a cup of tea with the Governor of the Bank of England, after which we saw a miraculous turnaround—perhaps there was something in the tea. Perhaps they can now explain to us what was said that convinced them that miraculous growth in the private sector was going to solve this country’s economic problems, as we undergo the most unprecedented assault on the state ever attempted in peacetime.

We have also seen figures leaked from the Treasury. The Government expect between 500,000 and 600,000 jobs to go in the public sector and between 600,000 and 700,000 to disappear in the private sector up to 2015, but how is it that the figures leaked from the Treasury contradicted the figures from the OBR? I am wondering about that, so perhaps someone can give me an answer, because the figures are compiled by the very same people. Treasury officials compile the figures for the OBR, and the leaked figures are from the Treasury. I am therefore a little bit confused, but perhaps somebody can explain that one for me—perhaps the Liberal Democrats have an answer for us, as they are so enthusiastic about the Budget.

The Chancellor has said that some have suggested that there is a choice between dealing with our debts and going for growth, but that this is a false choice, and I agree with him. There is indeed a choice, as Sir Alan Budd also agrees. However, the OBR actually agreed with the figures for growth based on our March Budget and the figures for unemployment; in fact, it considered our figures to be conservative. The March Budget statement was also able to announce that debt had been reduced by £11 billion, which is an important point. The debt had been reduced because there was more income tax, more national insurance, more VAT income and more tax from businesses. A further announcement was made subsequent to the general election, with a further reduction of £5 billion, to which my right hon. Friend the Member for Birmingham, Hodge Hill referred in his opening speech for the Opposition.

[David Wright]

Does my hon. Friend agree that, on the basis of the growth figures and cutbacks in public spending that he has outlined, the real danger in the Budget is not that we will see a double-dip recession—none of us wants that to happen—but that we will end up repeating the Japanese model, bumping along the bottom in terms of growth and inflation, without seeing a significant improvement in the position of the economy? That is particularly dangerous at a time when we are making savage cuts in public spending.

[Clive Efford]

I agree with my hon. Friend. There are plenty of eminent economists saying that this is not the time to draw back the fiscal stimulus.

However, the point that I want to make is that the reduction in the debt that the then Chancellor was able to announce in the March Budget was due to the intervention of the Government. There was less unemployment, we were paying out less in unemployment benefit, and there were more people in work and more businesses; therefore, the tax income was higher than had been predicted, indicating that the way through the recession is not this austere Budget, but continuing with the stimulus until growth is stronger.

However, the worrying thing now is that, following the emergency Budget, businesses are starting to question whether growth is on its way. As the Financial Times has said:

“Britain’s…services sector expanded in June…at the slowest rate in 10 months…The Markit/CIPS UK services Purchasing Managers Index…for June was weaker than consensus forecasts among economists, showing a 54.4 headline reading, down from 55.4 in May. Economists had expected a more modest decline…of 55…It was the weakest reading since August 2009…Business expectations went from a reading of 72.1…to 64…The Services PMI is particularly closely watched because it accounts for the greatest share of private sector business output…‘Worrying signs for the UK service sector appeared in June as growth slowed in response to another below par increase in new business…Confidence declined to the greatest extent in 14 years of data collection in reaction to the government’s austere emergency budget, with concern expressed that the fiscal tightening could push the country back into recession.’”

According to the Financial Times:

“The Purchasing Managers’ Index figures came in amid signs that global manufacturing took a hit in June, with China, the US and the eurozone all seeing weaker growth in the sector. The report on exports came as a survey of credit conditions by the UK Bank of England underlined the concern at the prospects for demand in the UK. Credit conditions were expected to deteriorate by the most since the first quarter of 2009, when the recession was at its deepest.”

What we are seeing there is the extreme concern in the business sector since the Budget was announced—[Interruption.] I hope the Liberal Democrats are listening to this. The construction sector in particular accounts for 10% of our GDP, and public sector expenditure accounts for 40% of the construction industry. The announcement yesterday—such as it was—from the Secretary of State for Education that he was drastically cutting back on schemes such as Building Schools for the Future will make it even more difficult for the Government to deliver growth in employment and growth in the private sector, because they are rowing in completely the opposite direction.

[Mr Kevan Jones]

Does my hon. Friend agree that the VAT rise will have an effect on new house starts in the construction sector, which is very fragile in my constituency and many others? The increase will have a dramatic effect not only on new builds but on the local builders who rely on building extensions and loft conversions.

[Clive Efford]

It will indeed; my hon. Friend is absolutely right.

The Guardian website on Sunday 4 July stated:

“CBI disappointed by extra £4 billion capital spending cut. Spending on building and infrastructure projects, many of them to support private sector businesses, will fall faster than expected after the chancellor announced £6.2 billion emergency cuts three weeks ago, with £2 billion of the total from capital expenditure projects. The CBI said: ‘Capital investment is crucial to driving the economy forward and the government needs to make sure we get back to the long-run average of 2.25% of national income as soon as possible’.”

Are you listening on the Liberal Democrat Benches? What they are voting for is just above 1%.

[Stephen Williams]

I am enjoying the hon. Gentleman’s oral press cutting service. I was listening, enraptured, and waiting for him to contradict the hon. Member for North Durham (Mr Jones) and tell him that VAT is not applied to new builds.

[Clive Efford]

My hon. Friend—

[Mr Byrne]

Was my hon. Friend alarmed, as I was, that the Finance Bill says nothing about preserving either zero rating or exempt categories for VAT, including for building services, for the rest of this Parliament?

[Clive Efford]

We have seen so many unexpected changes from the parties opposite, and my right hon. Friend is absolutely right to draw our attention to the fact that they have been silent on that issue.

I have another question about the Bill. Where does it mention the tax on the banks? When can we expect to see that measure before us? Why is it not part of the Bill? Perhaps the Liberal Democrats would like to intervene on me to tell me when we can expect to see it. We are told that it will be consulted on. If that is the case, is it going to go up or down, or is it going to stay as it is? What is the point of consulting the bankers—I assume that that is whom the Government are going to consult—on something that they would rather did not happen?

The Liberal Democrats told us that they were going to break up the casino banking system. The Secretary of State for Business, Innovation and Skills wanted the banks to be broken down into smaller banks, separating casino banking from normal banking. Yet we are told that the Chancellor opposes this and has set up a commission to look into it, which will take at least a year, thereby kicking it into the long grass. [Interruption.] I hear a sedentary intervention that we are dealing with the Finance Bill. Yes we are, and this is not in the Finance Bill, but it is an integral part of the Budget. It is therefore legitimate to ask where it is, when it is going to happen and what the consultation will be about, because it impacts on what taxes we raise on the people we represent. [Interruption.] I say to the hon. Member for St Ives (Andrew George), who did not make a very good job of defending his position on the increase, that that includes VAT.

On 12 March the Deputy Prime Minister called for a 10% tax on bank profits and a £2 billion job creation scheme to rescue the victims of recession. We keep being told by the Liberal Democrats that they have had an enormous impact on this Budget, so perhaps they could explain the impact they made here. I would have supported and voted for a 10% tax on bankers’ profits, instead of for taking people’s benefits away from them or for poor families paying VAT increases. After all, where did the financial problems start?

The Deputy Prime Minister kept digging during the general election, and on 20 April accused the bankers of behaving like “Arthur Scargill in pinstripes”. He then went on to say:

“The banks have basically been given untrammelled support by Labour and Conservative governments to do exactly what they like, and take massive risks with our livelihoods and our savings. They have been holding a gun to the economy. A progressive liberal like myself is not going to be squeamish about blowing the whistle on a vested interest.”

Well, where is it? Where is the whistleblowing on those vested interests?

The Liberal Democrat website—I do not know whether Liberal Democrat Members ever look at it—still says that they are going to bring “fundamental change” to our banking system.

“We will break them up and break them down.”

It continues:

“Until such a time, the taxpayer will have to continue underwriting the banks”—

well, we know that from this Budget.

“To recognise this, we are proposing a new levy on bank profits at a rate of 10%...This levy would be supplementary to corporation tax”.

Well, where did that happen? If we look at corporation tax outcomes—[Interruption.] The hon. Member for Cheadle (Mark Hunter) intervenes from a sedentary position. Would he like to repeat what he just said? I think he said that the Lib Dems did not win. Well, we all know that; that is why we are complaining about what they are doing.

If I look at what the banks are saying about corporation tax, I find that they are rewarded and compensated for the £2 billion levy that the Budget wants to raise. We have some more juicy quotes here; the Lib Dems might want to listen to them. Here is one:

“Bankers were relieved that the chancellor’s speech failed to repeat the coalition government’s threat to end ‘unacceptable bonuses’”.

Deutsche Bank analysts noted the significance of the corporation tax change:

“Taking 2% off the 2012 tax rate for the five banks listed in the UK would increase profit by £1.16bn, that is it should almost offset all of the banks’ tax. Overall a good outcome for the banks.”

A number of bank analysts calculated that some banks could benefit from the Chancellor’s measures. As I have said, Deutsche Bank concluded that it was a “good outcome” for banks, while an analyst at UBS expected Lloyds and HSBC to benefit by 2012 because the cut in their corporation tax bill was larger than the hit that they sustained through the bank levy. HSBC banking analysts concurred:

“We’d expect most domestically-orientated banks, for example Lloyds, to be better off after four years than they were pre-budget”.

How has it come about that a party that went through the general election giving all those quotes about how they were going to break the banks up and break them down, and make the bankers pay until the pips squeaked, has come to support a Budget that takes from the bankers with one hand, pays it back with the other and rewards the banks with a tax benefit at the end of it? And at the same time they will be marching through the Lobbies to the drumbeats of the Tories, voting for cuts in benefits and an increase in VAT, and making the poorest people in our communities pay, when the banks are not paying.

It was all puff and wind from the Liberal Democrats during the election. We have heard it all before, and we are hearing it again. This time, however, they have actually got to vote for something. They are actually in charge and responsible for what they are voting for, and they are going to pay a very heavy price indeed.

[Andrew George]

What about the 10p tax rate?

[Clive Efford]

Perhaps the hon. Gentleman would like to intervene. I think he was shouting about the 10p tax rate. There were problems with that, and I will tell the House what they were. I will be quite frank. The 10p tax rate did not direct enough money to the poorest people in our communities. When we hear about the uprating of the lowest tax threshold from the Benches opposite, what we do not hear about is the clawback from the poorest people, who will lose housing benefit and other benefits. We never hear the full story from the Liberal Democrats when they are spinning on a pinhead to try to protect themselves from the charge of having said one thing and done another.

I could go on. The Liberal Democrats are such an easy target that I could be here all night. However, I will end by saying this. It is clear that what is before us tonight is not about the deficit, whatever excuses we hear from the Government Benches. This is an ideological change. Either Members believe that the state should intervene and assist, in particular, the weakest in our communities, or they do not. A stark choice is involved in terms of what Members support in this Bill.

There are 61 million people employed in the public sector. Some 3.9 million work in health, education, defence and social work, and roughly 2 million are employed in other services, including 530,000 civil servants. Those figures are huge, and those people are essential to many of our communities and to our economy. Moreover, 25% of public sector expenditure goes on private sector goods and services. The private sector will find it impossible to fill the gap left by the reduction in the public sector, as those who support the Budget try to claim it will. That 25% that feeds the private sector will be taken away from it when it is trying to grow. Expecting the private sector to grow at a rate that would enable it to fill that gap is just a pipe dream.

In its document “The Jobs Gap”, the Work Foundation predicted that the private sector could possibly absorb 500,000 job losses in the public sector, but that any plausible private sector recovery would be overwhelmed if the number approached 1 million. According to the predictions, it will considerably exceed 500,000. The foundation also warned that it was risky to assume that big cuts in public sector payrolls could be effortlessly absorbed by the private sector. There is often a mismatch in skills, which creates a delay in people finding jobs in the private sector, and the recovery tends to come in the most prosperous areas at the expense of the most impoverished. The Chartered Institute of Personnel and Development has estimated that 725,000 jobs will be lost in the public sector alone by 2015, although the number could be lower if the Government succeeded in pushing through pay cuts.

It is clear that these changes go further than is necessary to deal with the deficit. They do little or nothing to recoup money from the banks that have put the country in its present position, and they are clearly unfair on the poorest in our communities. This is the last point that I shall make to the Liberal Democrats. If they fundamentally believe that cutting back the state is what the country should do, they will come back for the national health service. It is not consistent with the measures in the Budget that it is possible to protect the national health service—a public service that intervenes at every level in people’s lives—and cut back other aspects of the state.

The Liberal Democrats and the Tories will have to come for the NHS. We only have to look at people such as Mr Daniel Hannan and the speech that he made in America. He was personally invited by the Prime Minister to speak at the Tory party conference, lauds the private sector and wants to cut the NHS and to move to a private health insurance system. Those are the people at the heart of the thinking of the Tory party. I suggest that the Liberal Democrats think very carefully before they vote for the Budget. It is an ideological Budget to cut back the state. They will not be able to defend the NHS once they have gone through the Lobby and voted for this Budget.

[Several hon. Members]

rose—

[Mr Speaker]

Order. I think that I should say to the House that, although I cannot possibly predict such matters, it may well be that at some stage I shall be asked to grant a closure. One of the factors in the decision making of the occupant of the Chair faced with such a request is the extent to which contributions continue to be pithy and relate to the terms of the Bill. I say no more than that.

23:11

[Charlie Elphicke (Dover) (Con)]

I, too, congratulate the hon. Member for Scunthorpe (Nic Dakin) and my hon. Friends the Members for North East Cambridgeshire (Stephen Barclay), for Ipswich (Ben Gummer), and for Weaver Vale (Graham Evans) on their excellent speeches. I also congratulate the hon. Member for North Durham (Mr Jones), who has just departed, who spoke with such eloquence about the need for parliamentary reform. His passion brings a tear to the eye of the Leader of the House; of that I have no doubt whatever.

I am saddened by the need for clause 3, on VAT, to be included in the Bill. It is a great shame that it is necessary to take difficult action in relation to taxes because of the extreme black hole left in the public finances. We now find ourselves in a position where debt is 62% of GDP this year—higher than the 54% in 1976, when the International Monetary Fund was last called in. That is the level of seriousness of the debt that we have. The ratio of debt to GDP is predicted to go to 70% in the next three years, even with the tough action taken by the Government.

I for one am relieved, however, particularly because taxes could have been a lot higher. The black hole could have been filled in other ways. We have taken the difficult decisions on public spending, but we on the Government Benches know that if there had not been a change in government, we would have seen not only a rise in VAT but a possible £20 billion tax increase, with income tax perhaps going to 25p in the pound. That is the size of the black hole that we have been looking at.

I congratulate my right hon. and hon. Friends on the Treasury Bench on taking the firm action required, because I worry about the least well-off. I worry that the rich-poor divide has widened since 1996-97. I worry that since 2004-05 households in child poverty has risen by 300,000. I welcome the fact that it will be frozen for the next two years. I am concerned that the number of children in overcrowded homes has risen from 980,000 in 2006 to 1,080,000 in 2008, according to Communities and Local Government figures. I am concerned that the housing waiting list has risen from 1 million in 2001 to 1.8 million in 2009, according to CLG figures. I am also concerned that disposable income rose by only 1% a year between 2004-05 and 2008—and that was before the current difficulties hit home.

I, for one, welcome the difficult decisions taken on capital gains tax in clause 2. Personally, I think that that is the right thing to do. I have always taken a more Lawsonian approach. A difficult decision has been made, but it is essential that everyone pays their fair share of tax. I regret that we are not keeping a more ameliorated position for those who own business assets, but I think that those who own country estates, oil paintings or buy-to-let empires should pay a fair share of tax.

We know that that is the right approach to take, because the figures from the past few years show that the level of private rented sector property rose from 10% of housing stock in 2000 to 14% in 2008. Meanwhile, the total social housing stock fell from 4.25 million properties to just 4 million in 2009, according to CLG figures. The level of owner occupation fell from 71% in 2003 to 68% in 2008, according to CLG figures. I regard that with concern, because where people need assistance we should have affordable housing there for them. The number of new affordable houses built also fell under the previous Government. Where people have the requisite funds to buy their own home they should be encouraged and helped to do so. So I commend this Budget to the House.

[Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)]

If the hon. Gentleman is so concerned about housing, how does he feel about his Government’s decision to cut the Homes and Communities Agency by £60 million? Some £4.5 million of that cut will have an impact on new homes that were supposed to be built in my constituency. How does he feel about the most recent announcements on housing allowance, which mean that people in my constituency are having to make up a shortfall of £50 a month?

[Charlie Elphicke]

I point out to the hon. Lady that the number of affordable houses built in 1995-96 was 74,530, whereas the average for the previous Government’s entire tenure was just 40,000 affordable homes built each year. Why was that? Last year’s figure was 20,000 below what was achieved under the outgoing Conservative Government. As I said, we built 74,000-odd a year, whereas last year the previous Government built 55,000, so I do not think that they have any record to stand on when it comes to affordable housing, except that of a roll of shame. Their record is an absolute disgrace.

What we need is for the UK to grow faster, because the best cure for deprivation is a job. Too many jobs were taken away by the previous Government’s galactic economic incompetence, and we need to have change, so I want to make the case for that. Will the UK grow faster with a larger public sector? Will the UK grow faster with even higher taxes, as were planned by the previous Government? Will the UK grow faster with ever more debt, or would that result only in ever-higher interest rates, a weaker currency, an increased country risk and our country’s credit rating at risk? I think that the right decisions have been taken, because the UK will grow faster with a lower jobs tax.

[Chris Leslie]

I wonder whether the hon. Gentleman recalls what the so-called “independent” Office for Budget Responsibility said about the downgrading of growth forecasts as a direct result of these Budget measures. What was the OBR’s finding? Did it say that growth would increase or decrease as a result of the measures in the Budget?

[Charlie Elphicke]

The hon. Gentleman will know that the OBR itself said that that was misleading. He will also know that the OBR ruled that the figures set out in the March Budget were a total work of fiction and a disgrace, and it downgraded them. The true downgrade was that of GDP growth by 0.5% to 1% by the OBR when it put right the fiction that had been produced previously, and the misleading about the economics of our nation. The hon. Gentleman does not have a leg to stand on.

This country will grow faster with a lower jobs tax, with lower borrowing and with a low rate of corporation tax, as set out in clause 1. The key point that I want to make is that the fall should be faster, because I want to see a corporation tax rate of just 19% in this nation by the end of this Parliament; that would give us a real revolution. I would like us to have a participation exemption, as exists in the Netherlands, Ireland and other places, to make our nation a European headquarters company of the European time zone. I think that capital gains tax is necessary, but business assets should be taxed lower. That was one of the few things that the former Prime Minister got absolutely right, and it is a great shame that we do not have a differential level, or a higher entrepreneur’s relief. Ideally, that would be extended, because we need to encourage more jobs and growth, and an expansion of the private sector.

I particularly welcome the new business national insurance relief, which is extraordinarily important. Obviously, as a representative of Dover, I would say that ideally it should be extended across the nation, especially in deprived areas of the south-east that have benefited from social structural European funds—not just Dover but other parts of east Kent and the south-east. We need to clear away the deprivation and the benefits culture that has grown up in recent years so that we can unlock the potential, the hope and the chances in each and every citizen of our nation. If we get them off benefits and back into work and break the cycle of poverty, we bring hope and unlock that potential. That to me is the most important thing—to give everyone in this country a real crack at opportunity in life. In this Budget and this Finance Bill, difficult and bold decisions have been taken, but they are the right decisions, and I support the Bill.

23:20

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

“Fair” and “unavoidable” are the two adjectives that have been attached to the Budget by the Government parties. It seems to me that the claim to fairness has been exploded, not just by Opposition Members and sometimes by Liberal Democrat Members but by the independent analysts who have established the regressive nature of many of the measures in the Budget. I want to concentrate on the claims that there is no alternative, that the markets are demanding deficit elimination on the scale and at the speed proposed in the Budget and that the Government are simply responding to economic facts.

Government Members talk about political economy as if it is a perfect science. The hon. Member for Bermondsey and Old Southwark (Simon Hughes), who is not in his place, suggested that the Office for Budget Responsibility was objective, the corollary being that it was reliable. The Government present the pronouncements of the OBR as gospel, at least when they are convenient for Ministers. They offer technocratic diktats. The Government claim the support of infallible markets and independent institutions. What they deny is that any Budget is inherently a political act as well as an economic one. Listening to the Chancellor deliver his Budget, I got a pretty good idea of what his new politics involved. He thinks that these vital political economy decisions are not a matter for him: he can absolve himself of responsibility. The OBR will provide the figures; the OECD is the supposed authority, the markets the excuses.

The issue of supply—the very reason this House came into existence—will be determined by what Ministers declare to be unavoidable. But political economy is not an exact science. It is a matter of priorities and judgment. It is almost always informed by ideology, self-interest and party interest. How could it be other otherwise when economists rarely agree on anything? Put two economists in a room and you will get three opinions. No, the Budget is deeply political. It embodies the long-held superstitions of the Conservative party, superstitions that come to the fore in times of economic stress—the 1920s, 1930s, 1970s, 1980s, and now again in 2010. However, these superstitions are not fully articulated by Conservative Members. They emerge almost accidentally through their rhetoric, but they are worth examining because they are the real motivation for the coalition Budget.

The first superstition is that debt, no matter what the circumstances, is unnatural and wrong for economic man or woman other than in the short term. This is a superstition since it denies the reality that many households and individuals balance their books only in the long term. They and we often have levels of debt that surpass our annual incomes for many years. Otherwise, no one would be able to afford a mortgage. The fact is that debt is a sensible mechanism for acquiring funds for responsible investments as long as repayments are manageable.

That first superstition encourages a second: states, like households, must not carry debt over the long term.

[Sammy Wilson (East Antrim) (DUP)]

The hon. Gentleman makes an important point. Does he accept that debt and the ability to borrow are not simply a function of one’s ability to pay, but of the perception of the exposure to debt and whether, in the long run, that debt will be manageable for borrowers? Our difficulty at present, looking at the evidence elsewhere, is that the markets are nervous about the ability of countries—even ones as stable as ours—to manage in the long run continuing increases in debt and to pay it back.

[Gregg McClymont]

Keynes famously said that, in the long run, we are all dead. To be fair to the hon. Gentleman, there is a serious point there, to which I was just coming.

As I said, the first superstition encourages a second: that states, like households, must not carry debt over the long term. But if that is untrue for households, it is even less relevant for states, because states are different from households. First, nations do not have to balance their payments over a life cycle as an individual does; unlike individuals, states are here for the long term. That is an important point. Secondly, states’ ability to borrow is much greater than that of any private citizen. States may borrow much more cheaply than any individual, simply because the amount of economic activity within any state’s borders is much greater than the economic activity to which any individual has access. I therefore disagree with the hon. Gentleman on that point.

More important, states have obligations to the societies they serve in a way that households do not. States can use their ability to borrow to support demand at a time of low private sector activity. Pull away that support for the economy and private sector firms are discouraged from investing, the tax take is reduced and spending and unemployment are pushed up; ultimately, the deficit is made worse. That is the paradox of Government thrift. We learned it in the 1930s. The Liberal Democrats warned us of its dangers up until 7 May. Now, that lesson seems to be totally lost on both elements in the Government.

Government Members claim that the fiscal deficit is crowding out private investment by pushing up interest rates and making investment more expensive. Crowding out is not an insignificant issue and it does have some relevance in conditions of full employment when an economy is at full capacity, but we are nowhere near that point. As the right hon. Member for Wokingham (Mr Redwood) pointed out, the private sector has taken a real battering in the past two or three years. Excess capacity is manifest. In my view, there is a much simpler explanation for low private sector investment: the private sector is not investing and banks are not lending because they fear that households will not have the confidence or the ability to buy goods.

What do we use to restore confidence? So far, we have used monetary policy, but it is not clear to me how much further we can take that. Interest rates are already at rock bottom. We cannot reduce them much further if this Budget tips the economy back into recession or, as my hon. Friend the Member for Telford (David Wright) suggested earlier, it has us bumping along the bottom. At that stage, if the recovery does not take place along the lines the Government that claim it will, the only instruments of monetary policy at our disposal would be further quantitative easing or a further devaluation of the pound to encourage exports. That could be dangerous, encouraging exactly the increased inflation and higher interest rates that Government Members fear. In my opinion, fiscal policy continues to have a role to play.

I mentioned two superstitions that I think underpin the Government’s attitude, but there is a third: the idea, repeated over and over, that our national debt is unprecedented historically and exceptional internationally. That is the basis on which the Government claim over and over again that public spending is out of control. They assert again and again that we have left the nation’s finances in a mess, and that is the context for the spectre of a sovereign debt crisis.

[The Minister of State, Department for Transport (Mrs Theresa Villiers)]

Yes.

[Gregg McClymont]

Indeed, they assent. My own view is that the political rhetoric is at odds with the economic reality, and I shall tell them why. Several colleagues have noted that the average maturity of British sovereign debt is 14 years—

[Mr Speaker]

Order. I am listening to the speech by the hon. Gentleman with the closest interest, and it certainly has the manner of an economic treatise, which is of some interest, but I am just trying to fathom to which part of the Bill his comments relate. I have not yet found it, but I have a feeling that he is about to demonstrate it to me.

[Gregg McClymont]

Thank you for that guidance, Mr Speaker. As I suggested at the outset, everything in the Finance Bill depends on a view about confidence in the economy, and I was suggesting that the Government’s confidence in their own prescription is misplaced. However, I shall try to follow your advice and move on.

Government debt is still at historically low levels. It is edging towards 70% of GDP, but for 60 of the past 100 years, Government debt was at that level or higher, and that undermines the claims for an historic level of debt. It is true that those debts were incurred fighting two world wars, but the recent and more modest expansion of the national debt also happened in exceptional circumstances. I hope that Government Members will not forget the scale of the crisis that the world economy recently suffered. In 2009, global GDP shrank by 2.4%, the first decline since world war two, and the Budget must be considered in that context of global depression.

The political obsession with debt is dangerous and has distorted the Government’s economic priorities as set out in the Bill. Our public deficit is just one of many causes for concern about our future economic performance, and that is why Labour had a plan to restrain public spending when the recovery was secured. Labour led Britain out of recession last year through stronger growth and lower unemployment, supported by an active industrial policy and global co-operation. This Government, by contrast, offer us nothing but scaremongering about the national debt and competitive deflation with our economic partners.

What of job creation? In oral questions last week, the Secretary of State for Energy and Climate Change compared the previous Government’s target of 1.2 million new green jobs to the sector targets that Gosplan set in the Soviet Union. The Opposition might have had plans and targets for job creation, but the Government have targets for the destruction of jobs. That is what we learned from the Treasury leak last week, and that is where an obsession with public debt leaves us.

I should like to address one final superstition—that austerity inspires confidence among the bond markets that finance our debts and the consumers who drive demand and growth. That belief suits the Chancellor’s purposes admirably, as he and his colleagues have done much to undermine confidence in our economy and public finances. They style themselves as the remedy for a moral panic of their own making but, as I have suggested, there is little hard evidence to support what they say. The hard-headed realists on the Government Benches want to sacrifice real services and real jobs here and now, on the basis of what they think the markets might desire of them later. We may yet find that those gods are as inscrutable as they are insatiable. There is a fine line between confidence based on reduced deficits and confidence based on growth. It suggests that markets that smile on austerity now may punish us for low growth later.

In my opinion, the coalition Government and their policies have had little discernible impact on international confidence in the British economy. More important has been the lack of confidence in the eurozone; relatively speaking, confidence in our economy has grown. But the scaremongering about the public finances has already had a clear negative impact on the confidence of ordinary men, women and businesses, on whom the country’s recovery rests.

To conclude, the Budget has little to do with progressive or necessary austerity; it is acutely political in intention. The long-term objective is to reduce the financial burden on those who tend to vote Conservative by reducing the size of the public sector. That is the context in which the Conservative claim that the public deficit is the biggest threat to recovery must be understood. The Budget is profoundly political and not unavoidable. It reflects the superstition, self-interest and party interest of the modern Conservative party. I, for one, will not be supporting it.

23:36

[Rushanara Ali (Bethnal Green and Bow) (Lab)]

Thank you, Mr Speaker, for giving me the opportunity to speak in this debate. I should like first to congratulate my fellow new Members, from all parties, on their maiden speeches. I am also grateful to Opposition Members for their passionate speeches in this debate.

The Bill represents only the tip of the iceberg when it comes to the regressive impact of the Government’s plans. I want to focus on the effects of the Finance Bill on constituencies such as mine, which falls in the London borough of Tower Hamlets. Although we recognise the need to reduce the Budget deficit, the depth and speed of the cuts and some of the tax rises, such as the VAT rise—all under the euphemism of fiscal consolidation—mask an inherently unjust, unfair and unequal Budget, of which the Bill is a significant part. It will hurt the poorest and most vulnerable in our society and leave hard-working families and small businesses around the country in constituencies such as mine high and dry.

The Bill will have a detrimental effect on the life chances of families on modest incomes. It will increase suffering and deprivation. I welcome the increase in capital gains tax, one of the few progressive aspects of the Bill, but for many in constituencies such as mine it is small comfort given that their homes, jobs, local schools and the very services on which they rely to thrive will be devastated. It makes a mockery of the notion that we are all in this together.

I turn now to the impact of the Bill on poverty. Unlike Conservative Governments of the past, the coalition Government have claimed to be progressive. That is how the Bill should be judged, and that is how the country will judge it.

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

Does the hon. Lady accept that under the last Government the gap between the richest and the poorest grew? I feel that what she is saying now is a contentious way of suggesting that somehow the Conservative-Liberal coalition is attacking the poorest.

[Rushanara Ali]

We all know that income inequality rises in periods of boom. It is not acceptable, and personally I would rather that we had been able to do much more. As under previous Governments, income inequality increased. However, social inequality decreased. Like many Opposition and Government Members I worked passionately to reduce poverty and we did reduce child poverty nationally. I regret that we did not manage to achieve comparable reductions in child poverty in London.

The Government’s cuts will be judged on the measure of progressivism, and it is a great shame that the Bill is not progressive enough. Using VAT to raise £13 billion is a regressive choice. Save the Children estimates that the poorest families in Britain will face VAT bills of about £1,600 a year. The Treasury’s own figures show that the poorest are affected three times as much as others by changes in VAT. Many have argued that that is offset by the exempted expenditure on food and children’s clothing, but it is quite the opposite. The poorest 10% of households already spend a higher proportion of their disposable incomes on VAT—about 14% compared with about 5% for the top 10%.

These changes, combined with announcements in the Budget such as those on housing benefit, disability living allowance and other kinds of fixed income, alongside the removal of some £3 billion of support to families, will devastate many of the vulnerable families in constituencies such as mine and many others. Ministers and Government Members have been quick to say that restoring the link between earnings and the basic state pension is an important achievement, but unfortunately some 10,000 pensioners in my constituency will suffer from the VAT rise alone.

The VAT increase will reduce consumption. It will hit small businesses, including almost 4,500 in my constituency, very hard. I do not accept the argument that it will be good for the economy. About 70% of those businesses in my constituency have fewer than four members of staff working for them, and there is no doubt that a reduction in consumption will affect them negatively.

The Conservatives have been out of power for 13 years, and the first thing they now do is raise VAT. What does that say about their idea of progressivism? Those of us who were brought up in modest income households, like many millions of people in this country, have not forgotten the pain and suffering inflicted on families through VAT hikes in the past, and I simply do not accept that this is the right path now. I appeal to Liberal Democrat friends and to true compassionate Conservatives —I hope there are still a few left—who know in their heart of hearts that this VAT increase is bad for the British economy, does nothing to create fairness and social justice and does nothing to protect the most vulnerable in our country to think again and to vote with us.

People on modest incomes in constituencies such as mine will have to make terrible choices between heating or feeding and clothing their families, or between new pairs of shoes for their children and taking the bus to work. Sadly, those are the kinds of choices that some people will be forced to make because they are already on low incomes, struggling to cope in this difficult economic climate. We know that in periods of recession people turn to loan sharks because they find it difficult to get other loans, and end up heavily indebted and trapped. We also know that despite efforts by the previous Government, many of the poorest people in this country still suffer from being in a poverty trap. Despite those efforts, child poverty still has not been reduced by as much as we would have liked. I believe that this Budget, particularly the VAT increase, will continue to damage vulnerable families. In Tower Hamlets, in constituencies such as mine, the Budget cuts have already amounted to about £9 million, and a further £55 million of cuts are proposed over the next three years.

Although I welcome the bankers levy, where is the justice and fairness in raising just £2 billion, with no provision being made to tax bonuses? We may contrast that with the £6 billion of bankers’ bonuses and with the billions of pounds of public service cuts for ordinary families and workers, and it just does not seem adequate. I am not saying that the public do not want to see the deficit cut, but where is the justice in such a comparatively small levy compared with what the public have to pay?

[Toby Perkins]

My hon. Friend is making a powerful case. Does she share my view that any Budget that is supposed to have us all in it together but leaves the bankers and the super-rich feeling tremendously relieved and the most deprived people in our communities horrified by what they are facing cannot possibly achieve any measure of fairness?

[Rushanara Ali]

I agree completely. My constituency is situated between the City and Canary Wharf, and although I and many people in my constituency are grateful for the contribution that responsible bankers make through local community work and so on, the reality is that a small but significant minority have brought the economy almost to a standstill. That is not acceptable, and bankers ought to be asked to make a bigger contribution than ordinary members of the public.

Over the past decade, constituencies such as mine have struggled to get to a position in which people can reach their aspirations, and unemployment was high even during the boom period, particularly among graduates. In the current climate the situation is ever more difficult. I do not believe that punishing ordinary families and people who are struggling to make ends meet is the way forward, or that it will help to create the big society that members of the Conservative party claim to want to create. It does not highlight compassionate conservatism. We heard a lot about that before the election, but I see no sign of it. I hope that some of our friends on the other side of the Chamber will reconsider the matter and think about how they can support families in this difficult climate.

23:47

[Ian Lavery (Wansbeck) (Lab)]

Thank you, Mr Speaker, for allowing me to participate in this debate on the Second Reading of the Finance Bill.

One thing that is certain is that all parties agree that the deficit exists; we disagree only about how we would seek to reduce it, and how quickly or otherwise. Having now seen the detail of the Budget, and having like other Members been drip-fed even more bad news on a daily basis, I feel that the Budget and the subsequent cuts represent a most draconian, vicious and bitter attack on the hard-working people of the UK.

This has been described as the worst Budget in living memory, and I must say that I agree with that sentiment. This unprecedented attack by the coalition—the Tories and the Liberal Democrats—seems to be relished by many on their Benches. There appears to be something of a perverse glee among many of them when they see this attack on the people of this country. Only the wealthy and the well-off seem to have escaped the far-reaching measures forced upon the nation by the slash-and-burn, patched-up coalition Government.

If I may, I wish to introduce a more human side to the debate on the Finance Bill and the Budget. Tonight we have heard a million and one different figures, and I am sure that most of them are accurate, but we have not heard too much about the human side and the impact that the figures in the Bill will have on ordinary working people. In my constituency, 53% of the people work in the public sector—the highest proportion in the country. We should not treat those people as social outcasts, yet that appears to be happening. We have people in integral employment in the public sector—doctors, nurses, firemen, policemen, paramedics, prison officers, teachers, lecturers, classroom assistants, council workers, refuse collectors, street cleaners, chief executives and administrators among many more. Those are all valued occupations—essential jobs for the economy, including that in my constituency.

Let us consider the police. Today, they have been on the front line, chasing an armed murderer only 10 miles from where I live. We should be proud of those police officers and not look to cut their numbers. Today, they are protecting the public; tomorrow, they could face unemployment because of the cuts. Let us consider the firemen. They are the only ones running towards an explosion, or towards a fire in which people are trapped, while the general public run away. We should be proud of them. They are on the front line today, but they face unemployment tomorrow.

We must stop treating people as mere statistics. They are real people, with real lives. They have real families and real mortgages and, like many of us, they have aims and ambitions. Most of them chose a career path when they left school of serving their communities in the public sector. Should they be punished for that through the Bill and the Budget? They should not. They never expected to be unreasonably attacked through Government policy.

Why on earth the Government have attempted to divide public and private sector workers, driving a wedge between them as if they are different sorts of people, in different classes, and creating some second-class citizens is beyond me, unless it is a case of divide and rule. They have not only imposed a two-year pay freeze, but attacked pensions. “Pay more while you work, get less when you retire” seems to be the policy.

Let us consider the figures from my constituency. An average public sector worker in the NHS in Wansbeck can expect a pension of some £6,000 per annum. A local authority worker can expect a pension of £4,000 per annum. That is frankly disgraceful and unacceptable. It is also unashamed vindictiveness towards hard-working people.

The attack on the hard-working people of the public and private sectors through an attempt to dilute safety and health legislation is also worrying. Some on the other side of the House claim that it is burdensome, yet we have some of the best safety and health legislation in the world. When Lord Young of Graffham is being asked to reform safety and health laws and clearly states—

[Mr Speaker]

Order. The hon. Gentleman is addressing the House with great force and eloquence. A few moments ago, I was waiting for a specific reference to the Bill and he made it, for which the House was indebted to him. However, he is now talking about health and safety and wider reviews, and there is the difficulty that those matters do not appertain to the Bill, to which I know he will now revert with his customary force and eloquence.

[Ian Lavery]

Thank you very much for that, Mr Speaker —I understand. Whether or not health and safety and other such issues are part of the Bill or the Budget, they are integral to the people whom we represent.

To top it all off, those hard-working people are expected to accept the reduction in their pensions and pay cuts without any voice. It is reported that the Government are looking to tighten what are already the worst anti-trade union laws in the western world, to prevent people from having the democratic right to oppose the cuts in the Bill and the Budget. With pay cuts, pension cuts, benefit cuts, employment rights eroded, and health and safety laws diluted, their futures are in tatters. Who says that we are in this together? I invite the Chancellor and the Prime Minister to visit my constituency, to explain to the people of Wansbeck, including the 53% who may lose their jobs, how on earth we are in this together. What about the young and the future jobs fund and university places? What about the lack of job opportunities and the abolition of the regional development agencies? With the cutting of benefits, what future do the young people have as a result of the Bill?

Disabled people will be affected. What about the tax on disabled benefits? In my constituency, benefits for disablement and incapacity, including disability living allowance, are extremely important, because Wansbeck is a heavily industrialised area. The child trust funds are to be abolished—

[Mr Speaker]

Order. I am genuinely trying to be helpful to individual Members and to the House. It is open to the hon. Gentleman, and to other hon. Members who speak, to say something about corporation tax, capital gains tax, value added tax, insurance premium tax, income tax, etc.

[Ian Lavery]

Thanks for that, Mr Speaker. Every Member who has sat in the Chamber for as long as I have today is probably as fed up as I am about VAT and everything else. I accept everything you say, Mr Speaker, but I must say that I am just trying to change things, because we are talking about the cuts and the impact they will have on ordinary people. That is the only thing I am trying to get across. I understand quite clearly that I am probably stretching the limits of the debate—

[Mr Speaker]

Order. I am extremely grateful to the hon. Gentleman and I know he is doing his best to heed my advice—not altogether successfully—but from his last sentence, I suggest that he could delete the word “probably”. He was not following my advice, but I know that he will now do so. There are other matters to address if he wishes to do so.

[Ian Lavery]

Once again, Mr Speaker, thank you very much for your indulgence. I conclude not by mentioning VAT or anything of that nature, but by suggesting once again that it is not fair to say that we are in this together, because we certainly are not.

23:58

[Helen Goodman (Bishop Auckland) (Lab)]

In considering the Bill, we need to address three basic questions. First, does it raise the right amount of money? Secondly, will it promote growth? Thirdly, is it fair? Table 1.1 on page 15 of the Red Book is particularly useful. It lays the policy that the new coalition Government inherited alongside their own tax and spending increases. One of the most interesting things that it shows is that over the five-year period, the extra spending reductions required are £112 billion, and the extra tax increases required are £33 billion.

The policy that the Government inherited of halving the budget deficit over four years was set out by my right hon. Friend the Member for Edinburgh South West (Mr Darling) in March, and the detail of how that would be done was repeated today by my right hon. Friend the Member for Birmingham, Hodge Hill (Mr Byrne).

One of the key issues that we have not considered so far tonight is whether we should be more concerned about the size of the deficit or the size of the debt. Government Members continually stress the importance of the deficit, but the main reason that the deficit is significant is because it contributes to the debt. Page 23 of the Red Book contains chart 1.3, “Consolidation in the cyclically-adjusted current budget”, and chart 1.4, “Public sector net debt”. They show the tremendous difference that will be made by the policies being pursued by the coalition Government. The policies that my right hon. Friend the Member for Edinburgh South West laid out would have produced a debt to GDP ratio in 2014 of 75%—a high number and not where we would like to be in the long term. But for all the pain and agony that the coalition Government will impose on the country the net impact will be to reduce the debt to GDP ratio by 5% to 70%—just a 5% reduction. It is not even a 5% reduction now, but in 2014. We are being asked to believe that the markets will take a very different view of this small difference in four years’ time. That is the altar on which we are told we should smash our public services. That is why Labour Members regard this as a deeply ideological Budget.

[David Morris (Morecambe and Lunesdale) (Con)]

I have been sat here now for an hour and a half listening to this passionate debate and one thing has come across loud and clear. The hon. Lady just gave figures for four years down the line. Does that not give you an indication of the amount of debt your party left this country in?

[Helen Goodman]

rose—

[Mr Speaker]

Order. May I gently say to the hon. Gentleman that I do not have a party? Some people have known that for some time.

[Helen Goodman]

In order to achieve that difference in the debt to GDP ratio four years hence, we will see cuts of 25% across most Departments, four times greater than those that Geoffrey Howe tried to impose on the country in the early 1980s. Even so, the tax burden will also rise by £33 billion. We have to question the judgment of a Government who are taking that amount of money out of the British economy.

Another issue is whether the Budget will promote growth. It is clear that in overall terms it will not do so. That is clear from the revisions to the forecasts made by the OBR, which show that growth is down and unemployment is up. Given the huge cuts proposed in the public sector—we heard about the first slice yesterday to the Building Schools for the Future programme—not only will the number of public sector jobs be reduced, but the knock-on effect will be significant increases in job losses in the private sector. The Government’s contention that 2 million private sector jobs can be created is just not credible. That is far more than was achieved in the 1990s when interest rates were cut aggressively and the pound depreciated by 25%. In those years, it took seven years for employment to grow by 1 million. Obviously, interest rates cannot be cut aggressively in the current situation, and it is highly unlikely we will see a depreciation of the pound against the euro, given that the European economies—our largest market—are in the state they are in. Under the Labour Government, 2.5 million jobs were created over 13 years, but that included extra jobs in the public sector, a housing boom and huge increases in financial services. The Government are now putting forward a prospectus that is simply not tenable. The argument that we have to attend to the level of the deficit because private sector investment is being crowded out by the public sector is also not credible, given that the economy has 4% spare capacity.

I turn to the measures in the Bill. On corporation tax, the coalition Government are cutting the rates—this is a long-standing pattern with the Tories—while cutting the allowances. What will that do for growth? How will that enable the economy to be rebalanced in the way the Secretary of State for Business, Innovation and Skills says is so important? Cutting allowances for investment is bad for manufacturing. The small and medium-sized firms in my constituency, where there is a lot of engineering and small manufacturing, provide several examples demonstrating what the problems are. Over the past month, I have visited two firms that make packaging, which means they supply the retail industry. Obviously, if shops are not doing very well, those firms are not doing very well. Clearly, they need a lot of big machinery to make the packaging, and if they are to continue to have the new, up-to-date machinery to do that, they need investment allowances.

Not so long ago, I visited a building and joinery firm that also has a lot of expensive machinery that it needs to keep up to date, and it also needs these investment allowances. Its contracts are largely dependent on the public sector and on schools and police stations being refurbished, so these cuts in the public sector will have huge knock-on effects in the private sector. Let us take a final example: a chemicals firm making sealant for aircraft. How will it fare with cuts to the defence budget, which is one of the budgets not being protected? Once again we have a complete picture that is totally incoherent. What the Government offer in practice and what they say they want to achieve are two completely different things.

Many hon. Members have commented on the unfairness of the low level of the bank levy and on the fact that the banks will gain more from the corporation tax cuts than they will lose from the increase in the bank levy. However, no one has asked why the bank levy is only being introduced from 1 January 2011. I would like Treasury Ministers to explain why there is a delay in the introduction of the bank levy. Surely that gives the banks a lot of time to move their assets around and avoid this tax, at which, as we all know, the financial services are particularly adept.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

indicated dissent.

[Helen Goodman]

The Minister shakes his head. They clearly do not know the answer.

The Conservative-Liberal coalition cannot agree on its environmental policy either, which is presumably why, rather than acting on environmental taxes, we now have yet another commission to look into the climate change levy. Once again, therefore, a potentially progressive measure is being put on the backburner. We do not know when it will happen. We do not know when we will see progress on it.

Many hon. Members have spoken about the unfairness of VAT. The Government claim that they had no choice, but of course they had a choice, and they have made it. Their choice has been to change the national insurance regime and replace the increase in national insurance with an increase in VAT. However, one of the things that the Government will not admit is that VAT is also a tax on jobs. VAT also drives a wedge between the cost on employers for the goods and service that employees buy, and what they pay for them, so the notion that we can have an increase in VAT without seeing an impact on the number of jobs in the economy is yet another fantasy.

The Government have not explained what they are doing about the lower rate of VAT, on essentials, and many Opposition Members would like some clarification on that.

The third and final issue that I would like to discuss is fairness in the income tax and benefits system. The Liberal Democrats say that raising the personal allowance is their major attempt to be fair to poor people. The attempt is being made, but it has not produced the upshot that the Liberal Democrats are looking for. Rather, it has failed, because they have not taken account of the interaction with the tax credit reductions and the cuts in welfare benefits.

The distribution figures on page 66 of the Red Book purport to show what the position in the Budget is. However, a day or so later, we all discovered that chart A2, entitled “Impact of all measures as a per cent of net income by income distribution”, in fact included not just the measures taken by the Chancellor of the Exchequer in announcing his June Budget, but the measures taken previously by my right hon. Friend the Member for Edinburgh South West, which were jumbled up with them. When those figures were stripped out and separated by the Institute for Fiscal Studies, we could see that the distributional impacts were totally different. Whereas my right hon. Friend’s Budget took less than 0.5% from the poorest and almost 7% from the richest, the June Budget took 2.5% from the poorest and 0.5% from the richest, so the claim of fairness is completely fraudulent.

[Ms Angela Eagle]

Has my hon. Friend also noticed that, mysteriously, the tables in the Red Book to which she has referred stop in the financial year 2012-13, which as it happens—I am sure that this is purely coincidental—is just before all the cuts in the public sector happen?

[Helen Goodman]

My hon. Friend is absolutely right. The major cuts in benefits—in housing benefits, tax credits and benefits affecting families—come in the two final years.

The other thing that Members on the Government Benches simply do not seem to understand is the impact of the changes on work incentives. The Government say that they want to promote a climate for growth. One would think that if they were trying to promote a climate for growth, they would improve work incentives. The Government are about to test to destruction the theory that simply cutting benefits will improve work incentives. That is illustrated in another table in the Red Book—the Red Book is, I have to say, a rather useful document—which shows the changes in the marginal deduction rates. That table shows that almost 100,000 people will see increases in their marginal deduction rates as a result of the Budget—that is, a worsening of their incentives.

The level of transparency in the document is totally inadequate, and it has been extremely difficult to get information out of the Government. However, in conclusion, I would like to ask: what is the balance of risk that the British economy now faces? Is it spiralling inflation or is it deflation? The choice that the Government have made is far more likely to push us towards deflation.

Before he sat down, the Chancellor or the Exchequer said that the richest should pay the most and that the vulnerable would be protected in the Budget. The Government have failed every test. They have not been fair, they have not promoted growth, they are raising far too much money and this Budget will fail the nation.

12:15

[Gavin Shuker (Luton South) (Lab/Co-op)]

Thank you for calling me, Mr Speaker. I am constantly amazed by this Chamber. I had had ambitions to speak in this debate today, but I now discover that it is tomorrow—[Hon. Members: “No, it’s still today.”] Of course it is not tomorrow; it is still today. That is another surprise. I shall keep my remarks characteristically short.

We have been looking at two opposing risks in the debate today. The one that has been mentioned most by those on the Government Benches is that we would find ourselves in a debt crisis as a result of a lack of confidence in the cuts that we are making. I might have a different view from those on the Government Benches. The other risk is that we will cut too deeply and take out investment that would otherwise go into growing our economy. To remove the bulk of the structural deficit, as the Government have chosen to do, reflects one of those positions very strongly. However, it does not reflect the fact that we must walk a path between those two risks. We must find a way.

I was pleased to stand for Parliament on a manifesto commitment to reduce the deficit by half over four years of the next Parliament. That struck me as a good route to take between those two risks. To go further than that, as the Government are choosing to do, is ideological. We all have different ideologies—I understand that—but at a time when risk is such an important aspect of the debate, not to recognise that fact is deeply worrying. Today, we have been talking about VAT, capital gains tax and insurance tax. There is one other tax that I would like to talk about tonight.

[Jim Fitzpatrick (Poplar and Limehouse) (Lab)]

My hon. Friend makes the good point that those on the Government Benches are offering an alternative view on the Finance Bill. However, we have not heard very much from them for a considerable period of time. Does he think that they have run out of arguments to defend their position, or that we are actually winning the arguments and that they will vote with us in opposing the Bill’s Second Reading tonight?

[Gavin Shuker]

I thank my hon. Friend for that intervention.

I represent the east of England in my constituency of Luton South, and there is another tax that will have profound implications for my constituents. It is the change in national insurance. I am one of only two Opposition MPs representing the east of England and, as of Budget day, I represent part of what the Government now call the greater south-east. I am sure that hon. Members can imagine how delighted I was to receive that accolade but, having never heard of the greater south-east, and given that I live there, I decided that I should find out more about it.

I learned that, contrary to the coalition’s view that our area is so affluent that, even in the most serious downturn of the past 60 years, it needs no Government support, it houses some of the most deprived wards in our country. It should be recognised, as some on the Government Benches have chosen to do tonight, that the inequality within regions can be as great as the inequality between regions. For example, the Dallow ward in my constituency stands in stark contrast to Elstree, one of the most affluent wards in the country, through which I pass every day on my commute to Parliament. Both are in the greater south-east.

I have also learned that, of all the regions in this country, the greater south-east is the most likely to have vital infrastructure projects shelved. Given the VAT rise and the other measures in the Bill, this will have a really profound effect on the inhabitants of the region. Investment in infrastructure is a far better way of kick-starting economies than cheap, short fixes and making cost savings. Indeed, the independent Office for Budget Responsibility accepts that growth projections must be downgraded as a result of the coalition’s plans.

Most importantly for the people living in my constituency, I have learned that if an entrepreneur wanted to start a new business in the greater south-east, they would find themselves some £50,000 worse off than if they had started their business elsewhere. Let us be clear about the impact. For my constituents in Luton South, that means that moving just two stops up the train line or two junctions up the M1 would effectively give them a £50,000 golden hello for starting up. This Government would deprive our region and our town of new jobs and businesses, and fresh opportunities for growth.

Rising unemployment often hits the poorest and the youngest hardest. Indeed, my right hon. Friend the Member for Tottenham (Mr Lammy) spoke passionately about his experiences of growing up at a time when he faced a double whammy of weak growth and spending cuts, along with increased taxation, and he pointed at the profound effects on the local economy—not just in the short term, but in the long term as well. All things being equal, who would not want to establish their business within a few miles of their own home? Who would not want to employ people from within their own community?

These plans are a missile aimed at the heart of the recovery in the east and in Luton South. As glamorous as “the greater south-east” sounds, I simply have to tell Government Members that the continued membership of this region simply does not serve our constituents. Given a choice, I would like to continue to be a Member representing the east of England.

[Dr Thérèse Coffey]

Speaking as a fellow Member from the east of England, and one representing Suffolk Coastal, I am finding it difficult to understand the hon. Gentleman’s argument that we are disincentivising the growth of employment, given that we have reduced the threshold for employers’ national insurance. Surely that provides an incentive, not a disincentive. I would appreciate some further clarification on why we are disincentivising employment.

[Gavin Shuker]

I thank the hon. Lady for her intervention. I do not want to give a geography lesson here, but the point I am making is that there is disparity within a region, as some areas are more affluent than others. That applies locally as well as regionally, and some parts of regions are much closer to other regions. For example, in Luton South, we have a particular issue about bordering an area that will not be affected by the £50,000 incentive I mentioned for starting a business.

[Several hon. Members]

rose—

[Mr Speaker]

Order. Before he continues, let me say to the hon. Gentleman that the issue of regional similarities—or, indeed, for that matter, disparities—is a matter of interest, but it is not relevant to the matters in the Bill. The hon. Gentleman is rightly passionate about his own area, but I know that he will want to relate his remarks to the Bill. He has a considerable choice between corporation tax, capital gains tax, value added tax, insurance premium tax, pensions, income tax and no fewer than five schedules, the second of which has five parts. I think that that will keep him happy.

[Gavin Shuker]

Thank you, Mr Speaker. In conclusion—

[Mr Kevan Jones]

Will my hon. Friend give way?

[Gavin Shuker]

Of course.

[Mr Jones]

One of the economic drivers in Luton is the success story of Luton airport. Does my hon. Friend agree with me that the Budget’s proposals to increase insurance premium tax from 17.5% to 20% is going to have a terrible effect on that success story, as Luton airport employs huge numbers of people in his constituency?

[Gavin Shuker]

I thank my hon. Friend for his characteristically timely intervention, rightly making the case that within these green pages tonight are a series of measures that will have a profound effect on each individual constituency. In Luton South, I could pick out the particular effect on the airport and I could talk more about our position within the UK. In each community and in each constituency, we will have to go back to our constituents and explain why we voted either for or against the measures in the Bill. I for one will vote against the Bill, and I would like to encourage Government Members from the east of England to do so as well. If they do, they can go back to their constituents with their heads held high and say that they stood up for their constituents and their region on a night like tonight.

12:24

[Barry Gardiner (Brent North) (Lab)]

Albus Dumbledore in “Harry Potter and the Chamber of Secrets” said:

“You see, Harry, it is not our abilities in life, but our choices that tell us who we really are.”

When my right hon. Friend the Member for Edinburgh South West (Mr Darling) rose in this Chamber as Chancellor at 12.32 pm on Wednesday 24 March, he could look back on a year in which global recession had not turned into depression, in which unemployment, although too high, was less than had been predicated a year earlier when the recession began, and in which the United Kingdom was now infinitesimally but incrementally moving from recession to GDP growth. He faced tough choices: how to bring borrowing down without strangling growth, and how to reduce the deficit without crippling front-line public services and punishing the most vulnerable people in our country. Those choices were not easy, but they were necessary.

When the current Chancellor, the right hon. Member for Tatton (Mr Osborne), rose in this Chamber at 12.33 pm on Tuesday 22 June, he did so against the background of a further quarter of small but positive growth and a report from the Office for Budget Responsibility that predicated £30 billion less public sector borrowing. Despite that improved situation, however, he said that he did not face any choice. He said:

“This is the unavoidable Budget.”—[Official Report, 22 June 2010; Vol. 512, c. 166.]

No; this is the Budget of Tory masochistic fantasy. Right-wingers are delighted with what they see, in this Finance Bill, as the arms of the state being rolled back. They are delighted by the thought of 600,000 jobs being cut from the public sector. They are salivating at the thought of spending less on welfare at the very time when they cast 600,000 more people into the welfare net. Where is the sense in that? Oh yes, this is a Finance Bill of choice for the Tories, and in life it is

“our choices that tell us who we really are.”

[Ann McKechin (Glasgow North) (Lab)]

Is it not ironic that one of the main beneficiaries of this particular Budget will be our banks, which are among the biggest payers of corporation tax in the country? The Government have chosen not to tax bankers’ bonuses this year, despite clear public outrage at the level of bonuses that are still being paid.

[Barry Gardiner]

Not only has my hon. Friend made a perfectly apposite point, but she has made it better than I could ever possibly do. I can only agree with her.

[Jim Fitzpatrick]

If my hon. Friend is going to be so complimentary to those who intervene, how can I resist? Will he explain his perception that this is a Budget of choices? Is he going to refer to the analysis by the Institute for Fiscal Studies, according to which it is a Budget of choices and the Government made the wrong choices, or is this entirely his own analysis?

[Barry Gardiner]

My hon. Friend is absolutely right. The Institute for Fiscal Studies has made some damning comments about the regressive nature of this Finance Bill.

Should it be passed in the House of Commons, the Bill will be unavoidable in its own way. Consider the carer, middle-aged herself but looking after her ageing, frail parents. She will not be able to avoid seeing her carer’s allowance cut by £90 a year over the next five years. Consider the family of five living in Brent, already struggling to find the difference between what the landlord insists is a fair market rent and their housing benefit payments each month. They will not be able to avoid eviction as the Finance Bill cuts housing benefit. Consider the severely disabled sufferer from Crohn’s disease. She will not be able to avoid losing £300 a year as the Bill cuts support year on year.

Consider the young couple starting their life together, moving into and trying to furnish their flat. They will face the costs of conveyancing solicitors, new fridge, new washing machine, new carpets, new sofa, new telly. This is certainly the unavoidable Finance Bill for them, with an extra 2.5% on every item. It is the unavoidable Finance Bill for the poor, for the disabled, for those on housing benefit, and for carers. A clear choice has been made by the Conservatives to cut an extra £40 billion on top of the £78 billion announced already.

[Dr Sarah Wollaston (Totnes) (Con)]

I would like to ask the hon. Gentleman whether he realises why all these very sad cases are unavoidable. It is because we have a national debt of £1 trillion. I was looking at what that means. If every pound were a second, that would be 31,546 years and we would all be sitting here for a very long time.

[Barry Gardiner]

rose—

[Mr Speaker]

Order. Before the hon. Gentleman responds to that intervention and resumes his speech, I remind him that he is perfectly entitled to talk about vulnerability if he so wishes, but he must relate it to the matters within the Bill and he has an extensive choice from which to select.

[Barry Gardiner]

Thank you, Mr Speaker. I am tempted to take up the length of time that the hon. Lady mentioned, but I fear that the House needs to come to a close. A clear choice has been made by the Conservatives to cut an extra £40 billion on top of the £78 billion announced in March. They have made a clear choice to cut £11 billion out of tax credits and benefits. A clear choice has been made by the Liberal Democrats not just to drop the VAT bombshell that they warned of, but to act as navigators and pathfinders for the Conservatives to deliver it perfectly targeted. That regressive tax does the most damage to the poorest. It is regressive, not progressive.

“We will not have to raise VAT to deliver our promises”,

said the Deputy Prime Minister before the election. Indeed not—the Liberal Democrats will have to raise VAT to deliver the Tories’ promises. What an apology for a fig leaf.

[John Woodcock (Barrow and Furness) (Lab/Co-op)]

With regard to my hon. Friend's list of all the people who will not be able to avoid paying the increase in VAT, is he aware that many community halls in my constituency and across the country will also be forced to pay it as they are not able to claim exemption from VAT owing to the arrangements that they face?

[Barry Gardiner]

My hon. Friend is entirely right. That is a real problem for clubs and small businesses that are not able to reclaim VAT back. It is yet another tax on business.

[Ms Angela Eagle]

Does my hon. Friend share my astonishment that Members on the Government Front Bench seem to be ignorant of the fact that VAT has to be paid by charities?

[Barry Gardiner]

Not in the slightest. Why should I be surprised? It is what I would expect of Government Front Benchers.

The Child Poverty Action Group has passed its judgment on this “unavoidable” Finance Bill:

“This is a disappointing budget for child poverty and increases the risk of the government failing to meet its 2020 goal of ending child poverty.”

It says:

“The increase in VAT is a regressive measure which will impact hardest on poor families.”

Robert Caro, the great biographer, once wrote:

“It is said that power corrupts: what is more true is that power reveals.”

With the Liberal Democrats, power has certainly revealed. No longer can anyone be excused for thinking that the Lib Dems are progressive and principled. They are regressive, ruthless and prepared to sell out any policy for a whiff of office.

In the course of debate over the past week, Government Members have repeatedly asked Labour Members what we would do. They have suggested that they have taken the unavoidable and necessary action, whereas we would have taken none at all. So I refer them to the Red Book in March, where my right hon. Friend the shadow Chancellor set out the swiftest and most straightforward deficit reduction plan that then existed in the G7.

The plan proposed: £3.5 billion of savings by freezing public sector pay—but that of the better paid, rather than of the poorest public sector workers; £1 billion of savings from public sector pensions; £18 billion of savings to capital spending; £11 billion of savings from Whitehall reform; £19 billion in new tax rises; £14 billion of savings from reduced benefit payments as unemployment came down; and £5 billion of savings from programme cuts.

[Mr Kevan Jones]

The right hon. Member for Uxbridge and South Ruislip (Mr Randall) is chuntering from a sedentary position and trying to intervene on my hon. Friend. Does my hon. Friend agree that the people who are going to be affected by the VAT increase will be those in the retail trade, in which I understand the right hon. Gentleman has an interest?

[Barry Gardiner]

My hon. Friend is entirely correct. I believe that the point may have been made earlier. [Interruption.]

[Mr Speaker]

Order. Before the hon. Gentleman continues, may I gently say to the right hon. Member for Uxbridge and South Ruislip (Mr Randall) that we do not need sedentary interventions from him and we do not want to get into a general debate about the merits or otherwise of Randalls as a department store, interesting though that may be?

[Barry Gardiner]

Mr Speaker, I will forgo that offer, tempting though it may be. However, I will try to respond to my hon. Friend the Member for North Durham (Mr Jones), who is entirely correct to say that retailers will also suffer from this measure. Large retail operations, such as supermarkets, will particularly suffer because they have huge costs to meet in changing their tills over to cope with the VAT changes.

We made our choices too. They were hard choices, but they were not regressive choices, and they protected the poorest and the vulnerable. We chose to raise duty on cider to the same level as that on other alcohol. The Liberal Democrats opposed that choice in March—in fact, it was the only choice that they opposed then. Their choice is to reverse that duty in this Finance Bill, to put 8% less duty on cider and to increase VAT by 2.5%; scrumpy today, child poverty tomorrow is the Liberal Democrats’ great rallying cry for the 21st century. This is their tax priority for the new politics of collaboration. Albus Dumbledore was right: it is not our abilities in life but our choices that tell us who we really are. My choice is to oppose this pernicious Bill.

12:37

[Owen Smith (Pontypridd) (Lab)]

It is

“A coalition of the heartless, the clueless and the confused”.

Those are not my words—as a Member new to the House I would not be so bold—but those of the Nobel laureate economist, Paul Krugman, when describing another right-wing cabal, in the US, and its attempt to slash welfare spending instead of increasing growth. His description might serve well to describe and characterise the callous collaborators on the Government Benches, and the war on welfare that they are launching tonight with the Finance Bill.

The coalition is heartless in its disregard for how VAT and the unprecedented spending cuts that we anticipate will hit the poorest in our society; it is clueless in the wrong-headed belief that we have heard repeated so often tonight that these savage public sector cuts will somehow liberate private sector surpluses, entrepreneurialism and growth in the economy; and it is confused. There is confusion at least on the part of the Liberal Democrats as to how they managed to enter the political fray at last, only to find themselves, as an old soldier in my constituency described it last week, on the side of the Axis powers. [Interruption.] I thought that it was pretty funny.

I do not, however, want to dwell on the heartlessness of the measures included in the Finance Bill, because so many people have done so with such eloquence this evening. I think that the public will be able to judge that heartlessness for themselves when they see the raising of VAT on essential goods for the poor, and Government Members cheering, as they did during the Budget speech, measures such as the decision to scrap the health in pregnancy grant designed to tackle malnourishment in pregnant mothers in the poorer sectors of our society. Opposition Members consider such provisions the hallmark of a civilised society, but Government Members clearly think they are a burden on economic efficiency.

I do not really want to talk about the heartlessness. I would rather talk about the cluelessness. [Hon. Members: “ You already have.] Yes I have, and I am going to do it again in a minute. We have heard lots of cluelessness this evening, mostly inspired by the primer on Milton Friedman that Government Members have all obviously read recently, and we have heard reiterated by the hon. Member for Woking (Jonathan Lord) and various others. The idea is that if we cut the public sector, which allegedly squeezes out private sector entrepreneurialism and growth, we somehow stimulate the private sector, and that leads to a flourishing of entrepreneurialism.

[Stephen Pound (Ealing North) (Lab)]

Does my hon. Friend agree that implicit within the Budget, the decapitation of Building Schools for the Future has resulted in the private sector not being able to mop up a pool of labour? That private sector has in fact been shot in the back of the head, driven out into the country and dumped in a lay-by.

[Mr Speaker]

Order. I would not want the hon. Member for Pontypridd (Owen Smith), who has made an auspicious start, to stray from the path of virtue. May I just say to him that it is a good rule of thumb to listen with great interest and enthusiasm to the hon. Member for Ealing North (Stephen Pound), but to recognise that sometimes his interventions have absolutely nothing to do with the matter under discussion?

[Owen Smith]

In this instance, I beg to differ. My hon. Friend’s intervention absolutely speaks to the case, because the philosophical underpinnings of what we hear from Government Members is that somehow we have a great dichotomy in our economy. The public sector is bad, of course—non-jobs, as I heard one Local Government Minister describe them recently. Well, many people in my constituency and elsewhere across the country rely on such jobs to feed their families. Private sector is, of course, good, and the thing that we all want to encourage. The construction industry is a wonderful example of the symbiosis between the two parts of our economy. If you cut one the other will bleed, and we will see £50 billion cut from the construction industry. The construction industry accounts for 10% of GDP, and that £50 billion will have a big impact right across the economy. So I think that private and public are linked.

The theory that we are testing now is the one that we have allegedly seen work in Canada and Sweden, whereby the Government make cuts and the economy flourishes. In those countries we saw a long-term reduction in spending on public sector vital services.

The other key lesson from those other examples of deficit reductions is that the conditions need to be right. Investor and consumer confidence have to be growing, and there has to be evidence of underemployed private sector capital. Exporters must be ready to grow and foreign markets must be ready to buy. Get it wrong and cut too deep when the conditions are unfavourable, and we have on our hands not a success story, but depression and bankruptcy. The historical examples of such failed experiments form a long and ignoble list, and Government Members would do well to read the history books and learn from them.

[Stephen Pound]

On that exact point about the Canadian experiment, does my hon. Friend agree that the conditions that prevailed in Canada—a massively economically expanding neighbour, in the same free trade association, to the south—are not remotely met here. Any comparison between this country and Canada, or even the Swedish model, are specious and possibly even mendacious.

[Mr Speaker]

Order. I am trying to help the hon. Member for Pontypridd and other hon. Members. I feel sure that is only a matter of seconds before he says something about corporation tax, capital gains tax, value added tax, insurance premium tax, pensions, income tax or any of the five schedules to the Bill.

[Hon. Members]

He has nothing to say.

[Owen Smith]

I have plenty to say. [Interruption.]

[Mr Speaker]

Order. I have set the hon. Gentleman a bit of a test, and I want to hear him.

[Owen Smith]

I welcome your guidance, Mr Speaker. Many Labour Members have tried to say this key thing today, but I will try to encapsulate it. There are various items and taxation measures listed in the Bill.

[Mr Kevan Jones]

Pontypridd is not dissimilar to North Durham, both being ex-mining communities with rural areas and, very importantly, a Labour MP. Does my hon. Friend agree that the changes to VAT in the Bill will have a disproportionate effect on many of his constituents who are on low incomes or benefits, and that that is not fair, when some of the wealthier parts of the country, such as Uxbridge, have been let off and will not be affected?

[Owen Smith]

I thank my hon. Friend for that intervention. He is entirely correct that my Pontypridd constituency will be badly affected—[Interruption.] Sorry, I cannot make out the mumblings coming from those on the Government Benches. Equally, however, if the growth projections from the OBR and the Treasury leak were likely to offset the impact of those VAT increases, and if people were more likely to be in work in my constituency as a result of the measures in the Bill and the Budget more generally, I would be less concerned about the VAT rises.

Some specific comments have been made about the VAT rises and other measures in the Bill. Only this week, 125 chief finance officers of some of Britain’s biggest companies reported that their confidence in growth was at a 12-month low, with two thirds of them warning explicitly that the measures in the Bill would damage their companies and risk a double dip recession—hardly creating the conditions for them to employ more people. In manufacturing, Deloitte’s global manufacturing competitiveness index also anticipates decline, and in the service sector, the purchasing managers index—an established barometer of health in that sector, as the right hon. Member for Uxbridge and South Ruislip (Mr Randall) will know—reported last month the largest drop in business confidence in the last 14 years of its history.

Where are we going to grow, and how are we going to export? Government Members have cited other parts of the world where we should look for our examples. The US has sometimes been mentioned, and it was an engine of growth in the last century, but the statistics there offer us no comfort, with non-farm payroll reporting last week just 83,000 private sector jobs created. That is important because the Government expect us to believe that through the measures in the Finance Bill they will create 2.5 million jobs in the five-year period following the Budget. I have been researching that important and bold claim, and I received an answer from the House of Commons Library suggesting that only once in any five-year period since 1970 has the British economy created more than 2.5 million private sector jobs, the period in question being 1980-85. That was a statistical anomaly, however—the result of wholesale privatisation. Perhaps that points us to a secret or hidden agenda in the Government’s plans—another major round of privatisations.

My suspicions about that may be shared by someone who was, until recently, one of the Government’s allies— Sir Alan Budd, formerly of the Office for Budget Responsibility. I have no idea whether his hasty exit from the OBR is prompted by unhappiness about the new office perhaps having its integrity compromised, but I point Members to an interview that he gave a couple of years ago, which is of relevance to the Bill. He was asked whether he felt any discomfort when he was advising the Thatcher Government that perhaps some of the decisions he was making as an economist—[Interruption.]

[Mr Speaker]

Order. I am sorry to have to interrupt the hon. Gentleman. I know that the hour is relatively late—not exceptionally late, but relatively so—but far too many private conversations are taking place in the Chamber, which is very discourteous to the Member addressing the House. If people do not want to listen to the speeches—I address this to all Members—they are under absolutely no obligation whatever to stay in the Chamber, and we will manage without them. But if they are going to stay in the Chamber, they will show some basic courtesy and respect.

[Owen Smith]

Thank you, Mr Speaker.

[Stephen Pound]

On the exact point that my hon. Friend was so tellingly making, he will be aware that in clause 4 we see an increase in insurance premium tax from 5% to 6%. Does he agree, particularly as an MP from a constituency that has given so much to energise the nation and keep us warm over the years, that that could have an appalling effect on pensioners who have standard gas central heating contracts? Is there not, in clause 4, an extremely unpleasant sting in the tail of the Bill?

[Owen Smith]

I cannot but agree wholeheartedly. I am sure that that is an apposite intervention. Throughout the Bill and the wider Budget, there are measures about which all the most vulnerable people in our society should be concerned. My constituents are deeply worried about the measures affecting not just pensions, but, equally, housing benefit, the most pernicious effects of which we will not see until much later in this Parliament, and VAT. The VAT increase will not be introduced until next year, but when it is, it will bite on ordinary working people throughout my constituency and throughout the country.

[Jim Fitzpatrick]

I am very grateful to my hon. Friend for giving way. He is being most generous to Opposition colleagues—and perhaps some Government Members will want to engage in debate, too. Does he agree that the changes to housing benefit in constituencies such as mine—Poplar and Limehouse—will have a very damaging effect and could ultimately lead to poorer people being driven out of the centres of our great cities and banished to the suburbs? Surely that will not result in a cohesive society involving all parts of our community.

[Owen Smith]

Again, I wholeheartedly agree. I am not sure what is worse, that measure or the suggestion—the rehash that we heard only last week—that people should get on their bikes, get out of places such as Pontypridd and go to other parts of Britain where, allegedly, work will be created through the magical 2.5 million jobs that we are going to see each year.

I am about to finish, and I shall do so on a highly topical note, by returning to my quotation from Sir Alan Budd’s interview for a documentary programme some 10 years ago. He was asked whether he was worried that economists such as himself were being used to cover the political motives of the previous Tory Administration, and in response he said:

“The nightmare I sometimes have, about this whole experience, runs as follows. I was involved in making a number of proposals which were partly at least adopted by the government”—

the Thatcher Government—

“and put in play by the government. Now my worry is…that there may have been people making the actual policy decisions…who never believed for a moment that this was the correct way to bring down inflation.

They did, however, see that it would be a very, very good way to raise unemployment, and raising unemployment was an extremely desirable way of reducing the strength of the working classes—if you like, that what was engineered there in Marxist terms was a crisis of capitalism which re-created a reserve army of labour and has allowed the capitalists to make profits ever since.”

I wonder whether that might be why Sir Alan Budd has decided to leave the service of the current vintage of Tories.

12:38

[Chris Williamson (Derby North) (Lab)]

There has been a degree of hysteria from Members on the Con-Dem Benches this evening. It might be the lateness of the hour, or there might be another reason, but I have been disturbed by the amount of sneering and laughing by Government Members at the serious points that Opposition Members, who are concerned about the Bill’s implications for their constituents throughout the length and breadth of this great nation, have made. A little humility from Government Members, and particularly from the Liberal Democrats, would not go amiss.

The Chancellor of the Exchequer, the Chief Secretary to the Treasury and all Government Members would benefit from some counselling from Gamblers Anonymous, because they are gambling massively with the British economy. Although history teaches us that their gamble is doomed to fail, they are ploughing on regardless—just like a wretched compulsive gambler betting on a course of action with incredibly long odds, in the vain hope that it will turn out all right in the end.

Crossing fingers and hoping for the best is not a credible economic prospectus. The Chancellor is pursuing the same old stale, worn out and inept Tory economic policies that have failed the country before and are set to fail it again. However, the Con-Dem coalition is not betting on a horse, but playing with the lives and livelihoods of the British people. Just like its Tory predecessors in the 1930s, the 1980s and the 1990s, this Con-Dem coalition is, yet again, making the wrong choice. It is risking the fragile recovery that the Labour Administration worked so hard to secure. [Laughter.] Yes, they like laughing—that is typical of the Con-Dem Benches.

The fact is that the Government’s corporation tax proposals provide inadequate support for businesses. The Chancellor’s very own Office for Budget Responsibility predicts that his Budget will result in lower growth not just this year, but next year as well. How will that help business? Are Government Members laughing at that? If growth declines, that will not help business at all. On top of that, the OBR says that unemployment will be caused. The OBR’s predictions remind me of two notorious Tory maxims coined by a previous Chancellor of the Exchequer and a former Prime Minister. One said that

“unemployment…is a price worth paying”

and the other, John Major, said:

“If it isn’t hurting, it isn’t working.”

However, as the shadow Chief Secretary pointed out earlier, the situation is even worse than is indicated by the OBR’s predictions. The number of people who will lose their jobs will be far higher than the figures that have surfaced so far.

The Chief Secretary to the Treasury says that Opposition Members are in denial. I put it to him and to other Government Members that they are in denial. It is their policies—those failed policies—that led to interest rates that averaged 10% during the Tories’ 18 years in power and that hit 15% on one occasion. I say to Government Members that they are in denial. Their failed policies, which they want to pursue again, resulted in record numbers of repossessions and millions of people ending up in negative equity. That, in turn, had a massive impact on the construction industry and the ancillary trades that rely on a buoyant housing market.

We all remember how the failed policies now being pursued again by Government Members resulted in unemployment that exceeded 3 million. Government Members are in denial about the fact that manufacturing was decimated by the policies that they are pursuing. They smashed the coal industry, nearly wiped out the steel industry, almost destroyed the British car industry and torpedoed British shipbuilding. They are in denial because they want to destroy the very instruments that will help the recovery, by undermining the regional development agencies and by taking away the loan to Sheffield Forgemasters, which would have had such a big impact in assisting the resurgence of the nuclear industry in this country.

The Con-Dem coalition is in denial because of its unrealistic expectation of growth in respect of the exports that it expects to achieve while the worldwide economy is in a fragile state.

[Stephen Pound]

My hon. Friend’s constituency is rightly known and admired far and wide for the quality of its Rolls-Royce engines. Has he done any research into the possible effect on demand for aero engines of an increase in insurance premium tax from 17.5 to 20%? Does he share my fear that that will dampen demand for travel and, ultimately, for the wondrous engines produced in his constituency?

[Chris Williamson]

I am very proud to have Rolls-Royce in the constituency adjacent to mine, Derby South. Indeed, many of my constituents work at Rolls-Royce, a company renowned for its excellence. My hon. Friend is right: the insurance tax rise is bound to have an impact. The cancellation of the loan to Sheffield Forgemasters will also have a big impact, because Rolls-Royce is seeking to diversify into the nuclear industry—to expand its operations in that regard—and was hoping to purchase equipment from Sheffield Forgemasters, but it will now be forced to look abroad. That is a direct result of the policies of Con-Dem Members, who should hang their heads in shame.

[John Woodcock]

Does my hon. Friend agree that this is not just about the double whammy facing Rolls-Royce? I agree with him wholeheartedly about the potentially catastrophic effect on the civil nuclear supply chain of cancelling the loan to Sheffield Forgemasters, but there is also the restriction on capital allowances, which will hit Rolls-Royce as it will hit BAE Systems in my constituency and many other manufacturers across the north of England and the whole country who will be affected through the potential loss of jobs and loss of ability to export.

[Chris Williamson]

My hon. Friend is right. Conservative Members are reverting to type. We saw what they did—I have outlined some of the implications—when they were last in power. The policies that they are pursuing now will have exactly the effect that he describes in undermining manufacturing, because they are the enemy of manufacturing industry in this country.

There is an alternative. Historical precedent proves that investing in the economy at a time of economic fragility is absolutely the right course of action. Government Members should look at their history books. We had a lecture from the hon. Member for North East Somerset (Jacob Rees-Mogg), who referred to the 1930s. I refer him and other Government Members to Roosevelt’s new deal. Roosevelt demonstrated that by using the power and instruments of the state to invest in the economy, Government could get the economy moving again and put people back to work. Do not forget that when Roosevelt came to power, 25% of the American people were out of work, and his new deal put them back into work. By contrast, in this country we were pursuing a deflationary policy that resulted in millions of people losing their jobs and remaining unemployed for many years.

Indeed, President Obama agrees. He wrote to all the G20 leaders—

[Mr Speaker]

Order. May I gently say to the hon. Gentleman that we cannot have a general discourse on the merits of the policies of respective American presidents, however strongly he and others feel about those matters? I am sure that it is only a matter of seconds before he returns to the substance of the Bill.

[Chris Williamson]

Thank you, Mr Speaker. I merely wanted to make a brief reference to President Obama’s letter. I think that Government Members are familiar with it. I referred to it in a previous speech, and I will therefore move on.

From the historical precedents to which I have referred, and indeed the precedent of the Attlee Government in 1945, it is clear that by investing in our economy and not taking the course of action that the Government are taking in relation to VAT, corporation tax and the insurance premium tax, we can secure greater opportunity for recovery. If we can put people back to work by investing in our economy, that will ensure that the tax take is increased.

[Mr Kevan Jones]

Does my hon. Friend agree that, in his constituency, the VAT increases in the Finance Bill will have a disproportionate effect on the poorest individuals? Will that not hamper not only the recovery but the personal circumstances of those individuals?

[Chris Williamson]

I am grateful to my hon. Friend. Certainly the increases will impoverish countless people living on modest incomes in my constituency. That is very clear. The point that I was trying to make, though, was that growth is the key to recovery, and by investing in our economy we can secure that growth.

[Lilian Greenwood]

Has the growth of the retail sector in Derby made a significant contribution to the city? I know that the Westfield centre there seems to have attracted many people. Does my hon. Friend share my concern that the increase in VAT will have—[Interruption.]

[Mr Speaker]

Order. Members are not helping the hon. Lady. May I say to her that it is entirely understandable that she looks behind her, but that she must face the House?

[Lilian Greenwood]

Does my hon. Friend share my concern about the impact that the VAT increase will have on the retail sector? I understand from a recent report that 77% of retailers felt that it would have a negative, quite negative or very negative impact on their sales, potentially leading to a 1.6% reduction in retail staff, 47,000 employees losing their jobs and more than 9,000 stores closing—

[Mr Speaker]

Order.

[Chris Williamson]

I agree with my hon. Friend. We have seen a retail-led regeneration of the city centre in Derby, and the increase in VAT will certainly have a negative impact. Already retailers are struggling in the difficult economic circumstances with which they are confronted, and clearly an increase in VAT is bound to have a negative impact.

What we wanted to achieve, and what we believe is the right way forward, is the creation of an economic virtuous cycle through investment in our economy. That would lead to more jobs, which would increase tax and national insurance income, which in turn would lead to the opportunity for more investment, and so on. The Government are pursuing a course of action that will lead to an economic vicious circle. The cuts in investment will result in more unemployment and a reduction in the tax take, resulting in more cuts and more unemployment, and so on. The VAT increase will clearly hit the poorest people in our community. The Treasury figures say that, as do the Institute for Fiscal Studies and the National Institute of Economic and Social Research.

What I find astounding is the breathtaking hypocrisy of the Liberal Democrats. On 7 April the Deputy Prime Minister said:

“Our plans do not require a rise in VAT. The Tory plans do. Their tax promises on marriage and jobs may sound appealing. But they come with a secret VAT bombshell close behind.”

It is little wonder that support for the Liberal Democrats in the latest YouGov opinion poll has slumped to 15%. Furthermore, another YouGov poll last month showed that 48% of Liberal Democrat voters were going to abandon the party as a direct result of its supporting the Tories on the issue. Even the Prime Minister said last year that VAT was regressive and hit the poorest hardest. He went on:

“It does, I absolutely promise you.”

The Chancellor of the Exchequer told The Times on 10 April that the Tories had no plans to increase VAT this year.

The Chancellor keeps telling us that we are all in it together, but there is a world of difference between the impact on privileged former Bullingdon club members, such as the Chancellor and the Prime Minister, and the families on modest incomes in my constituency who will have their tax credits cut—[Interruption.]

[Mr Speaker]

Order. A rather unseemly exchange is going on between the hon. Member for Nottingham East (Chris Leslie) and the Minister of State, Foreign and Commonwealth Office, the hon. Member for Taunton Deane (Mr Browne). I would not want to find that, as a result of excessive noise, I miss out on what I am sure is coming soon, namely the peroration of the hon. Member for Derby North (Chris Williamson).

[Chris Williamson]

There is an even bigger difference between those privileged former Bullingdon club members and the people whom they will throw on the dole—the tens of thousands, if not hundreds of thousands, and possibly millions of people who will be thrown out of work as a direct consequence of their policies.

The Chief Secretary concluded his remarks today by saying that the Budget was tough but fair.

[David Morris]

(Morecambe and Lunesdale) (Con): A debate that goes on till 12 minutes past one is an oddity so early in the Parliament. Call me cynical, but will the hon. Gentleman concede that the debate has just cost the taxpayers more than £200,000 to keep the House open and Members of Parliament in here, who can claim a free hotel after 1 o’clock under Independent Parliamentary Standards Authority rules? Shame!

[Chris Williamson]

I agree—[Interruption.]

[Mr Speaker]

Order. The fact that there is a generally convivial spirit is good, but the House must come to order because, as I said, we must shortly hear the hon. Gentleman’s peroration.

[Chris Williamson]

I agree with the hon. Gentleman that he is cynical.

How is it fair to increase VAT when the Chief Secretary said that he would not do that? How is it fair to hit the poorest the hardest? How is it fair to cut tax credits from families on modest incomes or to scrap child trust funds, which give young people a nest egg? How is it fair to slash free school meals? How is it fair to short-change pensioners through the failure to operate tax allowances? How is it fair to blame public sector workers for the deficit and the national debt, when international bankers are at fault? Let us remember that Conservative Members resisted any additional regulation of those bankers, many of whom have more in common with Government Members than they have with Opposition Members. How is it fair to chop benefits, including the swingeing cuts to which my hon. Friends referred, for some of the poorest and most vulnerable people in the country? The shameful Finance Bill is the antithesis of fairness. That is why Labour Members will vote against Second Reading.

01:14

[Ms Angela Eagle (Wallasey) (Lab)]

We have had an interesting debate. We just heard from the hon. Member for Morecambe and Lunesdale (David Morris) the most amazing reason why debate in the House should be curtailed that I think I have ever heard used in a democracy. I hope we are not going to hear more arguments that debate in the House should be curtailed because of the cost, as that seems rather odd.

I begin my response to a long and illuminating debate by adding my congratulations to those who made their maiden speeches. The hon. Member for North East Cambridgeshire (Stephen Barclay) gave an extremely entertaining speech about the history of his constituency. He told us that it was better known as the fens, which sounds a lot more exciting than its current name, which if I may say, is rather boring. He then spoke of the history of drainage in the fens and many of the issues that he is confronting as a newly elected Member. I wish him a long and happy membership of the House. He certainly made a good impression with his maiden speech.

My hon. Friend the Member for Scunthorpe (Nic Dakin) also made an extremely accomplished maiden speech this evening, paying suitable tribute to both his predecessors, Elliot Morley and Ian Cawsey. He displayed a passion for the constituency that it is now his privilege to represent. He lives there and clearly loves it, and I am sure that we will hear many more such contributions from him.

The hon. Member for Ipswich (Ben Gummer)—a chip off the old block—made a characteristically good maiden speech, as did the hon. Member for Weaver Vale (Graham Evans). The latter paid a tribute to his predecessor that Labour Members appreciated. I congratulate all hon. Members who made their maiden speeches tonight. I am not sure how many more maiden speeches there are to get through, but I have always enjoyed listening to Members’ first contributions to the House. After many years of listening to such speeches, I have not lost my enthusiasm for them.

The debate was initially joined enthusiastically and with a great deal of energy, but that energy petered out on the Government side of the House halfway through the evening. Instead of the usual to and fro of debate, there was no sign of anyone on the Government side willing to stand up to defend the Finance Bill. Government Members ran out of steam and stopped participating. As the Bill goes to Committee and Report in the next couple of weeks—unusually, that will take place completely on the Floor of the House—I hope they will show a little bit more stamina than they managed to show today, when the debate was somewhat one-sided.

The right hon. Member for Wokingham (Mr Redwood), whom I no longer see in his place, is one of life’s optimists. He told us that we are all far too pessimistic about the state of the economy. To listen to him, one would not have thought that his right hon. and hon. Friends on the Treasury Bench had spent the past few weeks driving down confidence in the economy with the scaremongering tactics they have been using to justify the measures in the Budget.

We then heard from the hon. Member for Dundee East (Stewart Hosie) on behalf of the Scottish Nationalists, who is a long-standing and experienced contributor to Finance Bill debates. I have served on many Finance Bill Committees with him and, as always, he brought his astute experience and forcefully expressed opinions to the debate. He was especially exercised about the increase in VAT in the Bill which, he said—I have to say I agree with him—contradicts the fairness theme that is purported to run through the Budget. He described it as unforgivable and economically foolish.

We also heard from the hon. Member for North East Somerset (Jacob Rees-Mogg) who gave us something of a history lesson and, like so many of his colleagues, foolishly raised the spectre of Greece. They really will have to stop doing that if they are to be reasonable and responsible.

One of the more interesting speeches from those on the Government Benches came from the hon. Member for St Ives (Andrew George), whose words we listened to with extreme care given his actions so far in tabling amendments to the Bill. Clearly, he is struggling with the VAT increase. It is worrying him. He said that he did not think the Red Book was accurate in its assessment of VAT as progressive and he raised the tantalising—for me, at any rate—possibility that he might consider amending the Budget in Committee or Report on the Floor of the House. We will certainly wait to see whether he does so, and we will look carefully at the issues that he wishes to raise.

We had a series of speeches from my side of the House, beginning with an extremely eloquent contribution from my hon. Friend the Member for Warrington North (Helen Jones), who talked about how regressive the VAT increase will be. She also said that the banks were being treated softly while industry was being treated relatively badly by the proposals in the Finance Bill.

We also heard from my hon. Friend the Member for North Durham (Mr Jones) and my right hon. Friend the Member for Oldham West and Royton (Mr Meacher), both of whom had pertinent critiques of the Budget judgment and the strategy implied by the Bill. We heard a tour de force from my hon. Friend the Member for Eltham (Clive Efford), who understandably had a go at the Liberal Democrats for their twisting and turning on VAT. He had some words to say about the Office for Budget Responsibility, which I will come back to.

We heard a superb speech from my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont)—[Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. There are too many private conversations going on and it is difficult to hear. We are getting near the end and I am sure that hon. Members can wait a little longer.

[Ms Eagle]

Thank you, Mr Deputy Speaker. I was just mentioning the speech by my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East—I cannot pronounce the name of his constituency very well, but it is definitely in Scotland. He made a superb speech about the political nature of economics and the attempts that have been made to hide what are basically political choices by describing them as economic imperatives that are somehow objective. He exposed what he called superstitions and myths around that whole area and demolished a lot of the arguments that the Government have been making to justify the Budget judgment in the Finance Bill. In particular, he talked with great wisdom about the paradox of Government thrift, which he pointed out is completely unlike budgeting for households. I look forward to many more such contributions from him as the Bill goes through its stages on the Floor of the House.

My hon. Friend the Member for Bethnal Green and Bow (Rushanara Ali) also made a good contribution, which I particularly welcome because I enjoyed canvassing with her during her election campaign. She is already well-loved, liked and respected in her constituency. She asked an important question that the House would do well to bear in mind as we consider the policies and legislation before us: where is the justice in the Budget measures, which will hit the poorest hardest? My hon. Friend the Member for Wansbeck (Ian Lavery) pointed out the perverse glee he perceived among Liberal Democrat and Conservative Members over the pain that will be inflicted through the Budget and this Bill. His speech demonstrated the human face of public sector workers, many of whom have found their reputations decried in the newspapers, and the jobs and the contribution that public sector workers make to our society belittled.

My hon. Friend the Member for Bishop Auckland (Helen Goodman) observed that the Budget judgments are very optimistic on jobs and, in particular, growth prospects, and she highlighted the impact on work incentives of some of the policies and Budget changes in the Red Book.

[Kelvin Hopkins]

My hon. Friend talks about the judgments and forecasts. I remember, some 20 years ago, the Tories’ favourite forecasting organisation was the London Business School, which The Sunday Times gave 0 out of 10 for its forecasts because they were always completely wrong. Does she think they are wrong on this occasion as well?

[Ms Eagle]

Time will tell, although there is not widespread acknowledgment in the economic profession that some of the Budget forecasts are right—there is controversy about them. This will play out, however, so we will be able to see who is right in due course.

My hon. Friend the Member for Luton South (Gavin Shuker) talked about the balance of risk in the Budget and the worries about problems with infrastructure investment, the fact that it is being cut in his constituency and the implications for employment incentives. My hon. Friend the Member for Brent North (Barry Gardiner), with his characteristic ingenuity, managed to bring Harry Potter into our Budget deliberations, pointing out that our choices define who we are. I thought there was going to be a fight between him and the right hon. Member for Uxbridge and South Ruislip (Mr Randall), who has, I suspect, enjoyed rather a liquid evening. He was dragged off before anything more untoward happened.

My hon. Friend the Member for Pontypridd (Owen Smith) pointed out the wrong-headedness of the crowding out of private sector investment theory that underlies some of the judgments encompassed in the Bill.

My hon. Friend the Member for Derby North (Chris Williamson) made an extremely good speech about the seriousness of the Budget choices and made a good argument that they are wrong in this case.

Today has been quite an interesting day because of what has been happening in the Office for Budget Responsibility as we have been debating the Finance Bill. As we were coming into this debate, it was suddenly announced that Sir Alan Budd, who has become the oracle in the past six weeks, had decided to retire and leave the OBR after a mere three months in charge. That startling piece of information was played down by the Treasury, as one would expect, but it did prevent the Chief Secretary to the Treasury from praying in aid at every verse-end the forecasts that the OBR has produced to justify some of the policy decisions in the Budget.

The official line is that it was all planned in advance—that Sir Alan was always going to be away after he had set up the OBR—and that, somehow, nothing untoward has happened. However, I would be interested to know whether the Minister responding to the debate tonight can cast any further light—in the interests of transparency, of course—on what on earth has been happening with the OBR and, in particular, with Sir Alan Budd.

[Chris Leslie]

It would certainly be interesting if the Minister could cast some light on that, but would it not also jeopardise the so-called objectivity and independence of the OBR if the Chancellor simply chose Sir Alan Budd’s successor by himself?

[Ms Eagle]

These are issues to which I am sure we will return when the Bill establishing the OBR on a statutory basis comes before the House. However, following the farrago that we have seen, it is important that this House should establish the principle pretty quickly that the head of the OBR should be appointed by this House and be answerable to it. When the Bill establishing the OBR is published, I certainly hope that it contains that provision.

[Kelvin Hopkins]

I have a suggestion: might it not be a good idea to appoint Professor David Blanchflower as the head of the OBR?

[Ms Eagle]

My hon. Friend has certainly made an intriguing suggestion, but we have to establish that this House has the right to appoint the new head of the OBR before we can start speculating about who that might be.

[Mr MacNeil]

I am listening to the hon. Lady talking about transparency. In the spirit of transparency, will she honestly, openly and transparently tell the House whether she regrets allowing a rural fuel derogation to the islands of Scotland? Will she be transparent and honest on that simple point about her time in office?

[Ms Eagle]

I have—and had—a great deal of sympathy for the issues that the hon. Gentleman had raised, which are particularly relevant in the context of the islands that he represents. When one considers extending any potential fuel duty derogation for particular areas to the mainland—that is what was asked about in this case—there are other issues that arise and there are difficulties, as the Chief Secretary will know. We certainly look forward to seeing what he might come up with in his review.

However, I want to return briefly to the OBR and what on earth has been going on there. A great deal has been made of the independent forecasts that the Office for Budget Responsibility published before and after, and which appear in the Red Book. Today, the Treasury has been saying that Sir Alan was only ever going to stay for three months. However, at the event when he was appointed, the Chancellor said:

“Whether I thank him again in a couple of years’ time is another matter”.

The Chancellor clearly felt that Sir Alan was going to stick around for years, yet he is now running off and has resigned within three months. Why has he chosen to leave so quickly, right in the middle of our consideration of the Finance Bill, when so many of the judgments in the Bill are based on his forecasts? Even today, the Chief Secretary was making much of Sir Alan’s forecasts to justify some of the Government decisions that appear in the Bill.

[Charlie Elphicke]

May I ask the hon. Lady to which clause in the Bill she is referring?

[Ms Eagle]

Mr Deputy Speaker, it looks like someone is applying for your job. Every clause in the Bill hinges on the forecasts made by the Office for Budget Responsibility that appear in the Red Book. In fact, those forecasts run through every part of this Budget debate like the words in a stick of Blackpool rock. So the hon. Gentleman cannot, in all honesty, however late the hour, try to claim that the points I am making have nothing to do with the Bill before us.

Could it be that Sir Alan has decided to sling his hook because he was forced to become a kind of extension of the Conservative party spin machine last week, when he brought forward that highly contentious explanation—coincidentally just an hour ahead of Prime Minister’s Question Time—of the likely effects of the Budget on jobs? We can only speculate about whether that was the case, but I would be interested to hear whether the Exchequer Secretary is able to shed any light on this matter, in the interest of transparency, when he winds up the debate.

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

I appreciate my hon. Friend’s point that we can only speculate on this matter, but it is none the less a worrying one. Given the ham-fisted effort that we have just seen to silence our debate, does she think that it might be better if the Treasury Select Committee agreed to conduct a short inquiry into the circumstances surrounding Sir Alan’s departure?

[Ms Eagle]

I am sure that the newly elected Chair of the Treasury Select Committee will make up his own mind about that, but it would be interesting to see whether Sir Alan would actually appear before any such inquiry, whether or not he were still in his job.

We have seen a steady unravelling of the central claims contained in the Budget since it was first unveiled to the House just 15 days ago, on 22 June. It was billed as the unavoidable Budget, and this is the legislation that has come from it. The Budget strategy and judgments were presented by the Chancellor and his spin merchants as infallible. The choice that he made was to cut the deficit further and faster, and that was offered as the only possible option. That is why these measures are before us today in the Bill, particularly the VAT increase. The neo-liberal economic ideologues who have seized control of our economic policy are in the grip of their narrow-minded dogma, and they will contemplate no alternative.

In truth, a highly risky political gamble is encompassed in this Bill—and it is a gamble with our social and economic well-being. The Government have made a political choice to eliminate the entire structural deficit by 2014-15—hence the revenue-raising measures in this Bill. This goes further and faster than even the Tory party promised in its election manifesto, and it is certainly against the explicit judgment on the dangers of cutting spending too soon, which was a prominent part of the Labour and Liberal Democrat manifestos. This worry about the macro-economic risks of targeting the deficit above every other consideration by speeding up its elimination is well represented in the mainstream economic debate, even if it has not featured at all in the Government’s calculations.

The Budget judgment before us tonight is not just pre-Keynesian; it is actually Hooverite. It is not an economic, but a political and ideological, imperative being pursued in this Finance Bill. This is not an unavoidable Budget, but a huge and risky gamble with the recovery. According to the Chancellor, the overriding problem for our economy now is how the bond markets might react to insufficient austerity.

The fact that the deficit hawks have taken over in the European Union and in the G20 does not make their addiction to synchronised fiscal pain any more desirable than it was in the 1930s. It does make it fashionable, but it still may not work. The fact that these huge cuts in demand will be synchronised also increases the dangers of this policy from a macro-economic point of view. There is increasing evidence that the markets are now beginning to worry about the prospects for growth and the likelihood of a return to low or no growth, Japanese-style.

This was also billed as the emergency Budget. It had to take place immediately after the general election, according to our increasingly melodramatic Chancellor, to avoid catastrophic disruption in the bond markets, threatening the very future of our nation. Nothing matters, it seems, except the deficit. Jobs do not matter and unemployment is a price worth paying. The risk to our social fabric does not matter; it can be dismissed as long as the deficit is eliminated.

We all agree that the deficit has to be tackled, and we had set out a path to cut it by 68% by the end of this Parliament. This was prudent and was far less risky to the recovery than the hazardous path that Government parties have now chosen. How odd it is, then, that the result of all the hype about the economic emergency is a very tiny Bill. We have before us an 11-clause Finance Bill; it is just 26 pages long, and nine of them are superfluous because they are reprinted virtually word for word from the VAT section of the Finance Bill 2009.

[Kelvin Hopkins]

My hon. Friend is absolutely right to warn against the dangers of deflation, which are much more worrying than anything to do with inflation. Is it not even more worrying that the EU nations have collectively decided to cut their deficits, which will just make the problem even worse? Should we not follow the advice of President Obama, who suggested that we still need the fiscal stimulus?

[Ms Eagle]

There is certainly a respectable mainstream economic argument that synchronised austerity is worse for growth and could achieve the opposite of its intended effects on the deficit by increasing rather than decreasing it. My hon. Friend is exactly right.

Here we have this tiny Bill of 11 clauses. After all the hysteria surrounding its creation, why is it that size? I think there is only one plausible explanation. The Bill before us contains just those measures that the Chancellor must be worrying that the Liberal Democrats will wobble on over the summer recess. I would be the first to admit that size is not everything, but we might reasonably have expected that a more complete set of measures would have been forthcoming if we really were in the emergency economic crisis about which the Chancellor has spent the last few weeks irresponsibly stoking up hysteria. Instead, we have a first instalment of the Finance Bill that has been especially designed to padlock the Liberal Democrats into the coalition so that they cannot get out and cause a mess over the summer. Looking at those on the Government Benches, I have to say that some of them seem to be more willing hostages than the others. The twitching has definitely begun somewhere over there, and we intend to encourage that as the Bill continues its passage through the House.

Other differences between the Government’s rhetoric and the grim reality have become clearer in recent days. We were promised a fair Budget: the Chancellor insisted that we would all be in this together. The Budget, we were told, would be progressive, not regressive, with tax rises evenly distributed among income groups. There would be progressive cuts. The pain of spending cuts would somehow be fairly spread, with the rich bearing their fair share as we all marched together towards the establishment of a zero deficit. One by one, those loud assertions have proved to be utterly false.

In an interview in the News of the World on 13 March, before the election, the Chancellor said:

“We are all in this together. I am not going to balance the budget on the backs of the poor”.

Then, on Budget day, he made great play of calculations about the effects of his measures which purported to show that he had delivered on that promise. On closer inspection, however, those assurances dissolved into empty Budget spin. [Interruption.]

[Stephen Pound]

On a point of order, Mr Deputy Speaker. I would never presume to teach you your job, but some of us on this side of the Chamber are having great difficulty in hearing the priceless words that the shadow Minister is enunciating because of the well-refreshed ejaculations that are coming from those on the Benches opposite.

[Mr Deputy Speaker]

I do not think I need to deal with that point of order.

[Ms Eagle]

Thank you, Mr Deputy Speaker. I am trying to put the idea of well-refreshed ejaculations firmly out of my mind.

I was about to discuss the analysis by Howard Reed of Landman Economics and Tim Horton of the Fabian Society of the progressive or regressive nature of the Budget. They calculated the effect of the entire package, not just the tax changes. They included the distribution of the billions of pounds of extra spending cuts that had been announced, and then added an assumption of 25% cuts in departmental budgets. Their calculation showed that the combination of all the measures announced in the Budget that this Bill begins to enact will take £1,514 from the bottom 10% of households, which is fully 21.7% of their income. In sharp contrast, the richest 10% will experience an annual loss in income and services of £2,685, which is the equivalent of just 3.6% of their income. If there were 40% cuts in departmental budgets, as was briefed by the Chancellor and Chief Secretary at the weekend, the figures would be grimmer still.

My right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper), the Shadow Secretary of State for Work and Pensions, commissioned the House of Commons Library to conduct a gender audit of the plans. It revealed that women would bear a disproportionate amount of the pain in the Budget. Of the nearly £8 billion net revenue to be raised by the financial year 2014-15, £6 billion will come from women and just £2 billion from men, despite the fact that women have considerably lower levels of income and wealth than men. The analysis does not include the impact of the savage cuts in public expenditure that the Deputy Prime Minister believes are necessary, and that are now being planned and announced. As women make up more of the public sector work force and rely more on public services, they will be hit harder by the pay freeze, hit harder by the job losses, and hit harder by the decimation of public provision for the needy, especially in their role as carers.

The Chief Secretary purported to rebut that earlier today by reading out a suggestion that the figures were not accurate because they assumed that all the family support is paid to women. It is not true that that assumption was made by the House of Commons Library. However, there are a couple of measures where the House of Commons Library has assumed 100% female receipt of benefits. That is the health in pregnancy grant and the Sure Start maternity grant.

The Conservative party and the Liberal Democrats will have to learn that merely asserting as loudly as possible that the measures in the Bill are “progressive” does not make it true. Producing a distributional table on page 67 of the Red Book which appears to show that it is progressive does not make their assertion true either, especially when the Institute for Fiscal Studies demolishes it the next day by pointing out that it included all Labour's key progressive measures enacted before the election to safeguard lower-income groups, and that it conveniently stops in financial year 2012-13, just before all the cuts to family support announced in the Budget are due to be implemented. If the Conservatives and Liberal Democrats were so confident that these measures are indeed progressive, they would commit the Government to carry on publishing those tables—[Interruption.]

[Mr Deputy Speaker]

Order. The House must come to order. Members are obviously coming near to the end. If we have a bit more patience, I am sure that we can move on.

[Ms Eagle]

If those two parties were so confident that these measures are progressive, they would commit the Government to carry on publishing those tables when the cuts really start to bite.

The huge hike in VAT is the regressive centrepiece of this regressive Budget and it features in the Bill. That is despite the fact that before the election the Prime Minister said on 23 April to Jeremy Paxman:

“We have absolutely no plans to raise VAT”,

and the Deputy Prime Minister fronted a huge VAT tax bombshell poster campaign warning about the dangers of electing a Tory Government, which still featured on his website until 9 o’clock this evening: when alerted to its continued presence by my right hon. Friend the shadow Chief Secretary, someone in the Deputy Prime Minister’s constituency finally did the decent thing and took it down.

Some Liberal Democrat Cabinet Ministers are even now trying to argue that VAT is not as regressive as they thought it was before the election. It seems that there is no limit to the depths that they are prepared to sink to justify the betrayal of their pre-election promises. VAT is regressive. It hits pensioners and those who are too poor to pay any income tax the hardest. Why then have the Government chosen to raise the bulk of their new tax revenue, nearly £13 billion, by using that tax?

We were assured that the cuts would be fairly distributed in a progressive way, but our early experience of the decisions coming out of the Treasury has confirmed our worst fears. The poorest areas have been hardest hit by cuts to discretionary programmes, which were intentionally aimed at areas in the most need.

One of the first cuts that the Government made was to the future jobs fund. That is at a time when we know, thanks to a leaked Treasury document, that the Budget measures alone will destroy 1.3 million jobs in both the public and private sectors and there are 69 students chasing every job. The prediction by the OBR that 2 million private sector jobs will be created in a mere five years is highly suspect, as an analysis by Adam Lent has pointed out. It took seven years after the 1980s recession and nine and a half years after the 1990s recession to create 2 million jobs, and we are expected to believe that the 2 million mark will be surpassed in record quick time despite the global shock of the credit crunch.

What about the sneaky little move from the retail prices index to the much lower consumer prices index as the definition used for benefit indexation? That cuts £6 billion from the benefits bill at the expense of pensioners and the poorest, the most vulnerable in our society. The delay in implementing the VAT increase will ensure that the price inflation it causes—

[The Parliamentary Secretary to the Treasury (Mr Patrick McLoughlin)]

claimed to move the closure (Standing Order No. 36), but the Deputy Speaker withheld his assent and declined to put that Question

[Mr Byrne]

On a point of order, Mr Deputy Speaker. May I ask for your guidance under Standing Order No. 15(1)(a), which says that the proceedings on any stage of a

“bill brought in upon a ways and means resolution”

including the Finance Bill, are exempt from interruption and may be proceeded with until “any hour though opposed”.

[Mr McLoughlin]

rose—

[Mr Deputy Speaker]

The right hon. Member is quite entitled to move the closure motion. It is the decision of the Chair whether to accept it, so what I would say is, Angela Eagle, I am sure you must be very near the end of your speech now.

[Ms Eagle]

I was talking about the sneaky little move from the retail prices index to the much lower consumer prices index as the definition used for benefit indexes. The delay in implementing the VAT increase will ensure that the price inflation it causes is not reflected in this year’s indexation cost, which is another sneaky saving from the poorest that the Government hope no one will notice.

This Finance Bill is a risky ideological experiment that will inflict real pain and suffering on those who did not cause the credit crunch. The Bill is regressive not progressive, it is deeply unfair and it is taking a huge gamble with an economic recovery that is not yet assured—we intend to oppose it.

01:56

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

We have had nine and a half hours of debate, we have heard many speeches from Labour Members—to be precise, I should perhaps say that we have heard one speech many times—and we have heard not one word of apology. We debate this Bill in the context of a crisis in our public finances, yet we do not see the two right hon. Members most responsible for that here: the shadow Chancellor and the right honourable—and absent—Member for Kirkcaldy and Cowdenbeath (Mr Brown). Over the past few years, few contributions have been made by Labour Members on Finance Bills; usually we heard a contribution from the then Member for Wolverhampton South West, Rob Marris, who is a well-respected figure. We heard many speeches from Labour Members today, but I must say that although the quantity has increased, the quality has deteriorated. There was one exception: the hon. Member for Scunthorpe (Nic Dakin) made a fine maiden speech.

We also heard three other excellent maiden speeches. One was made by my hon. Friend the Member for Weaver Vale (Graham Evans), who pointed out that we do not help the poor by piling up debt. Another was made by my hon. Friend the Member for Ipswich (Ben Gummer). I was particularly delighted to hear that, because I grew up in that town and I remember that even in the days of substantial Conservative majorities it was a Labour-held seat. That goes to show what a fantastic effort he has put in there. I was also delighted to hear the maiden speech of my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay), whom I have known for nearly 20 years. I also wish to thank my right hon. Friend the Member for Wokingham (Mr Redwood), the hon. Members for Solihull (Lorely Burt) and for St Ives (Andrew George), and my hon. Friends the Members for North East Somerset (Jacob Rees-Mogg) and for Dover (Charlie Elphicke), for their contributions.

We debate this Finance Bill in the context of a need for a further fiscal tightening. This country is borrowing more than at any time in our peacetime history. We have seen real turmoil in the markets, with concerns about sovereign debt contagion and with Spain, Portugal and Greece having their credit ratings downgraded. We have seen the independent Office for Budget Responsibility downgrade our predecessors’ less than independent growth forecasts and increase the estimate of the structural deficit.

May I respond to the point about Sir Alan Budd by saying that the hon. Member for Wallasey (Ms Eagle) may find that if she spoke to her colleague—or perhaps former colleague—Lord Myners, she would find that in response to his freedom of information request we sent him a copy of Alan Budd’s contract, which makes it clear that it was a three-month contract? It also has to be said that in providing credibility for the public finances, he achieved more in three months than the Labour party achieved in 13 years.

It was imperative that the new Government moved further and faster in reducing our deficit and putting the public finances on a firmer footing. What were the risks if we did not do that? At best we would have had a substantial structural deficit at the end of the Parliament, and we would have paid more than £70 billion a year in debt interest. At worst, we ran a risk of the UK being swept up in a sovereign debt crisis, of a downgrading in our credit rating, of a loss of confidence by international investors, of interest rates having to rise in response, and as a consequence, of any recovery being choked off as credit became more expensive and less available. This was a risk that the coalition Government were not prepared to run, even if others were. It was necessary and overdue that we had a Government who were willing to take decisive action, to get a grip of the situation, and to set out a clear and credible path out of this inherited mess. That is what we have done.

[Hugh Bayley (York Central) (Lab)]

Will the Minister give way?

[Mr Gauke]

The hon. Gentleman had nine and a half hours to take part in this debate. I am not going to give way to him now.

It is right that we should focus our attention on spending cuts. That is the best way of ensuring a successful fiscal consolidation; none the less, it was also necessary to raise taxes. Our challenge was to do so in a way that was fair and enhanced the competitiveness of the UK economy, so that we could encourage the necessary private sector growth.

We will open Britain up for business by creating a more competitive system of corporation tax. We will reduce the main rate from 28% today to just 24% over four years. Rather than putting the small profits rate up, as our predecessors planned to do, we will reduce it to 20%. That proposal has been widely welcomed by business groups such as the CBI, the British Chambers of Commerce and the Institute of Directors.

For the first time we have set out the distributional impact of all the Government’s tax and benefit changes that will affect the public over the next two years. It is clear that we have ensured that every part of society will make a contribution to reducing the deficit while protecting the most vulnerable. Even with some tough decisions, we have ensured that child poverty will not increase in the next two years, through a significant above-inflation increase in child tax credit.

We have not heard proposals from the Opposition about how they would raise more tax. To be fair, one or two Opposition Members, even former members of the Government, said, “We should have raised more from the bank levy,” somewhat forgetting that when the Labour party was in government it refused to introduce a bank levy.

I know that there is sincere concern on both sides of the House that those who are materially deprived may have to pay disproportionately more in tax as a consequence of the change in VAT, but I urge all hon. Members to look at the academic debate on this matter. If they want to see a correlation between material deprivation and income, the best way of looking at it is to look at the expenditure basis. The fact is that income distribution will always reflect the fact that there are groups in society with volatile incomes who are not as materially deprived as others, but who will from time to time earn less and at other times earn more. As a consequence—

[Hugh Bayley]

Will the Minister give way?

[Mr Gauke]

If Opposition Members do not want to engage in this debate, that is fair enough, but the fact is that—

[Hugh Bayley]

Will the Minister give way?

[Hon. Members]

Give way.

[Mr Deputy Speaker]

Order. If the Minister wanted to give way, he would do so. The hon. Gentleman has been in the House long enough to recognise that the Minister is not going to give way.

[Mr Gauke]

We are not going to take any lectures from the Opposition. Remember, theirs is the party that doubled the 10p tax rate. Of course, at that point the Government did not produce a distributional analysis. I have asked officials to look into this, and if we look at the distributional impacts of the changes in income tax announced in 2007, an interesting fact emerges: the bottom five deciles all lose and the top five deciles all win. That was the consequence of the policy of the right hon. and absent Member for Kirkcaldy and Cowdenbeath, and some of us remember Labour Members cheering when that policy was announced.

What a contrast with the coalition Government. Whereas the Labour Government raised income tax on the poorest, we have taken 880,000 people out of income tax. What a contrast on the deficit, as well. I do not believe that when the Labour Government came to power in 1997 they intended to leave the biggest budget deficit in our peacetime history, but the fact is that they did. We know it, the British people know it, and deep down, Labour Members must know it too, but the more we listen to them—in complete denial, opposing each and every measure to control the deficit, failing to engage in how we solve the problem—the more absurd and out of touch they look. That will not impress many people.

The British people know that this Government are sensibly and pragmatically clearing up a mess left by our predecessors. I say to Labour Members: accept that fact, engage constructively in what we do about it, but above all, apologise for it. It is clear, however, that we will not get any constructive engagement from Labour Members. Instead, we see Labour’s age-old habit of failing to confront the hard truths: self-indulgent, short-sighted, with passion and resolution marching into the wilderness—irresponsible in government, irrelevant in opposition.

This country deserves better than that. The British people know that sorting out the mess will not be easy. Yes, sacrifices will have to be made, but in this Finance Bill we are making tough choices—choices that will restore our public finances, choices that enhance not diminish our competitiveness, and choices that are fair to all sections of society. I commend the Bill to the House.

Question put, That the Bill be now read a Second time.

02:07

Division 14

Ayes: 332

---

Conservative: 281
Liberal Democrat: 50

Noes: 230

---

Labour: 213
Democratic Unionist Party: 7
Scottish National Party: 5
Social Democratic & Labour Party: 1
Plaid Cymru: 1
Independent: 1
Alliance: 1
Green Party: 1

Bill read a Second time.

Motion made, and Question put forthwith (Standing Order No. 63(2)), That the Bill be committed to a Committee of the whole House.—(Jeremy Wright.)

Question agreed to.

Business without Debate

Tuesday 6th July 2010 Commons Chamber

Business of the House

Motion made,

That, notwithstanding the practice of the House as to the intervals between stages of Bills brought in upon Ways and Means Resolutions, more than one stage of the Finance Bill may be taken at any sitting of the House.—(Jeremy Wright.)

[Hon. Members]

Object.

Delegated Legislation

Tuesday 6th July 2010 Commons Chamber

Motion made, and Question put forthwith (Standing Order No. 118 (6)),

Constitutional Law

That the draft National Assembly for Wales (Legislative Competence) (Housing and Local Government) Order 2010, which was laid before this House on 1 March 2010, in the previous Parliament, be approved.—(Jeremy Wright.)

Question agreed to.

Proposed development north of Holt Avenue (Adel, Leeds)

Tuesday 6th July 2010 Commons Chamber

02:23

[Greg Mulholland (Leeds North West) (LD)]

May I say that despite the childish, tedious and repetitive attempts of Labour Members to silence the people of Adel—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. This is a petition, and you are meant to speak to the petition. You may have your own views about tonight, but you cannot use them now; please address the petition that you are putting before the House.

[Greg Mulholland]

I was simply saying, Mr Deputy Speaker, that the people of Adel would not be silenced.

The petition is about the proposed development north of Holt avenue in Adel. It is against the previous Labour Government’s entirely bureaucratic, unnecessary, centralised and over-ambitious targets for housing in the regional spatial strategies, which cause a legal loophole that can allow developments such as the one north of Holt avenue in Adel potentially to go ahead, against the wishes of local residents, local residents associations and Leeds city council. I am delighted to present this petition against that, and, of course, to welcome the coalition Government’s commitment to abolishing these targets.

The petition states:

The Petitioners therefore request that the House of Commons urges the Secretary of State for Communities and Local Government to use all his powers to review the previous Government’s targets for housing.

Following is the full text of the petition:

[The Petition of residents of Adel and Wharfedale, the surrounding area, and others,

Declares that the petitioners have serious concerns about the previous Government’s overly ambitious targets for housing; and further declares that the petitioners believe that these targets will lead to unwanted developments—for example, the proposed development for the land north of Holt Avenue in Adel.

The Petitioners therefore request that the House of Commons urges the Secretary of State for Communities and Local Government to use all his powers to review the previous Government’s targets for housing.

And the Petitioners remain, etc.]

[P000841]

Llanishen Reservoir

Tuesday 6th July 2010 Commons Chamber

Motion made, and Question proposed, That this House do now adjourn.—(Jeremy Wright.)

02:25

[Jonathan Evans (Cardiff North) (Con)]

This is the first occasion on which I have been able to address the House in debate for more than 13 years, following my decade of service as MEP for Wales in the European Parliament. Although this is not therefore a maiden speech as such, I want to begin by mentioning my predecessor, Julie Morgan. I paid full tribute to her service in the Welsh Grand Committee last week, so I will not go into detail again today, but I wish to introduce the debate by highlighting the cross-party agreement in Cardiff on the subject of Llanishen reservoir between me, my Labour predecessor and the hon. Member for Cardiff Central (Jenny Willott), who, because of an impending happy event, cannot be here this evening.

For the past 35 years, the Reservoirs Act 1975 has provided a robust procedure for maintaining the safety of British reservoirs. The law requires that A-class reservoirs must be inspected every 10 years by an independent engineer drawn from a panel compiled by the Secretary of State for Environment, Food and Rural Affairs. Independence means not being in the employment of the owner of the reservoir, who is free to select any DEFRA panel engineer. Once such an engineer proposes further action, those measures become mandatory. They are, to use the words of one of the panel engineers who plays a key part in this story, “set as tablets of stone”. They cannot be altered without a new inspection, and a supervising engineer, again drawn from the DEFRA panel, must be appointed by the reservoir owner and given responsibility for carrying them out in accordance with the original recommendations.

If the inspecting engineer makes inappropriate safety recommendations, the reservoir owner can have the issue referred to a referee under section 19 of the 1975 Act. That process was devised to provide strong powers to maintain reservoir safety, with appropriate review powers for the reservoir owner. However, the legislation and its method of enforcement are actually being abused to undermine safety in the case of Llanishen reservoir in Cardiff, which threatens to bring about the destruction of the reservoir itself.

Llanishen reservoir was built between 1884 and 1886 to supply water to the city of Cardiff, but it has not been used for water supply for more than 30 years. For many years the local council has leased the reservoir for sailing training, and the area is widely popular for both walking and fishing. However, the current owners of the reservoir, Western Power Distribution, a subsidiary of a major US energy corporation, PPL—formerly Pennsylvania Power and Light—wants to redevelop the land for more than 300 houses and flats. For the past eight years, that US giant’s subsidiary has put forward multiple planning applications. All have been refused, and PPL has challenged every refusal.

Additionally, the area has been granted multiple protections. It is a designated site of special scientific interest and site of importance for nature conservation, and the reservoir structure itself has been listed by the National Assembly as a structure of special architectural and historic importance, with the active approval and recommendation of the Institution of Civil Engineers. PPL’s subsidiary WPD unsuccessfully challenged each and every one of those designations. However, I want to make it clear that the debate is not about those planning powers, which have been devolved to the National Assembly. I mention the ambitions of PPL’s subsidiary because they form an important background and context to the events that give rise to my debate.

A DEFRA panel engineer, Mr Earp, inspected the reservoir under the Reservoirs Act in 2004 and passed it as safe. That is the last we will hear of Mr Earp. The next statutory inspection was not due to take place until 2014. However, WPD brought forward the next inspection by six years, and decided to appoint a different engineer. In other words, the reservoir owner, having received a report declaring that the reservoir was safe, and not needing to do another for 10 years, decided to have an examination undertaken only four years later.

The engineer who was appointed, Dr Andrew Hughes, suggested that the owners made the decision not because of any risk to safety, but in anticipation of their being successful in any change in use of the reservoir. Dr Hughes was required by law to be independent of WPD. He is employed by a company called Atkins, the multinational civil engineering consultancy, which is active in many countries. He undertook his inspection in 2008 and, to the shock of many, including the local reservoir action group, recommended that a full examination of the pipework at the base of the reservoir be carried out in the interests of safety. Then Dr Hughes then left the scene. Having prepared his report, he has subsequently refused to engage in any debate with third parties about his conclusions, and he considers his role to be closed.

Under the Reservoirs Act, the next step is for a supervising engineer to be appointed by the reservoir owners to carry out Dr Hughes’s recommendations. That engineer has been appointed. He is Mr Owens—again, a DEFRA panel engineer— whose services were apparently offered to the reservoir owners by Atkins, the company whose employee produced the original independent inspection. Mr Owens said:

“Atkins Limited offered Western Power Distribution Ltd my services as one of their Qualified Civil Engineers, to oversee the execution of the mandatory measures in the interests of safety recommended in Dr Hughes Inspection Report dated May 2008. WPD accepted Atkins offer and appointed me accordingly.”

Mr Owens has declared that the reservoir must be fully drained. Given that the reservoir is filled solely by rainfall, if it is drained, it will take a decade to refill it, and major damage may be caused to the integrity of the whole structure in the meantime. The recommendations of the Atkins engineers, Dr Hughes and Mr Owens, have been closely examined and challenged by two other DEFRA panel engineers, Dr Binnie, who has been working for the local residents group, the reservoir action group, to which I pay tribute for all its work in the past eight years, and Mr Alan Warren of Halcrow—a very well known civil engineering company—who was commissioned to advise the Environment Agency.

After a freedom of information request, the Environment Agency recently provided a copy of Mr Warren’s report. I have it here. It was produced in the past month and has come into my hands only in the past fortnight. In it, Mr Warren says:

“The overall objectives of the work are not clear to me and the QCE”—

qualified civil engineer—

“Mr Owens has not clarified the conditions under which he will provide certification.

The wording of the recommendations made by Dr Hughes is such that a complete emptying of the reservoir is not mandatory. The QCE Mr Owens has offered little evidence to support his approach of fully draining the reservoir in preference to others.”

Most importantly, the report states:

“It is apparent that the statutory measures are being addressed in a manner which will create new risks to reservoir safety”.

Let me underline that. According to the Environment Agency’s own adviser, a DEFRA-approved panel engineer, the works that Atkins intends to carry out at Llanishen reservoir create new risks to safety. When such a fundamental disagreement between professionals exists, there ought to be a mechanism for referring it to a professional body for adjudication, but under the legislation, the right to refer to a referee appears to be granted exclusively to the owners of the reservoir. WPD and its US owners unsurprisingly have no interest in such a process.

In the meantime, the Environment Agency, as the enforcement authority under the 1975 Act, is obliged to serve notice on the reservoir owners to insist on the works being undertaken, even though its own DEFRA panel engineer has warned that the works will compromise the safety of the reservoir. I understand from the Environment Agency that despite that, it has drawn the conflicting reports to the attention of DEFRA, which of course retains the power of appointing panel engineers under the Act.

The local newspaper, the South Wales Echo, has run a major campaign urging PPL to intervene. PPL’s chairman, president and chief executive officer, Mr James Miller, is apparently proud of the environmental record of his company and boasts on his website that

“at PPL doing the right thing comes naturally”.

The paper’s readers were urged to write to Mr Miller to urge him to do the right thing. The website also states:

“We have a clear expectation that everyone in the PPL family at all our operations around the world will live up to the company’s expectations for integrity and ethical behaviour”,

but I am afraid that Mr Miller has proved to be less of a Ralph Nader and rather more of a Montgomery Burns. He actually failed to respond to any of the letters of concern sent by local residents and others, and referred each and every one back to WPD in the UK.

In a curious irony, Mr Keith Clarke, the CEO of Atkins, is visiting Cardiff on the 15 July to receive recognition from Cardiff university of his contribution to civil engineering. Mr Clarke is fully aware of the role that his company has been playing in relation to the future of Llanishen reservoir. I challenge him to visit the reservoir, to meet the reservoir action group and locally elected representatives, and to see what is being done by his colleagues in his company’s name.

Robust and valuable laws that have been used to maintain the safety of our reservoirs for a generation are being cynically abused in my city to bring about the opposite effect, and an important historic landmark, recognised as being of national importance, is about to be vandalised.

02:38

[The Parliamentary Under-Secretary of State for Wales (Mr David Jones)]

I congratulate my hon. Friend the Member for Cardiff North (Jonathan Evans) on securing this debate, which is important both for his constituents and, because it concerns Government policy on reservoir safety, for the whole country.

As my hon. Friend will appreciate and as he identified, the case of the Llanishen reservoir is complex, and today is not the first occasion on which the matter has been ventilated on the Floor of the House—as recently as last February, it was referred to by his predecessor, Julie Morgan, in the St David’s day debate. The case of Llanishen reservoir involves consideration not only of reservoir safety, but of protection of the environment, planning law and listed buildings consent. While matters relating to the safety of reservoirs in Wales are devolved, and I know that the Welsh Assembly Government Minister for Environment, Sustainability and Housing has been monitoring events closely, the Environment Agency is responsible for enforcing matters of reservoir safety in Wales.

The Reservoirs Act 1975, as amended, sets out the safety regime for reservoirs in England, Wales and Scotland. Llanishen reservoir is a large raised reservoir under the terms of the Act, that is to say one designed to hold or capable of holding more than 25,000 cubic metres of water above the natural level of the land. As such, it should—pursuant to section 10 of the Act—be inspected by a qualified inspecting engineer at least every 10 years.

As my hon. Friend said, Llanishen reservoir was last inspected in 2008 and the inspecting engineer made a number of recommendations relevant to its safety. He recommended that a survey of all valves and pipework in the reservoir should be carried out to check their layout and condition. Although he did not specifically require a drain-down of the reservoir, he pointed out that this would be necessary in order for its operator, Western Power, to implement his recommendations. Once such recommendations have been submitted by the engineer, there is a legal obligation on the operator to implement any necessary measures as soon as practicable. In the case of Llanishen, the inspection report specified that these should be done within 12 months.

Western Power did not complete these measures on time so the Environment Agency served an enforcement notice on the company. That notice required the company to complete the outstanding safety measures within an agreed timescale. Western Power elected to draw down the reservoir to carry out a visual inspection of the pipework. It began drawing down the water on 26 February 2010 by siphoning water over the reservoir embankment and into the Nant Fawr stream. The water level within the reservoir has been lowered by approximately 4 metres. The siphoning has now stopped.

Although the Environment Agency has no legal powers to prevent the draw-down from happening, it has written to the company to emphasise that in the agency’s view the company does not necessarily need to drain down Llanishen reservoir in order to carry out the safety inspections identified by the inspecting engineer. However, should the company insist on completing the draw-down, the company needs an environmental permit or discharge consent from the agency to proceed. This document is issued under section 85 of the Water Resources Act 1991 and gives permission to discharge water that may contain silts or sediments—such as in reservoir water— sewage or trade effluents directly into surface waters, rivers, streams, canals, groundwater or the sea. In fulfilling its obligations under this Act, the Environment Agency determines environmental permit applications to regulate the water being discharged in order to protect water quality, the environment and human health.

During its consultation on the application, which was advertised in the South Wales Echo, the agency received a number of comments from the local community, including some from the Llanishen reservoir action group. These comments are being considered as part of the agency’s assessment of the application. If Western Power proves to the agency’s satisfaction that the draw-down will not cause any detrimental effect on the Nant Fawr stream, its wildlife or the local environment, the agency is obliged to issue an environmental permit. However, if granted, the permit will place appropriate conditions on the company to minimise the risk of pollution or damage to the local environment.

The SSSI status conferred upon the Llanishen reservoir embankments by the Countryside Council for Wales in September 2005, which was confirmed in May 2006, will no doubt be an important factor in the agency’s assessment. I understand that Western Power has consulted the Countryside Council on its plans for the reservoir. The listed building status of the dam attached to the reservoir by Cadw is also an important factor to be taken into account, but it is my understanding that no application for listed building consent has been submitted by the company in relation to the drain-down. In any case, consideration of any such application would be a matter for Cardiff city council as the appropriate authority. If at any time the Environment Agency comes to believe that the reservoir has become unsafe or detects any damage or pollution to the environment from the further draw-down proposed by Western Power, proportionate enforcement action will be taken against the company.

I recognise and share my hon. Friend’s concerns over the many issues he has identified in relation to the reservoir at Llanishen. I hope also that I may reassure him of the importance I attach to the debate on matters that are not just of concern to local communities, but which might indeed have wider implications and which I intend to take steps to pursue. I therefore intend to write to the Welsh Assembly Government Minister with responsibility for the environment and sustainability, Jane Davidson, who has devolved responsibilities in this matter, to convey the concerns raised in the House this evening. I intend also to write in a similar vein to Robert Symons, the chief executive of Western Power, to urge that his company engages with interested parties in this matter.

As my hon. Friend has so eloquently pointed out, the Llanishen case has highlighted the fact that, whereas a reservoir operator has a means of challenging a determination by the Environment Agency, current legislation does not provide for reconsideration by an inspecting engineer of his report once it has been submitted to the operator, even if new information or a contrary view is provided from another source. That seems to be an issue that merits further reflection. I therefore intend also write to my hon. Friend the Member for Newbury (Richard Benyon), the Under-Secretary at the Department for Environment, Food and Rural Affairs with responsibility for the natural environment and fisheries, to ask him to consider the scope for addressing this apparent anomaly in the course of the Government’s implementation of section 4 of the Flood and Water Management Act 2010, which will introduce a risk-based approach to the assessment of reservoir safety, and on which the Government will consult in due course.

[Jonathan Evans]

The reservoir action group and local residents will be very pleased to hear my hon. Friend’s statements from the Dispatch Box. Within his busy schedule, when he is in Cardiff on some convenient occasion, will he take the opportunity to visit the reservoir and meet the interested parties and locally elected representatives, as I challenged Mr Clarke to do during my earlier remarks? Bearing in mind what my hon. Friend has said, there will be people who will wish to take the opportunity to thank him for his interest.

[Mr Jones]

I shall be pleased to accept that invitation.

I will place copies of all the letters to which I have referred in the Library of the House. I hope that the process that I have outlined will give my hon. Friend the assurance he needs that the safety and environmental impact of the operation of Llanishen reservoir, as well as the concerns of his constituents and the wider community in Cardiff, are being given the priority and attention the matter deserves.

Question put and agreed to.

02:48

House adjourned.