House of Commons
(12 years, 11 months ago)
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Prayers
(12 years, 11 months ago)
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Benefits Uprating
(12 years, 11 months ago)
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The Minister of State, Department for Work and Pensions (Steve Webb)
Mr Speaker, with permission I should like to make a statement about the uprating of social security pensions and benefits for 2012-13. I shall place in the Vote Office full details of the new rates that are due to come into force from the week of 9 April 2012 for each pension and benefit, and arrange for the figures to be published in the Official Report.
As part of his autumn statement last week, my right hon. Friend the Chancellor of the Exchequer announced the rates of tax credits for 2012-13, and today I am announcing the uprating of those social security pensions and benefits for which my Department is responsible. As my right hon. Friend Chancellor pointed out in his statement, uprating in 2012-13 would protect
“those who have worked hard all their lives…poorer pensioners…those who are not able to work because of their disabilities…those who, through no fault of their own have lost their jobs and are trying to find work.”—[Official Report, 29 November 2011; Vol. 536, c. 802.]
Starting with those who have worked hard all their lives, I should like to turn to one of the early actions of the coalition Government: the restoration of the earnings link for the basic state pension. This Government not only made good on the pre-election promises to restore the link with earnings, we went one step further by protecting the future value of the basic state pension with a triple guarantee—that the basic state pension will rise each year by the highest of growth in earnings, prices or 2.5%. The triple guarantee means that even in times of slow earnings growth, we will not see a repeat of small rises such as, for example, 75p in 2000.
The new rate for the basic state pension will be £107.45 for a single person, an increase of £5.30 a week. I can announce, therefore, that from April 2012, the basic state pension is forecast to be 17.1% of average earnings, a higher share of average earnings than in any year of the Labour Government since 1997.
I turn now to additional state pensions, commonly referred to as SERPS—the state earnings-related pensions scheme. In April 2010, one of the last acts of the previous Government was to freeze SERPS pensions. This was in the apparent belief that pensioners had not experienced any inflation in the preceding year. That was solely because the retail prices index was negative in the year to September 2009, with the rising cost of goods and services swamped by falling mortgage rates. However, in April 2011 we increased SERPS pensions by 3.1% and I am pleased to confirm that this year SERPS pensions will also rise by 5.2%. That means that the total state pension increase for someone with a full basic pension and average additional pension will be around £6.70 a week or £348 a year.
The standard minimum guarantee in pension credit must be increased each year at least in line with earnings. However, this would have implied an increase of just 2.8%; in other words, the poorest pensioners would have got the smallest increase. We judged that unacceptable, so instead, from April next year, the single person rate of the guarantee credit will rise by £5.35, taking their weekly income to £142.70. For couples, the increase will be £8.20, taking their new total to £217.90 a week.
To help manage expenditure, we shall be funding that above-earnings increase to the standard minimum guarantee by increasing the savings credit threshold, which means that those with higher levels of income will see less of an increase. In his autumn statement, the Chancellor told the House that we will uprate the standard minimum guarantee by £5.35 and that we would meet the cost of the over-indexation by increasing the threshold for the savings credit. That plan was correctly reflected in line 30 of table 2.1 on page 46 of the autumn statement, and it is indeed our plan. Unfortunately, the precise thresholds, which were calculated by our Department and appear at paragraphs 1.143 and 2.24, were incorrect. I apologise to the House for this error, which I am now in a position to correct. The correct thresholds for savings credit from April 2012 will be £111.80 for single pensioners and £178.35 for couples.
As many hon. Members will know, an important component of our plans for uprating pensions and benefits last year was the move to the consumer prices index— CPI. We believe that the CPI is a superior measure of inflation for benefits and pensions uprating. That is because the basket of goods on which it is based is a better match for the spending patterns of pensioners and others on a low income, and because it takes better account of the way in which lower income households respond to price changes. It is also the headline measure of inflation in the UK, the target measure of inflation used by the Bank of England, and internationally recognised. I am pleased to say that last week the High Court upheld the Government’s position that the CPI can be used for pensions and benefits uprating.
The coalition will ensure that the value of other social security benefits is maintained through a rise of 5.2%, even in these tough economic times. This means for disabled people, above and below pension age, through disability living allowance and attendance allowance, an increase of 5.2%; for people of working age who are not fit for work, through employment and support allowance, an increase of 5.2%; and for people who have lost their jobs, through no fault of their own, through jobseeker’s allowance, an increase of 5.2%.
On local housing allowance, at the emergency Budget in June 2010, the Government announced that from 2013, local housing allowance rates will be calculated annually by using the lower of the rent at the 30th percentile of local rents or the previous year’s rate uprated by reference to CPI. This will end the monthly uprating of LHA rates and bring the system into line with the uprating of other pensions and benefits.
As part of the preparation for this change, we need to fix LHA rates, to establish a baseline from which they will be uprated in future. As the new cycle for uprating LHA will be annual, we have decided that the baseline should be one year ahead of the first uprating event. Therefore, LHA rates will be fixed from April 2012. This approach means that there will be no reductions in ongoing awards as a result of this change.
So at a time when the nation’s finances are under severe pressure, this Government will be spending an extra £6.6 billion in 2012-13 to ensure that people are protected against cost of living increases: no less than £4.5 billion extra on state pensions; over £1 billion extra on disabled people and their carers; and over £1 billion extra on people who are unable to work through sickness or unemployment.
We protected the triple lock, securing the largest ever cash rise in the basic state pension. We have uprated the pension credit as well, so that the poorest pensioners benefit in full from the triple lock. We have uprated working age benefits by 5.2%, protecting the real incomes of the poorest. Through this statement, I have outlined our firm commitment to ensure that even in these difficult times, no one is left behind. I commend this statement to the House.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
I thank the Minister for advance sight of his statement, and welcome some of his announcements about the uprating of pensions. I am delighted that on the issue of increasing the state pension age further, the Government have learned from some of their mistakes on the previous round and will at least give adequate notice to those affected. That is a positive move. I welcome the U-turn on the mobility component of disability living allowance. The change should never have been proposed. We, along with disability campaigners, have argued hard for a U-turn and we are pleased that the Government have taken that action.
Last year, in the wake of the autumn statement, the Minister told my predecessor that his Government had embarked on decisive action to take Britain out of the danger zone. What a difference a year makes. The Government’s economic policy has failed and is failing, and working families are paying the price. It is when a Government’s back is against the wall that their true character is revealed, because that is when the difficult choices have to be made. The failure is writ large in the Government’s revised borrowing forecasts.
We know that the Chancellor told the House that he is going to borrow £150 billion more than he planned—£150 billion more. The Government are fond of the credit card analogy, and £150 billion is an astonishing extra debt to add to the nation’s credit card bill. It is the price of failure, and this failure is nowhere more apparent than in the extra £29 billion, largely the price of rising unemployment, which the Government project they will spend on benefits. What the Minister failed to say in his statement today is that to pay for the Government’s own failure, they propose to take twice as much money from children and families as they do from bankers.
Let us look at the impact on families and women. We are left with a benefits policy that hits the poorer hardest. The Institute for Fiscal Studies, which used to employ the Minister, has said that measures in the autumn statement would
“take away from lower-income families with children.”
Even the Secretary of State had to admit to the House last week that the bottom 30% do quite badly. The Government’s benefits policy will hit women harder than men. The House of Commons Library estimates that of the £2.37 billion raised from tax credits and public sector pay changes introduced in the autumn statement, 73%—£1.73 billion—will come from women and 27% will come from men. Taking together all the changes to direct tax, benefits, pay and pensions announced by the Chancellor since the general election, of the £18.9 billion the Government are raising each year, £13.2 billion comes from women. Women are being hit twice as hard as men.
In addition, the Government’s benefits policy will increase child poverty. In its distributional analysis of the autumn statement, the Treasury has admitted that as a result of Government decisions the number of children living in households with incomes below 60% of the median will increase by 100,000 in 2012-13, which means more children living in poverty. The IFS now estimates that the number of children living in poverty will rise by 600,000 over the next period. Surely the Government and the Minister cannot be proud of that.
Let me ask the Minister some straightforward questions. Minister, you signed up to the Child Poverty Act 2010. Do you believe that under the terms and definitions of that Act child poverty is set to rise under your Government? You will have studied the IFS—
Mr Speaker
Order. I gently say to the shadow Minister that he knows that debate should be conducted through the Chair and that use of the word “you” is not encouraged in the Chamber. We would be grateful if he addressed the Minister through the Chair. We are grateful that he has some questions, but he must wrap them up pretty sharpish.
Gregg McClymont
Thank you, Mr Speaker.
The Minister will have studied the IFS presentation. Will he confirm that its conclusion is that the people who will pay most will be those in the bottom 30%? Does he agree with the Secretary of State that work incentives will be diminished by the Government’s actions in the autumn statement and that the changes to tax credits and public sector pay announced in the autumn statement will hit women disproportionately?
Steve Webb
I am grateful for the bits of the hon. Gentleman’s speech that actually responded to my statement, because he appeared to agree with us entirely. I am grateful for his support for our increase in the basic state pension, our announcement on the state pension age and our changes on the mobility component of DLA. I also agree that we see the true colour of a Government when their back is against the wall. Notwithstanding the huge pressure on the public finances, for reasons he might understand, we took the view that protecting the most vulnerable was a priority. That is the true colour of this Government.
The hon. Gentleman asked about the distributional impact of the measures we have taken. I refer him to Chart 1.C of the distribution analysis published by the Treasury last week to accompany the autumn statement, which takes account of not only the measure set out in that statement, but the cumulative impact of all that we are doing. I am sure that he will not want to be selective and will look at the whole picture. Page 4 of the analysis includes a chart ranking people by what they spend, which shows that the proportion lost rises with income. In other words, the smallest amounts lost are for the lowest households and the largest cash amounts lost are for the highest households [Interruption.] Yes, cash is what matters to people.
The hon. Gentleman asked about work incentives, and I am pleased to say that with his support the universal credit that my right hon. Friend the Secretary of State wants to introduce will be the biggest boost to work incentives for many generations. Starting in 2013, we will be rewarding work instead of penalising it, and the best thing that we can do for low-income households is to enable them to work and to support them in that.
The hon. Gentleman did not mention the many things that we are doing for low-paid working households, such as the personal income tax allowance increases, the council tax freeze, the cuts in fuel duty and, above all, the low-interest-rate environment, which for households with mortgages is crucial to their living standards. I am grateful to him for the measures that he did welcome, but there was a lot more that he should have welcomed.
Mrs Anne Main (St Albans) (Con)
I am sure that the £6.6 billion that the Minister has announced today will be welcome to many families in the UK, but I am extremely concerned that the European Commission is seeking to open that benefit pot to European benefit tourists who seek to avail themselves of it. That £6.6 billion will be in no way enough if we are to encompass benefits for European benefit tourists.
Steve Webb
I can assure my hon. Friend that my right hon. Friend the Member for Epsom and Ewell (Chris Grayling), the employment Minister, has quite categorically stated that Britain does not believe in benefit tourism, and that we will do all we can to prevent it.
Mr Frank Field (Birkenhead) (Lab)
Is it not true that the Minister’s partial statement today will in the next couple of years result in decreasing the incentive to work? If the Treasury believed in localism and had given the £6.6 billion to the Department to spend on uprating as it wished to, would not the Minister have made a statement today that increased work incentives rather than decreased them?
Steve Webb
The right hon. Gentleman, for whom I have a great deal of respect, will be aware that the reward for working comes from a combination of factors, one of which is the tax burden on the low-paid, and that this Government have twice increased the personal tax allowance by about £1,500. That is worth more than £300 a year for a standard rate taxpayer and, for two members of a couple in low-paid work, is a £600 gain with more to come. That is a real reward for working which all too often they have not had in the past.
Jenny Willott (Cardiff Central) (LD)
I welcome the fact that the state pension and the state earnings-related pension scheme will rise by 5.2%, and that pension credit will do so above earnings, but different levels of uprating and a complex system can make it difficult for pensioners to understand exactly what they should expect. Will the Minister do all that he can to simplify the system and bring in a flat-rate pension as soon as possible, so that pensioners are able to see clearly and easily what pension they should expect?
Steve Webb
My hon. Friend is characteristically persuasive. It is absolutely clear that a system in which we pay a wholly inadequate basic pension—we pay a pension that, even after the uprating to £107 a week, is not enough to live on, so we will top it up—cannot be a sustainable basis for the future. We therefore continue to develop our proposals for state pension reform, precisely so that we get more money to people automatically, with less reliance on complicated means tests that mean too many people do not get what they should.
Gloria De Piero (Ashfield) (Lab)
Children’s well-being does not just depend on benefits; it is often about child maintenance, too. So what is fair about charging single parents to use the Child Support Agency?
Steve Webb
The Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Basingstoke (Maria Miller) brought forward proposals only this week to make child maintenance more effective, because, as the hon. Lady rightly says, getting child maintenance paid is crucial. We believe that far too little is paid and the cost of collecting it is disproportionate to what we receive, so we need an efficient child maintenance system, and that is what we propose to bring forward.
Nigel Mills (Amber Valley) (Con)
Does the Minister agree that rather than trapping more low-paid families in the complicated web of means-tested benefits, which has done so much damage already, taking them out of tax altogether is by far the better approach?
Steve Webb
My hon. Friend is quite right that we have already taken, I think, just over 1 million families or individuals out of tax. We have a long-term goal of a £10,000 tax-free allowance, which would take out millions more, but what is often not understood is that couples in which both members go out to work to make ends meet get twice as much benefit. Each benefits from the personal tax allowance increase, so it helps precisely those most hard-pressed families in which both parents work all hours to keep their family going.
Dame Anne Begg (Aberdeen South) (Lab)
People can get the uprating only if they get the benefit in the first place, and, despite what the Minister said about protecting those who have worked hard all their lives, there is a measure in the Welfare Reform Bill which time-limits contributory employment support allowance to one year, so a large number of people who work all their lives but drop out of work because of ill health will get nothing after that.
Steve Webb
As the hon. Lady, the Chair of the Work and Pensions Committee, knows, that is a measure in the Welfare Reform Bill being considered in another place, but we have put in place two safeguards—that the most sick and the most poor are protected. In other words, those in the support group will continue on an un-time-limited basis to get ESA, and those with no other household income will continue, through income-related ESA, to be helped. So, at a time when we have to find savings, protecting the most vulnerable and the poorest seems to us to be a priority.
Mr Philip Hollobone (Kettering) (Con)
Pensioners in the Kettering constituency will warmly welcome the £5.30 a week increase in the basic state pension to £107.45. Can the Minister also confirm that for periods of extreme cold he is announcing a permanent increase in the cold weather payment from £8.50 to £25?
Steve Webb
My hon. Friend is absolutely right; it was remiss of me not to trumpet that fact. Last year, we announced that we were reversing Labour’s planned cut in the cold weather payment, which was due to fall to £8.50 and will now be £25 in each year of this Parliament. Last year, we spent over £400 million to help the most vulnerable when it is freezing cold, and that is a priority for this coalition Government.
John McDonnell (Hayes and Harlington) (Lab)
Many of my constituents may well have welcomed the increase, but they cannot because they are no longer receiving their benefit, particularly as a result of the extremely bizarre assessments of their disability by Atos—
Mr Speaker
Order. I apologise for having to interrupt the hon. Gentleman. I do not know what has come over the hon. Member for South West Bedfordshire (Andrew Selous). He is normally the very model of restraint, good manners and kindness to all things human and animal, and I am sure that he will recover his poise, but I want to hear the hon. Gentleman’s question; if he wants to start it again, he can.
John McDonnell
Many of my constituents would have welcomed the increase but they cannot because they are no longer receiving their benefit, particularly as a result of the Atos assessments of disability living allowance. In addition to that, having lost, or not gained, their benefit, they are waiting long periods for their appeals. Will the Minister look at the length of time that people are waiting for their appeals and the number of appeals that have been postponed as a result of lack of staff?
Steve Webb
The hon. Gentleman is bringing together several different issues. It is entirely the case that at the time of the election the previous Government had given Atos a contract for the work capability assessment for ESA—not DLA—and we have gone through with the Harrington process, independent reviews and recommendations for change, all implemented by the Government. Good progress is being made on making the system fit for purpose, but getting the decision right first time is better than speeding up the appeals process, and we are doing that more and more because we are reforming the system.
Philip Davies (Shipley) (Con)
Further to the point made by the right hon. Member for Birkenhead (Mr Field), how on earth can the Minister justify increasing benefits by over 5% when people who are in work are facing a pay freeze or, at best, very modest increases in their salary? Is not that another kick in the teeth to hard-working taxpayers, and does it not go against the Government’s priority to try to make work pay?
Steve Webb
My right hon. Friend the Secretary of State is absolutely committed to making work pay through a combination of benefit reform, with the universal credit, with which we are pressing ahead, taking people out of tax, as well as the council tax freeze and the petrol duty cut. There is a whole range of factors about whether work pays. I believe that we have done a great deal for people in low-paid work, and there is much more to come.
Helen Goodman (Bishop Auckland) (Lab)
The Minister made much of his belief that CPI protects the standard of living of pensioners, but on Friday an old-age pensioner came to see me and pointed out that the Department for Communities and Local Government target for rents in the social sector is linked to RPI. Does not that display the fact that the problem Ministers have is that they assume that everyone is like them and is an owner-occupier?
Steve Webb
I know that the hon. Lady was a Minister in our Department, and she will understand that the way the housing benefit system works is that people in the social rented sector, provided that they are not over-occupying, get their full rent, whether it is increased by CPI or RPI. The fact remains that including mortgage interest in a measure of inflation for pensioners when, as she rightly says, most pensioners do not have an outstanding mortgage, is the wrong thing to do.
Mr Marcus Jones (Nuneaton) (Con)
How much better off will the average pensioner in Nuneaton be following the introduction of the triple lock guarantee and the restoration of the link between earnings and pensions?
Steve Webb
For someone retiring this year on a full basic state pension, the triple lock, we estimate, will benefit them to the tune of about £13,000 over the course of their retirement. That is a very significant change whose effects we are not yet seeing in full because earnings growth is depressed, but as it returns to more normal times, pensioners in Nuneaton and elsewhere will see real increases year after year.
Simon Danczuk (Rochdale) (Lab)
As we approach Christmas, does the Minister not think it extremely sad that his latest cuts to tax credits will put a further 100,000 children into poverty?
Steve Webb
I am glad that the hon. Gentleman has raised that point, because it is a selective quotation from the autumn statement. As well as making the changes to tax credits, we are over-indexing benefits relative to average incomes. As poverty is measured in relation to average income and we are putting up benefits according to CPI, which is about twice the rise in average income, child poverty will be reduced compared with the figure that he gave. There is more to this than meets the eye.
Harriett Baldwin (West Worcestershire) (Con)
The Minister will be aware that many more women than men are on pension credit and that about 60% of pensioners are women. Does this increase not therefore disproportionately help women?
Steve Webb
My hon. Friend is quite right. Not only does the pensions boost help women, but the pension credit boost helps women. Reflecting on the Opposition’s question about the combined effect of our measures, it is worth saying that the one measure excluded from that question was the VAT rise. They excluded that because men, on average, have higher incomes and higher spending. In particular, they have higher spending on VATables, so the impact of the VAT rise hits men more than women. For some reason, the Opposition did not count that measure.
Hywel Williams (Arfon) (PC)
May I welcome the Government’s decision on the mobility component? That is vindication of the wide campaign on this issue, which included my early-day motion and the 88-odd Members who signed it. On a slightly more incredulous note, would the Minister claim that the move to CPI and the large savings to Government expenditure are entirely coincidental?
Steve Webb
I am grateful to the hon. Gentleman for welcoming our decisions on the DLA mobility component. Clearly, the decision on CPI was taken in a fiscal context. However, it came after RPI was negative and CPI was positive, so the immediate context was a year in which state earnings-related pension schemes and public sector pensions had all been frozen. I certainly could not believe that there had not been any inflation, and I am yet to meet a pensioner who could.
Nia Griffith (Llanelli) (Lab)
As we all understand, with rocketing fuel and food prices these rises are not as generous as they look. Has the Department assessed the impact of the £100 cut in the winter fuel allowance, combined with the fact that those on low incomes spend a lot of money on food and fuel? People will actually be worse off, particularly those with an income that puts them just above the bracket for claiming the cold weather payment.
Steve Webb
It was entirely right that we went ahead with Labour’s planned cut to the winter fuel payment. We reversed the cold weather payment cut to prioritise the most vulnerable when it is most cold. I make no apology for that. It was important to put the full 5.2% through for people with no wage because of the pressures on household fuel bills and other costs. That is why it was vital that we stood by the most vulnerable even though money was tight.
Mr Andrew Love (Edmonton) (Lab/Co-op)
Will the Minister take this opportunity to admit that the policies of the coalition have led to a diminution of work incentives? If we are to believe press reports, that appears to be the opinion of the Secretary of State. Was there any consultation with the Chancellor about his autumn statement? Does this not show that the Government are in disarray over this issue?
Steve Webb
People are still better off in work. When we have the Secretary of State’s universal credit, that will be even more the case. The hon. Gentleman is focusing on a narrow aspect of the measures that we have taken. Personal income tax allowance increases, the cuts in fuel duty compared with Labour’s escalator plan and the cuts in council tax in real terms will all help people in work and make it pay to work. We have plans to take that further.
Mr David Winnick (Walsall North) (Lab)
The hon. Member for Shipley (Philip Davies), who is yet to reach the 19th century, attacked the unemployed. I point out to the Minister that a store in my constituency had 20 vacancies when it opened and 250 people applied. Is that not an illustration of people out of work and desperate to find employment? They should not be attacked by hon. Members in the way that I have mentioned.
Steve Webb
I have no doubt that the vast majority of people who are unemployed are actively looking for jobs. Indeed, that is a condition of payment of jobseeker’s allowance. We would not pay people if they were not actively seeking work. The very fact that there are many unemployed people in the hon. Gentleman’s constituency—I grew up near Walsall, so I know the area well—is why we have to get the nation’s public finances on an even keel. We have seen what happens to countries that do not do so.
Jonathan Ashworth (Leicester South) (Lab)
Further to his answers to my hon. Friend the Member for Edmonton (Mr Love) and my right hon. Friend the Member for Birkenhead (Mr Field), who is no longer in his place, does the Minister accept that the changes to working tax credits act as a disincentive to work? Does that explain why, according to newspaper reports, the Secretary of State is so angry about that change and baffled that the Liberal Democrats pushed for it?
Steve Webb
There is a danger of missing the central points here, which are that people are better off in work, and we want to go further; that the tax credits are part of a package of measures, and I have listed repeatedly the many things that make work pay; and that our increases in personal tax allowances, for example, will make work pay far more than in the past. The coalition is united on that.
Sheila Gilmore (Edinburgh East) (Lab)
The Minister is trumpeting the highest ever increase for pensioners, which I am sure they welcome, but is not the truth that it is so high only because inflation is so high? This is not some generous gift from the Government; it merely allows pensioners to keep up with prices. Further to that, many pensioner groups would point out that the real types of inflation faced by pensioners are actually higher than CPI.
Steve Webb
I do not recall the previous Government ever using something other than inflation or using a different rate for pensioners because of factors such as those the hon. Lady mentions. Sometimes the pensioner rate will be higher and sometimes it will be lower, but on average it will be broadly the same. There was a lot of speculation—she may even have read some of it—that we would not provide a 5.2% increase, that we would break the triple lock, that we would average out the figures or do all sorts of things, but we stuck by our promise and provided a 5.2% increase. The real value of the pension as a share of average earnings—that is what pensions are for: to replace the earnings that people used to have—is higher than in any year under Labour, and I am proud to put my name to that.
Registration of Commercial Lobbying Interests
(12 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text
John Cryer (Leyton and Wanstead) (Lab)
I beg to move,
That leave be given to bring in a Bill to establish a public register of organisations that carry out lobbying of Parliament for commercial gain; to make provision for disclosure of expenditure by such organisations; and for connected purposes.
The Bill is in a very peculiar position among private Members’ Bills, in that it is as relevant today as it was 20-odd years ago. It was first presented to the House in 1982 by my father, who was then the MP for Keighley, and again in 1988 when he was the MP for Bradford South.
I am not seeking to bring in the Bill on the basis that I am looking for a place in the “Guinness Book of Records” for having presented the Bill with the longest gestation period in British history. The reason is that Britain now has a £2 billion lobbying industry, much of it centred here in Westminster. I believe that there is a strong mood among the public to make lobbying more transparent and accountable, and that will only be reinforced by the story on the front page of The Independent this morning that appears to show that Bell Pottinger and perhaps other lobbying firms have profound influence at the centre and seat of government. I will come to that later.
The Bill would require that all companies, partnerships or sole traders that sought to lobby Parliament in order to influence legislation or its application as their sole, major or subsidiary commercial purpose must be registered. It would not impede the ordinary lobbyist—the ordinary constituent or member of the public, who has a right to lobby his or her Member of Parliament. Nor would it affect the ability of a company, co-operative, trade unionist or residents association to lobby Parliament. My fear is that local groups such as residents and tenants groups do not have the financial muscle of big corporations that can bring professional lobbyists to bear on Parliament and be more successful and carry more weight as a result.
During the 1980s, when big consortia and companies were lobbying for contracts to build the channel tunnel, one Jonathan Aitken, who was then a Conservative MP, said—ironically, in light of later events:
“'What worries me most is that usually lobbying is genuine in the sense that it stems from little interest groups and concerned citizens. Here we are seeing the Panzer division of big business, their heavy artillery and tanks trampling over all the small people’s interests which I want to see better defended.”
I agree with that. It is odd that he should have said it, but I agree. Those Panzer divisions and that heavy artillery are now being brought to bear on possibly a greater scale than ever before.
Strangely enough, the Prime Minister agreed with me a few months ago about wanting to introduce a Bill that would establish a register of lobbyists, but he seems to have changed his mind. He promised a consultation paper on establishing such a Bill by the end of November, but that consultation paper has not yet appeared. There are now many large and powerful lobbying firms busy in Westminster, many of them specifically lobbying for health contracts, often for big, commercial health outfits based in north America. Here are a few examples: Citigate Dewe Rogerson lobbies on behalf of Benenden and Nuffield; Grayling lobbies on behalf of Cambian, GE Healthcare and Nuffield; Lexington Communications lobbies on behalf of Bupa, GlaxoSmithKline Beecham, Novartis and Pfizer; and MHP Communications lobbies on behalf of Ellipse, IMS Health, Lundbeck, Roche, Grünenthal, Hoffman-La Roche and Janssen-Cilag.
Incidentally, one special adviser at the Department of Health happens to have worked for MHP Communications before he went to the Department. That relationship might be above board, but we do not know because it is not transparent—we do not know what goes on in the heart of government.
Some will argue that the Bill is unnecessary because the Association of Professional Political Consultants has a code of conduct, but that argument simply holds no water. For instance, the code bars payment in cash or in kind to any parliamentarian, but Grayling public affairs is owned by Huntsworth, the chief executive of which is Lord Chadlington, who is obviously a parliamentarian, and Bell Pottinger public affairs is owned by Chime Communications, of which Lord Bell, who is also a parliamentarian, is the chairman. Perhaps they do it on a voluntary basis, but I doubt it; I suspect that they are paid by those lobbying outfits.
That brings us rather neatly to the story in The Independent today that Bell Pottinger staff have been secretly filmed making the most alarming claims to have influence at the very heart of government, even inside No. 10 Downing street. They claim to have got the Prime Minister to speak to the Chinese Premier on behalf of their business clients at something like 12 hours’ notice; they boast of having access to the Foreign Secretary, the Prime Minister’s chief of staff, Ed Llewellyn, and to the Prime Minister’s closest adviser, Steve Hilton; and they claim to be able to get MPs—presumably from the Government Benches, although that is not made clear—to attack investigative journalists for the smallest of errors in order to rubbish stories when journalists investigate, for example, the Uzbek Government or large health conglomerates.
Reporters from The Independent posed as agents of the Uzbek Government, who have one of the worst human rights records on the face of the planet. Bell Pottinger aimed for a contract worth £1 million. Bell Pottinger, which since its foundation 30 years ago has been close to the heart of the Conservative party, did not hesitate to discuss signing a contract that would include lobbying on behalf of the Uzbek Government, who, apart from anything else, we are told, boiled two opponents alive in water, but there we are.
Tim Collins, the managing director of Bell Pottinger Public Affairs, is a former MP. He is not regarded over-fondly on the Opposition Benches—if I can put it that way—but he says in the film:
“I’ve been working with…Steve Hilton, David Cameron, George Osborne, for 20 years-plus…There is not a problem in getting the messages through”.
He was talking about lobbying on behalf of the Uzbek Government when he said that there is
“not a problem in getting the messages through”.
Strangely, when a No. 10 spokesman was contacted last night by The Independent and asked about the story, he said:
“It is simply not true that Bell Pottinger or indeed any other lobbying firm has any influence on government policy”,
which is a fairly strange claim. If it is true, all former MPs who are now lobbyists, all former lobbyists who are now MPs and all full-time lobbyists have wasted their time all these years. They have had absolutely no effect on Government policy, so why did they not go and do something else? The idea that large corporations, multinational companies and big banks that hire big lobbying firms to exercise influence at the heart of government have absolutely no consequence and no influence whatever is pretty difficult to stomach.
The reality is that this Government are very close to vested interests in the City, big corporate interests and big businesses. They have not the faintest idea what is going on in 99% of the rest of the country, where people are suffering under the cuts that are being introduced with a heartlessness not seen since the 1930s. They have absolutely no idea of the effect of the cuts in public services, but they know big business and the City, partly because the City provides more than 50% of Conservative party finances. For the first time in British history, City individuals and businesses finance the—[Interruption.] The Chancellor is saying something from a sedentary position. Perhaps he is contradicting what I am saying, so I shall say it again very clearly: City institutions and individuals finance more than 50% of Conservative party funds. It is just those sorts of big financial interests that hire lobbying firms and that then go to No. 10, and perhaps No. 11, to exercise influence there to steer Government policy in particular directions.
If the Prime Minister were serious about introducing legislation that creates a register of lobbyists, he would take on my Bill; it has certainly been around for long enough. He would push it through its parliamentary stages and put it on the statute book. It is perfectly simple. If he is not prepared to do that, I will assume that he and perhaps the Chancellor, who was mumbling a while ago about something or other, have something to hide. Perhaps they and their advisers are a bit too close to powerful commercial interests.
Philip Davies (Shipley) (Con)
I have a great deal of regard for the hon. Member for Leyton and Wanstead (John Cryer) who proposed this Bill. He will know that the people in the Bradford district still have a great deal of regard for his father, who originally brought in this Bill, and for his mother, too. However, I am afraid that the Bill is typical of the Labour party’s nanny state bureaucracy and its belief that the Government should have a role in everything.
Although the hon. Gentleman started by saying that he just wanted to introduce a register of lobbyists, it became increasingly clear that he was against lobbying altogether and wanted to see an end to it, but only for businesses and commercial enterprises. None the less, lobbying plays an important part in any democratic process. It gives a voice to a whole range of groups and interests within our democracy by allowing them to make their case. One of the things that I despair of in politics is that increasingly politicians want to be on the popular side of the argument and that we are in danger of having a generation of politicians who will argue for what 75% of the public want rather than the other 25%. Actually, the 25% also deserve to have their case heard, and lobbyists can play a useful role in allowing organisations that might not be immediately popular and might not even have a particularly popular message to get across to have their voice heard as well. Surely, in a democracy all voices should be able to be heard whether or not they are popular.
This Bill could lead to many organisations and Members of Parliament becoming lobby shy. Discouraging lobbying altogether, as the hon. Gentlemen wishes, would lead to poorer law-making. I make no apology for the fact that I meet people who have a particular view that they want to express. It does not mean I will end up agreeing with them, and I am sure it does not mean that the hon. Gentleman agrees with everybody who advocates their case to him. None the less, it is perfectly reasonable that they should be able to have their say and that we should be able to listen to their arguments. We can either accept their arguments if they are good ones or we can dismiss them if they are not so good. I am surprised that the hon. Gentleman has so little faith in people in this House that he thinks that just because someone makes a case to them, they will automatically agree with it, pick it up and run with it. It does not mean anything of the sort; it just means that other voices can be heard.
What was sadly lacking in the hon. Gentleman’s speech was anything to do with trade unions. He had a lot to say about the lobbying of Members of Parliament by businesses, but he was reluctant to mention the importance of the lobbying of Members of Parliament by trade unions. His Bill talks about establishing
“a public register of organisations to carry out lobbying of Parliament for commercial gain”.
It seems that he has deliberately designed his words to exclude trade unions from his provisions. He wants a system in which trade unions can lobby anybody as much as they like and spend as much money as they like on doing so, but anyone else in the commercial world will not have any opportunity to do so. That is his real agenda—to push forward the trade union argument.
An opinion poll conducted by ComRes asked MPs about the number of approaches they typically received each week from various organisations, and the results were startling: 59% of MPs said that they received 20 or more approaches from interest groups, but in sheer lobbying volume the approaches from interest groups that included trade unions and non-governmental organisations outnumbered those from the corporate world. The hon. Gentleman wants to entrench that position. In effect, he wants the trade unions to have all the influence that they desire and nobody to be able to argue against any of the things for which they lobby. That would be a triumph not for democracy but for his own agenda. A perfectly effective self-regulatory system is already in place.
I do not want to detain the House any further and I certainly do not intend to call a Division, but I thought it important that the one-sidedness of the hon. Gentleman’s argument be made abundantly clear. The Bill is not necessary or desirable. We should be prepared to listen to people who want to lobby from all parts of society, whether they be businesses, trade unions, charities or other organisations, and we should not support a Bill that tries to prevent certain people from getting their message across just because he happens not to agree with it.
Question put and agreed to.
Ordered,
That John Cryer, Natascha Engel, Mr Dennis Skinner, Lisa Nandy, Kelvin Hopkins, Grahame M. Morris, Bob Russell, Caroline Lucas, Mr Tom Watson and Valerie Vaz present the Bill.
John Cryer accordingly presented the Bill.
Bill read the First time; to be read a Second time on Friday 20 January 2012, and to be printed (Bill 258).
The Economy
(12 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Speaker
Before I call the Chancellor, I remind the House that in view of the high level of interest in the debate I have imposed a six-minute limit on each Back-Bench contribution.
The Chancellor of the Exchequer (Mr George Osborne)
I beg to move,
That this House has considered the matter of the economy.
I am pleased that the House has been given this early opportunity to debate last week’s autumn statement and to discuss the economic challenges that our country and continent face. Being conscious that many people have asked to speak, I shall try to tailor my remarks appropriately.
Seven days ago I set out the Office for Budget Responsibility’s latest independent forecasts and the measures that we would take to reinforce our country’s fiscal credibility and keep our interest rates low, increase the supply of money and credit to ensure that those rates were passed on to businesses and home buyers, and lay the foundations for a more resilient, more competitive and more balanced economy.
That was one week ago, and in the seven days since events have provided further confirmation of why these measures are necessary: countries such as Ireland and Italy have announced further budget measures from VAT rises to pension age increases, reminding us of the value of getting ahead of the markets not following them, and the credit ratings of 15 eurozone countries have been put on negative watch, while here in Britain interest rates have stayed low despite the deterioration of the fiscal forecast, which has meant that last week we continued to borrow at below 2.5%. [Interruption.] I thought that the shadow Chancellor was about to intervene, but we shall have to wait.
Last week I answered questions from Members who wished to ask me about the detailed policy measures in the autumn statement, and I am happy to answer such questions again today, but I thought this might also be a good opportunity to address three broader issues: first, the crisis in the eurozone; secondly, how we believe that the UK banking system should respond to the ongoing crisis and the advice that we received on Thursday from the Bank of England’s Financial Policy Committee; and thirdly, given the eurozone debt crisis and the banking issues that we face, why the credibility of our fiscal policy must be constantly reinforced. Let me take each in turn.
On the eurozone, our overriding responsibility is to protect and advance the interests of the United Kingdom. Those interests are best served by the countries of the euro finding a path out of the crisis, while also ensuring that our economic interests in the single market are protected. There is no doubt that the crisis is having a chilling effect on the British economy and destroying jobs here. In the words of the Governor of the Bank of England last Thursday, it is, in his judgment, the primary cause of the downward revision of the British growth forecasts, as it was one of the primary causes of the OBR’s downward revision of its growth forecast. Of course, the OBR warned us that it had assumed an orderly resolution of the crisis over the next two years. This impact sadly comes as no surprise, when 40% of our exports are to the euro area and £1 in every £7 that Britain exports goes to Ireland, Portugal, Greece, Spain or Italy. Although we must plan for all contingencies—and we are—we should not lose sight of the truth that Britain has a fundamental national interest in the eurozone sorting out its problems, even though we are not in the euro and will not be while this Government are in office.
Action is required by the eurozone on three counts. First, as Germany has argued, and as I made clear in July, there needs to be much tighter fiscal discipline within member states and much tighter fiscal co-ordination within the euro. This is the remorseless logic of monetary union. Secondly, those reforms to economic governance should provide the confidence in the future discipline that the European Central Bank requires to take whatever action is necessary to protect financial confidence. We have been calling consistently for a big firewall, properly capitalised banks and lasting structural reform, and we now need that delivered. Thirdly, all this will succeed only if there is an improvement in the competitiveness of the whole of Europe, and also, crucially, in the competitiveness of the peripheral eurozone countries vis-à-vis countries such as Germany. That will involve difficult change, but it is encouraging to see some European Governments, such as Ireland and Italy, now starting to take the necessary steps on issues such as pensions and labour market reform.
Britain has a huge interest in all that happening and has put forward specific proposals to ensure that our entire continent is not priced out of the world economy. As an open, trading nation, we benefit from the single market. We would like it strengthened and deepened, but we will also insist that our interests in the single market are protected from any future developments, including our interest in financial services. That is the approach that Britain will take to the European Council later this week. We need better regulated financial services to protect our economy when things go wrong, which is one reason why we commissioned John Vickers’s report. We want a single market in Europe so that our banks, our insurance companies and our pension companies can sell their products abroad, but 70% of Europe’s financial services are based in London. We will ensure as we approach this European Council that the interests of the European Union 27 are protected and that Britain’s national interests are protected too. That is our obligation to the British people.
Let me turn from the eurozone crisis to what all this means for our banks. British banks are well capitalised and liquid. Not one of them was identified as a cause for concern in the recent exercise by the European Banking Authority. I remind people that retail deposits in British banks or the subsidiaries of foreign banks here in Britain are protected by our country’s Financial Services Compensation Scheme, which ensures that £85,000 per person per bank is protected. Individuals with deposits in a UK branch of a European bank are protected by their national schemes.
The eurozone crisis is tightening credit conditions across the world and across Europe. The Bank of England announced today the introduction of a new contingency liquidity facility—the extended collateral term repo—which it will make available if needed. In addition, to protect small businesses from the higher costs of credit, we are pursuing the credit easing policy that I set out last week. I have set a ceiling of £40 billion on those operations, and have committed to £20 billion of guarantees through the national loan guarantee scheme, and £1 billion through the business finance partnership. Although the means are different, the ends we seek are the same.
Angela Smith (Penistone and Stocksbridge) (Lab)
Is not the Chancellor’s credit easing scheme an admission that his earlier deal—the Merlin deal—has completely and utterly failed?
Mr Osborne
The Merlin deal was for this year, and it was a commitment to increase gross lending to small businesses, which is what the banks have done. Of course, the previous Government, having tried net lending targets, then had gross lending targets with just two banks. The Merlin deal extended that to all the main high street banks. It was a one-year-only deal; the credit easing package that I have set out is, I think, what is required—not least in view of the tightening credit conditions across the continent of Europe and, indeed, across the world at the moment. The Government are using the credibility they have in the financial markets to borrow at low interest rates and passing those rates on to small businesses. As I said at Treasury questions, we are seeking state aid clearance and hope to have the national loan guarantee scheme operational by early next year.
At a time like this, we also have to be alert to risks across the financial system. One of the weaknesses of the tripartite regime is that no one felt they had a particular responsibility for monitoring the overall health of the financial system or felt they had the tools to do anything about it. We have created a Financial Policy Committee to do just that. We have established it on an interim basis to get it operating as soon as possible, instead of waiting for next year’s primary legislation. The FPC reported last week. Let me put it on the record that it is absolutely the job of the Governor of the Bank of England to be frank with the country about the challenges we face.
As the Financial Policy Committee warned very starkly:
“Sovereign and banking risks emanating from the euro area remain the most significant and immediate threat to UK financial stability.”
The committee encouraged banks to improve the resilience of their balance sheets in a way that does not exacerbate market fragility or reduce lending to the real economy. Given what it calls
“the current exceptionally threatening environment, the Committee recommends that, if bank earnings were insufficient to build capital levels further, banks should limit distributions and give serious consideration to raising external capital in the coming months.”
That is the point put to me by the Chairman of the Treasury Select Committee just an hour ago at Treasury questions. Limiting distribution includes restricting bonuses. Excessive pay in the financial sector is a concern at any time because of the perverse incentives it creates.
When it comes to linking pay to performance and being transparent, we are implementing the most comprehensive regime of any financial centre anywhere in the world. Today the Treasury launches a consultation that will extend transparency arrangements at large banks by requiring the eight highest-paid non-board executives to disclose their pay and bonus arrangements. This will cover an estimated 15 banks, including the largest UK banks and the UK banking operations of large foreign banks.
Mr Osborne
I will certainly give way; I hope the hon. Gentleman will welcome this change.
Gordon Banks
Will the Chancellor tell us how transparency will actually reduce the income of those to whom he refers?
Mr Osborne
Transparency should make it clear to the owners of these banks—the shareholders—what the pay and bonus levels and the remuneration levels are; it will then be for them to take action. I am aware of our responsibilities as a shareholder in some banks. As I mentioned at Treasury questions, an encouraging statement was made this morning by the Association of British Insurers, which represents the shareholders who own many of these banks, saying clearly that it does not accept current levels of pay in the financial sector and that it expects reform. As I said, we had a very clear warning from the Financial Policy Committee to the financial system that it should be limiting its distributions at a time like this.
Mr Osborne
I give way first to the shadow Chancellor and then to the member of the Treasury Committee.
Ed Balls
Labour Members welcome the Chancellor’s conversion to transparency in financial affairs. He will know that, following the Walker review, a piece of legislation is on the statute book that requires the publication of the salaries of all employees paid more than £1 million. Given that the legislation is on the statute book but that this Government have chosen not to enact it, will he now enact it and therefore bring about full transparency for anyone in the City earning more than £1 million?
Mr Osborne
I think that, in the interests of transparency, the right hon. Gentleman should have told the House that he was the City Minister who, for several years, had the opportunity to introduce these changes. What about the opportunity that he had to do precisely the things that we are doing today? When it comes to transparency in pay, we have consulted David Walker and others, and we think that this is exactly the right approach. We will introduce the changes unilaterally in the United Kingdom, although it is a significant financial centre, and I think that they will set an example that the rest of the world will follow.
Mr Osborne
I will give way if one single Opposition Member concedes that Labour was in government for 13 years and presided over a banking system that collapsed.
Mr Osborne
And the right hon. Member for Delyn (Mr Hanson) was a Minister in that Government.
Mr Osborne
Anyone listening to Opposition Members would believe that under the mythical Labour Government that apparently existed, all that information was disclosed. But was it disclosed? There was no disclosure whatsoever. I suggest to the shadow Chancellor—the former City Minister—and others that they back the unilateral measures that we are taking, which will make the financial centre here in London the most transparent in the world.
The advice of the Financial Policy Committee is clear. Banks should consider limiting bonuses this year and using profits to strengthen their balance sheets in the face of the eurozone debt storm. Let me make this plain: stronger banks, not larger bonuses, should be the priority this winter, and money that is earned should be used to build balance sheets and not to enhance payouts. That is the advice from the Bank of England, and that is the advice that the Government now expect to be followed.
Helen Goodman (Bishop Auckland) (Lab)
Will the Chancellor tell us what he, as a major shareholder in some of the largest banks in the country, will do about the bank bonuses on which he can have a direct impact?
Mr Osborne
We restricted cash payouts in the Royal Bank of Scotland in the last bonus round to less than £2,000. That is what we did when we had the opportunity. The hon. Lady was a Minister in the last Government. Perhaps in 30 years’ time we will discover that she was sending letters to the Treasury asking “What are we doing about transparency in pay in the City? Why do we not introduce a permanent bank levy?”, and saying “I am really worried about the regulation of Britain’s financial services.” We will just have to wait for 30 years to find out whether, when she held Executive office, she once raised the concerns that she now raises in opposition.
Both the slow repair of our banking system and the crisis in the eurozone were identified by the Office for Budget Responsibility as causes of weaker economic activity. They are also a reminder of why it is so essential for Britain to maintain its fiscal credibility as we deal with a budget deficit that is higher than almost any other in the world. A month ago I was told by the OBR, as part of the formal preparation for the autumn forecast, that weaker economic activity would give Britain a less than 50% chance of meeting the fiscal mandate and the debt target that I had set out unless we took further action.
I believe that at that moment the OBR proved not just its independence, but its worth. It forced the Government to confront the issues at hand, and to use the weeks available to us before the statement to come up with a credible response. We know that under the previous forecast regime, those weeks would have been used to fiddle the forecasts, to tweak assumptions about the output gap, and to pencil in over-optimistic numbers on tax receipts: in other words, to do all the things that my predecessor, in his memoirs, says were done during his dealings with No. 10 Downing street. It would have been a case of choosing economic figures to fit the Government’s policies, rather than choosing Government policies to respond to the economic figures.
I believe that the existence of the Office for Budget Responsibility, which was consistently opposed by the shadow Chancellor in every position that he held in the last Government, has given the whole of Parliament confidence in the integrity of the forecast.
Stephen Timms (East Ham) (Lab)
Did the Chancellor use those weeks to rethink his plan, because the OBR was telling him that the assumptions on which his plan was based were mistaken? We were told that employment would rise every year, but that has not happened, and it is not going to happen. We were told that the budget would be balanced in this Parliament, and that is not going to happen either. Surely the whole plan should have been rethought?
Mr Osborne
The OBR was also very clear in its analysis of why there had been weaker growth. Over the past seven days the shadow Chancellor and others have paraded around the TV studios citing the OBR’s numbers while refusing to accept the OBR’s analysis of what lies behind those numbers. The OBR is very clear; it gives three reasons for the deterioration in the economic forecasts. First, it attributes the primary reason for the weakness since its last forecast to the external inflation shock of the high oil price. Secondly, it attributes the current weakness in the economic position to the lack of confidence caused by the eurozone crisis. Thirdly, it says its assessment both of the boom before 2007 and the subsequent bust and of the impact of the repair of the financial system is greater than it had previously estimated. That is its independent analysis. The Opposition cannot agree that we should now have an independent body and accept the figures it produces, only then to reject the analysis on which those figures were arrived at.
Sheila Gilmore (Edinburgh East) (Lab)
The OBR does not say that the cause of reduced growth is that the recession was found to be deeper. It does say that the recession was found to be deeper but, crucially, it also says the recovery during 2009 was stronger than previously forecast and that the further decline in growth happened only in the latter part of 2010.
Mr Osborne
The OBR is very clear that the cause of its downgrade of the trend growth rate is the—[Interruption.] Is it any wonder that the economic credibility of the Labour party is falling week after week? The shadow Chancellor has backed it into the incredible position where only Communist parties in western Europe agree with it. The reason he has done that has nothing to do with the future political prospects of the Labour party. Rather, it has everything to do with his own personal record. He cannot be the Labour politician who admits that his party made mistakes in the run-up to the 2007 crisis, because he was the Labour Government’s chief economic adviser. That is the position the Opposition find themselves in, and Labour Members know it. They are all going around telling anyone who will listen that that is their problem. Until they face up to the reality of the economic situation confronting this country—a reality they helped to create—they will not be listened to by anyone in this country.
The choice we faced when we saw the OBR’s first-round forecast was not whether to fiddle the figures; instead, it was whether we should take action to respond to the changed economic circumstances. We could have done nothing, but given international events I thought that was not a risk worth taking. It may have seemed to be the easier option, but not when we considered the possible consequences for the credibility of our country in the credit markets and the risk of a rise in interest rates of the kind that so many of our neighbours have experienced. The other option was to take further action to ensure Britain was on course to meet the fiscal commitments we have made, and that was what we chose to do, with a package of measures designed to tighten policy in the medium term while using short-term savings in current spending to fund one-off capital investment in our country’s infrastructure.
As I explained last week, we have put the total managed expenditure totals for 2015-16 and 2016-17 on a declining path. We have made changes to the tax credit entitlements. We set pay increases in the public sector for the two years after the freeze at an average of 1%. We have recalibrated overseas aid spending so we hit 0.7% of national income in 2013. We have also increased the state pension age to 67, starting from 2026.
That money saved in the short term has been used to fund the youth contract, new nursery provision to two-year-olds, new free schools and school places, and a major programme of road and rail building, and to help with the costs of living by extending the small business rate relief, keeping rail fare increases low, and freezing petrol duty next month, but the permanent savings—
Mr Osborne
I have given way to both hon. Members, and I know that many people want to speak in this debate.
The permanent savings we have made reaffirm Britain’s commitment to dealing with its debts. Who backs this commitment? The international organisations do. The OECD says that
“the ambitious fiscal consolidation has bolstered credibility and helped maintain low bond yields”.
The head of the IMF, whom the shadow Chancellor was talking about, said when she came to the UK that
“strong fiscal consolidation is essential to restore debt sustainability”,
and that the Government’s “policy stance remains appropriate”.
During Treasury questions, the shadow Chancellor was, I think, quoting The New York Times. What he did not quote was the Financial Times, where he actually worked. It said that
“the Government’s plans for fiscal consolidation have allowed Britain to regain the confidence of investors at a time when all too many countries have forfeited it”.
That is the kind of editorial he would have written when he was a leader writer there. The Economist says that the credibility the Government have achieved is “priceless”. The CBI has supported what we have done. The Institute of Directors said that we did the right thing. The Federation of Small Businesses, which the shadow Chancellor often quotes, and the British Chambers of Commerce have both welcomed the measures we announced for business.
Lisa Nandy (Wigan) (Lab)
We have heard a lot about what the Chancellor thinks about the Labour party. How many of the 100,000 additional children now growing up in poverty under his watch also support his plans, and what is he planning to do about that?
Mr Osborne
On the same measure that the hon. Lady uses, child poverty rose by 200,000 in the last Parliament. [Interruption.] She says, “We took those children out.” Child poverty in the last Parliament rose by 200,000 on the exact same measure that she is using. What we are doing is investing in nursery education provision for the poorest children, which never existed before, in a pupil premium, in free schools and in new school places—that is exactly what we are doing to tackle the causes of poverty as well as the symptoms.
Nadhim Zahawi (Stratford-on-Avon) (Con)
On the question of whom the nation blames, why does the Chancellor think that a recent ICM poll showed that people thought that the debt inherited from the Labour Government was the biggest single cause of the current slow-down?
Mr Osborne
The reason they think that is because it is true. This, again, is the absolutely hopeless position that Labour under the shadow Chancellor have put themselves in, but frankly, that is for them to work out. If I may declare an interest, we very much want him to stay in his post for the next three and a half years: he is the best recruiting sergeant we have.
The Governor of the Bank of England—appointed by the right hon. Gentleman, no doubt, when he was the chief economic adviser—said this last week:
“This is exactly the right macro-economic response to the position in which we find ourselves”.
And who is left opposing this credible action, this macro-economic response? The Labour party, which is now advancing this new theory that Britain’s low interest rates in this debt crisis are a sign of policy failure, not policy success. That was the argument we heard last week. The shadow Chancellor talked in his response to my statement of
“the illiterate fantasy that low long-term interest rates in Britain are a sign of enhanced credibility”—[Official Report, 29 November 2011; Vol. 536, c. 812.]
I pointed out that, on that basis, Italy’s rates of 7% were a policy triumph and Greece’s 30% rates were an economic miracle.
In the intervening week, I looked for evidence to support the argument that the shadow Chancellor has been advancing. I have not found it, but I did come across the very interesting “Ken Dixon lecture” to the department of economics at the university of York. It was given in 2004 by the chief economic adviser to the Treasury—Mr Edward Balls. He told a no doubt gripped audience of students about the importance of lower debt, of running surpluses in good times, of keeping deficits under control. He then cited the market interest rates that Britain was paying on its debt, versus neighbouring countries’, as the fruits of economic success. He boasted that the UK was borrowing money more cheaply than Germany and he hailed low interest rates as
“the simplest measure of monetary and fiscal policy credibility”.
Does he still believe that?
Mr Osborne
In the situation we face at the moment, where countries around the world, particularly those in the western world, face a challenge from the markets about their credibility, the countries with credibility have been able to keep their interest rates down and those without credibility have seen their interest rates rise. The right hon. Gentleman said that low “long-term interest rates” are
“the simplest measure of monetary and fiscal policy credibility”.
I want to know whether he still believes that to be the case—yes or no?
Ed Balls
This is the second time that the Chancellor has not understood the question today and has therefore not been able to answer it. Of course it is the case that in a normal operating economy that is how things are, but in a liquidity trap it is different, and that is where we are. That is why when American debt was downgraded in August, America’s long-term interest rates fell; they did not rise. Let me quote to him what the chief economist at Capital Economics said this August:
“Signs that the UK’s economic recovery has ground to a standstill have led markets to revise down their interest rate expectations”.
The National Institute of Economic and Social Research has said:
“The reason people are marking down gilt yields is because”—
they think that the UK—
“economy is weak”.
In a liquidity trap, long-term interest rates are a sign of the growth potential of the economy. It really worries me that the Chancellor does not understand the economics of this.
Mr Osborne
The right hon. Gentleman quoted the chief economist or head of the NIESR, but did not happen to declare to the House the interest that this person used to work for the shadow Chancellor. I do not agree with his analysis.
Mr Osborne
I will explain the economics very simply: if people do not think you can pay your debts in the world, they charge you a lot more interest on those debts.
I have actually bothered to read the right hon. Gentleman’s article in The Times today, in which he says that Labour would take
“tough decisions on tax and public spending.”
Will he get up and give us, either now in an intervention or in his speech, just half a dozen examples of the tough decisions he is prepared to take?
This is the shadow Chancellor who has opposed the increase in the VAT that the previous Government were planning, who opposed the increase in North sea oil taxation and who opposed the increase in capital gains tax—Labour Members do not know that, but he did actually oppose that. He opposes capping housing benefit, which was actually in the Labour manifesto; the reform of employment and support allowance; the changes to tax credits; and reforming legal aid. The Labour party has campaigned against every single change to the Ministry of Defence budget. There is not one single budget in the entirety of Whitehall that the Labour party has proposed cutting.
That is from the shadow Chancellor who says that he would take “tough decisions” on tax and spending. His position is, “We would not take them now. We would take them in the medium term.” That is his argument, if I understand it correctly. In the past seven days, he has opposed our measures to restrain public sector pay after the pay freeze comes to an end; opposed the path for public spending that we have set out for 2015-16 and 2016-17, which is in the medium term; opposed the raising of the state pension age, which is what is being done in Australia, Germany and America—the country he keeps citing. No wonder his economic policy has absolutely no credibility whatsoever. And, of course, he opposes the Government’s active enterprise policy—lower and simpler corporate tax rates; the new enterprise zones; the housing market changes that will revive the right to buy; planning reforms; and the changes to employment law.
Let me discuss just one measure that was announced seven days ago: the seed enterprise investment scheme. A group of entrepreneurs, including those who used to support the Labour party, wrote to the paper and said that the scheme will
“help the next generation of British innovations to become the next generation of great British businesses.”
This country faces some of the most serious challenges in its modern history. We are picking up the pieces of the biggest boom which became the biggest bust, and now we face a sovereign debt crisis in the eurozone. Unlike the shadow Chancellor, we are not the quack doctor promising a miracle cure. The action we have taken will help to take Britain through this storm and lay the foundations of a far more sustainable and balanced prosperity in the future, and I commend the autumn statement to the House.
Ed Balls (Morley and Outwood) (Lab/Co-op)
A year ago this week, the Chancellor of the Exchequer told the American news channel CNBC:
“We’ve already begun the reductions in public expenditure, and it has not had the impact on demand, not had the impact on economic growth that the critics said it would. So there are plenty of people who said what we were doing was wrong, but at the moment they’re being confounded by the figures.”
Twelve months later, on growth, on jobs and on borrowing, it is the Chancellor who is completely confounded by the figures. Let me remind him of what he boasted a year ago on 29 November in a Conservative party press release:
“Now the independent OBR have confirmed that the British recovery is on track, our public finances are on the mend, our debt is under control, employment is growing and our economy is rebalancing.”
Twelve months to the day, what did the independent Office for Budget Responsibility report? A recovery on track? No. Growth is flatlining—downgraded this year, next year, the year after, the year after and the year after that. Is employment growing? No. Employment is falling, and unemployment is now expected to be 500,000 higher than the previous forecast. Are public finances on the mend? No. Borrowing is disastrously off track: £158 billion more than the Chancellor told the House exactly a year ago.
The boasts of the Prime Minister and the Chancellor that they would eliminate the current structural budget deficit within five years are in complete tatters—in complete disarray. In his March Budget, the Chancellor claimed:
“We have put fuel into the tank of the British economy.”—[Official Report, 23 March 2011; Vol. 525, c. 965.]
It must have been the wrong kind of fuel.
It is not as though the Chancellor was not warned. In his Bloomberg speech in August 2010, he claimed:
“There are some political opponents who claim that in setting out our decisive plans to deal with the deficit we have taken a gamble with Britain’s economy. In fact, the reverse is true.”
The Chancellor has taken an enormous gamble with the economy, with jobs and with people’s lives. The reality is that his gamble has completely backfired. Let me quote from an editorial in The New York Times at the weekend:
“A year and a half ago, Prime Minister David Cameron of Britain came to office promising to slash deficits and energise economic growth through radical fiscal austerity. It failed dismally.”
Before the election, we said that, like every country, after the global financial crisis we had to get the deficit down and we needed a tough plan. We needed spending cuts and tax rises. The question was not if we did it but how we did it. That is why the Opposition warned the Chancellor that he was reckless, that he was ripping out the foundations of the house, leaving our economy not safe but deeply exposed, and that is exactly what has happened over the last year.
Even judging by the one objective the Chancellor set himself for getting the deficit down, he is failing. In that CNBC interview a year ago, the Chancellor said:
“We have taken a series of steps, increased some taxes, consumption taxes, had some cuts in public expenditure, which have put us on a path to eliminate the deficit in a period of four years.”
Not only is the Chancellor now emphatically not going to eliminate the deficit in four years, but according to the OBR, he is set to borrow £37 billion more than under the plan he inherited from Labour at the last general election—a plan he called “deeply irresponsible.”
The Business Secretary told The Guardian in May that it was realistic for the coalition to eradicate the structural deficit by the end of this Parliament:
“Our credibility hinges on it.”
He was right, which is why the Government’s credibility is now badly undermined. The Chancellor should have listened to the warning from the Business Secretary before the election. This is what the Business Secretary said when he was a Liberal Democrat MP outside the coalition—the old kind of Liberal Democrat:
“We must not cut Government spending too soon and risk plunging a fragile recovery back into recession. Cuts without economic growth will not deal with the deficit.”
The Business Secretary was right before the election. It was only after the election, when he took his Cabinet seat, that he changed his mind.
Unemployment is up. Borrowing is up. Going further and faster has proved to be utterly counter-productive and self-defeating. All this pain for no gain. Eighteen months in, plan A has failed, and it has failed decisively.
Nadhim Zahawi
In The Times today the shadow Chancellor wrote:
“Credibility is based on trust and trust is based on honesty, so we must be clear with the British people that under Labour there will have to be cuts.”
In the spirit of honesty, will he tell the House what he would cut?
Ed Balls
Of course I will. When I was the Education Secretary we said that there would be over £1 billion of cuts in the schools budget at that time. We said, for example, that we would cut the police budget by 12%, but not by 20% with the loss of 16,000 police officers throughout the country. We would have raised national insurance. We raised the top rate of tax, but we would not have raised VAT to 20%, precisely because it would have choked off the recovery, as it has done this year.
I can tell the hon. Gentleman and his colleagues, the friends of the Chancellor, that I was reading a profile of the Chancellor a week ago, a few days before the autumn statement, in which one ally said:
“‘The autumn statement will correct the idea that we are off course’”.
Whatever were they on? One only needs to read the rest of the article to understand what is really going on. It goes on to say that the Chancellor
“has started taking discreet steps towards the Tory leadership. . . Members of the 2010 intake of MPs . . . are invited to discreet drinks at No. 11. The favourites”—
I do not know whether the hon. Member for Stratford-on-Avon (Nadhim Zahawi) is one of the favourites; perhaps he could tell us in another intervention—
“The favourites are invited to bibulous soirees at Dorneywood.”
If you ask me, it sounds as if they have been drinking rather too much.
Let me give the House another quote from one of those allies, because it was so revealing:
“Nobody in the Osborne circle is vulgar enough to talk openly enough about his leadership ambitions. . . ‘George has no agenda. I have never heard any talk of a timetable,’”
said an ally,
‘“But the unspoken assumption is that the party would be a lot safer in George’s hands than with bonking Boris.’”
Mrs Main
May I say to the shadow Chancellor, with all due respect, that the public deserve better than this? Tittle-tattle may be a joke to him, but the public want to know what his policies are, because they have faith in our policies. Is it still the policy of the shadow Chancellor and his party to make sure that we join the euro, given the huge financial consequences, which he is no longer discussing?
Ed Balls
Obviously the hon. Lady was not invited to the drinks parties. Perhaps she should apologise to the 5,400 families in her constituency who will lose from the cuts in child tax credits. If she wants to talk about deserving better, let me give another example from one of the Osborne allies:
“They were a bit sniffy about George. The Bullingdon is basically for Etonians. But they let him in even though he went to St Paul’s, though they did insist on him reverting to his original name of Gideon.”
The hon. Lady tells us that the country needs better than that. As for the euro, I will happily give way again if she can give the Labour Government credit for keeping the country out of the single currency in 2003.
Mrs Main
I am absolutely amazed that joining the euro is still in the right hon. Gentleman’s party manifesto, and that he can still plead that he kept us out of it. I am absolutely amazed that he has the brass neck to say that he is the saviour of this country from the euro—and I am sure that he will now stand up and tell us all that he no longer sees joining the euro at any point as worth while.
Ed Balls
I think that the bibulous parties might be starting in the morning, Mr Deputy Speaker. The euro is not succeeding as a single currency, which is why we were right not to join in 2003. There is no possibility of a British Government joining the euro at any time in my lifetime.
Charlie Elphicke (Dover) (Con)
Given that the shadow Chancellor seems to be making up policy on the hoof in this debate, is it any surprise that one shadow Cabinet colleague has said that his policy is hurting but not working, and that he has no credibility?
Charlie Elphicke
The shadow Chancellor talks about my constituency, but let me talk about his. How does he account for the rise in the claimant count in his constituency of 1,056, or 141%, in the last Parliament? Was that an economic success?
Ed Balls
If the hon. Gentleman is quoting the figures for this year, they might be the result of the Chancellor’s policies. Let me return to concerns about Dover and Deal. While campaigning for a new hospital in Dover, the hon. Gentleman said:
“I am very, very concerned that Dover has not had and does not get its fair share of health care. I have taken this up with ministers and hammered home just how angry people are”.
Perhaps he should also hammer home with his Front Bench the failure of cuts in tax credits.
In last week’s statement, in today’s debate and in every interview the Chancellor has given, we hear him give excuse after excuse and blame anyone except himself. Earlier in the year he blamed the snow, the earthquake, the royal wedding and higher oil prices. America was badly affected by the snow, and every country was affected by the Japanese earthquake and higher commodity and oil prices, so why did Britain have slower growth than any other country in the G7 except Japan? Why do we have higher inflation than any other country except Estonia? It was the Chancellor’s decision to raise VAT in January that pushed up fuel and petrol prices, hit confidence and reduced real living standards for families. He then blamed the euro crisis, but the fact is that our economic recovery was choked off a year ago, well before the recent crisis.
The Office for Budget Responsibility has downgraded its growth forecast for Britain in 2011, but it has upgraded its growth forecast for the euro area. Only Greece, Portugal, Denmark, Cyprus and Slovenia have grown more slowly than Britain over the past year. As the OBR figures show, the fact is that it is the lack of domestic demand that has slowed down our economy. It is only net trade, the contribution of exports, that has kept us out of recession over the past year. If the eurozone countries fail to sort out their problems, that will of course have an impact, which is why it is important that they are sorted out. Far from the eurozone dragging us down this year, it is actually the euro that has been buoying us up.
Mr Tobias Ellwood (Bournemouth East) (Con)
The right hon. Gentleman speaks of asking for, or demanding, an apology, but an apology is required from Labour Members. To give credit where it is due, however, I remember that when he was Secretary of State for Education he looked for savings in that area. But he did not do so right across the board. Page 15 of the OBR report shows that in 2008 borrowing went up to £68 billion, that in 2009 £152 billion was required, and that in 2010 another £145 billion was required: spending, spending, spending. It was not until this Government came in that such spending was halted.
Ed Balls
In a second. I will answer the previous intervention before I turn to the next one.
The financial crisis hit every major country in the world, and bank regulation was not tough enough here in Britain or in countries throughout the world—[Hon. Members: “Ah!”] There is no doubt about that. The Chancellor of the Exchequer, who was then the shadow Chancellor, spent his whole time urging us to deregulate, complaining about “burdensome, complex” regulations—but there we are.
By spring 2010 the economy was growing, inflation was low and unemployment was coming down. More people were in work and paying taxes then, so borrowing came in £20 billion lower than had been forecast in the pre-Budget report of 2009. How things have changed in 18 months! Then borrowing came in lower than was planned; now it is coming in at £158 billion more than was planned. The country is tired of the Chancellor’s excuses, and it is time he admitted that his failing plan is hurting but not working. His reckless gamble has not made things better; it has made things worse.
Richard Fuller
As the shadow Chancellor’s soon-to-be replacement, the hon. Member for Leeds West (Rachel Reeves), rustles through her papers to find a data point to throw back at me, may I ask him whether he has had the opportunity to look at McKinsey’s debt and deleveraging report, which identifies that on his watch and under his Government we became the most indebted major economy in the world? Does he not bear some responsibility for the enormous pain that families are going through in order to remedy some of his excesses?
Ed Balls
In the hon. Gentleman’s constituency 10,800 families are actually losing out as a result of the change in tax credits. We look forward to seeing that in his press release.
The fact is that we went into the global financial crisis with a lower level of national debt than France, Germany, America and Japan—
Ed Balls
If the hon. Gentleman calms down and lets me answer his point he will be able to intervene again. I shall be happy to take another intervention.
The fact is that when we went into the financial crisis our level of national debt was lower than that in America, France, Germany and Japan—and lower than that which we inherited from the Conservatives in 1997. I will give the House one good reason why: in 1999, when we raised £20 billion from the auction of the 3G mobile spectrum and they urged us to spend the money, we used the entire amount to repay the national debt.
Richard Fuller
The shadow Chancellor makes potentially a fair point about Government debt, but the Government are responsible not just for Government debt but for the total indebtedness of the nation, and he fails to understand that under the previous Government the total indebtedness of this country grew to become the largest of any major economy in the world. That is his legacy, and that is why 10,000 people in my constituency will be hearing why his policies led to the pain that they feel today.
Ed Balls
Over 1 million more homeowners than in 1997, and over 1 million more new businesses—with overdrafts and borrowing facilities—compared with 1997! The hon. Gentleman should be careful about giving the impression that borrowing in an economy is a bad thing for consumers, households and businesses. Many businesses want to borrow at the moment; it is just that the banks will not lend.
What did we get last week from the Chancellor? We got a cobbled-together package of growth measures which he knows, and the OBR forecast confirms, does not address the fundamental problem that his rapid and deflationary plan has choked off the recovery and pushed up borrowing. It is a so-called plan for growth that, according to the Treasury’s own figures, hits women harder than men, pushes up child poverty and delivers lower growth and higher unemployment.
Matthew Hancock (West Suffolk) (Con)
Youth unemployment in my constituency is falling because of a work experience programme that has now been rolled out across the country. I say that to preclude the shadow Chancellor’s rebuttal. He has just argued in response to my hon. Friend the Member for Bedford (Richard Fuller) that private sector debt is a good thing. Will he have the balls to say that explicitly?
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I am not quite sure we are going to allow “balls”. I am sure you can think of a better word, Mr Hancock.
Matthew Hancock
I withdraw it. Will the shadow Chancellor have the weight to state explicitly what he has just argued, which is that private sector debt is a good thing?
Ed Balls
The numbers for the hon. Gentleman’s constituency show that 8,600 families in his constituency are losing out from the cut in tax credits. [Interruption.] He is normally quite excitable, but he is really getting rattled this afternoon.
What are the facts? “We are all in this together,” yet women are being hit twice as hard as men; there has been a 100,000 rise in child poverty, according to the Treasury’s own figures; there is a four times bigger hit for families and children than for the banks, which have seen their taxes cut this year compared with last year; not 400,000 but 710,000 public sector jobs are set to go; there is £158 billion more in borrowing than was planned a year ago—£6,500 more in borrowing for every household in this country—and there is the cost of rising unemployment. That is the cost of the failure of the Chancellor’s plan. As for the Deputy Prime Minister’s contribution, we have a cobbled-together replacement for the future jobs fund that is judged by the OBR to have no impact at all on employment and zero impact on jobs. I have to say to the Chancellor and to the Chief Secretary that protecting our economy, businesses, jobs and family finances is more important than trying to protect a failing plan and their failing reputations.
Christopher Pincher (Tamworth) (Con)
For the benefit of the shadow Chief Secretary, my constituency is Tamworth. [Laughter.] I see that she has found it.
It takes some brass neck for the man who was so responsible for wrapping this country’s economy around a lamp post to stand there now and try to teach this Government how to drive. If he wants to be credible, and if he wants to be trusted about the cuts that he says need to take place, can he explain why he has abandoned the Darling plan and wants to spend £326 billion extra over the next five years?
Ed Balls
Abandon the Darling plan? It is the Chancellor who is borrowing £37 billion more than under the Darling plan. That is because of what is happening to jobs, growth and the living standards of families in our country, with 9,500 families in Tamworth hit by the cut in child tax credit announced last week. I will not read the next figure out; I will spare the hon. Gentleman’s blushes.
As we heard in Treasury questions earlier, the IMF was right: growth is necessary for fiscal credibility. The IMF urged the Chancellor to change course if growth undershot current expectations. The Chancellor did not even know the figures at Treasury questions this afternoon, but in October the IMF advised him to change course and to delay the planned consolidation if growth undershot. At that time the IMF was forecasting 1.1% growth this year; it has come in at 0.9%. For next year it was forecasting 1.6% growth; it is now forecast to be 0.7%. If that is not growth clearly undershooting expectations, I do not know what is.
In May the OECD called for the Government to slow the pace of consolidation if the economy undershot. The Chancellor likes to quote the OECD in support of his policies, so let me tell him what its chief economist said only last week. He told the Chancellor to
“contemplate easing up on spending cuts”
if events turned out to be
“a lot bleaker than even the bleak outlook that we have.”
That is not exactly a ringing endorsement of the Chancellor’s plans.
Mr George Osborne
The right hon. Gentleman has just quoted the OECD’s chief economist. The same person said on 28 November that “plan A is working”. The OECD also said:
“The ambitious fiscal consolidation has bolstered credibility and helped maintain low bond yields, leaving room for automatic stabilisers to work fully”.
The person the shadow Chancellor is quoting in the House of Commons in defence of his policy has said that “plan A is working”. Will he now correct the record?
Ed Balls
Only this Chancellor, out of his depth and out of touch, could come to this House and claim that the forecasts he set out last week showed that plan A was working. How can it be working when we have record levels of unemployment? How can it be working when growth has flatlined? How can it be working when he is borrowing £158 billion more than he planned a year ago?
I have seen the transcript of the Sky interview that the Chancellor is quoting, and I understand the diplomacy of the OECD. However, the chief economist said that the Chancellor should
“contemplate easing up on spending cuts”
if events turned out to be
“a lot bleaker than even the bleak outlook that we have.”
How much bleaker do they have to get? How much bleaker for families? How much bleaker for jobs and young people? How much bleaker for borrowing?
We were told a year ago that the Chancellor would not change course because his plan was working. Now, even though it is clearly not working, the Government still will not change course. The Prime Minister says that we cannot borrow our way out of a crisis, but that is exactly what the Chancellor has been forced to do. He is borrowing billions more to pay for the high unemployment, stagnant growth and rising benefits bill that his plan has delivered. The Chancellor made the wrong choice a year ago. He is now making a second catastrophic choice in sticking to a failing plan, when what Britain needs is a plan that will work.
Any British Government would be borrowing at the moment. There is no doubt about that.
Mr David Anderson (Blaydon) (Lab)
The shadow Chancellor makes the point that the Government are trying to borrow their way out of a crisis. I suggest that we are actually borrowing our way into a bigger crisis. [Laughter.]
Ed Balls
Government Members may laugh at an 80% rise in youth unemployment, but that is not a laughing matter for the young people concerned, or for our economy. [Interruption.] I am going to make this point because it is very important. It goes to the heart of the argument.
Ed Balls
In a second. Any Government would be borrowing at the moment. The question is whether it is better to borrow billions more to keep people out of work on benefits, or to act to get people back into work and paying tax, which would get the deficit down. If we let a year of stagnating growth and rising youth unemployment become a lost decade of stagnant growth and high youth unemployment, we will pay a long-term price. It makes much more sense to act now, as the International Monetary Fund has recommended, with temporary tax cuts and investment in jobs and growth. That is the best way to reduce the bills of failure for the long term. It is the only way to get our deficit down sustainably in the long term.
Ed Balls
I will give way in a second. There is a choice. We can either take action now and then have long-term fiscal discipline on the deficit, spending and our fiscal rules to make our economy stronger and to get borrowing down, or we can have what we have now and what is forecast for next year and the year after: stagnating growth, rising borrowing, including £158 billion more borrowing to pay for rising unemployment, and long-term youth unemployment, which will weaken our economy and make it harder to get the deficit down.
Nadhim Zahawi
The shadow Chancellor is obviously passionate about the subject of youth unemployment, so will he admit to the House that in the last Parliament, youth unemployment in his own constituency went up by 151%?
Ed Balls
Before the crisis, youth unemployment was lower than what we inherited in 1997. It then went up during the recession, but was falling a year and a half ago. It is now rising again. Unemployment was falling in our economy, but now there has been an 80% rise in long-term youth unemployment.
Matthew Hancock
I am very grateful. The right hon. Gentleman keeps making his argument about borrowing, but is it not completely undone by the fact that according to the OBR forecasts, borrowing has fallen and is set to fall over the next five years, and then debt will fall once it is under control? Can he answer the question that neither the shadow Chief Secretary nor other shadow Treasury Ministers can answer? How can spending more money possibly lead to lower borrowing?
Ed Balls
The economics of this are clear and easy to understand, which is why both the IMF and the OECD have made exactly the point that I am making. The fact is that the Government are borrowing £158 billion more than they planned, and the deficit is coming down much more slowly than was planned, because unemployment is going to be so much higher.
The issue is the pace at which we try to get the deficit down. If we try to get it down too fast, as the Chancellor did a year ago, it blows up in our faces. Growth and taxes slow down, unemployment goes up, and we end up borrowing £158 billion more. The right thing to do is to have a staged and balanced approach, get the economy moving, get people into jobs and get the deficit down. That is the only plan that will work.
Let me make an offer to the Chancellor. It is not too late to change course, and the deepening euro crisis makes it more important for him to see sense. If he does, we will back him—a new start, a second attempt. We read in The Daily Telegraph today about the Chancellor’s recent efforts to land a plane at Manchester airport—on a flight simulator, I should add, to reassure Members. There was too rapid a descent and a crash landing on the runway, narrowly missing ploughing into the terminal building. Too far, too fast—no surprises there. However, the Chancellor had a second go. With a little help from the experts and a steadier hand on the controls, things worked better the second time round. Perhaps there is a lesson for him in that story.
Perhaps the Chancellor should take my prescription after all. He claimed last week that a balanced plan to get our economy moving and to get the deficit down was like
“the promises of a quack doctor selling a miracle cure.”—[Official Report, 29 November 2011; Vol. 536, c. 810.]
Was not the Nobel prize-winning economist Paul Krugman closer to the truth when he described Britain’s experiment in austerity as being
“like a medieval doctor bleeding his patient, observing that the patient is getting sicker, not better, and deciding that this calls for even more bleeding”?
The patient is crying out for a second opinion, and all we hear from the Chancellor is a call for more cuts and more leeches.
Ed Balls
I will not, because I have gone on too long and there are other important speeches to be made today.
I was thinking about what other doctors the Chancellor resembled, and I concluded that he resembled Voltaire’s giant. I will take an intervention from anybody on the Government Front Bench who knows who Voltaire’s giant doctor was—Voltaire’s great doctor, Dr Pangloss. It does not matter what the evidence says, it simply strengthens Dr Pangloss’s opinion that his philosophy must be right. Britain’s rock-bottom gilts? A sign of success, not a damning verdict from the markets on the prospects for growth. Rising unemployment? Not a bad thing, just creating more space for the private sector-led recovery when it finally arrives. The worse things get in the rest of the world the better for Britain, because we are the only safe haven of prosperity.
In the Chancellor’s Panglossian world, everything is working out just fine, but in the real world, with the world economy darkening, and with the UK now forecast to endure stagnant growth and rising unemployment this year, next year and the year after, this Panglossian Chancellor is making a catastrophic error of judgment, refusing to learn the lessons of history, refusing even to understand the lessons of economics, and refusing to shift to a more balanced plan. He got it wrong 18 months ago; he is getting it so badly wrong today. He is out of his depth and out of touch. Is it not time he changed course before it is too late?
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I just remind Members that there is a six-minute limit on speeches.
Mr Andrew Tyrie (Chichester) (Con)
I will not try so much of the party political stuff that we have just heard, but I will make a short point about the central fiscal judgment, a point about the forecasts and, if I have time, a point about the supply side.
First—we did not hear much of this in the previous speeches—I want to emphasise the backdrop against which the autumn statement was made. It was undoubtedly the most difficult backdrop since 1981, with a huge inherited budget deficit, a dysfunctional banking sector and an economy in which far too much is taken and spent by the public sector, as a result of which the private sector is having trouble leading the recovery. All parties were agreed on that before the election and all had plans to reduce public spending as a proportion of GDP. On top of that, we have a severe eurozone crisis, which is our most important market.
I will not be popular on either side of the House for saying this: despite the clash of cymbals we have just heard, fiscal policy would not be so different whoever was in power. There would be a little less deficit cutting and probably a bit more tax and spend under Labour, but the market discipline in the world at the moment is severe and biting, and the markets would demand roughly the same strategy, which it would get from any rational Government. That is an important basic point to have in mind.
My second point concerns the forecast. The Treasury Committee had the OBR before it earlier today. It has radically adjusted its estimate of the output gap—that was discussed a bit in earlier exchanges, although it was difficult to spot—and its estimate of productivity growth compared with its spring forecast. That radical adjustment in eight months has in turn obliged the Chancellor to adjust policy for the later years of the forecast period, as he pointed out, in order to meet the fiscal mandate.
A good number of my Committee colleagues—from both sides of the House—were a little sceptical of the OBR’s decision. Frankly, when we look at the OBR documentation, we do not find a great deal of evidence to support it. There is some evidence, and the Committee might well return to the issue when it reports on the autumn statement.
This morning’s Treasury Committee sitting brought home to me and to other colleagues a couple of important points, the first of which is that the OBR forecast is an independent one—nobody can claim that it has been cooked up by politicians—which in itself can add confidence to markets. Secondly, the difficulties that the OBR has had in supporting specific points on which the Committee challenged it this morning flags up the perils of all economic forecasting. The one thing we can say with some degree of certainty is that this forecast, like all others, will almost certainly turn out to be wrong.
I do not have very much time. I shall end with a few words about supply side reform. The financial crisis exposed the structural weaknesses in the public finances and the structural deficit now appears to be much bigger than was originally thought. But the financial crisis also exposed structural weaknesses in the real economy. As businesses struggle to recover, the full scale of the web of complicated taxation, excessive regulation and much else is being exposed to view, and that is getting in the way of businesses doing better.
The coalition Government assembled a fully worked up agenda for action to deal with the deficit, but until this autumn statement, we did not have a fully worked up strategy for improving long-run economic performance —the supply side of the economy. I was critical of the Government’s earlier proposals that were published a year ago. They reflected the fact that they were dealing with an inheritance from the previous Government and also with policies that had been thought up and planned at a time of economic abundance before the crash. The obvious truth is that supply side reform is extremely difficult to accomplish. Raising the long-run growth rate is a very big and long-term job. The Thatcher Administration did not even start to implement their major reforms in that area until their second term.
This autumn statement has taken a huge step forward in the right direction. It sets out a more consistent and coherent agenda to support enterprise. It recognises the crippling burden that is being imposed on energy-intensive industries by climate change regulation and by the need to improve transport and to do something about the planning system. There is a good deal else. The phrase “supply side” has also been rehabilitated.
However, we must bear in mind the fact that so far this is largely just an agenda; it now needs to be implemented. It also needs to be complemented by reforms to bring greater simplicity and certainty to the tax system, which is in a huge mess, thanks largely to the previous Government and that is what I hope the Budget, in only 17 weeks’ time, will be all about.
Stephen Timms (East Ham) (Lab)
The number of young people out of work has topped 1 million for the first time. If nothing else, that must be a wake-up call for urgent action on the economy. Last June, the Prime Minister told the House that cutting the deficit faster would revive private sector confidence. That was the rationale for the strategy that was set out to us. There would be pain but it would be worth it. Private sector investment and jobs would surge. The increase in confidence would mean that growth in the number of private sector jobs would more than match public sector job cuts. We were told that employment would rise every year. In fact, in the past year, employment has fallen by more than 100,000. One thing we can say for sure, with no fear of contradiction, is that that key assumption about confidence underpinning the Government’s entire strategy was mistaken.
The Institute of Chartered Accountants’ latest business confidence monitor is headlined “UK business confidence has collapsed”. That is its assessment of confidence. The latest of its regular surveys states:
“Confidence has declined across all sectors and all regions.”
There will be different views across the Chamber about the reasons that the Prime Minister’s hope has proved ill-founded. The Chancellor took the view and his party seems to take the view that all the problems before the election were the fault of the UK Government and that all the problems since the election have been the fault of someone else. Whatever view we take of the reasons that the Prime Minister’s expectation was ill-founded, the fact that it was ill-founded is, after the autumn statement, not in dispute.
The Prime Minister told us that unemployment would not be too much of a problem because private sector job creation would exceed public sector job cuts. In fact, public sector job cuts are exceeding new private sector jobs on a ratio of about 2:1. The Office for Budget Responsibility has told us that more than 700,000 public sector jobs will be lost. The cuts are going too far and too fast. Young people and women are bearing the brunt. Moreover, the plan is not delivering, as far as we can see, the central goal of swiftly eliminating the deficit. That is now clear. Borrowing will be higher than it was under the previous Government’s plans.
When a plan goes so badly wrong and when the expectations underpinning it are shown to have been so mistaken, surely it is time to revisit the plan. Surely, when things have turned out so different from what the Government told us would happen, the case for a fundamental rethink is extremely strong.
Jessica Morden (Newport East) (Lab)
Last week, Tata steel in my constituency mothballed a hot strip mill because of low demand for steel, which means that in the past month 185 job losses have been announced at Llanwern. Is that not further evidence that the Government’s economic plan is not working. We have heard nothing today that will do anything to save those much-needed steel jobs?
Stephen Timms
Unfortunately, nothing at all. This lack of confidence is one of the problems in the economy.
Another problem is that the Chancellor cannot change course because he has boxed himself in and cannot budge for fear of admitting that his judgment was wrong. That problem was well expressed by Martin Wolf, the chief economics commentator for the Financial Times—the Chancellor quoted the Financial Times in his support—who warned after the autumn statement last week of the danger of a lost decade. He wrote that the Chancellor
“is wrong to ignore his errors. He is trapped by his own rigid fiscal framework. He might indeed shatter confidence if he were more flexible. But that is partly his own fault.”
It seems that we will all be trapped because the Chancellor cannot acknowledge that he got the fundamental judgment wrong at the start.
We need to build growth in the economy and to create jobs for young people. That is the rationale for the five-point plan for jobs and growth advanced by the Labour party. We should repeat the tax on bankers’ bonuses to bring in another £2 billion and we should use that to fund 100,000 jobs for young people, getting them off the dole and building on the future jobs fund introduced before the election. I welcome the announcement of the young people’s contract—a watered-down version of the future jobs fund—and I look forward to seeing the details but it simply underlines what a misjudgment it was to shut down the future jobs fund in the first place.
We should introduce another temporary cut in VAT to rebuild momentum in the economy—that is what the temporary cut did last time—and we should introduce further investment in infrastructure, including in schools and other areas. We should also cut the increase in university fees. At a time when youth unemployment is at such a catastrophic level, the last thing that we should be doing is forcing young people out of education—we should be encouraging them to stay in. Yet, I am hearing reports from colleges that significant numbers of young people have concluded that, with fees at the level announced by the coalition, they have no chance of ever making it to university and that therefore they should not even bother staying on to study, including for A-levels.
We should also listen to the Federation of Small Businesses and give small firms hiring new staff a break from national insurance to encourage them to do so. The Government should heed that call. We need a strategy for growth but as yet we have no sign of one. I am pleased that the Government have retained the previous Government’s proposals for a patent box to improve the research-and-development environment. That was the right decision and it allowed the Prime Minister yesterday to make his welcome announcement about support for life sciences.
In closing, I want to draw attention to one seemingly minor measure announced by the previous Government. Its significance is much greater than the initial view suggested. I am referring to the tax break from computer games announced in the last Budget by my right hon. Friend the Member for Edinburgh South West (Mr Darling). We have some of the most creative computer design businesses and talent in the world and we should make better use of it.
Julian Smith (Skipton and Ripon) (Con)
I want to speak about small business—in particular micro-businesses, which are usually defined as those with fewer than 10 employees—and to thank the Government for their support for such businesses.
Since coming to power, the coalition has taken some significant steps on regulation. It has introduced the one-in, one-out policy—which Labour claimed to have introduced, but never implemented—and the red tape challenge, allowing the public and businesses to say which regulations they want scrapped. The Government have taken a number of specific steps for small and micro-businesses, and have begun to draw a clear distinction between the large multinational, the mid-size company, with a human resources department and a legal department, and the small owner-manager. The Government have created exemptions from all new UK regulations until 2013, delayed legislation on the right to request training for small businesses, extended the unfair dismissal period and introduced fees for employment tribunals. All are powerful measures, giving more confidence to small business to take on staff. The autumn statement also included an announcement on protected conversations, which, for the first time in decades, will allow a small business manager to have a chat with one of his employees without the fear of litigation. Further measures, on compromise agreements and other matters, are on their way.
I am delighted that business organisations have shown their support. I urge the Government to move swiftly with those proposals, because it is worth reflecting on who they are trying to help with those measures. Often we get a kick from the left whenever an attempt is made to reduce workers’ rights, but when we talk about very small businesses or micro-businesses, we are talking about just an owner-manager—a farmer in the dales in my constituency, for instance—setting up a business and trying to take on one or two people to help run it. We are talking about people such as Chris and Rebecca Blunstone from Pateley Bridge, who set up Helping Hands earlier this year while at the same time doing two jobs each. They also have two kids, so they were working flat out. It is people such as the Blunstones whom the Government are trying to support, because small firms and start-ups created two thirds of new jobs nationally between 1998 and 2010. They are the backbone of employment across the country, in all our constituencies, and we desperately need them to succeed and take on more people.
I understand that parts of the Government want to go further with reforms for micro-businesses, particularly in employment law. I believe that those forces are right. We need to make a strong case for rolling back the dead hand of the state on the smallest businesses in our country and make the argument that, despite the risk of having exceptions in the labour market, there are huge benefits for the economy. We cannot look at each measure through the prism of an individual impact assessment; rather, it is the cumulative impact of all the reforms that we need to move forward with. That will mean making some radical decisions on policies that our party is promoting in the areas of flexible working and the right to request training, because for very small businesses such rights legislation is a real burden and a hassle. Ultimately, the owner-manager will make the right decision—to train their staff or give them time off—and certainly does not need an edict from London.
Bob Stewart
In my constituency the complaint from small businesses is that they want to make a profit, not spend their time doing accounts or filling in regulation forms. We have to minimise that and, if possible, try to take it right out of the whole business—if it is small enough—because one in 10 still seems to be concerned with regulations.
Julian Smith
My hon. Friend makes a valid point. This is a controversial area, because although the Government are making great strides in shared parental leave, for example—reforms that I support—we need to look at how Whitehall is managing the relationship with micro-businesses on issues such as maternity and parental leave.
There are some exciting initiatives that did not make it into the autumn statement, but which I urge the Government to support and small businesses to show their interest in. They include, for instance, no-fault dismissal. Deciding when to finish an employment relationship as an owner-manager running a small business is really difficult. The idea of a compensated no-fault dismissal—the equivalent of a no-fault divorce in the business world—is worth looking at.
I urge the Government to have the courage of their convictions on policies like that. I would encourage micro-businesses everywhere to follow the Government on their call for evidence, as we need to make the case that expectations about workers’ rights in small firms must be different. We need the small business owner to be confident in taking on more staff. The doers and grafters need to know that this Government are getting fully off their backs.
Mr Alistair Darling (Edinburgh South West) (Lab)
I hope that the hon. Member for Skipton and Ripon (Julian Smith) will forgive me for not following him, given the short time I have available.
The real problem we face in this country, in Europe and, to a large extent, in America too, is the lack of growth. The Chancellor opened his remarks by saying that the previous Government had been too optimistic about some of their forecasts. He gave—how shall I put it?—a somewhat incomplete précis of my book. In that connection, I refer the House to my entry in the Register of Members’ Financial Interests. Surely the Chancellor would accept that forecasting is extremely difficult at a time like this. Perhaps when he goes back to No. 11 at night, he will reflect on the fact that he was wildly optimistic about both growth and borrowing. I do not imagine for one minute that he expected to be standing up a week ago to announce that he was borrowing £158 billion more than he thought he would be borrowing in the summer of last year. The reason for that, substantially, is that we have less growth, with fewer people paying tax, more people dependent on benefits and, as the Office for Budget Responsibility set out, incomes being squeezed.
All that was perfectly foreseeable. Many people—Labour Members and many others—said that this would happen. The problem was not just the rate at which public expenditure was being cut, but the fact that the mood music that the Government deliberately set out to orchestrate last year was that everything was full of gloom and doom, so it is not surprising that businesses did not invest and that individuals decided to hold back on their expenditure. That is precisely what is happening in this country and in Europe, to which I shall return shortly. All this was foreseeable.
Mr Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab)
Following on from my right hon. Friend’s point about cuts, is he particularly worried about the construction industry, not least because so many small businesses are dependent on it?
Mr Darling
I am, and I shall come on to that in a minute, but I want to make a further point. If the OBR comes out with another downward revision of its figures at the time of the Budget next March, does it mean that we are going to embark on yet another round of reducing expenditure? It this not the same sort of argument that we had in the 1930s? The prevailing orthodoxy did not work then, and it will not work now. My guess is that this argument is going to dominate politics and economics over the next few months—not just here, as I said, but in Europe.
My right hon. Friend mentioned the construction industry. I welcome some of the measures the Chancellor announced on infrastructure, but with this big caveat. First, if he looks at some of them, particularly the road announcements, he will see that they have been announced by successive Governments over many years. He will no doubt have been told by the Treasury that the problem with these big plans is the huge lag between the time they are announced and the time we see them. I remember opening the M6 expressway and a reporter said, “This must be a great triumph for the Labour Government.” I said, “Indeed, it was. Harold Wilson would have been absolutely delighted to see it built.” That illustrates the point.
Although this is not a transport debate, I am glad that the Government are looking at the issue of aviation, but they cannot escape from the consequences of the decision not to proceed with the expansion at Heathrow. I know this is no longer my party’s policy, but I believe that issue needs to be looked at again for the future prosperity of the country. The High Speed 2 line is no substitute for it.
The Chancellor has, of course, had to change course. He was very much against quantitative easing. When I introduced it, he said it was the last act of a desperate Government, but it now turns out that it is a jolly good thing and we can expect to get even more of it. I suspect we will need more as the economy slows down. As I said, he has also had to introduce the infrastructure projects to try to help—although not enough, in my view. I think he will have to do more, particularly about jobs for young people facing unemployment, which is going to be a real economic problem as well as a real social problem. Many of us here remember the lost generation in the 1980s. Many of those individuals never got over the experience of having no job when they left school, college or university. The Government are going to have to come back to this, no matter what the Chancellor says, because the outlook is such that the Government are going to have to at some stage accept that at a time like this only the Government can take the action necessary to stimulate the economy and restore confidence. That brings me to Europe.
Mr Pat McFadden (Wolverhampton South East) (Lab)
My right hon. Friend talks about the effect of the Office for Budget Responsibility and the forward outlook. How does he view its projections for returning to the trend rate of growth in two or three years’ time, given the drastic revision that has taken place between the forecast in March and the forecast last week?
Mr Darling
As it happens, there is a passage in my book about the trend rate of growth. I believe that economists find it terribly difficult to work out what the right trend rate of growth is. On the point raised in the Select Committee this morning, I am surprised that the OBR has said that the productive capacity of the economy has been so reduced, partly because of lack of productivity. Part of the OBR’s problem is that it fails to recognise that businesses have retained labour through this recession in the hope that they will need it when recovery comes. One worry is that if businesses think there will not be a recovery, the people they have held on to will then lose their jobs. No doubt the Select Committee will look into that.
Let me touch on what is happening in Europe. I appreciate that it is a risky business because what is happening today might not be what is happening tomorrow or the day after that. The Chancellor touched on it and I hoped he would say rather more about what is being proposed—if, indeed, he knows.
As far as I can see, the agreement reached between President Sarkozy and Chancellor Merkel on Monday seems to be a re-creation of the stability and growth pact—and we know which were the first two countries that actually broke it. I have a feeling that they are trying to reach a sufficient political agreement to give Mario Draghi of the European Central Bank sufficient cover to do what we all know the ECB has to do in terms of intervening in the market. It does not go any further than that. Mario Draghi made a good speech last week, in which he said, “Look, we’re ready to intervene, but you lot have got to show willing.” Interestingly, that is exactly the same position that Jean-Claude Trichet took in the ECB at the last ECOFIN meeting I attended in May 2010, to which the Chancellor is fond of referring, when it was necessary for Ministers in the European Union and the eurozone to decide on sufficient action to allow the ECB to intervene.
I am glad that the ECB is going to intervene, but the agreement reached on Monday does not go far enough because it does not address the fundamental questions and fundamental problems of having a single currency without something approaching fiscal or economic union. That was not addressed and neither was the Greek problem, which will not go away because that fix will not work. The rescue fund is still a virtual one and, of course, there is the whole question of the recapitalisation of European banks, which remains for next summer.
Mr Darling
I would love to, but if think that if I do it counts against me, so I shall carry on speaking for a minute and 22 seconds, if I may.
I know we will be represented in the Council at the end of this week. This is a debate that we cannot afford to stay out of. No one is advocating that we should join the euro, and it is simply not going to happen in anything like the foreseeable future, but what happens to the eurozone, who is in it, the implications of a breakdown whether it be orderly or disorderly—all that matters very much. I hope that the British Government will make it clear to our European partners that we really are partners and in that spirit try to bring about a resolution. As far as I can see, the present arrangements struck between the French and the Germans seem to be yet another fix. They will buy time, but they will not sort out the fundamental problems. Until those fundamental problems are sorted out, we will still have that dark cloud of uncertainty in Europe, which would be bad for Europe, bad for this country and therefore bad for growth and for jobs. For that reason, we have a real interest in helping to bring about a resolution to that problem if we possibly can.
Stephen Williams (Bristol West) (LD)
It is a great pleasure to follow the former Chancellor. We can contrast his thoughtful and authoritative approach with what we heard earlier from the shadow Chancellor, who has just left the Chamber. We are asked to believe that he cries during the “Antiques Roadshow”, but anyone watching our debate would have cried with despair at the pantomime act we were treated to earlier. Before one of the shadow Chancellor’s assistants gets up to tell me how many people in Bristol West receive child tax credits, let me tell the Labour Front-Bench team that people in Bristol West are far too smart to fall for the illusion that an increase of 5.2% in tax credits somehow amounts to a cut.
The state of the public finances has been mentioned several times. Before the coalition Government came to office, the deficit as a proportion of gross domestic product was 11.2%. In our first year of government, it was cut to 9.3%. According to the independent forecast from the Office for Budget Responsibility, the deficit will be 4.5% at the end of this Parliament. We will have effectively halved it over the lifetime of the present Government. The Darling plan, if I may refer to it thus, has been mentioned several times during the debate. I seem to recall that its aim was to do just that—to halve the deficit over the lifetime of this Parliament—so let us not hear too much for the foreseeable future from Opposition Members about cutting too fast and too deep.
The coalition is bringing the deficit under control, which enables us to benefit from international confidence that we can borrow cheaply and service the accumulated debt that already exists in an affordable way. In 2010 our credit rating was similar to those of Italy and Spain, and the fact that it is now so much stronger is due to the decisive action taken by the coalition Government. That improved rating is important not just to the Government’s Debt Management Office—although the billions of pounds that no longer need to be spent on servicing debt interest are now available to fund our priorities, whether they be pensions, education or the health service—but to all our constituents and the businesses that employ them. Historic low interest rates are a monetary stimulus, underpinning domestic confidence and increasing spending and investment.
One of the coalition Government’s key objectives is to make work pay in order to expand employment, and one of the key objectives that the Liberal Democrats have brought to the coalition Government is a progressive increase in the income tax threshold to £10,000 by the end of the current Parliament. That will make work pay for the low-paid in particular, and especially for women with part-time jobs, and it is fundamental to our commitment to fairness during the lifetime of this Government.
Last week, during a debate similar to this, I referred to the recommendations of the High Pay Commission. I was pleased when the Deputy Prime Minister said at the weekend that he hoped that the coalition Government would be able to implement many of those recommendations. We should also tackle tax avoidance in order to make it clear that, as well as rewarding the work done by those with low incomes, the Government are tackling high pay at the top of the income streams in the companies for which they may work.
Economic growth needs to be stimulated. I note that several Members with constituencies in the south-west are present. I am sure that none of us misses the South West regional development agency, but I have no doubt that all of us, especially those representing constituencies in greater Bristol—including the Minister of State, Department for Work and Pensions, my hon. Friend the Member for Thornbury and Yate (Steve Webb), who is in the Chamber—will welcome the establishment of a local enterprise partnership covering the greater Bristol area, as well as an enterprise zone in my constituency to create new jobs in new media businesses.
Bristol will benefit from the regional growth fund, from Going Places funds, from the housing market stimulus, and from a new technology innovation centre. A couple of weeks ago, my right hon. Friend the Secretary of State for Business, Innovation and Skills opened the National Composites Centre, near the constituency of my hon. Friend the Minister of State, and we are also to have a university technology college. Those are examples of real actions being taken by the coalition Government to stimulate growth, particularly in new areas of the economy.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
How will regional pay in the public sector help areas of Britain that are lagging behind, such as the south-west and Wales? Surely it will only entrench regional wealth inequalities.
Stephen Williams
That is an interesting point. The Chancellor said in the autumn statement that a study would be carried out so that we could assess the evidence and decide what to do in the future. I do not think that we should form any firm conclusions at this point, but I would point out that regional pay differentials are the norm in the private sector.
Europe has been mentioned a few times today. It is worth our reminding ourselves that the European Union is the world’s largest single market, that it is worth up to £12 trillion—the aggregate value of the EU member states—that it has 500 million consumers, and that 50% of British trade exists with our fellow EU members. At this point it is all the more important for the United Kingdom to play a full and constructive role as a member of the EU, and I know that the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for Kingston and Surbiton (Mr Davey)—who is present—plays an active role in financial services, energy, digital media and green technology. We want the single market to work in the interests of our country. Now is the time for our country to engage positively in Europe rather than hoping for some loosening of our relationship with the EU, let alone the catastrophic developments that would result from withdrawal.
The coalition Government have ambitious plans. We have restored confidence in our public finances and brought them under control, we have achieved international credibility, and we will stimulate economic growth and make work pay. These are difficult times indeed, but sustainable growth and recovery are on the way.
Mr Roger Godsiff (Birmingham, Hall Green) (Lab)
Ordinary people in my constituency who face massive pressures on their household budgets and look forward to a bleak Christmas are not too concerned about the blame game that is taking place between the parties, but there is a smouldering resentment of the financial sector, including the banks and financial institutions that have plunged the economy into recession, destroyed jobs and ripped people’s lives apart. That resentment is heightened by the fact that those self-same banks and financial institutions are once again acting as they did before they brought the crisis upon us. There are bonuses galore, and veiled threats that if regulations are introduced they will go elsewhere.
It is three years since the financial crisis struck, but it needs to be said again and again that that crisis was not caused by nurses and teachers. It was not caused by public sector workers, or by people working in the private sector. It was not caused by small business men, students or retired people, or indeed by the majority of people working in the financial sector. It was caused by the greed and irresponsibility of a small, self-serving group of people who made the decisions and played the casino, and now everyone else is paying the price.
Between 1992—when the United Kingdom was thankfully forced out of the exchange rate mechanism—and 2007, the British economy grew every year. It grew under the right hon. and learned Member for Rushcliffe (Mr Clarke) when he was Chancellor of the Exchequer, and it grew under subsequent Labour Chancellors. Public sector borrowing was consistently between 2% and 3% of GDP, which was perfectly sustainable. However, in 2008 it shot up to 11% because the financial crisis caused by those I referred to earlier had resulted in a full-blown recession and a collapse in tax revenues, and, furthermore, in the need for the Government to bail out the banking sector. I am sure that my right hon. Friend the Member for Edinburgh South West (Mr Darling), who spoke earlier, referred in his book to an interesting deputation that he received—when Treasury officials informed him that the only way of resolving the crisis was for him to nationalise the banks—and I understand why Mervyn King told the Treasury Committee that he was surprised that there was not more public anger.
However, we must look forward. Britain and the rest of the western world are witnessing the death throes of an ideology that has dominated for 30 years. The Anglo-Saxon neo-liberal market model has failed, and we must consider adopting different models if we are to have a financial services sector that is fit for purpose. We need to be more innovative: we need to try out new ideas rather than adhering to traditional recipes which we have already tried, which have been found wanting, and which have now been totally discredited.
Why, for example, should we not use RBS as a national investment bank—or call it what you will? After all, we own 87% of it. Why should it not be modelled on America’s Small Business Administration, which has supplied 20 million small business men with financial help since its establishment after the second world war, or indeed on Germany’s state development bank, which lent €30 billion to businesses in 2010 alone? Instead of printing money through co-called quantitative easing and giving it to the banks—which do not lend it, but hoard it to rebuild their capital base—why should we not give consumers money vouchers that are time- limited and must be spent on household goods or on, for instance, car scrappage schemes? We should try out some new ideas. The fastest way to stimulate the economy is from the bottom upwards, and no job creation scheme could have a more immediate effect than bringing our high streets alive. All Members know of high streets in their constituencies with boarded-up shops, and where the only new shops are Poundland stores and charity shops.
This is not revolutionary thinking. It has been tried before in America, Japan and China. People are looking for new ideas for the future, and they are prepared to accept radical and innovative policies. They do not want to be lectured by the Government or the Governor of the Bank of England, who can hardly be thought to have had foresight in seeing the recession coming given that he was arguing for increased interest rates right up until the end of 2008 in order to head off inflation, which he said was the biggest threat to the recovery.
We have paid homage to the Bank and financial institutions for too long. We must construct a better financial system that is fit for purpose, and we need to do that sooner rather than later.
Mr Deputy Speaker (Mr Lindsay Hoyle)
A few Members have risen, but I must remind colleagues that if any of them wish to catch my eye, it might help if they stand up. I call Mr Edward Leigh.
Mr Edward Leigh (Gainsborough) (Con)
The hon. Member for Birmingham, Hall Green (Mr Godsiff) suggests that RBS should be made into a national investment bank and that it would then be our saviour. I wonder whether he watched a programme on BBC2 yesterday, which relayed the entire history of how it cost the nation £20 billion. I am not sure it is an entirely good model, therefore.
First, I want to say a few words about what is happening in Europe this week. An express train is coming in our direction in the shape of the putative agreement between the Chancellor of Germany and the President of France. The shadow Chancellor said we should learn the lessons of history. Well, I have been reading about the congress of Vienna, and it is extraordinary how history repeats itself. Our whole national policy in those days—and for 300 years—was to prevent an agglomeration of power on the continent. Indeed, Napoleon created the continental system precisely to exclude us from the continent. That is why we fought so many wars over the centuries.
We are now faced with a worrying situation. If the eurozone creates fiscal and monetary union, we will, of course, voluntarily exclude ourselves from that. However, although we may exclude ourselves from the euro, because of qualified majority voting the eurozone countries will have not just influence but enormous power over our financial institutions. We should be extremely worried about that. Over the next few days the Prime Minister must ensure that we have real protection from what will be going on.
There has been much comment about the EU financial transaction tax. We may be able to refuse to implement it, or be given an opt-out. I certainly hope that that is the case, because the City of London is the global derivatives trading centre. Astonishingly, it accounts for 45% of all global trades in interest-rate derivatives, and this tax could cost us £26 billion. Vague reassurances are not enough.
The ex-head of the Financial Services Authority has recently said that between 80% and 90% of our prudential rule book originates from Europe. In 2010-11, the FSA has listed 29 financial regulations that come from Europe. All this is coming in our direction because the eurozone countries can muster 230 votes, and we will have no way of stopping it. We should be prepared to say no or to demand a treaty reassurance, and if necessary put any proposal to the British people in a referendum.
Turning away from Europe, I want now to talk about our woeful economic situation. It is in the interests of both parties to claim that the deficit reduction programme is tough and is hurting. It is in the interests of the Government because it shows that they are being prudent and implementing austerity measures, and it is in the interests of the Labour party because it is arguing that we are deepening the recession. In fact, however, we are not doing nearly enough to address the problems we face. Some 38% of all our output goes to Government. That is a higher proportion than in the USA, Canada or Australia. Contrary to what we have heard, many EU countries have a lower tax burden than ours.
Mr Andrew Turner (Isle of Wight) (Con)
My hon. Friend has alluded to the situation in Greece. Does he agree that much is borrowed but not accounted for?
Mr Leigh
That is absolutely right. We do not know what is going on in a lot of areas. Many EU countries, including Greece and Spain, tax their economies less than might be thought.
I apologise to Opposition Members for having to say this, but much of the blame lies with the previous Government. They increased Government spending by more than 55% in real terms and, contrary to all the political argument here today, we are cutting that by just 3%. The Government must decide whether they want to be liked or to deliver long-term prosperity and growth. As we have also heard today, we are still borrowing £141 billion every year. The cost of servicing that debt is £43 billion every year, more than we spend on defence. This is a staggering burden. I want to hear more of an intellectual case for smaller government. Big government leads to big waste. Sir Philip Green calculated in his study that £700 million could be saved on the Government telephone bill alone.
People are hit with a double whammy by all this Government spending. Like a black hole, it sucks in enterprise, and it inflates prices and taxes people of all their spare income so they have less to spend on their families and themselves. As a result, the economy deflates.
Governments say in such circumstances that more must be done and propose a fiscal stimulus, usually through public works, but those works are often driven by politics not the marketplace. A better way to deliver stimulus is to cut taxes.
Glyn Davies (Montgomeryshire) (Con)
I have a lot of sympathy with the case my hon. Friend is making, but can he point to any international examples of countries or organisations that recommend going further and more quickly in terms of austerity measures?
Mr Leigh
I can point to successful economies in the world that have the taken the view that the way to get out of the problem of a flatlining economy is to release more money back into the economy through the stimulus of lower taxation. I have referred to one tax that raises little money but acts as a tremendous disincentive to enterprise: the 50% tax rate. I would abolish that, as it achieves very little apart from bearing down on enterprise.
We still have the longest tax code in the world; indeed, it is longer than the tax code in India. The Centre for Policy Studies estimates that the marginal tax rate on poor people is as much as 96%, while the marginal tax rate on higher earners is 57%. There is a greater imperative than ever before for Government to be the facilitator, not the central planner. They can, by all means, deliver some public works, but they must not be fantasy or vanity projects such as high-speed railway lines. Instead, they must be works such as the third runway at Heathrow, which the market is prepared to build for us because the market wants it. By all means, let us have public works, but they must make sense in terms of the marketplace, and let us also have tax cuts. I support the Liberal proposal to take the lower paid out of tax, because that also delivers incentives and cuts the marginal tax rate on the lower paid. I want us to have a much flatter overall tax system, too.
Despite all that we have tried to do, Great Britain ranks as the 72nd country in the world for Government wastefulness, which is lower than Tajikistan and Ethiopia. The House may not accept all my arguments, but I hope Members will accept that an intellectual case must at least be made for a smaller and leaner Government who tax people less and deliver more vitality and entrepreneurship back into the economy. That is the only way we will fight our way out of this recession.
Gordon Banks (Ochil and South Perthshire) (Lab)
I draw the House’s attention to my declared interests.
The Government’s economic plan is not working—if it were, we would not have heard much of what we were subject to in last week’s autumn statement. The Chancellor has choked off recovery and in turn raised unemployment. I acknowledge that the eurozone crisis is having an impact on the economy now, but growth in our economy was choked off well over a year ago.
I want to spend a little time looking at economic growth and the role the construction industry can play. Labour has set out measures designed to create jobs and growth, and many of these would help the construction industry: 25,000 affordable homes, 100,000 jobs for young people and cutting VAT to 5% for home improvements. Having started my own business in 1986, I believe that without a vibrant small business sector, economic recovery is impossible, and without a vibrant construction industry, such recovery is equally impossible. The construction industry is of the private sector, but it needs both a vibrant private and public sector to survive. It is also a cash-consuming industry and as such needs the support of the UK finance industry. It is an industry that can create jobs fairly quickly and can train people in skills that will last them a lifetime. However, in recent years more than 300,000 construction sector jobs have been lost, 63,000 of those in the first three months of this year. Private sector job creation is not keeping up with job losses from the public sector. If it were to do that, the Government would need the construction industry to be significantly more active than it is.
The major banks will not lend enough to the industry. They have seen the sector weakened by Government decisions, and by their actions the banks add further to that decline. The benefits of a strong construction industry are, however, great and should mean one thing: more jobs for Britain, and more jobs for Britain means more tax revenue.
An obvious indicator of a country’s economic well-being is its construction industry. Every business needs this sector in order to expand—whether it is through bigger offices, bigger factories, better high-tech communications, or better road and rail infrastructure. However, let me make this point about infrastructure to both Front-Bench teams: major projects are very important, but I would argue for lower-cost, more local investments throughout the country, as well, as they would have an impact throughout the UK in both their development and post-development stages. Only “shovel-ready” proposals will have an immediate impact on our flatlining economy.
Mr William Bain (Glasgow North East) (Lab)
My hon. Friend will have noted that in Scotland recently, construction output has fallen by 2.3%. What contribution does he think the cut by John Swinney, the Scottish Government’s Finance Minister—a reduction in capital spending that is two and a half times faster than this Chancellor’s—has made to that slump?
Gordon Banks
The Scottish Minister’s decision is responsible for the cuts that could also impact on investment and delivery in the construction industry. The flipside is that if we are prepared to invest in the construction industry, it will deliver; if we cut public spending, it will destroy the industry and with it the economy.
For businesses to grow, they need access to affordable funding. Historically, most small business funding has been generated from our banks, but the Institute for Family Business and the Federation of Small Businesses tell us that, due to the actions of the banks and small businesses’ distrust of them, many such businesses are seeking funding from family members or not seeking it at all. To do the latter damages the business and the economy; to do the former may place limitations on the business, with the same impacts.
However, what is clear is that small and medium-sized enterprises are not at ease with the banking sector. The much-hailed Project Merlin has been a resounding failure. The British Bankers Association has declared that lending targets have been met; however, the FSB and the Federation of Master Builders have other ideas. I have been told of banks meeting their Merlin targets by re-signing existing, unexpired deals. But the truth is, we will never know how much of Merlin is re-signed and regurgitated arrangements. Indeed, this is smoke and mirrors that the Merlin of folklore would be proud of, but I suppose we should not be surprised: the clue is in the name.
I know of financing arrangements that have long been in place being removed with immediate effect, leaving a business in turmoil. Then, the bank returns to the business a few days later with the offer of a term loan that is new business for the bank to write—no doubt adding to the Merlin figures—at increased rates and with arrangement fees, all paid for by the business and with less capital provision for the lender, but leaving the business without any long-term funding in place.
Small businesses in the construction sector have been victimised on two fronts: for being small, and for being in the construction sector, which is deemed toxic by many lenders.
When considering finance, however, we should not forget first-time buyers and the crisis in mortgage lending. In 2007, there were 357,000 first-time buyers in the UK, and as a result the British high street was boosted by some £2.1 billion when these people kitted out their homes. However, today, young people, who are the majority of would-be first-time buyers, are unable to purchase their own home. Now, the average age of a first-time buyer without parental support is 38. With 25 or 30-year mortgages, these first-time buyers could still be paying off their mortgages as they approach their 70s. Surely, pensioners paying mortgages is not something we want to see in Britain in years to come.
In my business, where investment in vehicles can cost up to £130,000 each, and where forklifts and loading shovels cost tens of thousands of pounds, the real driver for investment is the footfall of customers and the profit margin. Both have taken a tumble in recent years, and nothing that I have seen this Government do or promise to do will result in more customers or a rise in profit margins.
Angela Smith
My hon. Friend is making a very strong case against the Government’s economic policy. Does he agree with Will Hutton’s comments in The Observer on Sunday? He said that the Chancellor
“is operating within a framework that permits no vision for how the British economy can be re-energised and reimagined.”
Gordon Banks
I agree with that, and I would add to that the comments of my hon. Friend the Member for Glasgow North East (Mr Bain) in his intervention a moment ago: there is a lack of vision in both Scotland and No. 11.
Falling business opportunities equals reducing margins and cuts to investment and employee numbers, which add further to the decline in the economy. Businesses in my constituency and in the construction sector want to know whether this Government see themselves as a driver for growth, or not.
It is all about priorities. As far as the SMEs in the construction sector are concerned, the comments on the report card, sadly, are not “could do better” but more like “shows no interest in the subject”.
Anne Marie Morris (Newton Abbot) (Con)
The Office for Budget Responsibility has shown clearly that productivity is slowing, and our recovery therefore depends on getting productivity moving forward faster. I suggest that one of the key barriers is over-regulation, which I think is borne out by many of the surveys that the Federation of Small Businesses and the Forum of Private Business have carried out.
The sector of the economy that is perhaps most affected by over-regulation consists of the very smallest of our businesses: the micro-businesses. A micro-business, for the most part, suffers from the same level of regulation but has less resource, by virtue of its size, to deal with it.
So why should we worry about micro-businesses? Because research has indicated that 90% of new jobs after a recession come out of that sector, and because it is in our rural communities that many of those micro-businesses exist. They are critical to the economic viability of our rural communities. We should also be concerned about the existence of micro-businesses in deprived urban communities, where, again, they play a key role in terms of cohesion.
What is a micro-business? The EU defines it as an organisation with fewer than 10 employees, but in fact, 90% of our businesses have fewer than five employees. Therefore, they have very little managerial support and expertise.
The Government have done their level best to help small and medium-sized businesses, and specific provision has been made to help the micro-business. So why do micro-businesses feel unloved and, in the words of one, invisible? Perhaps I may make some suggestions to the Treasury on how we can rectify that and support the sector better. We have given a three-year moratorium on new regulation for our micro-businesses, but the challenge is that they are still subject to existing regulation, a lot of which comes from Europe, and if they have only two or three people in the business, that is a very heavy burden. We need a “keep it simple” system for micros.
On employment, the Government have helpfully provided a national insurance break for start-up businesses. We have also examined the tribunal system and considered a simplified system for smaller businesses, but we must remember that businesses with no employees comprise 70% of all our businesses—or about 3 million businesses altogether—and if we gave those very small businesses national insurance relief, we would go a long way towards solving our unemployment problem.
On finance, I am delighted that we have the new seed enterprise investment scheme, as it will make a big difference. The point I would make to the Treasury is that we need to examine who is going to use that type of support. It will be the fast-growth entrepreneur who is looking for external investment, but what about social enterprises and what about the plumber who is setting up, having just been made redundant? Some of the money that they will be seeking could be offered by their families, but they are excluded from the scheme.
David Rutley (Macclesfield) (Con)
My hon. Friend is a passionate advocate for micro-businesses and I commend her for her extraordinary efforts. Does she agree that it is vital that our micro-businesses are better at articulating the problems they are facing, so that the Government can more effectively strip back the regulation that she and I both want removed?
Anne Marie Morris
I agree with my hon. Friend absolutely, and that brings me nicely to the challenge that we face in getting some of the main schemes to assist with finance. Project Merlin, the enterprise finance guarantee scheme and the regional growth fund have all been aimed at the smaller business. The problem is that in practice, because there is no carve-out and no requirement that any percentage of those schemes goes to our very smallest businesses, these businesses by and large get left out. That is because they are perceived to be invisible, too difficult or too small, or it is perceived that they cannot write a business case or are not after a big enough loan. I hope that when we examine the new credit easing arrangements, we might consider a carve-out specifically for micros.
Even some of our institutions that are supposed to be looking at our small businesses exclude them. I have spoken to officials in UK Trade & Investment, and it appears that a small business of fewer than five employees is, unfortunately, beyond its notice. I have talked to those in the National Apprenticeship Service, which now has a small business unit, and they say that a micro-business with fewer than five employees is, again, outside its remit.
May I suggest to the Treasury that the solution, is, first, that we should properly recognise this group for what they are? Let us define them properly as organisations with four or fewer employees, as is happening around the world, and let us devise a scheme specifically for this group. That is perfectly possible, as the French have come up with such a scheme for their smallest micro-businesses. It provides limited liability, a very simple form of establishing a business, simple accounting procedures and a very simple tax system, and it also provides for very simple sets of regulation, particularly in respect of employment. So something simple for our smallest micro-businesses is just what we need.
In the last minute available to me, I suggest also that, because much of the regulatory burden comes from Europe, there is a case to be made for considering an exclusion for micro-businesses from European regulation. I commend that to the Treasury and the Chancellor, if and when we come to treaty negotiations, as something that might be usefully traded.
Phil Wilson (Sedgefield) (Lab)
I would like to discuss the part of the autumn statement dealing with local public sector pay and the relationship with local labour markets—in other words, regional pay. As a Member of Parliament for the north-east of England, I know that unemployment in the north-east is 11.6%—the highest in the country—the average wage is just over £19,000 a year, and the average house price is £144,000. A 25% deposit on a mortgage will cost £36,000, and to obtain a mortgage for the remaining 75% someone would need an income of £31,000 a year. A house in the rural north-east costs 8.1 times income, whereas in the urban areas of the north-east it averages 7.3 times income. Average incomes in the north-east are 12% below the national average and are the lowest in England. Given those facts, introducing a regional wage structure in the public sector is the wrong thing to do, because it is short-sighted and it belies the facts on regional pay disparities. If the Chancellor were really serious about pay, he would join me, and many of my colleagues in the north-east of England, in calling for a living wage, not a regional wage.
I do not believe that national pay bargaining in the public sector suppresses pay in the private sector. Although regional pay does exist in the way allowances are paid, for example, for people who work in London and the south-east, the main differential is not between regions, but between London and the south-east and the rest of the country. Pay disparity between the regions is about £2,000, according to Incomes Data Services, and there is very little difference in the cost of living between regions. The largest disparity is between the north-east and London, where the cost of living varies by 10%. The Office for National Statistics states that the cost of living in the remaining regions varies by between 1.5% and 2.8%, depending on the goods compared. However, the wages of commuters in the London commuter belt are higher than those of the people living and working in the commuter towns.
The ONS and IDS believe that the only distinct labour market in the UK is in London and the commuter belt area around the city. Is that not another reason for investing in transport infrastructure projects, which will shrink distances between London and the rest of the UK, rather than encouraging a rush to the bottom in pay rates between the public and private sectors, and between regions?
Mrs Jenny Chapman (Darlington) (Lab)
My hon. Friend is making a superb point. I do not know whether he has served on the governing body of a school or on a board of a health trust, but I can tell him that recruiting good, able, ambitious and talented people in the public sector can be a real challenge in the north-east. As someone who lives there, I do not understand why that is, but it seems to be the case. We need to be able to attract those quality people, and enable them to move around the country and pursue their careers as they need to.
Phil Wilson
That is absolutely right. If a regional pay structure went ahead, in whatever variety it may take, it would just exacerbate that situation. The regions would become silos, and people would not be able to move around the country.
It is also a myth that there are major variations in the cost of living around the country. The reason why the variation is less explicit outside London is because major retailers have national pricing policies, and internet shopping is having a similar effect in ensuring that the cost of living is more convergent around the UK than it would otherwise seem to be. In addition, major private sector companies—BT, British Gas, Waterstone’s, First Great Western and Santander, to name but a few—have national pay structures, although they have, for example, allowances for workers in London. When the previous Government examined this issue they came out against regional pay bargaining for the following reasons, which were quoted in a Treasury guidance note in 2003. It said:
“At the extreme, local pay in theory could mean devolved pay…to local bodies. In practice, extremely devolved arrangements are not desirable. There are risks of workers being treated differently for no good reason. There could be dangers of leapfrogging and parts of the public sector competing against each other for the best staff.”
That illustrates the point that has just been made by my hon. Friend the Member for Darlington (Mrs Chapman).
The wage disparities do not arise from an overactive public sector displacing private sector jobs; that cannot be so, given that 700,000 public sector jobs are to be lost in the coming years. I want to see a vibrant private sector, with skilled jobs that are well paid and full time, but to achieve that we need growth.
Angela Smith
Does my hon. Friend believe for a minute that the Government have thought through the complexities of moving to local pay scales, given that it will inevitably involve consultants in establishing exactly where on the new pay scales the public sector employees will belong?
Phil Wilson
My hon. Friend raises an important point. I do not think the Government have thought all these things through; I know they will be looking at them in more detail, but the process seems ideologically led.
One North East was a dynamo for private sector job creation in the north-east. To abolish it was the wrong decision. We need the expertise of the public sector to generate private sector jobs in the area. That is how Hitachi Rail was attracted to Newton Aycliffe in my constituency, creating hundreds of direct private sector jobs and thousands in the supply chain. Hitachi did not come to the north-east because of the public sector, but it did have the help of the public sector. I want more Hitachis coming to the north-east, bringing highly skilled jobs that will deliver good wages. That is how we shall redress wage disparities in the north-east; not by suppressing the wages of a section of the community but by raising the wages of all employees, through investment, training and skills. With that will come good wages, and I call on the Government to promote a living wage, not a regional wage, for the north-east and the rest of the UK.
There is no evidence that regional pay will rebalance the economy. Driving down wages will only exacerbate economic disparities, not resolve them. Driving down relative wage costs and taking money out of the economy is as bad for the private sector in areas such as the north-east as it is for the public sector. That is why I make a special plea, not for the public sector but for all employees in the north-east of England, whatever they do and wherever they work.
Public sector employees face a two-year pay freeze and then two years with only a 1% increase. It has been estimated that between 2010 and 2015 public sector workers will see their incomes decrease by 14%. Average pay in the north-east is just over £19,000. How low do the Government want it to be? The policy is wrong, and I believe it is ideologically led. The answer is a living wage, not a regional wage.
Glyn Davies (Montgomeryshire) (Con)
I shall take a Welsh perspective, and to some extent a constituency perspective. Debt hangover, deficit reduction and the problems facing the eurozone have an impact in Wales, just as they do in the rest of Britain, but some issues are specific to Wales and I want to touch on them.
Much of the management of the Welsh economy is devolved, but not completely; for example, policies on tax rates and international investment are still determined at Westminster. That inevitably means that a close working relationship between the Governments in Cardiff Bay and at Westminster is crucial. Without one, there is the potential for damage. Enterprise zones are an important aspect of the Government’s policy for dealing with the economic problems of England. I do not want to blame anyone, but in Wales they are still incredibly ill defined and the process is slow, so we need a much closer relationship between Ministers in the Assembly Government and Ministers at Westminster.
Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)
The hon. Gentleman said that most economic control was devolved to Wales. Would he be as comfortable with a relationship between London and Europe as there is currently between Cardiff and London—with most powers held in Europe and London, despite the economy of Wales being devolved?
Glyn Davies
I thank the hon. Gentleman, although I am not absolutely certain that I picked up his point. Governments and institutions have to work as closely together as possible for the benefit of the people they all serve.
First, inward investment has historically been strong in Wales. Yesterday the Secretary of State for Business, Innovation and Skills told the Welsh Affairs Committee that Wales was doing relatively badly. I think Wales is doing very badly indeed; last year only 3% of inward investment in the UK went to Wales. In the two previous years the proportion was 6%, which is about what one would expect given the population of each country. In the days when Lord Walker was Secretary of State for Wales, it was 20% for two or three years in a row. There was a major focus on Welsh links to the most successful parts of Europe, such as Baden-Württemberg, Stuttgart, Barcelona and Lombardy. There was a strong relationship with Japan, which in those days was aggressively developing its economy throughout the world. A lot of investment was going to Wales, and we need that sort of advantage. When I became a Member of this House I had been a Member of the Welsh Assembly for eight years, and I want the relationship between the two institutions to work as well as possible. On inward investment the working relationship has not been as close as it should be, and we need to change that.
Secondly, I want to touch on cross-border issues, in particular their impact on my constituency of Montgomeryshire. Again, it is a question of making devolution work for the people. There is a real problem in terms of capital investment in Wales. A consequence of the autumn statement is that over the next three years another £216 million will go to Wales for capital projects, but projects on the border will not be considered, because the arrangements following devolution mean that they cannot be. For my constituency and for the whole of mid-Wales, industrial development depends on access to the west midlands market and the motorway network. One of the biggest impediments is the stretch of the border between Welshpool and Shrewsbury. A road project there has high priority for the Welsh Government and would almost certainly have gone ahead, but the total cost is around £30 million, with a significant proportion—about £5 million—over the border in England. Although it has huge priority in Wales it is given almost no priority at all on the English side. That project has been sitting around for ages and is not going ahead, yet it should really be a priority. I could give three or four similar examples.
Owen Smith (Pontypridd) (Lab)
I entirely agree with the point that the hon. Gentleman is making, but would it not have been easier if the Government had chosen not to cut £900 million overall from the Welsh capital budget? Admittedly they gave back £200 million last week, but there is an overall reduction of £700 million in this Parliament.
Glyn Davies
I thank the hon. Gentleman, but he completely ignores my point and is going back to the partisan knockabout that produces absolutely nothing. There is an important point of principle relating to cross-border investment, and all Members of the House and of the National Assembly, not just the Government, should try to focus on the issue so that we have a resolution that benefits the people who actually depend on it.
Thirdly, I want to touch on the impact of proposals for wind farms in mid-Wales. Many of my constituents, and indeed people in neighbouring constituencies, fear that there is an intention, or a desire, to sacrifice mid-Wales on the altar of onshore wind, irrespective of the consequences for the economy. About two decades ago, when I was involved in developing the economy of mid-Wales, strategy was based on the growth of manufacturing industry—what today we might call rebalancing the economy—after the loss of jobs from agriculture and mining over a long period. Over the last 30 or 40 years the percentage of people employed in manufacturing rose from about 7% to about 24%; it was a terrific performance, but between the late-1980s and the mid-1990s there was less concentration on regional development and the figures probably slipped back.
Today the most important developing industry in Wales is probably tourism. People who work in the industry contact me regularly to tell me that onshore wind is the biggest threat to the potential of their business. We cannot ignore that. Planners in mid-Wales are aware of the threat. They are deeply concerned that wind farm applications are being submitted without the necessary information about ecological or environmental impacts. There is almost no transport planning for the 20 or so proposed wind farms, yet planners are under pressure to approve the applications. If they do, they will be sacrificing the economy of mid-Wales. Many of us in the House have concerns about the costs and their impact on the fuel bills of the most vulnerable in society, and we are worried about the impact on British jobs, which will be exported as a result of those costs. From the perspective of my constituency, the economy of mid-Wales will be destroyed at the same time.
Helen Goodman (Bishop Auckland) (Lab)
I am pleased to follow the hon. Member for Montgomeryshire (Glyn Davies). I do not agree with what he said about wind farms, but he made a thoughtful and interesting speech, and I hope that when he listens to what I say about the north-east, he may feel that things in Wales are not quite so bad.
At the weekend I received an e-mail from a constituent which said:
“I wanted to apply for a crisis loan for my heating oil but when I rang up I was told this was not possible … and I would have to apply for a budgeting loan which has a three-week wait … My problem is I am unable to pay by direct debit … I have been unable to save the money from my employment and support allowance as I have been trying to pay my other important bills . . . My dilemma is that my oil will not last much longer and as I suffer from diabetes and had a heart procedure in September my health will suffer as a result of no heating.
What can I do to sort this out?”
The e-mail is interesting not because of what it says about the benefits system, but because of what it reveals about the level of poverty being faced at present in some households, as well as the consequences of the failure to tackle the energy giants adequately.
There are two major themes that I want to pull out of what the Chancellor of the Exchequer announced in his autumn statement—the unfairness and the unintelligence of the proposals that he put to the House. In many cases they are unintelligent because they are unfair. Let us look first at who is bearing the burden of the measures that he announced. We can see from the analysis published by the Institute for Fiscal Studies that it is the poorest who are paying the most. The IFS analysis makes it clear that the measures that the Chancellor of the Exchequer announced will make the bottom 30% worse off and the top 60% better off.
Mr McFadden
My hon. Friend is right in what she says about the Institute for Fiscal Studies estimates. She will also know that the IFS says that by household types, it is families with children who are worst hit. What does she think the Government and the Chancellor have got against families with children?
Helen Goodman
I cannot imagine what the Chancellor has against families with children, but it is obviously a matter of extreme concern not just that the number of children who live in poverty will go up, but that to tackle the problem, the Government are going to redefine poverty. They will find that that is a massive mistake. If they go to an absolute measure, they will not look good against the Labour Government, who reduced the number of children in absolute poverty by 2 million.
Those on £14,500 will lose eight times the share of their income that those on £32,000 will lose. The poorest 10% will lose four times the share of their income that the richest 10% lose. In other words, it is a cynical way of focusing money on so-called marginal voters. The proposals are unfair. They are unintelligent to the point of stupidity, because the propensity to consume is highest among the poorest. Maintaining the incomes of people on low incomes will have the fastest and greatest impact on demand, so even with the same level of borrowing as they propose and the same fiscal stance, the Government could have a bigger bang for their buck. They could have a greater impact on demand and on the growth of the economy, simply by redistributing.
The second dimension on which the autumn statement is both unfair and unintelligent is the regional distribution. The Government are switching £4 billion from current to capital, of which only £4 million—that is, 0.1%—is earmarked for the north-east. That is 25 times less than the £100 million that was lost from my constituency alone when the Building Schools for the Future programme was cut. For example, improvements to the A1, the A19, the A66 and the Tyne tunnel are not going ahead.
The North East chamber of commerce has described this as “hugely disappointing”. The extension of 100% capital allowances till 2017, the new enterprise zone in the port of Blyth and the increase in the regional growth fund are all minuscule in comparison with the impact of the abolition of the regional development agency.
Furthermore, the infrastructure plan is old-fashioned. Only £100 million of the new money is in the communications strategy and that is all concentrated in the cities, whereas the lack of access is in rural areas. Today the Federation of Small Businesses and the National Farmers Union came together to point out that hundreds of thousands of people will be left behind, so where it is most useful and most needed, it will be least available.
In announcing his weakening of the habitats directive, the Chancellor seemed to be scornful of green considerations. After the excuses of snow and royal weddings, it seems to be the butterflies that are the problem, or perhaps it was the seaweed that he was complaining about.
My hon. Friend the Member for Sedgefield (Phil Wilson) pointed out the detrimental impact of regional pay on our regional economy. Lower pay in the north-east is a symptom of our problems. Reducing the pay further will take yet more money out of the demand in the regional economy. To set this in context, my hon. Friend the Member for Easington (Grahame M. Morris) made an excellent speech in Westminster Hall, pointing out that the cuts in incapacity benefit are already taking £170 million out of the regional economy. What may look like a sneeze in the south can cause pneumonia in the north-east.
Damian Collins (Folkestone and Hythe) (Con)
Throughout the debate this afternoon we have been asked to consider that the debt situation that we are in is not as bad as it seems and that we can spend money that we do not have to try and get out of it. That argument lacks any credibility with the money markets.
Damian Collins
The hon. Member for Bishop Auckland (Helen Goodman) is speaking from a sedentary position. I shall come to her remarks, which are pertinent to my constituency, particularly her comments on the habitats regulations and how they impact on the local economy.
Opposition Members have put to one side the seriousness of the debt situation. The other issue that has not been spoken about at all—certainly not by the right hon. Member for Edinburgh South West (Mr Darling) or by the shadow Chancellor, the right hon. Member for Morley and Outwood (Ed Balls)—is the underlying competitiveness of the economy. When we look at the debt situation and the world economic crisis, which are grave and severe, we should also consider that our economy may not be as fit and competitive and as able to grow the sort of jobs that we will need in the future as we thought it was.
Statistics showing how this country has fallen behind in the competitiveness league tables published by the World Economic Forum are often brushed aside. From being seventh in 1997 when the Conservative party left office, we fell to 13th last year and are 10th now. That means that in 1997 we had the most competitive economy in the European Union. We find ourselves today behind Sweden, Finland, Germany, the Netherlands and Denmark on competitiveness.
On the broader question of infrastructure, which is so important to the competitiveness of our economy, we find that Britain lies in 28th position, according to the latest figures, not rubbing shoulders with France, which is third, or Germany, which is 10th, but instead between Saudi Arabia and the Czech Republic.
Sheila Gilmore
I am fascinated by the comparisons that have been given. Virtually all of the first group of countries that the hon. Gentleman mentioned have a very large public sector and a very comprehensive welfare system. It would appear that they have a competitive economy as well. Perhaps we should be looking more to the Scandinavian model.
Damian Collins
The hon. Lady will be pleased to know that we are also behind Singapore, the United States and Japan, so there are more countries ahead of us than there used to be, and more than there should be. When we consider trying to create jobs in the economy, Opposition Members seem wilfully to ignore the fact that our competitiveness in an increasingly competitive world matters. To them, competitiveness is not worth talking about and is irrelevant to creating jobs. If we are serious about doing what President Clinton has called getting back in the future business—his criticism of the US economy can be applied to the UK economy over the past 10 to 15 years—we must recognise that we have not invested as we should have done to make our economy as competitive as it should be.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
The common denominator in all the European countries to which my hon. Friend the Member for Edinburgh East (Sheila Gilmore) alluded is their manufacturing base, and Germany, Japan and China are of course also manufacturing surplus economies. Britain used to have such an economy, until 1979.
Damian Collins
I am not sure what the hon. Gentleman’s critique is of the party that was in power for 13 years and delivered these statistics. The point I made at the beginning of my speech is that after 18 years of Conservative Government Britain’s competitiveness in Europe was much higher than it is now. I do not know what sort of indictment he finds after 13 years of Labour Government, but it sounds pretty damning to me. The hon. Member for Bishop Auckland talked about the habitats regulations, which I will move on to because it is an important point. She was slightly dismissive, but I do not think that she meant to be.
Damian Collins
She was very dismissive of the significance of the review the Chancellor announced last week on whether the habitats regulations are being used to hamper growth and business development and whether they are being unfairly and unreasonably applied. A particularly pertinent case in my constituency is whether Dungeness nuclear power station in Kent should be allowed on the list of new nuclear power sites, and I have written to the Chancellor to ask him to give it special consideration in the review. There is a huge amount of local support and there are two nuclear power stations there already.
Land was set aside for the creation of a third power station in the 1960s, most of which was disturbed during the building of the first two. The land is within a special protected area next to a Ramsar site that gives special protection not to butterflies, but to vegetation that grows on the shingle banks and to birds. The bird sanctuary was created largely after the building of the existing power stations. The area of development for the new nuclear power station is less than 1% of the protected area, so it would be difficult to claim that building it would damage the integrity of the whole site or destroy the habitats totally. They remain within a large, protected and conserved area and will be protected.
Nevertheless, based on Natural England’s interpretation of the habitats regulations, it was recommended to the Government that a third power station should not be built on the site, and that is the only reason why it cannot be built. It would create thousands of jobs during the construction phase and 500 permanent jobs for its operation. It would be an incredibly important investment, and that is an example of how the interpretation of some of these regulations is impeding growth and investment in our economy. The power station would be built not on a greenfield site in a protected area, but next door to two existing power stations and on land that was set aside for the purpose. I obviously feel strongly about this example because the new power station would help my constituency directly, but it would also be a new energy source in an area of high demand in the south-east of England, close to south-east London.
Another local example is Lydd airport. Extending or building new regional airports is a controversial issue. In my constituency the local council decided some time ago to approve a planning application to expand the airport. There had been a previous public inquiry on that in the 1990s, which had lapsed, so the process has to be gone through again. A private developer who is willing to invest money with the support of the local council, which approved the planning decision, is being put through a costly and lengthy process, wasting hundreds of thousands of pounds, with the prospect of possible judicial review at the end. That is also because of the way the habitats regulations have been interpreted, and during the course of the most recent planning inspector’s inquiry many of the objections were set aside. It is frustrating that these rules and regulations are hampering investment and growth.
Angela Smith
I thought that the hon. Gentleman’s party was going to form the greenest Government ever.
Damian Collins
The hon. Lady seems to think that there is something incompatible between sensible investment in growth that respects environmental regulations and having no jobs or investment at all. I think that that is possible in this area. The contention in my constituency and those of many hon. Members is that the rules are being applied in a way that restricts growth and investment, largely from private investors and operators, where it is really needed, and that is unacceptable.
The regional growth fund is a big help for constituencies, such as mine, where extra support is needed to attract investors to create new jobs. That is certainly something we welcome in east Kent. Another point about infrastructure investment, which I touched on at the beginning of my remarks, is the importance of the Government’s commitment to invest in broadband and improve the extent of mobile phone networks and coverage. I was pleased to hear in the Chancellor’s statement that, thanks to the extra £150 million that has been made available for new masts in rural areas, the coverage target for mobile operators is now 99%, rather than the 95% target in the last Parliament. That is good news for people in rural communities who are excluded from current coverage and something we should welcome. It is an important investment in our infrastructure for the future.
Sammy Wilson (East Antrim) (DUP)
First, I welcome a number of things set out in the autumn statement, such as the increased money for infrastructure that will come to Northern Ireland. It will not make up for the 40% cut in capital spending announced in the Budget, but it will fill some of the gaps. Secondly, I wish the Chancellor well in his battle with the Secretary of State for Energy and Climate Change, and perhaps the Prime Minister, as he takes on the green lobby and seeks to strike a balance in the economy and redress the damage that many green policies are doing to industry.
I will focus on some of the points that have been made on the need for growth. All the problems that have been identified as impeding growth in the UK economy overall are magnified in Northern Ireland. First, there is the heavy dependence on the public sector, which means that public sector spending cuts have a greater impact. Secondly, there is the difficulty businesses have in obtaining finance from banks in an economy that is heavily dependent upon failed Irish banks and where penetration by UK mainland banks is not great. Of course, the problems in the eurozone have been magnified because we live next door to, and are heavily dependent upon, an economy that has been greatly affected by what has happened in the eurozone and the austerity measures that the Irish Government have had to take. Indeed, many more such measures were announced yesterday in the Irish budget.
One of the things the Chancellor has focused on, and rightly so, is the importance of keeping interest rates low, and I do not think that any Member disagrees with that. It has an impact on businesses and mortgages and on those who have taken out loans, so it is correct that we should be following policies that keep interest rates low. However, I do not accept that they have been kept low in the UK only because of his plan A and his austerity measures. Looking at the reasons, one sees that of course economic management and confidence in it is important, but so too is the fact that the Bank of England has been buying up £220 billion-worth of Government bonds as a result of quantitative easing. That has injected confidence that other European countries that have been mentioned today would perhaps not have had because the European Central Bank has not done the same.
Secondly, we also have the flexibility to adjust our exchange rate and so have a way of stimulating some growth, whereas many European countries that are tied to the euro do not have that. Thirdly, even though the Government have admitted that their plan for getting rid of the deficit will not be fulfilled in the set period and that they will have to borrow more than expected, the financial markets have not deserted the UK. In fact, they have remained solid. I believe that one of the reasons for that is that we are not regarded in the way that some of the other European countries are, for the very reasons I have given. If anything, the Government ought to capitalise on that. If the markets are prepared to lend to pay for unemployment, would they not be even more willing to lend to pay for investment in infrastructure that could give growth which, in turn, could provide the ability to pay back the debt we already have? Rather than walking away from borrowing, and from borrowing—perhaps only modestly—to do the things that Members have mentioned today, the Government should capitalise on the reputation that their management and our flexibility outside the eurozone gives the Chancellor when it comes to borrowing money.
There are already signs that the Government know their plan is wrong: they are engaged in quantitative easing, which is a way of stimulating the economy by monetary means; and in the autumn statement they indicated that they were prepared to spend more money on infrastructure. They ought then to look at what they can do and at what borrowing they can undertake not to pay to leave people sitting at home, but to pay to get them into work, growing the economy and generating tax revenues.
The hon. Member for Gainsborough (Mr Leigh) said that he did not want to see the public sector increase, but such borrowing would not have to be for the public sector. Indeed, the hon. Member for Ochil and South Perthshire (Gordon Banks) mentioned VAT cuts for the building industry. That would not increase the size of the public sector; it would stimulate the private sector and grow the economy.
Mr Anderson
In reality, can the two sectors not work together? My hon. Friend the Member for Bishop Auckland (Helen Goodman) mentioned a classic example, Building Schools for the Future, for which we had money earmarked in our constituencies. In my constituency, there was £80 million, and it would have gone not to the public sector but to Gateshead council, which would have passed it straight on to private sector builders to build the schools that we need. Is that not the way we should be working our way out of this crisis?
Sammy Wilson
That is exactly the point that I am trying to make. Borrowing does not necessarily have to mean a bigger, bloated public sector; it can be directed in many other ways that would meet the demands of even some Government Members. In Northern Ireland, tourism is a huge industry, and selective cuts in VAT could stimulate spending there and help the Finance Minister to realise the potential to increase tourist numbers by 3.5 million over the next two years, thereby generating private sector growth and helping us to rebalance the economy.
Things can be done and there is potential. The Government have more flexibility than they accept, and if we are to deal with the social strain, the economic hardship and the impact on businesses we need to see examples of that flexibility in order to get back on to a path to growth and back into a position where we can repay our debts.
Nigel Mills (Amber Valley) (Con)
It is a pleasure to follow the hon. Member for East Antrim (Sammy Wilson). Having recently joined the Northern Ireland Committee, I am becoming more familiar with the issues that he raises and, in particular, with Northern Ireland’s attempts to show that one can compete on tax rates to grow one’s economy. It has the right idea in wanting to match Ireland’s lower corporation tax rate in order to grow the Northern Ireland economy, but I sense that it will not want to match Ireland’s new higher VAT rate in an attempt to grow the economy over there. That is aiming for the best of both worlds.
I welcome the chance to contribute to this important debate on what is the central issue for my constituents. I am sure that every Member who has spoken to constituents and businesses cannot have failed to notice how difficult economic conditions have become, and that is why I welcome in particular the fact that the Chancellor, in his autumn statement last week, did not try to hide the full extent of the difficulty, but set out exactly how difficult things are now and will be for the next few years.
The response was robust, and it should see us maintain the market’s confidence, which is the key to our recovery. I am not aware of any serious commentator who suggests that we should change our plan, and borrow more and spend more than we plan to, when we are running a deficit of more than £120 billion this year already. The shadow Chancellor chose earlier to quote Voltaire, and I have found a second quotation for him:
“Common sense is not so common.”
Some of his speech showed eminently that that is true.
I shall touch on the measures in the autumn statement that are relevant to my constituents and work through those issues that are raised most frequently. People—especially first-time buyers—complain that they cannot get mortgages or, if they can, that the deposit requirements are too high or the cost is too high, so last week we announced measures to make it easier for first-time buyers to get mortgages and thus get the building industry started again. I can think of some building sites where a couple of houses were started on the edge but the rest of the estate was mothballed for a few years, and getting those finished has to be a good thing.
Small businesses have for a long time complained that they cannot get funds out of the banks, and, although all our measures may have helped a little, they certainly have not solved the problem, so the loan guarantee scheme will I hope be a real step forward. Many businesses are struggling to decide whether investment is a great idea in the current climate, but as things start to improve the scheme will be in place and enable them to secure the finance that they need. In the meantime, every small business will welcome the extension of the business rate holiday for a few more months, but it keeps being extended, and at some stage it might be nice to extend it to a distant horizon so that we know where we are.
The worst impact of any economic downturn is on unemployment, and especially on youth unemployment, and the £1 billion of funding that we announced to tackle that will be hugely welcome. As I visit businesses throughout my constituency, I see that some are taking real steps, at their own cost, to employ local young people. I pay tribute especially to David Nieper in Alfreton, a fashion business that has started its own fashion academy, taking students from nearby universities and showing them the entire industry—from designing clothes all the way through to marketing them, selling them and producing brochures—in order to give them that whole-industry experience so that they really are job-ready.
Helen Goodman
I am pleased that the hon. Gentleman congratulates David Nieper, because my sister works in that factory.
Nigel Mills
Well, I am sure that she recognises how great an employer it is—and it is very kind of the hon. Lady to give me an extra minute!
Many other businesses in my constituency have expressed their concern about the impact of rising energy bills, especially given the Government’s climate change policies, which increase those costs. In my constituency, I have another great business, Denby Pottery. I do not know whether the hon. Lady has family working there, too, but it has expressed a real concern that even the welcome help that we announced for energy-intensive industries last week will not assist the ceramics sector, so I urge the Government to keep working on those measures to protect such valuable and historic industries.
Another particularly welcome announcement for me was the announcement of expenditure on infrastructure and road building. New road construction in Amber Valley has been a little neglected, so I urge the Government to look favourably on the bid that I and Amber Valley borough council have championed for the new Ripley-Codnor bypass, which would link the A38 and M1. We are not asking for the full funding, because the council is busy arranging it through developers that can pay for up to half the bypass, but if the whole road were completed it would present a real chance for regeneration and a real chance to attract new business to the area, which is exactly what the Government’s infrastructure funding is trying to do.
I am happy with what the Government have announced. In a difficult situation, they have announced some short-term measures to tackle the worst impacts of economic downturn. Now, we need to look at the long-term strategy and at the measures we need in place to make our economy as competitive as it can be in five or 10 years’ time.
In the final minute of my speech, I shall turn to the reform that we need in our tax system. As my hon. Friend the Member for Chichester (Mr Tyrie), the Chairman of the Treasury Committee suggested, many tax regimes that affect our businesses are unduly complex and out of date, discouraging investment while encouraging strange and perverse behaviour, which is why we have to introduce a huge number of more complex anti-avoidance rules, such as those announced today.
Wholesale simplification would ensure that we had a system which encourages what we do want and make it easier to stop the avoidance behaviour that we rightly wish to tackle—and I think the Government are coming round to that. Last week, they announced that 100% capital allowances will be made available to enterprise zones, and, to all those businesses in my constituency which would like to invest in new machinery and need to do so to remain competitive, we should send the message that we want to provide tax incentives for people to invest in capital equipment at this time. If we need 100% capital allowances for enterprise zones, can we not find a way of being more generous with capital investment throughout the whole country, not just in those zones?
Mr David Anderson (Blaydon) (Lab)
Last week was the week when the bubble burst and the Conservatives had to accept what everybody else knew: that the Chancellor had got it wrong on growth, this year and next; on unemployment, up by half a million next year; on borrowing, going up to £158 billion; on children in poverty, again set to rise; and on hitting women the hardest. The House of Commons Library says that the effect of cuts to tax credits and attacking public sector pay will impact on 73% of the women involved. There is complete humiliation for the Chancellor and even more damage to our economy, but who carries the can for the failure of the system? The old, the young, the jobless, the disabled and the women of this country.
As always, when capitalism fails, it is the most vulnerable who suffer. We should look back to the 1930s. Only a few weeks ago, young people marched to London in a sad echo of the crusades of those who left Jarrow 75 years ago. Those brave souls in 1936 did not march to London for the exercise—they did it because they were starving, jobless, and desperate. Just like today, they were turned away empty-handed and made to carry the can for a mess they did not create.
We all know that history repeated itself in the 1980s, when the country was led in a series of recessions by a neo-liberal Government who saw the deindustrialisation of this nation as a price worth paying. They destroyed not only the coal mining and shipbuilding industries of this country but the manufacturing industry that those industries helped to create and that was making leading, cutting-edge technology for the coal-mining industry. Why did we do that? Because the market demanded that we did it. It said that British coal was too expensive and that we needed cheaper coal to deliver cheap power. The Government’s response was, “That’s okay. It’s a price worth paying.” They were not paying it and their constituents were not paying it; the people in my part of the world were paying it. The outcome was that hundreds and thousands of lives were decimated, local communities withered and died, and support industries died off.
The truth remains that it is the less well-off, the poor, the frail, the poorly educated who lose the most, while those in charge—the ones to blame—get off scot-free. What else can we say when we face a situation where a quarter of our children will be living in poverty, record numbers of people are out of work, and those lucky enough to retain a job face pay freezes, an unprecedented drop in living standards, and a real lack of security, while at the same time Barclays makes a £11.6 billion profit and pays only £113 million in corporation tax, and its poor chief executive is paid only a measly quarter of a million pound salary but, luckily for him, it is topped up with a bonus of £6.5 million?
Mr Bain
My hon. Friend is making a passionate argument, as ever. The Chancellor said earlier that the only people who were calling for an alternative were, in effect, communists. Does my hon. Friend share my sense of disgust at the Chancellor’s slurring the democratically elected Government of Denmark, who are engaged in a stimulus programme and have seen their bond yields fall?
Mr Anderson
I am very clear that the Chancellor is trying to pretend that nobody else in the world wants what we want. The whole world is crying out for a change to a system that has let it down.
The people of this country—the nurses, the doctors, the care workers—are carrying the can for the failure of global capitalism. We now know that 98 of the top 100 FTSE-listed companies are avoiding £20 billion-plus of tax by putting their money into offshore tax havens.
Lorely Burt (Solihull) (LD)
I am very sympathetic to what the hon. Gentleman is saying about high pay and tax evasion; we are trying to do all we can about that. As regards stimulating the economy, what would he say about the situation in America, where that stimulus has been tried and it is now £15 trillion in debt?
Mr Anderson
I will come to what the hon. Lady’s party has had to say and pick up her point then.
It is little wonder that we are in a mess. We are told that even in the City of London—the heart of capitalism—job vacancies have fallen by 16% in a single month. In the past month alone, retail sales have dropped by 1.7% despite huge pre-Christmas discounts. The Engineering Employers Federation says that it expects a drop in its production from 2.2% to 0.9% next year. But do not worry—the Deputy Prime Minister, the leader of the hon. Lady’s party, tells us that he is going to crack down on top corporate pay. Does that mean that he will do what he and his friends in the Conservative party are doing to public sector workers—to nurses, doctors, firefighters and policemen—by putting a two-year pay freeze and a 1% cap on to private sector pay and the fat cats? Of course not. The Deputy Prime Minister tells us:
“I don’t mean the government starts going around setting pay rates in the private sector...I believe that people should be well paid if they succeed.”
Can he tell me where the nurses, the doctors, the firefighters, the police, the home care workers, the child care workers, and millions of others are failing?
Jim McGovern (Dundee West) (Lab)
As everyone is aware, the Prime Minister referred to last week’s day of action as a “damp squib”. I think that it was anything but a damp squib. Does my hon. Friend agree that if the coalition Government stay on the course they are on at the moment, there will be many more squibs and none of them will be damp?
Mr Anderson
I certainly hope that there is no need for any more squibs, damp or otherwise. It was absolutely wrong that people felt forced to go on strike last week, but they felt that they had no option because the Government were clearly not listening; I hope that they are now.
All in this together? What a laugh! Has Bob Diamond really become 5,000% more successful than his predecessor was 30 years ago? Of course not, but his salary is 5,000% more than his predecessor’s was in the early 1980s. The people who are running our public services are asking, “Where is the fairness?” At a time when other people are wandering around with massive pay packets, they are losing their jobs by the bucketful. Last week, in a throwaway line, the Chancellor dropped in the horribly disrespectful term, “headcount”, when he said that the headcount of job losses in the public sector would rise from 400,000 to 710,000. The headcount! These are men and women, flesh and blood—people with kids, with mortgages, with debt, and with holidays, cars and Christmas to pay for, and they face a future with no hope because this Government put the interests of the market before the interests of the people. It is economic madness driven by an ideology that does not care about the impact on real people.
Of course, the Conservatives will argue that this is all necessary. Perhaps we could accept that if it was actually working, but we see now that it is not. This year, in the north-east alone, 32,000 public sector jobs have gone, 1,080 of them at Gateshead council, with another £38 million cuts to come next year. We will have more people on the dole, poorer service delivery and more hardship all round. It is the classic Tory remedy, and we have seen it all before. Mervyn King may well be right—this might be the worst crisis in our history—but, sadly, the Tories are using exactly the same old methods to get out of it.
As my hon. Friend the Member for Birmingham, Hall Green (Mr Godsiff) said, we need a real dialogue that puts the needs of ordinary people first, and not the demands of the market. We need to move away from the appalling situation that we are in yet again, where bankers and people in the money markets are acting like the arsonist who burns your house down and then comes back next week and offers to rebuild it for you and charges you twice the price for doing it. This is a challenge to all parties in this country, including mine. We need to go beyond the narrowness of the past 30 years and look to develop an economic system that ignores the markets and does right for the people of this country.
Eric Ollerenshaw (Lancaster and Fleetwood) (Con)
It is great to follow such passion from the north-east, but I would say to the hon. Member for Blaydon (Mr Anderson) that the problem is that my electorate remember 13 years when they were promised that there would be an end to boom and bust, and they are still waiting for an answer from his party as to what went wrong.
I want to make a few observations about what is happening in my constituency and generally in the north-west, and perhaps to have the temerity to suggest something to the Treasury, but we will see how I get on with that. The key focus for my area is on growth and how we get through this crisis. My electorate accept that the deficit reduction programme is delivering low interest rates for businesses, mortgage holders and many others, and that is seen as a good thing. They also see what is happening in other countries across the world and recognise that this Government are delivering by keeping us out of the mess that there has been in Ireland and in Greece.
Many hon. Members constantly see the kinds of businesses that I see in the north-west that have the potential for growth and have the orders, but cannot manage to bridge the gap and buy the extra machine or the extra shed that they need to get things moving. That is why I, like my hon. Friend the Member for Amber Valley (Nigel Mills), am behind the Chancellor’s support for infrastructure, the national loan guarantee scheme of £20 billion and the business finance partnership. I was pleased that earlier in Treasury questions, the Chancellor said that he hopes to get that up and running in January. That will be vital for small businesses.
Sammy Wilson
The hon. Gentleman has given a list of reasons why businesses are not investing. Does he also accept that one reason is that businesses lack confidence because they see an economic policy being pursued that will not release the kind of growth that is needed to sell the goods once they have made the investment?
Eric Ollerenshaw
I am grateful for the intervention. I was going to go on to say that some of these things are actually working.
One of the biggest employers in Lancaster, Northern Tissue Group, is halfway down the line of achieving extra support from the regional growth fund. That will lead to extra jobs. Oaktec, a small company that is developing innovative energy recovery from vehicles, has just got a grant from the Technology Strategy Board to take that innovation further. Those are small beginnings, but the innovation is there.
I want to suggest how we can develop that through the local enterprise partnerships and the new enterprise zones that hon. Members have talked about. One problem that my part of the north-west has had with all Governments is that every time they look at the north-west, they look at Greater Manchester or Merseyside. Although I welcome Lord Heseltine’s intervention, or should I say re-intervention, in the north-south divide and his talk of city hubs, which we are all behind, my part of the north-west also has businesses that have potential, as you will understand, Mr Deputy Speaker. With a bit of extra investment, which I hope is coming following the Chancellor’s announcements in the autumn statement, those businesses could provide a good return. I have cited two small examples—Northern Tissue and Oaktec—but there are many other possibilities in the area.
My area also has two universities, Lancaster university and the university of Cumbria, and Lancaster university does a great deal in terms of innovation. My suggestion draws on two developments that we already have. The first is technology innovation centres, which are planned for Warwick, Strathclyde, Bristol, Rotherham and Sedgefield. In 13 years, the Labour Government delivered none of them. At least we are now getting five. Germany has 59 of them. Their mission is to bridge
“the gap between research findings and outputs, and their development into commercial propositions”.
The second development is enterprise zones, the mission of which is
“to support genuinely additional growth and create new businesses and new jobs”.
The original concept envisaged only one zone per local enterprise partnership. Perhaps that idea was developed by some Treasury mandarin who had to calculate the hypothetical loss in taxes due to the hypothetical creation of the new businesses and jobs. As they will be new, I am yet to understand how they can calculate that. Obviously, I am just a simpleton when it comes to the Treasury.
In a nutshell, my suggestion is that we should allow all universities to bid to designate mini-enterprise zones on their campuses. Perhaps not all universities would take that up, but it might fulfil the other Government objective of ensuring that there are more direct outcomes for the economy from universities. It seems to me that there is nothing in the practical definition of an enterprise zone that most universities cannot fulfil.
I suggest that there would be savings to the taxpayer, because universities would not need all the investment that is required for the planned enterprise zones. By their nature, the zones would be incubators for new start-ups that would eventually have to move off campus on reaching a certain size. A mini-enterprise zone on a university campus would therefore create a quicker turnover than the planned enterprise zones. The hypothetical loss in taxes calculated by the Treasury mandarin would therefore be far less, because once a business on a campus got to a certain size, it would feel restricted and would have to move off quicker than those in the planned enterprise zones.
Matthew Hancock
I am interested by my hon. Friend’s proposal. Does he recognise that it is similar in structure to what happened at Stanford in the United States from the 1960s onwards, where the cheap start-up costs for IT firms led to the creation of Google and many other world-beating companies?
Eric Ollerenshaw
I thank my hon. Friend for that intervention. My suggestion is a hybrid scheme for which universities could bid. As part of a technology strategy, the universities could make some money out of the start-up companies through joint ventures with them, which could then be reinvested. I believe that it would cost the taxpayer less in the long run if we just let such zones happen.
To use Lancaster as an example, I can think of two or three innovative businesses on campus that are struggling to find extra funds, but that had to start paying taxes straight away. Just a little bit extra would allow them to move. By the nature of a university campus, the businesses will not be there for ever. By definition, they will have to move on and there will be a swifter turnover.
To put it simply, let 100 university zones bloom. The hon. Member for Blaydon is not in his place, but he would have liked that phrase. There is potential for growth and for new jobs. This could apply to most universities. It would be a simple thing to do, provided that we could get it through the Treasury mandarin.
Mr Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab)
I have listened to this debate with interest. My experience is that the problems that my constituents bring forward for me to deal with are a reliable barometer of what is happening in our economy. At present my constituents are getting it tough—very tough. They are not alone. Earlier this month, The Guardian reported that half a million people will be forced off incapacity benefit. Additionally, child poverty, youth unemployment and fuel poverty have increased and are set to rise further. At the same time, fuel and food prices are rising to unprecedented levels.
Angela Smith
I wonder whether my right hon. Friend feels insulted that, given the seriousness of the debate, no Minister could be present on the Front Bench.
Mr Clarke
The Chancellor likes to hear himself, but I do not see him often when others are speaking.
We are entitled to be extremely worried given that over the past three months unemployment has reached its highest level in 17 years. There are now more women unemployed than at any time since 1988. All of this is a consequence of this Government’s austerity measures—and what improvement has there been as a result of the hardship?
Mr Bain
My right hon. Friend has been a champion of equality since being elected to this House in 1982. I wonder whether he has had an opportunity to consider the report issued by the Institute for Fiscal Studies this morning, which says that one of the biggest drivers of the lift in household incomes has been female employment. How does he believe the cuts announced by the Chancellor in the Budget and the autumn statement will contribute to living standards?
Mr Clarke
My hon. Friend, as usual, makes an interesting and relevant point. I hope to return to it later if time allows.
The Office for Budget Responsibility has forecast that growth will now be lower this year, and for every year until 2014. Unemployment will rise next year and be higher than previously forecast in every year until 2015. Consequently, Government borrowing, which we have heard so much about, is set to be £158 billion higher than was planned a year ago.
The coalition Government’s economic policy is simply not working. When Labour left office, the economy was growing. In the past 12 months, only Greece, Portugal and Cyprus have grown more slowly than Britain. That is not just because of the eurozone crisis. The British recovery was choked off more than a year ago. In the 12 months since the Government’s spending review the UK economy has grown, but by a mere 0.5%, while the EU has grown by an average of 1.4%. Their policy has starved us of growth.
Britain needs sensible public sector projects that will stimulate our economy, so that it is less dependent on a downward spiral of destructive cuts. Instead, the OBR forecasts more than 700,000 public sector job losses as a result of Government measures, and for anyone who remains, a ceiling of 1% is being put on pay rises for the two years following the spending review period.
Youth unemployment has exceeded the 1 million mark, and long-term unemployment among 18 to 24-year-olds is up by a shocking 83% since the start of 2011. What do the Government do in the face of that crisis? They scrap the future jobs fund and introduce three-year work placement subsidies, which will mean just over 53,000 funded jobs—a far smaller number than the 105,000 starts provided by the future jobs fund between October 2009 and March 2011. Those new placements are not even guaranteed. No wonder our young people feel cheated by society. That message certainly comes over to me in my constituency.
If we are not careful there will again be a lost generation of young people—just as there was in the ’80s, Mrs Thatcher’s time—which will lead to broken homes, broken relationships, dashed hopes and broken dreams. I would not for one second condone the riots that took place in England earlier this year, particularly as I am asking the House to reflect on what youth unemployment actually means. Indeed, I am pleased that they did not extend to Scotland. However, it would be naive in the extreme to think that we can continue with the figures and statistics that are a reality in Scotland and not expect young people to articulate their views.
We were first warned about these matters as long ago as during the war, when Sir William Beveridge wrote:
“If full employment is not won and kept, no liberties are secure, for to many they will not seem worth while.”
So what about the poor and people with disabilities? Since 2010 jobseeker’s allowance claimants have risen in the most deprived areas of my constituency—I underline the word “deprived”—from 26.3% to 28.1%, against a UK average of 3.9%. We are asking what the Government’s response will be, because that is a real problem. Additionally, Mencap has found that one in two families with a disabled child live in poverty. The Chancellor is playing with the lives of those people. As they teeter on the breadline, tax credits are being cut, Sure Start centres are closing at an alarming rate and the number of people able to claim disability benefit is being cut.
Jim McGovern
My right hon. Friend may be aware that last Friday, a Spanish wind turbine company called Gamesa abandoned its plans to locate in Dundee, my home city. It is a devastating blow for Dundee and means that a prospective 1,800 jobs will not be created. Does he agree that the UK Government and the Chancellor should work more closely with the devolved Administrations to ensure inward investment throughout the UK?
Mr Clarke
My hon. Friend makes an excellent point, with which I agree.
When it was promised that the coalition Government would protect the most vulnerable from the impact of spending cuts, what part of that commitment did the Chancellor not understand? Instead, the situation of those individuals will only worsen as the Government announce yet more and more cuts to make up for a lack of growth. It does not have to be that way. It should not and need not. The Government could change course and adopt Labour’s plans for jobs, to seek to grow the United Kingdom and take us out of debt. Our people deserve no less.
John Stevenson (Carlisle) (Con)
It is a pleasure to have the opportunity to participate in the debate. I appreciate that it is primarily concerned with the state of the economy at present, and I accept the reality that the economy is likely to dominate our debate and politics for the next few years as we concentrate on improving it and trying to achieve some growth. However, as this is a general debate I thought I would take a slightly different approach. In the short time that I have, I wish to consider what sort of economy I would like to see in the next five or 10 years, and what sort of economy we should aspire to.
Members of all parties want a rich and growing economy that provides quality public services and well-paid jobs. That is clearly our ultimate goal. We therefore need to consider matters such as: the balance between the public and private sector; what level of taxes we should have and what those taxes should be; how much regulation there should be and what we should be regulating; what industries the Government should support and encourage; what the relationship should be between central and local government on economic policy; and what policies on education, training and the like will best support a growing economy. Those are all very big issues in their own right, but I shall concentrate on three general themes.
My first theme is the public sector. The critical starting point for me is that government, whether it be national or local, can and should be a vehicle for good. However, the danger of government being a hindrance is all too obvious. It can become too big, acquire too much debt and an oversize deficit that crowds out wealth-creating sectors, and introduce too much regulation, strangling any innovation. Probably worst of all, officialdom and bureaucracy can become all-powerful and interfering. That has happened to some extent over the past few years, and it is this Government’s job to try to reverse it.
It is vital that over the next few years, we start to rebalance things. I accept that the state has an important role to play, but it should be smaller and more efficient. Government should not try to do everything, it should try to do some things extremely well, particularly the things that the private sector cannot do. The state sector needs to raise its productivity levels, and we must always remember that it is not always about the amount of money that is spent, it is also about how we spend it. We need to create a competitive environment within the public sector wherever possible, and most importantly of all we need to encourage clear leadership and quality management, to maximise freedoms in the public sector so that leaders and managers can perform their jobs to the best of their ability and as efficiently as possible. Those overriding concepts can lead to a much more productive and effective public sector providing better services for the people of this country.
We also have the wealth-creating sector, which must also be a vehicle for good, creating jobs and wealth for our country. Our goal should be to create an environment in which the private sector can flourish, with a sensible tax regime and an appropriate regulatory regime. We need consistent Government policy so that business can plan for the future, and we need to ensure that the Government’s finances are stable. That should be their aim.
We need a balanced economy, but at the same time we must recognise that we have certain strengths as a country, for instance our financial sector, and should play to those strengths where appropriate. The key is to ensure that we have a competitive environment and a skilled and educated work force. Wherever possible, we need to ensure that barriers to entry are kept to a minimum. The prime example is the banking sector, in which organisations are too few and too big. Indeed, we could go on and criticise the accountancy world, in which we have four very large firms. Are they also too big and too few? There is work to be done over the next few years in helping our economy rebalance, creating the right environment for business to grow and ensuring that we have a skilled and educated work force and a competitive market for businesses to compete in.
The final key area on which I wish to reflect is how Britain made its fortune in the past, which was through trade. We are a trading nation and a very open economy, but we appear not to have performed as well as we should. We have a deficit of £100 billion in the trade in goods, so there is clearly a problem. Some 50% of our trade is with Europe, and our main trading partner is Ireland. What about the BRIC countries—Brazil, Russia, India and China? Ten years ago they represented 8% of the world’s GDP. It is now 20%, yet we have only £2 billion-worth of trade with Brazil.
Charlie Elphicke
Does my hon. Friend agree that a key Government priority should be to boost trade with BRIC countries so that we can diversify our economic base internationally?
John Stevenson
I completely agree. Growth is not in Europe but elsewhere in the world, and we should try to increase our trade with the BRIC countries. We need to look at those new markets and rediscover our trading instincts.
I accept that our concern is primarily the state of the economy here and now and in the next 12 months. However, we need to remember to raise our eyes above the horizon and think about what kind of economy we aspire to in five or 10 years’ time, and how we will create it.
Mr Pat McFadden (Wolverhampton South East) (Lab)
I shall use the time available to make a couple of points about the economic challenge facing the country, and in particular about the era of the politics of less. All of us must look to achieve our political and economic aims in an era of lower growth than we have been used to in recent years.
The central feature of the autumn statement last week was the further downgrading of economic forecasts for the short term. The Office for Budget Responsibility downgraded its growth forecast for this year from 2.6% to 0.9% and for next year from 2.8% to 0.7%, and said that by 2015 the economy will be 3.5% or £65 billion smaller than previously forecast. The Financial Times has estimated that the gap between the economic growth trajectory had the recession not happened and where we will be in a few years’ time is 14% of GDP. We are therefore entering an era in which our economy is smaller—and by some projections significantly so—than it would otherwise be. Recovery will be weaker than expected, unemployment will be higher and the economy will be smaller for some years to come.
Mr Denis MacShane (Rotherham) (Lab)
Is my right hon. Friend aware that between 1997 and 2010 the British economy grew by 75%—in other words, that it almost doubled? It has now come to a shuddering stop and is going into reverse. Can he think of any previous historical period in the past 200 years, and not only in the 1970s, when a Conservative Government presided over such an astonishing, shrinking, no-growth economy?
Mr McFadden
I agree with my right hon. Friend that the economic times that we are in should make us reassess what we think of as normal.
The human implications have been laid out by the Institute for Fiscal Studies in its analysis of the impact on households. As was mentioned earlier in the debate, the IFS has shown that the distributional impact of the measures is geared so that the greatest losses come in the lowest-income deciles, and that there are particularly harsh effects on families with children. The shadow Chancellor in his opening speech referred to the impact of the tax credit measures on individual constituencies. The most striking figure for me is that the IFS forecasts that between 2009-10 and 2012-13 there will be a 7.4% fall in real median net household income, which is about the same as the largest fall since records began.
Angela Smith
In the context of what my right hon. Friend says, can it be fair that while £1.2 billion in tax credits for low-income families is taken away, only £300 million extra will be required from the bankers?
Mr McFadden
Anyone who looks at the IFS distributional charts would certainly not judge the impact of the Government’s measures as fair.
The background, therefore, is less disposable income, weaker growth, more unemployment and more borrowing. Against that, it is little wonder that there is such low confidence among families and businesses alike.
The question, therefore, is what to do to promote the economic growth that we so urgently need to create jobs. The Chancellor set out a number of measures in the autumn statement—more lending to small businesses, more spending on infrastructure and so on—to try to boost growth. Some of those individual measures are perfectly sensible and should be welcomed. Of course small businesses want more lending, and more capital spending will create jobs, but the real question is whether those measures will contribute to economic growth.
The OBR has already given its verdict. Paragraph 1.14 of its report states:
“We have not made any material adjustments to our economy forecast on the basis of these policy announcements”,
meaning the ones in the autumn statement. Its verdict is that however worthy the individual measures are, they will not make a material difference to the overall picture. Therefore, if growth will not come from consumer spending because the consumer is being squeezed in the way that the IFS has set out, and if it cannot come from Government expenditure because that is contracting, it must come from trade and investment.
The Government should ask what more they can do to encourage business to invest. My contention is that that is not a matter of putting one or two measures suggested by business lobby groups into such statements. Rather, it is a matter of making a sea change in our thinking of how we get growth in these economic times.
I shall focus on one particular issue on which I have spoken before in the House. Although industry welcomes the change announced on R and D tax credits, there is real concern about why the Chancellor is pressing ahead with his plan for a £3 billion-a-year hit on manufacturing industry through his cuts to capital allowances. It is not enough to argue for enhanced capital allowances in enterprise zones when manufacturing in the economy as a whole is putting up with that £3 billion tax hit. How does it help us to generate a low-carbon economy if the Government make investment in the equipment and machinery that will get us there more expensive through their tax policy? Even the excuse that that is a necessary deficit-reduction measure is not available, because the money is not being used to reduce the deficit; it is being recycled in a give-away to businesses in those sectors of the economy that do not invest, including the very banks that will not lend to manufacturing businesses in the first place.
If we really want to rebalance the economy, our manufacturing tax stance should recognise the shortened lifespan of machinery, help businesses to invest, and ensure that British companies have an incentive to invest and that they are not hindered in their efforts to keep ahead of the game. That is made more urgent by the sharp downgrading last week of the forecast for growth over the next couple of years. That shows that the Government need to be more, not less, ambitious in their plans to promote trade and investment.
We have twice heard Government plans that have been billed as plans for growth, yet at each economic statement, growth has fallen, and it is projected to fall further. If we should have learned one thing in the past three or four years, it is that assumptions of snapping back to so-called normal trend rates of growth have been consistently over-optimistic. These are not normal economic times. The downturn has been longer lasting than we feared and hopeful projections of future growth have a habit of retreating into the middle distance.
My contention, therefore, is that the era of the politics of less poses challenges for us all—Government and Opposition. How do we secure economic efficiency and social justice in an era of lower growth and squeezed household incomes? If the Government’s spending is to continue on a downward path for some years, and if households face the kind of squeeze in their incomes set out by the IFS, the circumstances demand an industry policy on a scale and ambition way beyond what we saw in the autumn statement last week. They demand a resolve from the Government, industry and all levels of education to make the rebalancing that we talk about happen, and to put weight behind those areas where Britain can succeed. The situation demands more than a regional growth fund at half the level of spending of the regional development agencies; more than a tiny fraction of the €5 billion-a-year relief for energy-intensive industries that is available in Germany; and tax policies that support the rebalancing effort rather than pull in the opposite direction.
Matthew Hancock (West Suffolk) (Con)
I shall continue directly from what was said by the right hon. Member for Wolverhampton South East (Mr McFadden). Our country faces very difficult economic times, as does the continent of Europe. In recovering from a debt crisis throughout the west, we face difficult challenges. I listened with great interest to the right hon. Gentleman’s speech. It closely followed the line of argument that was put forward by the right hon. Member for South Shields (David Miliband) in a speech last week. The right hon. Member for Wolverhampton South East recognised the scale of the problem and the need to deal with the deficit. Some of his suggestions were sensible; others I would not follow so closely. None the less, he was engaged in the economic argument. People across the country want to see politicians engaging directly in the economic argument about how we deal with the problem that exists now. I am not talking about the forecast that was set out before the credit crunch in 2007 and before the last election. Incomes are 14% smaller than anticipated, which is a serious problem. Most of the blame rests with the previous Administration, so it is absurd to make party point-scoring interventions on this particular issue. This is an important argument with which to engage, which is why I am so disappointed by the arguments that were put forward by the shadow Chancellor and the Labour party; they completely failed to engage in the seriousness of the economic debate.
I should like to tackle three issues that show just how much the Opposition arguments miss the point. I will not dwell on the fact that the Opposition seem to believe that borrowing is in and of itself a good thing and I will not set out any further than has been set out already the chaos of their euro policy—a policy that was changed from the Dispatch Box in response to an intervention. However, I will set out the complete failure of the Opposition on three specific points.
Karl Turner (Kingston upon Hull East) (Lab)
Before the hon. Gentleman moves on to his next point, will he accept that economic growth was choked off well before the eurozone crisis? Government Members were being warned about the situation by many people. They were even warned by me, and I have very little knowledge of the economy.
Matthew Hancock
I certainly accept that growth and the protection of the economy will be difficult because we are escaping from a debt crisis in which we had the biggest boom and the biggest bust. Certainly there are some very important domestic causes of our problems. The massive boom was funded by borrowing—both by the Government and in the banking sector. I also accept that inflation, and especially commodity price inflation, has had a negative impact on the economy as set out by the OBR. Moreover, the Greek crisis broke in the weekend after Labour had lost the election, but before the coalition was formed. The then Chancellor set out that Britain should participate in bail-outs, a position from which this Government have extricated themselves. The euro crisis certainly has had an impact and it broke in May 2010.
My first specific point is that I have not yet had an answer to a question that I have been posing on TV, on the radio and in this House, which is how can spending more money lead to lower borrowing?
Matthew Hancock
Let me set out my point and then I will take the intervention. The conditions under which that can be true are highly specific so as to be utterly extraordinary. The Lafferites on the right argue that in the case of very high marginal personal taxation rates, they can pay for themselves if they are cut, but there is little evidence of that. Margaret Thatcher said that the problem with the Laffer curve is that one does not know where one is on it.
The idea that spending can lead to a Lafferite consequence—that borrowing is lower because of more spending—has absolutely no force in economic evidence or logic.
Sheila Gilmore
It has more force in economic theory. That was precisely the point that was made during the 1930s and subsequently by Keynes. It was said that the time one should be borrowing is during a recession. We should borrow to build houses, create construction jobs and to keep people in work and not, as this Government are doing, to keep people out of work.
Matthew Hancock
I will come on to that point a little later. That is the argument that is put. The question that has to be answered is how can the extra tax that the Government get from employing people exceed the cost of employment when it is the Government who are paying the tax? It does not make sense.
Matthew Hancock
No, I will make the point in another way. If a person borrows money to employ somebody and then claims that they will get back more than the cost of employing that person through tax and lower unemployment benefits, the Government would have to pay more to themselves in tax than they spend in tax. That cannot be true in logic let alone in economics.
Angie Bray (Ealing Central and Acton) (Con)
Is the point not being missed by the hon. Member for Edinburgh East (Sheila Gilmore)? On this Keynesian argument, a person would have had to be saving during the good times, and that is what was missing from the programme of expenditure of the Labour party.
Matthew Hancock
Keynes himself argued that we need to save in the good times or, as JFK on the left put it, we need to fix the roof when the sun is shining. That argument has no foundation in economic theory or experience. I have a second argument that I want to challenge. It was put this morning by the shadow Chancellor in The Times. He said:
“The argument is whether it is better to be borrowing billions more… or whether action now to get our economy moving will get more people into work paying tax and help to get the deficit down in a fairer way.”
I could not agree with him more. It is better to be taking action now to get our economy moving rather than borrowing billions more, which is the policy of the Labour party. Their position, therefore, is illogical. Their argument is that borrowing is going up. However, the shadow Chancellor was forced to admit after an intervention that borrowing is falling; it is lower this year than last year and it was lower last year than the year before under Labour. It is falling in the OBR’s forecast every year. Labour members may smile, but when their argument is inconsistent with the truth, they know that they are on weak territory.
My final argument concerns the idea that low interest rates are a bad idea. The shadow Chancellor holds both that borrowing is good and that higher interest rates would be better because he has said that low interest rates “are a failure”. I put it to all Members in this House to ask their mortgage-holding constituents and their small businesses whether that is the case. The only conclusion I can come to is that the reason they hold this position is purely political so that they can oppose the cuts.
Angela Smith (Penistone and Stocksbridge) (Lab)
Follow that, as they say.
There is no doubt that the economic news of the past few weeks has been appalling. In last Tuesday’s autumn statement, the Chancellor finally admitted what the shadow Chancellor and many economists had been telling him for months—that the massive gamble that he took in June 2010 has failed.
Last week, the Chancellor announced not plan B but plan A-plus. Over this Parliament, the Government will now have to borrow £158 billion more than they said just 18 months ago. That is despite the pain of cuts worth £40 billion imposed on the economy and tax rises imposed on ordinary families up and down the country.
Angela Smith
It absolutely does explain the scale of it. Let us make real-life sense out of some of these figures. They mean that 700,000 public servants had to be cast aside, 300,000 more than the Chancellor said would lose their jobs just a few months ago. Some £1.2 billion has been taken off tax credits while bankers suffer a mere £300 million increase in the take from their pay packets by the Treasury.
Any pretence of fairness and of our all being in this together went out the window last Tuesday. Ordinary families are taking a massive hit: already more people are unemployed than at any time since 1994—the current figure is 2.6 million—and to make matters worse the number of people out of work for more than a year is 868,000, with the long-term rate for 16 to 24-year-olds standing at a staggering 30%.
Mr McFadden
My hon. Friend refers to the cuts in tax credits in the autumn statement. Since they entered office, the Government have made great play of increasing the incentive to work. How does she think that the incentive to work will be affected by cutting tax credits for low-income families?
Angela Smith
It can only have a regressive impact because it will mean that families are less able to provide for their children and to develop the aspirations that are so important in later life.
One in three young people have been unemployed for more than one year and youth unemployment stands at a staggering 1 million, with the figure for those not in education, employment or training standing at a terrifying 1.2 million. The Government are creating another lost generation similar to the one that they created in the 1980s. Clearly, the Chancellor’s policies are hurting the British people, but they are certainly not working. The young in particular are paying a high price for his failures.
There is worse to come as the OBR now states that, at best, the British economy is set to stagnate next year and the year after, with growth broadly remaining flat. Even worse, if the well-respected OECD is correct, the economy will dip again into recession early next year. The British economy has been stagnating for the past 15 years, and the growth and jobs crisis has its roots firmly planted at No. 10 and No. 11 Downing street. Real incomes are being squeezed like never before, with high inflation and rocketing fuel bills not helped by the Government’s decision to increase VAT in January.
Last week’s statement gave hard-pressed families two more years of austerity, with real median incomes set to fall by 7.8% according to the Institute for Fiscal Studies. That means that real median household incomes will be no higher in 2015-16 than they were in 2002-03 and that we will have suffered the longest period of austerity since the second world war.
The Government inherited an economy that was fragile but nevertheless in growth, yet they gambled that recovery on the basis of tired ideas that have been tried before and found wanting. The right-wing prescription failed in the ’30s and is failing again now, with the consequence that the economy could dive into a double-dip recession. The level of unemployment in Yorkshire is almost twice what it is in the south-east and is growing at twice the rate. It is entirely possible that Yorkshire is already in recession.
The autumn statement did not announce any new resources to be injected into the economy—all it announced was a moving around of the money. It will be families with children who will pay for the back to the future jobs fund—the youth contract—through the £1 billion cut to the child element of family tax credits. If this country is not to face a lost decade, or even worse, we need a strategy for growth, and we need it now. The stakes are high and we urgently need to get people back to work before another generation has to pay the same price as mine for an ideologically driven Government who refuse to learn the lessons of history.
In particular, we need as a starting point Labour’s five-point plan, which would reverse the damaging rise in VAT temporarily and give a one-year national insurance tax break for every small firm that takes on extra workers. And crucially, it would bring forward long-term investment projects for schools, roads and transport to get people back to work. What we do not need is what has been recently proposed: a shopping list of projects here and there paid for by redistributed money. Instead, we need a rigorous, strategically driven investment regime designed to drive long-term economic growth.
In the medium and long term, we need a better economic way forward. On that point, I echo the points made by my hon. Friends. The Thatcher-Reagan consensus is crumbling before our eyes. Will Hutton put it even more starkly in a recent article when he said that
“we are about to experience economic, social and political tectonic plates on the move”.
We desperately need to develop an alternative economic paradigm, which means changing the way our capitalist structures work. We need to go back to making things and to give manufacturing a much bigger role in our economy. We need a capitalism that looks to the long term, not just to short-term profits, and we need a society where reward and risk are shared and where it is understood that the state has a role to play in pioneering and driving strategic investment. And we need to invest in innovation
The Government’s strategy of cutting and hoping that growth will magically reappear is not working now and did not work in the past. The Government are bankrupt of ideas for our future and lack the imagination and the bravery needed to take our country forward to its next phase. These extraordinary days require extraordinary solutions, but the fear is that it could soon be too late for many millions of British families who are paying the price for this out-of-touch, ideologically driven Government who seem determined to follow their chosen course no matter what damage it does to the British economy and to families in this country.
Richard Fuller (Bedford) (Con)
I listened with great interest to the comments of the hon. Member for Penistone and Stocksbridge (Angela Smith), who spoke eloquently about the short-term pain that many families in her constituency and, I am sure, in mine are going through in these difficult economic circumstances. She also rightly pointed to the need for the Government to think about the long term. I hope that she will listen to my observations in the same spirit.
Under the previous Government, the United Kingdom became the most indebted major economy on earth. That was not the fault of the bankers alone, of Government borrowing alone or of companies alone; it was the fault of us all, although led by a Government who were at best asleep at the wheel and at worst systematically undermining our long-term finances for short-term political gain. These problems are so endemic that they cannot possibly be put right in one year, in one term or by one policy.
The absolute core policy that a massively indebted nation must pursue is the maintenance of low interest rates for as long as possible. The McKinsey Global Institute study on debt and deleveraging shows that the UK led the pack of the world’s largest economies in terms of its debt-to-GDP ratio and became increasingly more indebted from the mid-’90s and, in particular, from 2003. From 2000 to 2010, domestic, public and private debt as a percentage of our GDP rose by 182 percentage points to nearly 500% of GDP, making the UK the most indebted of all major economies—even more so than Japan at the end of the period.
Mr MacShane
In the 1930s, interest rates were close to zero, as they were in Japan in the 1990s. Arguably, that increases indebtedness because if people can borrow massively without having to pay serious interest rates, they might run up debts. I am just gently saying that the idea that one factor can explain the problem and that we should focus on that is wrong. We need a holistic approach.
Richard Fuller
The right hon. Gentleman makes a helpful point. It is precisely my point, although unfortunately the shadow Chancellor missed it when he seemed to think that the responsibility of the Government towards debt management was to do with Government debt alone. It is not. The responsibility of the Government is to look at the whole economy. The debt of a nation, whether taken on by the Government, households or companies, has to be repaid by the nation. That is what got so out of control over the past 10 years.
Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)
I assume that in his figures for debt, the hon. Gentleman is talking about secured debt as well as unsecured debt. Did he read the article in the Financial Times about three weeks ago demonstrating that the level of unsecured debt under the Labour Government actually lagged behind economic growth, which means that our boom was not led by unsustainable borrowing?
Richard Fuller
I thank the hon. Gentleman for his intervention. He makes one correct point but draws a false conclusion. It may well be true that unsecured debt did not rise as rapidly as secured household debt under the last, Labour Government, but it is absolutely not true that the last, Labour Government did not preside over one of the most massive increases in debt of any nation on earth.
In response to the right hon. Member for Rotherham (Mr MacShane), let me make four points. The first is about the potentially crushing impact of household mortgage debt. Let us compare a household deciding whether to purchase a house with a mortgage in 1997 with one making that decision in 2007, looking at the loan-to-value ratio and average house prices in those two periods, and ask how much money the average household will lose over the next 25 years because house prices were allowed to rise so much. The answer is that the average household will have £250,000 less to spend—it will be a quarter of a million pounds worse off—in the next 25 years precisely because the last, Labour Government thought that they were creating wealth by making average house prices escalate way out of the range of the average family.
As a Government we need to look at building more houses and regulating mortgage lending to maintain sustainable norms. We need to look—as we are—at simplifying planning controls and removing obstacles standing in the way of house building. At some stage we also need to analyse the impact of the reintroduction of mortgage interest tax relief, should interest rates rise precipitously.
Matthew Hancock
Should we not also consider regulating the overall debt in the economy, as was done until 1997, but then stopped?
Richard Fuller
My hon. Friend makes a good point; indeed, that is also an idea that we should consider.
The other thing that we are leaving the next generation that we need to consider is our pensions liabilities and how to resolve them. The happily titled “Project Armageddon” report from Tullet Prebon shows that the public sector pensions liability is £1.18 trillion, which is almost the same as the published, or “treaty”, Government debt of £1.11 trillion. I do not particularly want to dwell on public sector pensions, but this raises in my mind the way in which we have structured our pensions liabilities—that is, the pay-as-you-go nature of the basic pension scheme—such that we expect the next generation to pay for them rather than paying ourselves. Given that this generation will pass on such significant debts to the next generation in other ways, I have been considering various ways to change how we fund our pensions in this period.
In 2006 the Australian Government established the future fund, with 18 billion Australian dollars of seed capital. The goal was to invest in long-term infrastructure projects with a commercial return in order fully to fund the pension liability of public servants—that is, to move from a pay-as-you-go approach to an essentially self-funding system for public sector pensions. In the autumn statement my right hon. Friend the Chancellor talked about £21 billion of credit easing, which he will put through the banks via the national loan guarantee scheme. Let me suggest to the Minister that instead of putting that £21 billion of credit easing through the banks, perhaps we should create a UK version of the Australian future fund, essentially moving a portion of our pensions liability into what might be termed a hypothecated fund for that purpose. That is one thing that the Government could do that would significantly benefit the future generations that will have to pay off the debts racked up over the past 15 years.
Let me make two observations about job creation. There is nothing worse than people not having work to do when they are seeking it—hon. Members on both sides of the House think that is true. I am very pleased that the Chancellor has said that he will ask the independent pay review bodies to consider how public sector pay can be made more responsive to local labour markets. That would be a far more effective way of addressing wage-price rigidities than calls to scrap the minimum wage or other such measures. It is an issue—I listened to a speech by an Opposition Member about this earlier—that in certain parts in the north of our country, the public sector premium over private sector pay is 20%, whereas in other parts it is much lower, at 4%. In those areas the private sector should not be priced out of the market getting people to work for it because public sector pay is set significantly higher.
In closing, let me also gently suggest to the Minister that, with national insurance contributions at 13.8%, we have a significant tax on jobs. As we look to implement our policy to take the lowest paid out of tax, may I ask him perhaps to consider the national insurance tax on jobs too?
Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)
I will resist the temptation to answer the points made by the previous speaker, the hon. Member for Bedford (Richard Fuller).
The autumn statement last week was the most astonishing litany of failure. The shadow Chancellor described the Chancellor’s view as Panglossian; I myself thought it was more like something from “Alice in Wonderland”. I just cannot see how the situation that the Chancellor inherited 18 months ago—a growing economy, and inflation, unemployment and our debt dropping—was so bad that it had to be destroyed and a set of policies put in place that have done the reverse. Now the Chancellor stands there and says, “This is what is needed. This is what the rest of the world admires and praises us for.” Quite frankly, that bears no resemblance to reality whatever. I cast my mind back to 1997, when the former Prime Minister, then the Chancellor, resisted the temptation when he came into power to overturn everything that the previous Government had done. He kept within the previous Government’s public spending limits for two years, laying the fiscal foundation for 10 years of prosperity. Perhaps the current Chancellor should eat humble pie and look at his example.
When the Chancellor announced his policies, I tried to pick from them the rationale for why they might work. As far as I could see, they were predicated on two assumptions. The first was that we would export our way out of trouble, the second that we would invest domestically to grow the private sector so that it could take the unemployment arising from the public sector. He did not really take into account the fact that in many regions the private sector is dependent on the public sector; indeed, the main thrust behind the surge in our manufacturing exports was because of the weaker pound and the sustained high demand in Europe. At the same time, he failed to co-ordinate the rest of the departmental policies to sustain that. He removed the regional development agencies. He also failed to deal with the banks and enable them to borrow to companies so that they could export, which meant that those companies immediately ran into capacity problems.
Then, of course, the squeeze hit, and confidence—not helped by the apocalyptic economic rhetoric that the Chancellor used to justify his policies—fell, reducing demand from companies to invest more. Now we face the problem of a difficult credit situation from the banking sector alongside low confidence, which means that people do not have the incentive to apply for loans. When I look at the measures in the autumn Budget, I fail to see how that would be addressed.
The Chancellor has introduced a whole set of supply-side measures that are in themselves a recognition of the mistakes he made when he first took office. I refer to things like the bank loan guarantees, which are just an extension of Labour’s enterprise finance guarantee scheme. Then there are the infrastructure commitments, the regional growth fund, which is a poor alternative to the regional development agencies, and the youth jobs measures. These are basically repackaged measures, which the Chancellor claimed when Labour delivered them were one reason why we had this record deficit.
The problem is that the Chancellor is funding these measures out of cuts in current expenditure. We have long-term infrastructure projects, which do not have a short pay-off period; we have credit easing, which is borrowing by another name, and neither bankers nor businesses know how it will work—it will not work unless people feel they can sell the products that come from the extra investment; and we have RGF funding, which is glacial in its progress in tackling unemployment. I have asked the Minister several times how many jobs have been created nearly a year after its first implementation, but he cannot even give me a figure.
What we have at this moment is a set of long-term supply-side projects, which are not in themselves bad—I would support them—but they are funded out of short-term current expenditure at a time when we have the worst possible squeeze on personal expenditure. The real danger is that our capacity to grow in the future will be impaired by the present squeeze because many companies will either shed skilled workers in the meantime or will go under. When we get into a position to grow out, we will not have the capacity to do so. The Office for Budget Responsibility has drawn attention to that very point.
Charlie Elphicke (Dover) (Con)
I am pleased to be the first to welcome you to the Chair, Madam Deputy Speaker. I want to make a few remarks about economic impacts on the households and families that find it the hardest to make ends meet. Some call them the strivers; some call them hard-pressed families; I have even heard them talked about as alarm-clock Britons. Many families with children find it very hard to make ends meet, so it is worth underlining the strong action that the Government have taken to help people in that position.
First and most important of all is keeping interest rates low. I noted with interest the intervention of the shadow Chancellor on the Chancellor to point out, “Well, there is a liquidity trap; interest rates are too low; it is a bad sign; we need higher interest rates.” I think that that will ring very poorly with Britain as a whole. For people who are striving and finding it hard to make ends meet, having to pay higher mortgage interest is not in their interest. The shadow Chancellor and the Labour party are wrong if they are entertaining a policy that is about raising interest rates. That was my understanding of the drift of the shadow Chancellor’s speech. I regret it; I do not think it is the right thing to do. Let us bear in mind that a 1% hike in interest rates would mean £10 billion more in interest payments—about £1,000 extra on the average mortgage. People are finding it hard to make ends meet because of rising global commodity prices and the current difficult situation. Higher mortgage interest rates would be a massively retrograde step. One of this Government’s most important achievements has been to keep interest rates low by providing stability, clarity and a positive deficit reduction plan to get our finances in order. That is helping millions of families up and down the country and millions of businesses with lower interest rates are far better off than they would be otherwise.
The other really important thing is the help the Government are providing with child care. For a long time it has been difficult, particularly in deprived communities like parts of Dover and Deal in my constituency, for joint working parents to juggle child care. The announcement to help those deprived areas with extra help for child care places was one of the most important in the autumn statement.
Sheila Gilmore
At the same time the Government reduced the amount of child care tax credit last year, so far from helping working families, that did exactly the opposite. These provisions for nursery care, though important, are not really a substitute for the kind of costs people face if they want to work.
Charlie Elphicke
I thought that child care tax credits had been protected. Indeed, I believe they are going up £135 next year, so I am not sure that the hon. Lady has that right.
Sheila Gilmore
Like others who have spoken today, the hon. Gentleman is confusing several different issues. The purpose of child care tax credits is to pay the cost of child care. The Government reduced the proportion of the cost that was paid from 80% to 70%. Child tax credits are a completely different entity, and yes, they are being increased. Earlier, the hon. Member for Bristol West (Stephen Williams) suggested that tax credits had not been frozen, but they have been, and that is another hit suffered by working families. It would help if Government Members understood more about the benefit and tax credit system.
Charlie Elphicke
As the hon. Lady well knows, she and I debated the issue at length during the Committee stage of the Welfare Reform Bill. I know that Opposition Members sneer at this, but I think it important that child tax credits are rising by £135 next year. That is a move in the right direction. It is good that the lowest paid in the public sector are being protected from the pay freeze because they are disproportionately women, just as it is good that 1 million people are being taken out of the income tax system because they are disproportionately women. We need more action of that kind. The hon. Lady’s party had 13 years in which to take such action, but, as we know, child poverty sky-rocketed during the last Parliament. At least this Government are trying to take positive action in difficult times.
Hard-working families need to see stable finances, a stable Government and a stable fiscal position, because that is the only way in which we will bring back real growth. If we had continued to pursue the policies of the past, what would have happened to our country? We would have ended up as a basket case, like Greece, Italy, Portugal and Ireland. However, we had a credible plan, and we took firm action to control the deficit and sort out our national finances. We have made tough decisions that hit the least well-off, but also the most well-off. We are all in it together. Everyone is sharing the pain, more or less equally, and I think that that is the right direction of travel for the Government.
Members on the rowdy Opposition Back Bench may not agree with what I am saying, but the figures make it clear to me that we are working to create fairness. For instance, unlike the Opposition, we want to create fairness for motorists. By the end of next year, those who experienced such difficulty as a result of Labour’s fuel duty escalator will save £144 on the cost of filling up the average car by the end of next year. That is an important example of progress. The apprenticeship scheme has also been a real help to our young people after youth unemployment rocketed, particularly under the last Labour Government. [Interruption.]
Madam Deputy Speaker (Dawn Primarolo)
Order. Members do not have to agree with what is being said, but they do have to listen to it, and not continually interrupt.
Charlie Elphicke
Thank you, Madam Deputy Speaker.
In the last Parliament, youth unemployment in the shadow Chancellor’s constituency rose by approaching 150%, whereas in the current Parliament the rise has been much lower. We are having to try to turn around the supertanker to return to our young people the futures that were so disappointingly taken from them by the last Government. We need to look after the younger generation, and allow them hope for a better future.
Let me end by saying a little about what the Government are doing for east Kent. The South East England Development Agency spent £20 million on a business park project and created tarmac, but no buildings and no business park. Money was too often wasted. Now we have a local enterprise partnership that has already created an enterprise zone, which is important to a community that experienced difficulties after Pfizer decided to run down its research in the United Kingdom. That is real progress.
Our area has benefited from massive activism. The fast train service to Deal and Sandwich will help to improve the economic situation, as will the £40 million regional growth fund. I also welcome the £180 million catalyst fund that the Prime Minister announced the other day. Such things are very important. We have seen more economic activism in east Kent in the last year than we have seen in the last decade.
If we can establish the people’s port in Dover, it will give the community a sense of ownership, place and control of their destiny which will have an important impact on their confidence in us. East Kent is so often at the end of the line, a poor relation of the rest of Kent. I hope we can establish the people’s port project, and make it work so that it is a great showcase. If we make it a success, we will be able to hand back confidence and the idea of building a future, and thereby regenerate Dover, making it every bit as good as it can be so that it is once again a jewel in the crown of the nation.
Looking across the piece at what we are doing both nationally and locally in Dover and Deal, we can see that the Government have the right policies at the right time. They are making the difficult decisions that will pay off for us over the next decade or so.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
The plan of the Prime Minister and the Chancellor had been fiscal austerity coupled with an evacuation from the public sector, and it was initially assumed that that plan would by itself provide private sector growth. The plan has clearly failed because of its flawed logic and odd priorities. Under that flawed logic, more spending was planned for Post Office mutualisation than the original English regional growth fund.
Forecast growth has consistently been downgraded, while borrowing has been consistently revised upwards, from £46 billion extra to more than £158 billion extra and rising. While deficit reduction is highlighted by the Prime Minister, private sector growth was assumed, reliant upon foreign consumption at a time of international downturn in all consumption. That international downturn is nowhere more evident than in the eurozone, which the Government are at pains to attack politically at a time when the eurozone needs political union more than ever in order to provide fiscal credibility. Counter-intuitively, however, the Government undermine the required confidence, and in so doing only succeed in bad-mouthing the very export markets we so desperately need to retain in the interim until new market partners are developed.
Not until last week’s autumn statement did we hear an acceptance by the Chancellor that private sector investment requires confidence and a reduction in risk via the injection of public investment. That is either achieved directly by underwriting projects or, as we have seen, by off-balance-sheet lending on an unprecedented scale. That lending is, of course, premised upon Britain’s own position in respect of a now highly likely eurozone bank failure if no political union is established to reinforce fiscal union. The consequences of that will be extraordinarily grave for our financial institutions, given the potential for contagion. What is even more troubling is that the Office for Budget Responsibility believes the effect of the autumn statement’s attempt to rectify this situation is negligible.
The Chancellor will also be aware that the Bank of England has purchased 42% of gilt issuance, owning 30% of total gilt stock. Britain’s interest rates have been made lower as a result. That has been achieved by the independent Bank of England’s purchasing policy, not because of the Chancellor’s fiscal measures. It is interesting to note that this self-given “safe haven status” by the Chancellor has not led to increased international market ownership of British gilts. Indeed, international market ownership of gilts has not changed from 2008 levels.
Quantitative easing is also a reason for that. When the independent Bank of England buys gilts from banks and pension funds, some of the money is re-channelled into the sterling corporate bond market. That is great for the City, sterling and London property investment, but as yet there has been no trickle-down for regional small and medium-sized enterprises or regional high streets despite the much-hailed Project Merlin.
What have been the consequences of the Government’s counter-intuitive policy for manufacturing and industry? I should state that the Government’s aim to address our deteriorating balance of trade in order to create the surpluses we need is admirable. However, our balance of trade has deteriorated in the last 18 months under the Prime Minister’s and Chancellor’s watch. Last month’s Markit and Chartered Institute of Purchasing and Supply index slumped to 47.6, the lowest level since June 2009. Any figure below 50 is usually an early indicator of contraction.
In the EEF’s last quarterly survey of more than 450 manufacturers the growth forecast for 2012 has been cut to 0.9% from 2.5%, a figure it predicted only a few months ago. There is obviously a contraction, and a contraction that prefigures the eurozone crisis. This contraction undermines the Government’s valid ambition to pursue export-led manufacturing growth. There is no manufacturing growth, and also an interim skills mismatch as any private sector manufacturing roles are being supplied with surplus labour from mass public sector redundancies and retail redundancies. In the 1980s there was the cultural phenomenon of mass long-term male unemployment due to a politicised attack upon unionised, largely male, manufacturing sites, and we now face the proposition of mass female unemployment as the public sector and retail sector shed employees, again in the public sector’s case due to a largely anti-trade union, dogmatic narrative mirroring the diatribes from the Conservatives in the 1980s.
Nic Dakin (Scunthorpe) (Lab)
My hon. Friend is giving a powerful analysis of the situation the country faces. Does he agree that we desperately need demand in the economy from somewhere, whereas what he is describing is a situation of contraction, rather than demand to fuel economic growth?
Tom Blenkinsop
My hon. Friend will know the consequences of the policies so far. We have seen massive job haemorrhages at Scunthorpe steelworks, and there was the recent announcement about Llanwern, where nearly 200 steelworkers face unemployment as a result of the mothballing of that site. Another site in Scunthorpe, next door to the steelworks, has decided to move to a short-time working agreement. Those are the consequences of these economic policies.
Culturally and economically, these policies are counter-intuitive to the needs of the economy. We need not just to rebalance the economy per se, but to rebalance structural unemployment, which requires as large an investment as that proposed for the infrastructure. For example, in the steel industry, becoming a waterman—probably the most important job on a blast furnace, involving as it does ensuring that water does not mix with molten steel—requires a minimum of two years’ training. That is a considerable cost for the industry.
Unemployment is predicted to pass 9% next year, according to the “optimistic” estimate of the Office for Budget Responsibility—and at what cost to the Exchequer? Such estimates actually predate the autumn statement, which increased public sector unemployment by 200,000—from 500,000 to more than 710,000. My major concern, as the son of a British expatriate family that sought a future in Qatar during the early 1980s, when the previous Tory Government ratcheted up unemployment on Teesside, is another diaspora of British skilled manufacturing labour moving to other, far-flung nations. The promise of warmer climes and job certainty will be hard to resist for many, especially as a recent Experian study for BBC’s “Newsnight” showed that Redcar and Cleveland, and Middlesbrough are among the top three areas hardest hit by the Chancellor’s autumn statement.
It is not just the public sector cuts. The proximity of the north-east, which has no regional development agency, to Scotland is having severe consequences for our regional economy, as Scotland, which has its own RDA, is absorbing that manufacturing.
Women are losing their jobs at twice the rate that men are, and the Chancellor’s decision to freeze the working tax credit will hit women hard, especially working single mothers. That move, coupled with his decision to claw back money that would have been spent on the child tax credit, will have a significant impact on the well-being of the 36% of single mothers who claim working tax credit, and their families. What will happen to their incentive to work?
Tom Blenkinsop
I thank my hon. Friend for that lovely intervention; it is an early Christmas present, in many ways.
What will be the consequences in benefit payouts to the Exchequer? The OBR tells us that by 2017, we can expect to have lost 710,000 public sector jobs. With 40% of women working in the public sector, making up 65% of the public sector work force, it is not unreasonable to assume that they will bear the brunt of these cuts, which could have potentially disastrous effects on the unemployment rate for women, with private sector growth not providing enough employment to compensate for these job losses.
Currently, 2,133 out of 6,622 Care to Learn claimants are aged 19 or over, including seven claimants each in the boroughs of Middlesbrough, and Redcar and Cleveland. As if young women in further education were not already facing massive financial challenges due to the education maintenance allowance being scrapped, I hear that the Government have recently consulted on the future of Care to Learn funding. These are the social consequences of counter-intuitive economic policies, which only beget further social consequences, further fiscal strain and spiralling social breakdown, without addressing any of the necessary economic rebalancing requirements.
David Rutley (Macclesfield) (Con)
It is an honour to follow the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop), a member of the “rowdy” Bench, perhaps better known as Snow White and what were four grumpy Members.
In the current economic climate rebalancing the economy is a critical task, and I am pleased that the Government are taking urgent action in this direction. We need to create the conditions in which sectors vital to the nation’s growth have the best possible chance of success. Yesterday’s launch of the UK’s strategy for life sciences was an important step in improving the competitiveness of life sciences and pharmaceuticals, which are vital to the UK and to the local economy in Macclesfield, where AstraZeneca employs some 2,000 people. Across the country, those sectors employ about 160,000 people and have a combined turnover of roughly £50 billion.
The launch set out important positive policies for the life sciences sector: it will create new research partnerships with companies such as AstraZeneca to cut the time between the development of new treatments and their application; it will introduce a £180 million catalyst fund for the most promising medical treatments; it will reduce the time for the first recruitment of patients for clinical trials to 70 days from a staggering 600 days; it will ensure that medicines approved by the National Institute for Health and Clinical Excellence are automatically approved for use in hospitals; and it will establish an early access scheme that will allow thousands of seriously ill patients to get access to cutting-edge drugs up to a year earlier than they can now. Those steps will not only help to reaffirm the competitiveness of the UK’s life sciences industry, but will encourage major pharmaceutical businesses to stay based in the UK and materially help to rebalance the economy. But the approach goes further, because it will enable patients who have simply been waiting for far too long for new medicines to get them earlier. The Government are absolutely right to tackle that unacceptable situation.
Our approach is not just about rebalancing the economy, because we need to rebalance our skills set too. There has never been a more important time to prepare a generation of young men and women for a future in business and enterprise.
Charlie Elphicke
Does my hon. Friend agree that apprenticeships have been a real step forward and have made a massive difference to our young people?
David Rutley
I completely agree with my hon. Friend, and I will come on to talk about the impact in Macclesfield, and no doubt in Dover too. Apprenticeships have been a phenomenal step forward.
A crucial priority for us now is getting to grips with reshaping the life chances of millions of young people and helping to improve the long-term economic prospects of the United Kingdom. There is clearly a lot to do. A recent survey of 3,000 parents with children aged 11 and under found that the top career aspirations for their children were: first, being a sports star; secondly, being a pop star; and thirdly, being an actor or actress. Going into business did not even feature in the top 10. More worryingly, those aspirations are increasingly reflected in the subject choices in school, with business-related subjects lagging far behind in the popularity stakes.
Pat Glass (North West Durham) (Lab)
Does the hon. Gentleman believe that the Government’s policy of putting a hierarchy of subjects into their English baccalaureate, so that classical Judaism comes above subjects such as business studies and IT, will help that situation?
David Rutley
It is good to hear that, and the hon. Lady makes an important point. Of course vocational skills are important and, as my hon. Friend the Member for Dover (Charlie Elphicke) was saying, the Government have taken important steps on vocational training. But it is also important to raise academic standards across the board in education, which is why it is vital that the English baccalaureate is being put in place.
To return to the theme that I was discussing, it is vital that employers get confidence in the education being given to our young people; in a recent survey, 70% said that not enough business awareness was demonstrated by school leavers. In June an Ofsted report on business education went further, saying that students taking part in business-related education often had
“only vague ideas about the economy, interest rates and their impact”.
That is clearly concerning and it will be an important spur to addressing business-related subjects in the much-needed national curriculum review in the months and years ahead.
The focus on business education needs to be improved in universities as well. Management, economics and accounting were much less popular than media studies and sociology in 2010, and the growth in media studies—15% over the past five years—continues to outstrip the growth in both management science and economics, the figures for which were 5% and 12% respectively. At a time when companies are crying out for commercial talent, it is troubling that the upcoming generation is not demonstrating an interest in business education, which is clearly growing in other countries.
So how can we begin to address those long-standing trends? Much can be done back at school. That same Ofsted report highlighted the fact that more than a third of schools failed to provide sufficient opportunities for students to engage directly with businesses.
Mrs Chapman
How can the hon. Gentleman possibly square that point with the dramatic nose-dive this year in applications for education from kids in the north-east post-16? What does he put that down to?
David Rutley
I am not familiar with circumstances in the north-east; I am making the point that too few students want a career in business because until now they have not had the right education, and we need to get them back on to a better path. [Interruption.] Apprenticeships are clearly one of the ways forward.
One of the key things we have to do is expose young people to more local business leaders. We have to get those people into the classroom to make the case for business, and we have to make sure that they provide positive role models. Work experience programmes go further, acting as an important way of helping children to apply and develop skills learned in school. In Cheshire, Bentley has created a successful work experience scheme with local schools; more than 850 pupils have gone through the programme over the last five years. We need more such schemes. KPMG, Tesco, Morrisons and others are starting to sponsor students at university. More needs to be done to engage businesses at university level.
As my hon. Friend the Member for Dover pointed out, it is vital to look at alternative ways for young people to get business skills. Apprenticeships are one of those ways, and we are seeing real success not just in shop floor disciplines but across a wider range of business skills, such as accounting apprenticeships. Macclesfield college is working with Elior, a French catering group, achieving real success not just for the business but for the young people involved. The Government are doing well in putting forward the case for apprenticeships, and I commend them.
Although it is vital to rebalance the economy and our skills base, the most important thing we need to do in the long term is to rebalance and raise the ambitions of future generations. I encourage the Government in those efforts.
Mr Michael Meacher (Oldham West and Royton) (Lab)
There is a paradox at the centre of the autumn statement that makes it self-defeating. The statement was widely touted as a growth Budget, but it is the opposite. The infrastructure plans relate to the medium-term future, on a three to 10-year time scale, but even if they materialise they are not the stimulus that is urgently needed now. Pension funds will certainly not invest in infrastructure unless the Government fully underwrite the risk, in which case it will be registered in the national accounts as a potential increase in expenditure and thus a rise in indebtedness. The paradox is that even to achieve that “smoke and mirrors” impression of growth the Chancellor is such a deficit fetishist that he has been obliged to tell the markets that there is no increase in spending at all, and everything has been funded by cutting spending elsewhere.
Significantly, the Chancellor has chosen to make those cuts by hitting the poorest hardest. Of the £1.2 billion child tax credit and working tax credit savings over the next year, 32%—nearly a third—will come from the poorest fifth but only 6% from the richest fifth, yet the poorest are precisely the segment of our population that is by far the most likely to spend and thus to stimulate growth. Reducing that source of growth in favour of will-o’-the-wisp infrastructure plans in the medium-term future is a pretty silly policy. It is certainly perverse and anti-growth.
The biggest problem facing Britain is not indebtedness, but the lack of aggregate demand. Everyone recognises that except our myopic Chancellor. In the 1930s, John Maynard Keynes said that if we look after unemployment, the budget will look after itself. Exactly the same thing applies today. Christine Lagarde, the head of the International Monetary Fund, warns that if all countries deleverage at the same time, it will be economic suicide. It is absurd to imagine that the markets would not accept some modest loosening of the monetary targets if it was likely to produce a serious prospect of growth; indeed, they would welcome that.
Of course we have constantly heard the Chancellor’s refrain against this argument, his canard that any increase in public expenditure will push up interest rates, threaten the precious triple A rating and cost Britain more, but he does not have to increase public borrowing to kick-start growth. There are two sources of funding that he could draw on at no risk from the markets whatsoever. One is to require the super-rich to make a fair contribution to the Exchequer at a time of crisis for the country. At present they are contributing next to nothing.
In the past year, according to the IFS, the income of the bottom 10th of the population rose by 0.1%. The income of the directors of the top FTSE 100 companies rose by 49%. That is just about 500 times as much. It is time those latter people and the financial and corporate elite of which they are such a part made a fair contribution.
Jim Shannon (Strangford) (DUP)
The right hon. Gentleman has clearly identified those at the top of the earnings scale, but at the bottom of the earnings scale are the long-term unemployed. Does he accept the concern of many in the House that the long-term unemployed are not looked after, and that there seems to be little regard for them?
Mr Meacher
Indeed. I very much support that point, and I shall come on to it later, if the hon. Gentleman allows me to make my argument.
I draw the attention of the House to the point that I was making. The latest version of The Sunday Times rich list, published in May, shows that in the 1990s the 1,000 richest people in this country—0.003% of the population, a tiny number of people—had assets of £99 billion, which by 2010 had more than tripled to £335 billion. That is truly staggering. It means that those 1,000 persons alone could pay off the entire budget deficit with just half of the gains that they have made over that period. So not to make the ultra-rich pay down a significant part of the deficit, which they themselves have largely created, is perverse, unjust and wilfully prejudiced.
There is a second source of funding that the Chancellor could and should, with no net increase in expenditure, use in order to resuscitate growth. Here I come to the point to which the hon. Member for Strangford (Jim Shannon) drew attention. It costs £8 billion to £10 billion every year to keep a million people on the dole. Instead of letting them rot on the dole, the Chancellor could create, with the same amount of money and no net increase in borrowing at all, up to 500,000 jobs to begin the house building, the energy and transport infrastructure improvement, and the development of the new green digital economy—all the things that the country so desperately needs.
The Chancellor would then have a triple whammy. He would reduce joblessness by a fifth, he would get income tax and national insurance contributions and he would get VAT, all by having people working rather than drawing benefits. He could well get Britain moving again. That is what the Labour party stands for, and it is about time the Chancellor, who has wreaked such devastation, caught on to a plan that will reduce the deficit fairly and sustainably and finally produce some growth in this country.
Madam Deputy Speaker (Dawn Primarolo)
Order. There are still seven speakers who wish to contribute to the debate, so I am reducing the time limit to five minutes each. I ask each Member to pay attention to the clock, and to colleagues in the Chamber, so that they stand some chance of getting into the debate today. That is five minutes, starting with Mr Steve Baker.
Steve Baker (Wycombe) (Con)
As I rise to speak I am reminded of a quotation from an economist who was a fierce critic of Keynes, a chap called Henry Hazlitt, who said:
“Today is already the tomorrow which the bad economist yesterday urged us to ignore.”
We have heard today some moving accounts of individual and collective suffering in different regions of the country and among different sections of the public. We should be asking ourselves why, oh why, have we been delivered into this misery, which looks as if it will extend over years. Much of the conversation we have heard has been along the lines of aggregates, coarse economic aggregates, and has tended to stray away from individual choices and consequences. We have talked about markets in the abstract, and it is a pity that we seem to have forgotten that markets are a social phenomenon, and that they are about people co-operating. When we talk about markets, we tend to imagine overpaid people, high-frequency trading and those who add nothing to society.
I am reminded of something a constituent said to me recently after hearing a Minister’s speech. He asked, “Why is it that everything always seems to get harder for the working man, whoever is in power?” Indeed, in my constituency unemployment is up by 6.3% among the over-50s, up by 9.5% among those aged 25 to 49 and, scandalously, up by 23% among the young. We have heard that child poverty increased by 200,000 under the previous Government and that it is likely to increase by up to 100,000 under this Government. In the 21st century, that should not be our economic position.
Why are we in this debt crisis? I have just checked the M4 money supply figures—I am sorry to return to aggregates, but needs must. When Labour came to power the money supply was about £700 billion and it is now about £2.1 trillion, so it has tripled over the past 14 years. Unfortunately, most economists talk about money flowing into the economy as if it were water poured into a tank that found its own level immediately, but what if it is like treacle or honey? What if it builds up in piles when poured into the economy and takes a while to spread out? What if that money was loaned into existence in response to individual choices led by the excessively low interest rates pushed by the central bank? What if it was loaned into existence in particular sectors, such as the housing sector, where prices have more than doubled over the same period, and what if it was the financial sector that received the benefit of that new money first? Would that not explain why financiers and bankers are so much wealthier than everyone else, and why economic activity and wealth has been reorientated towards the south-east?
Unfortunately, the idea that money takes some time to move around the economy is lost on most economists, which I very much regret. Why did most economists not see the crisis coming? I put it to the House that it is because their theories of credit are mistaken. They make fundamental errors. Unfortunately I do not have time to go into that, but the fundamental point is that credit is a choice to consume more now and less later. It is about the exchange of present goods for future goods, and co-ordinating the economy through time, and I am afraid that the current intellectual mainstream in economics has dropped us into this desperate mess.
Opposition Members criticise the Thatcher and Reagan years. I think that there was much to applaud in those years, but unfortunately their intellectual underpinning was monetarism, which, like Keynesianism, is infected with those dreadful mistakes. People in the Occupy movement, and our constituents, are right to question the justice of our economic processes. The hon. Member for Penistone and Stocksbridge (Angela Smith) said earlier that the system cannot endure, and I am inclined to agree. I agree that the current debt-based and—I am afraid to say—statist system cannot endure. However, if this system is not to endure, which way should it fall? Humanity tried the statist direction in the past and it led to misery and murder. I stand for free markets and free co-operation, but I say this to the House: if this is capitalism, I am not a capitalist.
Chris Evans (Islwyn) (Lab/Co-op)
We have heard the name of John Maynard Keynes again in this debate. My favourite Keynes quotation is the one in which he says that there comes a time when every Government have to indulge in “ruthless truth-telling”, and it is time that this House stopped acting like Nero when Rome was burning.
We stand on the edge of the abyss, and we have a eurozone crisis that is not being solved. Nothing seems to be happening. Greece is on the point of defaulting, it could exit the euro and it could be quickly followed by Spain, Portugal and, even, Italy. Yes, we might say, “We’re not in the euro: we’re little Britain; they can’t touch us,” but the key thing is that their bonds are held by British banks, and British banks will have to bail them out once again.
We have to ask ourselves, “Are we going to stand back and allow ourselves to sleepwalk into another financial crisis, or are we going to heed the warnings and do something about it?” Last week, when we had the autumn statement, the headlines were that the OBR had downgraded its forecasts, but what worried me more than anything, and what was not said anywhere or by anybody in the House, was that the OBR could not quantify what a crisis in the eurozone would do to the British economy. The best economists in the Bank of England could not even quantify or say what disaster might befall us if there were a euro crisis, and to me that is very concerning.
There comes a time with every Government when they have to put ideology aside. When Labour nationalised the banks, it did not do so because of ideology; nationalisation was 30 years ago and belonged to the past. It did so because nationalisation was a necessity and a practicality, so now, as we face the crisis in the eurozone, we have to put ideology aside, see what the practicalities are and put them into practice. It calls for the type of bravery that is rarely seen in this House, but, if we had to nationalise the Bank of England and bail out the high street banks again, we would be saying to our constituents, “If you have the dream and the hope of setting up a business, it ain’t gonna happen, because the banks are going to be even more cautious about lending to you,” and, “If you have a mortgage, you’re not going to be able to move it on to a lower interest rate, because the banks are not going to take that risk again.”
The problem is that, with every crisis, every politician will stand up and say, “Oh, it’s never gonna happen again. It won’t happen on my watch.” Even the Chancellor has said, “It won’t happen again. No, not while I’m Chancellor—no it can’t,” but the truth is that it can, because we have not learned the lessons of the previous financial crisis.
In my speech, I wanted to analyse the legislation that affects banking, so I looked, researched and went to the Library, but I could not find any. There was none at all, so we are facing another crisis with the same banking practices and with a Government unwilling to do anything.
One thing on which I agree with Keynes is that, “During a recession you do not raise taxes.” But what have the Government gone and done? They have put VAT up. It is all very well saying, “We’re going to create jobs,” but, if someone needs to drive to work and they are paying £1.33 for petrol and £1.41 for diesel, they might find it difficult to do so. If they are shopping and find that the price of their shopping basket has increased by 5% in the past year, they might not be able to afford food. Those are the decisions that people face.
I wish I had more time, but I will say this: the Government have an opportunity to do something. We need to look at skills and education, and to have a grown-up, adult conversation, asking, “Why are our young people leaving school not equipped to go into work?” I talk to people in my constituency with apprenticeship schemes, and they say that the kids are not prepared, so let us have an adult conversation and ask, “Why are they not prepared? What is wrong with the education system?”
The final point that we need to look at is tax reform. It is all very well the Government giving people a 1p cut in corporation tax, but when I speak to the small business man I find the thing that concerns him more is red tape. He asks me, “When I have a micro-business, why do I have to employ an accountant? Why can’t I have a simplistic tax form to fill in?” I wish I had more time to develop those arguments, Madam Deputy Speaker, but I will sit down now.
Harriett Baldwin (West Worcestershire) (Con)
How can I follow the wonderful, lilting oratory from the hon. Member for Islwyn (Chris Evans)?
It is very difficult to turn round a supertanker. The supertanker that my right hon. Friend the Chancellor inherited was weighed down by the lead weight of having to pay out £120 million a day in interest and artificially inflated by a Government who were spending more than they were taking in, so that, in effect, £1 out of every £4 spent was borrowed. There was a very challenging situation when the Chancellor took the steering wheel of the supertanker, and we need a significant process of change to alter its direction towards one where we have a much healthier public sector financial position and where the private sector is able to continue its process of growth. [Interruption.]
Madam Deputy Speaker (Dawn Primarolo)
Order. I am sorry to interrupt the hon. Lady. If Members want to have private conversations, they should leave the Chamber. If they are in the Chamber, they are taking part in the debate and they will listen to the person who is speaking.
Harriett Baldwin
Thank you, Madam Deputy Speaker.
I want to feed back to those on the Treasury Bench some of my constituents’ reactions to the decisions that the Chancellor announced last week in his autumn statement as regards the process of steering the supertanker. Those decisions were taken very much with a view to his understanding their impact on household budgets. Businesses and drivers in my constituency have welcomed the fact that the increase in fuel duty promised for January is not going to happen. Following the victory in Libya and acknowledged slower economic growth, they were expecting the price of oil to fall and the price of petrol and diesel at the pump to decline, but it has not. The increase in January would be extremely unwelcome for them.
My constituency has a very high percentage of people over pension age, who, needless to say, welcome the fact that they are to receive the largest cash increase in the state pension in history. They also welcome the Chancellor’s decision to allow councils to freeze the council tax for a further year, because for those who are on fixed incomes or receiving modest pay increases, not having to suffer that increase in their council tax is another significant help to their household budgets.
For the many small businesses in my constituency, the fact that the small business rate relief is to be extended until April 2013 is very welcome. The new initiative whereby larger businesses can defer some of the rate increase by 60% for two years will also greatly help businesses with their cashflows.
On the credit easing measures, I would like to draw the Chamber’s attention to an innovative idea in my constituency called ThinCats.com—presumably the opposite of FatCats.com. People can put their savings to work with ThinCats.com and it will lend the money out for them. It is one of the credit circles that are becoming increasingly popular. Credit easing is another way in which we will be able to get the benefit of lower interest rates into our business sector to allow businesses to receive help with their cashflow.
Finally, let me mention my concerns about the whirlpool that is offshore of the supertanker in the eurozone. The three possible outcomes that could occur are an underwriting of eurobonds, a break-up of the entire currency union, or the current uncertainty as we jolt from summit to summit with great promises and then huge disappointment. Of those, the current situation causes the worst damage to business confidence in my constituency. I therefore urge Ministers, as they go into these negotiations, to try to steer them towards one of those two alternative outcomes, which would provide some of the monetary stimulus that the eurozone needs and thereby a resolution of the current situation, which is the worst of all possible worlds.
Mr William Bain (Glasgow North East) (Lab)
Thank you, Madam Deputy Speaker, for calling me to speak in this extremely important debate.
The huge error made by the Chancellor on assuming office last year was to mistake a global crisis of demand, growth and jobs for one purely of debt and deficit. He launched a grand experiment of so-called expansionary fiscal contraction, which he must now admit has been the most disastrous episode in British fiscal policy since the 1930s.
The Chancellor took an economy recovering at an annualised rate of 2.1% at the end of the previous Government’s period in office and turned it into an economy with flatlining growth. This autumn, our rate of growth stands as the fifth lowest in the EU according to the European Commission and is lower than the eurozone average. The National Institute of Economic and Social Research has said that this is the slowest recovery from recession in Britain in a century. In the great recession of the 1930s, it took just 48 months to rebuild the lost output in the economy. Under this Chancellor, it will be 69 months and counting. Even taking into account the measures announced by the Government last week, the OBR has downgraded growth for the fourth time since its initial forecasts last June. Growth is now 0.8% lower this year and a whopping 1.8% lower next year than in the previous March forecasts.
The burden is not being shouldered by the Chancellor, nor by the rich and powerful in society. It is being paid by women working part time to help support their families. It is being paid by children facing lower living standards than the generation before them. Above all, it is being paid by the poor, with the number of people in food poverty in this country approaching 4 million, and by the unemployed, with the number of young jobless now more than a million.
The respected Fraser of Allander Institute has said in its latest commentary that there is still some scope for fiscal easing without damaging our fiscal credibility in the long term. As Tony Dolphin of the Institute for Public Policy Research wrote last week in relation to the Government’s fiscal consolidation plan and its impact on bond yields:
“If it had started with a plan that reduced the deficit more slowly—say over six years rather than four—yields would probably be little different from current levels now.”
What is particularly worrying is that the same austerity medicine is being applied in many other EU countries with similar results.
The Chancellor’s growth strategy is now predicated on maintaining loose monetary policy indefinitely, with ever higher levels of quantitative easing, a policy he once derided as
“the last resort of desperate governments”
whose other economic policies had failed. As the experience in the 1990s shows, low interest rates in themselves are insufficient to generate new demand. Japan has net debt of more than 200% of GDP, but even lower bond yields than the UK. As the Japanese economist Richard Koo recently said of austerity economics in an interview with Money magazine in the United States:
“The Japanese made a horrendous mistake in 1997.”
He explained that
“The cutback caused a second recession… The Japanese Government didn’t do enough spending in the early 1990s and added another 10 years to the problem.”
It is precisely that thinking that underpins what the Chancellor is doing today.
The Government are ignoring four basic realities about our economy. The first is that living standards for families with working-age parents are being squeezed to levels last seen in the 1920s, amid slumping consumer confidence, slumping demand and weak retail sales. The second is that supply-side reforms are needed to stimulate growth in manufacturing and construction. In particular, a national investment bank could produce the borrowing capital needed to kick-start new investment in the green economy. The third is that mass unemployment creates massive social costs and unrest, and devastates lives, which ends up placing a higher burden on future taxpayers. That is the price of economic failure. Finally, we need to build an economy in which those on low and middle incomes share more of the proceeds of growth than they have over the past three decades.
The country is crying out for a fair alternative to this failed Tory plan that is sucking demand from our economy, and hope and life from our communities. Our country deserves better leadership and a more optimistic vision of the future than that which has been offered by the downgraded Chancellor of this deflationary Government.
Mr Tobias Ellwood (Bournemouth East) (Con)
It is a pleasure to participate in this important debate. I hope that the usual channels will recognise the demand for and interest in it and perhaps provide more time in future.
I begin with a challenge to the Labour party about the observations made in the report by the Office for Budget Responsibility. I very much welcome the existence of that body and its report. If the Opposition accept the figures in the report, they must also pay heed to its analysis. I believe they have accepted the numbers, but not the reality behind them. The OBR does not predict a recession here in Britain, according to page 15 of the report, but there is a caveat that has been stressed by Members of all parties about what is going to happen in the eurozone. It is hoped that the right decisions will be made to bring confidence back to that area.
The report provides three reasons why the OBR has had to provide an updated position. The first is rising commodity and food prices, the second is that the scale of the boom and bust under the last Government had a greater impact on the economy than previously thought, and the third is that the euro crisis has increased instability and uncertainty, which has affected household and business spending.
There is also uncertainty about the liquidity of Europe’s banks, which a number of Members have mentioned. There is an irony there, because in 2008-09 it was Governments who were bailing out the banks, but today the banks are called upon to buy bonds and bail out Governments. However, many banks across Europe are unable to do that. They are desperately trying to repair their exposure to the debt, and bond issuance across Europe is actually dropping. In the past six months, just €17 billion was traded, compared with €120 billion in the same period in the previous year. Big decisions need to be taken about the role of the European Central Bank, eurobonds and so on if we are to create the stability that is required.
I am grateful that our Government are in a different position from others, because they acted to keep the deficit down, cut the size of the public sector and help the private sector to grow through active enterprise policies and a reduction in corporation tax. They also took difficult decisions about universities and tuition fees, to ensure that we remain competitive in the long term.
I turn briefly, in the very short time that I have, to the economic growth figures as measured by GDP. The shadow Chancellor is keen on suggesting that the economy is flatlining. He uses funny gestures to say so—I wish he would stop them, because he looks a little bit like a cross between a lazy cricket umpire and Mr Tickle. I do not believe he understands the difference between the economy flatlining and growth. It is like the difference between velocity and acceleration—if someone jumps out of a plane, they fall at 9.98 metres per second squared. That number does not change, but as anyone who has done it knows, they do accelerate. It is the same with economic growth. The economy is growing year on year, as long as the figure is above zero. Labour need to recognise that. If they accept the figures in the OBR report, they must also accept that the outlook is that we can expect to see growth of up to 3% by 2015. If the Opposition say the economy is flatlining, are they saying that China’s economy is flatlining with a growth level of 10%? Of course it is not; it is growing year on year.
My final point is about the national debt and the responsibility that the last Government ignored. That is the public sector net borrowing requirement—the difference between what we raise in tax receipts and what we spend on all the Government Departments. In Labour’s last year in office, the Government put £513 billion into the pot but took £670 billion out, leading to a deficit of £157 billion. That was just one year. In 2002, the books balanced and there was not a problem, but the year after they borrowed £19 billion, and then it went up to £30 billion. Year after year, they accumulated a massive debt, which led us to the position that we are in at the moment.
It was not until this Government came to power that we said, “Stop. We cannot keep adding to this debt crisis.” By the time the election took place, we were perilously close to losing our triple A rating, and we inherited the highest structural deficit of any major economy in the world. I am very pleased that we have got a grip on the economy now. Many quotations have been given in the debate, and I will give one final one, from Margaret Thatcher, who said that sooner or later, every Labour Government run out of UK taxpayers’ money to spend. That is clearly what happened under the last Government.
Sheila Gilmore (Edinburgh East) (Lab)
This debate is not about denying the deficit, and nor is it about never reducing public spending: it is about if and how we reduce the deficit and how we use public investment to grow the economy.
I intervened on the Chancellor earlier in this debate and asked the Chief Secretary to the Treasury a question at Question Time because they ignored an important part of the OBR report, which they have quoted extensively—indeed, the Chief Secretary is still ignoring this point. He argued that we do not have growth because the OBR discovered that the recession was deeper than previously thought. However, the OBR also said that the recovery had been quicker and stronger in 2009 than previously thought and that the decline in growth came in the latter part of 2010.
That is when the famous oil tanker that people have talked about threw out its anchors and started moving backwards. The 2009 recovery did not happen by accident or because the sun was shining; it happened because the previous Government took steps to stimulate the economy. Such steps can be taken. It is not true, as has been argued, that if we simply use Government money, we will never pay off the debt.
The National Housing Federation, which represents housing associations, has made a small but helpful suggestion. It says that if the Government put £1 billion towards shared-ownership housing, the housing association sector could put £8 billion towards it. That would grow 400,000 jobs and build the 66,000 shared-ownership houses that are hugely needed by many low-income families, and at the same time reduce spending on jobseeker’s allowance and housing benefit. Many who would live in shared-ownership houses would previously have lived in high-rent private sector housing, which causes the housing benefit bill, which the Government say they are worried about, to escalate.
That is just one small example. When we create jobs in that way, we create not just that one job. It is not a question of saying, “We spent all that money creating those jobs. Okay, those people will pay more tax and will not be on benefit, but that is not growing the economy.” Those people exist within local communities. If people have jobs and incomes, they will buy goods from other businesses.
It is no accident that many of the businesses in difficulty during the recession and after are related to the housing world. I know of one firm in Edinburgh that not only sold furniture but built it. The furniture-building side of the business has closed because the market has declined. People are not buying houses and they are not moving into new ones or redecorating, and they are not buying furniture.
Mr Speaker
Order. It is the height of discourtesy for an hon. Gentleman, who has just made a speech in the debate and who is fortunate to have done so, then to sit there, wittering away at other Members, completely ignoring another hon. Member on her feet. That hon. Gentleman should be thoroughly ashamed of his behaviour.
Sheila Gilmore
The ongoing effect of creating construction jobs would ripple far beyond the jobs themselves. That is what we mean by investing to grow the economy. We will not always borrow money for such things, but if we borrow on a short-term basis, we would still be borrowing for a purpose. Borrowing is not always bad. Many Government Members and others bemoan the fact that small businesses cannot borrow to expand. The Government can quite legitimately borrow to grow the economy. That is what we should be doing, but we have not been doing it for the past 18 months.
Sammy Wilson
There is an additional ingredient that is needed in the hon. Lady’s proposal. Not only do the Government need to borrow, but banks need to be willing to lend to people the mortgage side of the purchase of the house so that the shared ownership can be effective.
Sheila Gilmore
Indeed. Despite the fact that the Chancellor has assured us that he has entered into arrangements with the banks so that they would provide loans, we still have this mystery of why that has not been happening. If we do not do these things, we will see ourselves going further and further into decline. What the previous Government did to help us climb out of recession is worth repeating. That is why we are urging this Government to invest, to grow and to spend the money that is needed to get people back to work. We are talking about real people and real jobs that can be created. We should not be placing families in such hardship. Those who think that because we have high-end restaurants expanding in central London the economy is doing okay should move themselves out of central London and see the real world.
Nic Dakin (Scunthorpe) (Lab)
I thank you, Mr Speaker, for calling me to contribute towards the end of this debate. I have had the privilege of hearing much of the debate. What has struck me is the unanimity on all sides of this Chamber that the Government’s policies are hurting people in the world outside. The question is whether the policies are working. My constituents and constituents across the country want to know whether the policies are right and whether they are working. At the moment, the early indications are that they are certainly not working according to the plans that were set out by the Government 18 months ago. We have youth unemployment above 1 million and women’s unemployment at the highest ever level. The borrowing figures are £158 billion higher than expected to pay for unemployment and benefits, and not to pay for investment or jobs. At this mid-term point of the Government, that does not appear to be a positive step forward.
Businesses across the country are struggling. In my own constituency of Scunthorpe, an agreement was reached between the trade unions and the management at Caparo Merchant Bar to close early for the Christmas period so that the company can better reshape itself for the challenges of 2012. The demand for global steel is very low, which is causing a great challenge for steel companies in my constituency.
One of the arguments that concerns me is that the public and private sectors are somehow different. The public sector carries an element of risk while the private sector provides innovation and drive and those two sectors need each other. A local businessman said to me, “What we need, Nic, is demand in the economy. We need things done that drive demand.” I welcome the infrastructure projects that were outlined in the Chancellor’s autumn statement. Frankly, those projects should have been in place 18 months ago. It is not a matter of too little, too late but that there should be more. Consumer confidence is at an all-time low and dropping, and that is of great concern.
I want to focus on individuals because they are at the heart of this. A police officer in my constituency wrote to me, drawing my attention to the threats to his pay, his conditions of service and his pension. In a heartfelt way, he asked, “How much more pain do we have to suffer and how much more money does my family have to lose before enough is enough?” We should be listening to the words of the people out there. We owe them a stimulus and a direction forward and we should deliver them today.
Chi Onwurah (Newcastle upon Tyne Central) (Lab)
Last year the Chancellor boasted, with barely contained glee, that it would be necessary to make cuts deeper and faster than any Chancellor in history in order to clear the deficit in four years. In the process, we were told that the private sector would be freed, that the economy would soar forth just in time for general election tax cuts and that we would all be in it together.
One week ago, the Chancellor came to this place to admit that growth had flatlined, that he would be borrowing £158 billion more than forecast, that further cuts had to be made and that the deficit would still be there at the next election. And it certainly does not feel like we are all in this together, as many of my right hon. and hon. Friends have said this evening—not when there are 1 million unemployed young people, not when two thirds of the cuts are being borne by women and not when manufacturing, the regions, education and innovation are all suffering.
This has been a lively and, at times, passionate debate, and there have been many excellent contributions. I am only sorry that I do not have the time to mention all my hon. Friends who have spoken so eloquently. I shall only mention my hon. Friends the Members for Blaydon (Mr Anderson), for Bishop Auckland (Helen Goodman), for Birmingham, Hall Green (Mr Godsiff), for Middlesbrough South and East Cleveland (Tom Blenkinsop), my right hon. Friend the Member for Oldham West and Royton (Mr Meacher), my hon. Friends the Members for Islwyn (Chris Evans) and for Glasgow North East (Mr Bain) and my right hon. Friend the Member for Coatbridge, Chryston and Bellshill (Mr Clarke), who explained with passion and determination how the pain being experienced in their constituencies was but inadequately matched by the dry, outdated ideological dogma of too many on the Government Benches. [Interruption.] Yes, and we see it again this evening.
One week ago, the Chancellor came among us neither cowed nor humbled, and although his policies were discredited, he delivered a lecture and a series of ad hoc announcements but no proper plan for growth. Rather, he seems to think that if he talks about it, it will happen. But what we needed from him last week was a proper plan B. We need a short-term plan to kick-start the economy and create jobs such as—now let me think—Labour’s five-point plan for jobs and growth: a tax on bank bonuses to fund up to 100,000 jobs for young people; genuine long-term investment in infrastructure such as roads and schools; a temporary VAT cut giving families with children a boost of about £450 a year—[Interruption.] Government Members may laugh but that is a lot of money in my constituency. The plan also includes a year-long cut in VAT to 5% on home improvements and repairs to help small business; and tax breaks for small businesses to take on extra workers. It is a very good plan.
As well as a short-term kick-start, however, we need a long-term strategy, a vision for the future of the economy. On “Newsnight” on the evening of the autumn statement, Lord Heseltine claimed that it was the beginning of an industrial policy. I fear that he might have to explain to the Chancellor what an industrial policy is. Indeed, he should probably explain what an industry is—and, while he is at it, perhaps he should explain that to the Business Secretary too. Both are ideologically opposed to using active government to ensure that industry has the environment it needs to flourish. Both fail to recognise that we need a long-term vision for an economy that is competitive, resilient and fair, and that we need strategies to promote those sectors in which we have a competitive advantage and where businesses pursue long-term, inclusive and socially responsive strategies for the good of themselves and the rest of us.
Let us look at how the key drivers of our economy are doing under this Government. Lee Hopley, the chief executive of a manufacturing employers group, says that
“short-term confidence has all but fallen away”.
That is why this week the manufacturing sector cut its growth forecast to 0.9%, down from 2.2% just three months ago. And still the Government talk about a manufacturing-led export-driven recovery! Today the Deputy Prime Minister was busy announcing an extra round of the regional growth fund. We support its aims; in fact, they are similar to those of the regional development agencies, except that its fund is only half what theirs was, and it is controlled from Whitehall, not the regions, where it belongs. As of today, just a quarter of the successful bidders in round one have received their money. There can be no better example of the Government’s inept and out-of-touch approach to regional growth.
Let us look at higher education. Universities—the centres of knowledge and ideas—should be the drivers of both growth and social mobility. In 2009, the sector contributed £7.9 billion to the economy. In 2008, the higher education sector created almost 700,000 jobs. It is our seventh largest export industry, but almost exactly a year ago this Government pushed through the most damaging and disruptive changes to the higher education system, tripling tuition fees and then changing the rules after universities had set their fees. At the same time, the Government introduced changes to student visas that, in effect, tell the world: “Britain is closed”. All this is hugely damaging to universities and students.
So what about innovation, the “engine of growth”, as the Business Secretary likes to call it? The Chancellor likes to say that he is protecting science, but research from the Library shows that the science budget is being cut by 15%. If this Government truly believed in putting science at the heart of the innovation economy, they would protect our position as one of the world’s leading science nations. Indeed, a recent report from the Department for Business, Innovation and Skills says that our position is at risk because of this Government’s lack of investment. It is true that yesterday the Government produced a life sciences strategy, but why has it taken them 18 months to produce a plan for one sector? Eighteen months and we still do not have a plan for innovation. That is because this is a “stand on the sidelines” Government, letting companies, industries and whole sectors fail in the absence of action.
Today the shadow Chancellor of the Exchequer said:
“The argument is whether it is better to be borrowing billions more to keep people out of work on benefits or whether action now to get our economy moving will get more people into work paying tax and help to get the deficit down in a fairer way.”
In March, the Chancellor ended his Budget statement —he may remember this—by saying:
“We want the words: ‘Made in Britain’, ‘Created in Britain’, ‘Designed in Britain’ and ‘Invented in Britain’ to drive our nation forward”.—[Official Report, 23 March 2011; Vol. 525, c. 966.]
Wanting is not enough, however. The Government need to act. There are millions up and down the country who want to drive our nation forwards by making and building things. Instead, they find themselves chasing far too few jobs with far too many others. There are hundreds and thousands of young people—young men and women—who want to learn the skills to make and build things, but instead are consigned to a life without education or employment. For how long will this Government continue to pursue a bankrupt ideological vision in the face of every economic indicator and so many broken lives? The Chancellor of the Exchequer is capable only of driving our nation forward into year after year of rising unemployment, flat growth and higher borrowing. We ask—we demand—that he change course.
The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey)
I do not think anyone doubts the serious economic challenges facing the UK, Europe and the wider world. The serious tone of today’s debate reflects that. So it is important in such a crucial debate that we can agree on the economic and financial figures and forecasts, not least because in the past, Parliament, commentators and the markets have questioned Governments’ forecasts. In the past, Governments jealously guarded control of the forecasts and used that control to tweak, fiddle and fix the figures. As we can read in the previous Chancellor’s memoirs, the pressure to fiddle the figures is never greater than in the tough times. By giving responsibility for forecasts to the Office for Budget Responsibility, this Government have changed all that. The OBR figures are independent; the OBR figures tell it straight; so these figures command respect. I challenge Labour Members to say so now if they do not accept the OBR’s figures.
Mr Geoffrey Robinson (Coventry North West) (Lab)
It is not a question of not accepting the integrity of the Office for Budget Responsibility. The question is the reliability of the figures stemming from the credibility of the organisation. Why does it get everything so wrong all the time? Is it not up to the job? Does it have a lack of expertise, or is it just that it is being asked to fix figures that have no meaning in the real world?
Mr Davey
Given that that comes from a former Treasury Minister in a Government who often got their figures wrong, I do not think that the OBR needs to listen to that. It is absolutely clear that the Labour party is taking the OBR’s figures seriously. It is significant that we can at last have a debate without the numbers being the issue—without the spin and the game playing that so debased the House’s deliberations in the past. The Labour party’s acceptance—grudging or otherwise—of our or the OBR’s forecasts presents Labour Members with a problem. Why do they not accept the underlying explanation of the OBR’s forecasts?
This House has heard that the OBR’s forecasts changed not because the Government’s policy has gone wrong, but because of three reasons outside this Government’s control: imported inflation, with higher oil and commodity prices; the huge uncertainty caused by problems in the eurozone; and, finally, the boom and bust that Labour once arrogantly told us they had abolished, which was worse under Labour than anyone had previously thought. The Labour party has to face up to this reality, yet the shadow Chancellor did not. This Government have, and have made the difficult choices in doing so.
Our strategy of loose monetary policy and fiscal consolidation, backed with some of the most ambitious supply-side reforms in generations, was not just right when we first announced it after the election; it is right now. Indeed, recent events have given even stronger confirmation that it is right. That is why, despite the changed forecast, our interest rates remain so low while countries all around us have seen their credit rating slashed, downgraded or put on negative watch. The markets have shown their confidence in the UK with the interest on our debt falling to historic lows.
In what was probably the most remarkable part of today’s debate, the shadow Chancellor was astonishingly dismissive of the low interest rates and our achievements. Never mind that Italy and Spain have seen their rates shoot above 6% while ours have fallen towards 2%; never mind the benefit to mortgage holders, businesses and taxpayers of that achievement. The shadow Chancellor seems to believe that the UK is in a liquidity trap—despite the fact that we have a credible central bank, despite the fact that quantitative easing has been judged effective and despite the major credit easing announced in the autumn statement. In the early 1930s, ahead of Keynesian rearmament, a monetary expansion with low rates combined with fiscal consolidation produced a significant recovery. Is that not the lesson from history that the shadow Chancellor simply has not learned?
Of course, we could have opted for another growth policy—some call it plan B—involving unfunded tax cuts, more borrowing and more spending. The details of that are never clear, but the consequences are higher interest rates. [Interruption.] Labour positions itself as the party of high interest rates, although a 1% rise in market interest rates adds £10 billion to mortgage bills—meaning that the average family with a mortgage will pay £1,000 more—and increases business rates by £7 billion and taxpayers’ costs by £21 billion. That would be the price of Labour government. [Interruption.]
I have looked around Europe for Governments or mainstream political parties that have opted for a policy such as plan B, but they are in short supply. Other Governments are now having to address their budget deficits—[Interruption.]
Mr Speaker
Order. Far too many private conversations are taking place in the Chamber. Let us hear the Minister.
Mr Davey
Other Governments, faced with rising interest rates on their debts, are now having to address their budget deficits. Often they are having to cut deeper than us. It is true that our deficit reduction, at 3.7% of GDP over the next four years, is the third highest in the G7. After all, in 2007 our structural deficit was the highest in the G7. Yet Italy is now making much deeper cuts, and France too is planning deeper cuts. Our deficit reduction is of course significantly less than that of Greece, Ireland, Portugal or Spain, so we will not be opting for plan B as suggested by the Labour party.
We heard many excellent speeches from Members in all parts of the House. I particularly commend those of my hon. Friend the Member for Chichester (Mr Tyrie) and of the hon. the Members for Skipton and Ripon (Julian Smith) and for Newton Abbot (Anne Marie Morris), all of whom referred to the importance of the supply-side reforms. The hon. Member for Skipton and Ripon mentioned the important employment law reforms which, I believe, will make a big difference to our efforts to return people to work, and the hon. Member for Newton Abbot spoke of the importance of ensuring that regulation was cut for micro-businesses. I can tell the hon. Lady that we are achieving that now, even at European level.
We also heard good speeches on the importance of infrastructure investment from the hon. Members for Folkestone and Hythe (Damian Collins), for Ochil and South Perthshire (Gordon Banks) and for Scunthorpe (Nic Dakin), and from the former Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling). The significance of the infrastructure plans that we announced in the autumn statement is that they are well advanced, and some are even shovel-ready, so the problems that the shadow Chancellor worried about do not pertain.
This was an important debate. For once, it was not about the figures in the economic forecasts and the Budget questions. Thanks to the innovation of the Office for Budget Responsibility, it focused largely on analysis—although at times the analysis presented by the shadow Chancellor was more theoretical than academic—and it sharpened the differences between the coalition and the Opposition. While the Government are focused on keeping interest rates low, Labour’s priority is to spend and borrow more. While this Government—
Mr Alan Campbell (Tynemouth) (Lab)
claimed to move the Closure (Standing Order No. 36).
Mr Speaker
The Question is, That the Question be now put. [Interruption.] I think the Ayes have it. [Interruption.] Order. Hon. Members must calm themselves; it will be injurious to their health otherwise. The Question is, That the Question be now put. [Interruption.] It is simply a case of putting the Question. I will try once more. The Question is, That the Question be now put. I think the Ayes have it.
Question accordingly put, That this House has considered the matter of the economy.
The Comptroller of Her Majesty's Household (Mr Alistair Carmichael)
On a point of order, Mr Speaker. I seek your guidance. Is there any means by which tomorrow’s record can record that the sort of meaningless gesture that we have just seen is as good as it gets?
Mr Speaker
That, I think, was a case of either a point of frustration or, as the right hon. Gentleman has a smiling countenance, him getting his point on the record.
Ed Balls (Morley and Outwood) (Lab/Co-op)
On a point of order, Mr Speaker. Given that the motion before the House today was on whether there has been a sufficient debate on the economy, given the failure of plan A, given the £158 billion of extra borrowing, given rising unemployment, and given the view of the House that more time is needed for this debate, could you advise on whether the will of the House could be expressed and there could be more time to debate the very important issues facing this House and the country?
Mr Speaker
I am grateful to the right hon. Gentleman. The allocation of time for parliamentary debates is not a matter for the Chair, but the right hon. Gentleman has recorded his view, as has the Deputy Chief Whip.
Dr Thérèse Coffey (Suffolk Coastal) (Con)
Further to that point of order, Mr Speaker. I seek your advice. Is it fair to say that anyone who has spoken in the debate and then voted against the motion is actually misleading the House by saying that it has not considered the motion?
Mr Speaker
The very simple answer to the hon. Lady is that the House has not been misled in any way. Nothing disorderly—[Interruption.] Order. I have just made the point, which brooks no contradiction, that the House has not been misled in any way. Nothing disorderly has taken place. The vote is what the vote is; it is not for me to interpret. Other hon. and right hon. Members and people outside the House are free to do so as they wish.
Andrew Miller (Ellesmere Port and Neston) (Lab)
On a point of order, Mr Speaker.
Andrew Miller
Mr Speaker, by a majority of 134, the House has determined that this House has not considered the matter of the economy. Have you heard from the Government Front Bench whether the Government intend to allocate more time to ensure that the House does consider the economy properly?
Business without Debate
(12 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text
Mr Speaker
With the leave of the House, motions 4 and 5 will be taken together.
business of the house
Ordered,
That at the sitting on Tuesday 13 December paragraph (2) of Standing Order No. 31 (Questions on amendments) shall apply to the Motion in the name of Mr Nigel Dodds as if the day were an Opposition Day; proceedings on the Motion may continue, though opposed, for three hours and shall then lapse if not previously disposed of; and Standing Order No. 41A (Deferred divisions) shall not apply.—(Greg Hands.)
Ordered,
That at the sitting on Wednesday 14 December paragraph (2) of Standing Order No. 31 (Questions on amendments) shall apply to the Motion in the name of Edward Miliband as if the day were an Opposition Day; proceedings on the Motion may continue, though opposed, for three hours and shall then lapse if not previously disposed of; and Standing Order No. 41A (Deferred divisions) shall not apply.—(Greg Hands.)
delegated legislation (committees)
Ordered,
That the draft Daventry (Electoral Changes) Order 2012, be referred to a Delegated Legislation Committee.—(Greg Hands.)
Short-life Homes (Lambeth)
(12 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text
Mr Speaker
Order. I appeal to hon. and right hon. Members who, for whatever reason, quite unaccountably, are leaving the Chamber to do so quickly and quietly so that the hon. Member for Vauxhall is afforded the same courtesy for her Adjournment debate as they would want for theirs.
Kate Hoey
Thank you very much for those words, Mr Speaker, although I do not think the House will stay full for much longer.
It is with a great deal of sadness that I hold this Adjournment debate, but it is important that the House understands what is happening just over the river in Lambeth in terms of short-life housing disposals. If there were any kind of legislation on wording, using the description “short-life” would almost be in breach of it, because the homes are not short life in the sense that people have lived in them for only a few months. Many of the people I shall refer to will have been in their homes for 30 years or more—most of them for between 15 and 25 years.
There is a history in Lambeth. Short-life housing co-ops were formed in about 1980 to make use of Lambeth council properties that were in too bad a condition to let normally, but that Lambeth could not afford to repair to a lettable standard. Housing co-operatives were given licences to use those properties, usually by a secondary agency, typically a housing association. Initially, short-life meant short-life, six months being the normal period, but owing to Lambeth’s general mismanagement and policies that seemed to change every 10 years, many people have been in their homes for more than 30 years. One resident, Steve Drake, who lives in Nealden street in a co-op, has been there now for 31 years.
Through the mid and late 1980s and into the 1990s many housing co-ops became established as the properties that they managed became more long term. As I said, the phrase “short-life” became a misnomer. There were various schemes involving many properties attracting some limited funding via schemes such as Mini-HAG, which was mini housing association grants administered by the then Housing Corporation. That finished in about 2000. Housing co-ops needed an income to pay for the maintenance of the properties that they managed and the day-to-day running of the co-op, so co-op members paid rent, the amount agreed by members of each individual co-op.
Throughout that 30-year history of housing co-ops, Lambeth has changed its policy at various times, thought about recalling the short-life properties and threatened evictions at various times, but as recently as 1997, which does not seem such a long time ago, Mr Drake got a letter from the then chair of housing, Labour’s housing spokesperson in Lambeth, saying:
“I write to you further to your letter of 29 June 1997, to update you on the situation regarding shortlife housing.
I am pleased to say that at the last Housing Committee meeting at the beginning of September, we succeeded in persuading the other parties to back our proposals for proper negotiations with the shortlife housing co-ops. I am sure that … the Lambeth Federation of Housing Co-ops has been in touch with you … and I hope that as a result of this work, it will be possible to come to an agreement which allows the current residents to stay in their homes.”
That was from Tom Franklin, who was then the councillor in charge.
Shortly after that, the council seemed to change its policy. It did not seem to make much difference whether it was a Labour council, a coalition council or a hung council. The policy got into one of those files that seem to sit around local authorities, and for many years the residents had no idea what was happening, but they carried on with their co-ops, some of which were very successful. The Short Stock housing co-op—I have named the person who has been leading that, Steve Drake—has been going extremely well, and is part of the Lambeth Self Help scheme that involved buying Short Stock’s properties with tenants in situ. The plan was that the very large property would be worked on and could be sold, but that everybody would be allowed to stay in their houses and renovate them. The people in Nealden street and in Morat street have stayed on. During that time Lambeth had 100% nomination rights to any vacancies that came up.
Last year Lambeth Self Help was approached by Lambeth council. It submitted a plan, which the council wanted revised, given the change in central Government policy on social housing rents. The plan was resubmitted and rejected, then re-submitted and rejected again. Finally, Lambeth changed its policy in the summer and now wants to sell off all the remaining properties housing families of different sizes—there are roughly 150 of them—and the council wants to do a deal. It originally wanted to do a deal with Hyde Housing. Hyde Housing had come to an arrangement whereby some of those residents would be able to stay in their homes when they were bought.
That fell through because Lambeth did not think it was getting enough money. It has been in negotiation with Notting Hill Housing, which is making clear its opinion that it is doing Lambeth a favour. It will buy the properties and immediately put 80% of them on the open market, leaving 20% as affordable houses in Lambeth. I can understand that, as there is a shortage of capital, although Lambeth has not said that that money will go into housing. It has said that some of the money—we do not know how much—will go towards reducing the shortage of school places in the constituency of my hon. Friend the Member for Streatham (Mr Umunna). If there is money going out of housing to the council, it should come back into Lambeth to be used for housing, as there is a huge waiting list.
In the meantime, the council has said that it wants vacant possession, and every property must be empty by the time the deal goes through with Notting Hill Housing. Notting Hill Housing told me that it might have been prepared to consider taking on some of the residents who were adequately housed and in social need, but Lambeth council said that it wanted to give them with vacant possession, and Notting Hill Housing then said that it would take the properties only with vacant possession.
Lambeth’s legal firm, Devonshires, which must be making a fortune out of this, is now going to the courts in Lambeth or Wandsworth week after week to try to get the long-term residents evicted. On almost every occasion the courts have said, “Hang on, we haven’t got all the facts and we want to know more.” A number of cases have been postponed over and over again, costing Lambeth huge amounts of money each time. Many of the properties are in a really good state. There is absolutely no reason why they could not be kept by the council or, if they go to Notting Hill Housing, left with the current residents, who have maintained them to a high standard for over 20 years.
I simply do not understand how a housing association can get away with spending a lot of money buying up properties from a local authority that has tenants who need housing and then planning to sell off 80% of them. They are not trading organisations. I thought that the point of a housing association was to provide housing. I find Notting Hill Housing’s attitude very strange. If it is doing this as a favour to Lambeth, I do not think that it is much of a favour to the people living in the properties. The most recent communication I received from Notting Hill Housing on 30 November indicated that it was
“clear that the properties will be sold to us with vacant possession. That means that the Council will evict all the current residents. We will then refurbish 20 per cent, and will sell up to 80 per cent of them. This is the assumption so that we can give the Council the kind of receipt they require. I know this is distressing for many of the residents who have lived here for many years but I understand the council will rehouse everyone”.
Of course they will get an offer from the council.
I want to give some examples of the people who live in the properties and how they have been involved for many years in the local community, in campaigning organisations and in all the things that are so important to an inner-city area. The Cope family live at 26b Stockwell Park road. Indeed, some hon. Members live around that area, which is probably one of the most expensive in my constituency. Another long-term resident lives next to them, at 24b. The family have been in a short-life residence there since 1987, originally part of the Ekarro housing co-operative, which became a different housing co-op, and finally they ended up with South London Family Housing Association, which was later taken over by Amicus, which was when the licence was withdrawn from the housing association. The family have done all the repairs in the house and managed to prevent the ground-floor flat next door, which was owned by Lambeth council and had been empty for years, being squatted by what I call real squatters—I am not opposed to the squatting of long-term empty houses in some cases. The family have done all the work on that house but are now being told that they must move out, which will probably mean the loss of the last two or three remaining houses in affordable social housing in the middle of one of the most expensive areas.
The Cope family is very much part of the community, and all the residents of the Stockwell Park residents association have signed a letter stating that they want the family to remain. It just does not make common sense, because they will be moved into another Lambeth property that someone on a waiting list might have their eye on, and at the same time the family might be moved out of their community to somewhere many miles away from where their children go to school—and for what purpose? In the end the property will either go back to another tenant, if it happens to be in the 20% that Notting Hill keeps, or it will be sold on the open market.
Just up the road, literally four houses up, 20 Stockwell Park road was one of those short-life properties. The resident was evicted—taken away, asked to get out—a few years ago; the property was squatted; Lambeth got rid of the squatters and re-did the place with new bathrooms and kitchens in two of the flats; three weeks later it was squatted again; and the squatters in one flat have not been removed. So, the council has spent a lot of money on its own property, allowed it to be squatted by people with no housing need and, at the same time, is trying to get rid of people who do have housing need.
The Clapham North Housing Co-operative is a very active co-op, with a substantial number of properties—19 homes—on which people still pay rent, and Lambeth could have negotiated with it. The negotiations started, stopped and then Lambeth changed its mind, so now, despite saying at the bottom of every letter that it is a co-op council, it is getting rid of co-ops. I speak as someone with many co-ops in the north of my borough and in Bishop’s ward, such as the Coin Street housing co-operatives, and I have seen the value of co-ops and how they link people with their community.
We have some terrible individual cases. Heidi Usher, of 12 Thorpe Park road, has been there for many years. She has been adequately housed, with four children in her home, which she has kept beautifully, having done all the work herself, but she is now being taken to court. Fortunately, yesterday when she went to court, the magistrate said, “This is ridiculous, this needs more than an hour. I need at least a day,” and has deferred the case until 28 February. So, every case is being put back, and that gives the Minister an opportunity to intervene and do something that would give those people hope, because it does not make common sense.
I want to ask the Minister some questions that he might or might not be able to answer. Many of these issues have occurred because of the local authority’s inadequacy and incompetence over many years, for which we can blame many people, but at the end of the day the people who are suffering are the residents, whose fault it is not. The cost of all those legal cases could have adequately brought some of the homes up to the decent homes standard.
On the decent homes standard, when I visit those residents I feel that they are living in a decent home, as they do. It may not tick the box, because the kitchen may not be exactly like the modern kitchen that represents supposedly the decent homes standard, but, if they are happy there and adequately housed, why is the decent homes standard used as a reason to move them out?
Does the Minister share my view on what his Department could do to ensure that families are able to stay in their homes of many years? Surely the Government must have some say in the matter, because Lambeth will get Government housing money, as will Notting Hill Housing association. I should like an assurance that he understands Notting Hill Housing to be conducting the process properly, because I have concerns. about how it is doing so.
Some time ago, Lambeth offered many residents the right to buy, albeit at absolutely open-market prices, but some struggled to do so because it was their home. Will they be considered under the Government’s new policies on the right to buy at less than market value? That could be a solution.
If Notting Hill Housing buys that group of properties, can the Government do anything to stop it immediately selling off 80% of them? It seems absolutely scandalous that it can spend public money buying properties and immediately sell them.
Can the Government insist on Lambeth council and Notting Hill Housing allowing those sitting tenants and residents who are adequately housed and meet the criteria to remain tenants of the association, rather than being moved somewhere else to move in somebody who has lived in Lambeth for only a couple of years? That would at least be a fair way of looking at the issue.
Does the Minister understand the anger and misery that is being caused by a policy of moving people out of their homes of over 20 years just so that at some time in the future they will be let to new tenants? Given that there are already very well-established co-ops in other parts of the borough, will he encourage Lambeth to incorporate those that are working adequately into some kind of system that would allow those people to stay? Most of all, does the Minister think that a local authority such as Lambeth could show a little more imagination? Of course we know that there is a shortage of money everywhere, but money from the Government has been stopped and we need to get some of that investment back.
Lambeth has improved its housing management. My previous housing Adjournment debate was also about Lambeth, and I have to say that things have improved since then. Lib Peck, who is the cabinet member for housing, has done a sterling job and has bought into the whole idea of this being the only way to protect the investment. However, the council’s policy is misguided and has been built on many years of mismanagement and neglect. As I said, there are many people to blame for this, but they are not the residents.
This is a complicated situation that is somewhat historical and almost unique to Lambeth, but sometimes in such cases, where there is clear injustice, we must find a way to stop it happening. I hope that the Minister will, at the very least, offer to meet me and a group of co-op residents from across the borough so that we can explain how unjust this is, because in such a short time I have not been able to go into much depth. Not a single ordinary person would read through all the dossiers and meet these people and not say at the end of it, “This does not make common sense in 2011.”
The Parliamentary Under-Secretary of State for Communities and Local Government (Andrew Stunell)
I congratulate the hon. Member for Vauxhall (Kate Hoey) on securing this debate and on the diligent work that she has done in support of her constituents and residents. She spoke very eloquently.
This is the first time that the situation that the hon. Lady described has come to my attention. I understand that Lambeth has a proposal that is designed to dispose of properties to help to fund renovation, perhaps of those properties but certainly of other stock in the borough, some of which is being let for short-term tenancies. She described the confusing development of the phrase “short-term” to mean something quite different and gave illustrations of the very long length of tenancies that some people have had in these properties. I want to make it clear that I am working from the description that she has given. I do not have first-hand information, and the Department has not been formally notified by Lambeth, or anybody else, of any transactions taking place.
The House will know that the Government fully understand the need for a radical and comprehensive approach to housing. That is why we published our housing strategy for England last week. That strategy covers a broad range of housing topics, including social housing, the reuse of empty housing, and a number of other factors of which I am sure that the hon. Lady is well aware. I want to stress that it is for the London borough of Lambeth to decide its own strategic approach to its housing, and not for Government to comment on it. Speaking in this debate as a member of the Government, I have to stick strictly to that rule. In the privacy of the Members’ coffee room, I might say something else. The reality is that the Government’s job is to provide the strategic approach to housing policy and it is for the London borough of Lambeth to decide its approach to its housing. Of course, the Government want all local authorities to adopt the effective management of assets, including in their disposal of stock and reinvestment.
To go back, perhaps I should say that the basic assumption is that local authorities will plan for holding or redeveloping all their council stock. Clearly, the right to buy entitles tenants to purchase properties. The hon. Lady asked whether the right to buy would apply to these particular tenants. The nub of that issue is that it depends on the nature of their tenancy agreement. If they have a standard council tenancy, which it seems they may not have from her words, they would be entitled to exercise their right to buy. Otherwise, they would not have a statutory right to buy.
As well as tenants buying stock, councils can engage in partial or whole stock transfers, but those require the consent of the Government. There can be no question of wholesale disposals without the need for some consent or approval. Similarly, housing associations registered with the Tenant Services Authority need consent to dispose of their properties. I want to reassure the hon. Lady that in this system, there is a strong degree of control over what happens to social housing stock.
Andrew Stunell
I certainly want to cover that point. There is a regime known as general consents, which means that if certain preconditions are met, specific consent over a particular transaction is not required. The key point is that money arising from such disposals must be reinvested in affordable housing or regeneration. That would be within the general consent. Use of the money elsewhere would not be suitable. The meaning of investment in affordable housing is perhaps self-evident, but regeneration has a technical meaning. It means projects or activities on land where the land is
“vacant, unused, underused, ineffectively used, contaminated or derelict”
and where
“the works or activities are carried out in order to secure that the land or the building will be brought into effective use”.
The hon. Lady has mentioned the possibility—obviously I have only her words to go on—that it was proposed to provide more school places with some of this money. It would be a matter for examination whether that was a regeneration activity. If it was not, the expenditure of the money from this projected sale would require specific consent from the Secretary of State. If it was regeneration, it would come within the general consent. I am happy to write to her to spell that out, because it is a complex area to get across in this debate.
The treatment of properties that are occupied by secure tenants is tightly controlled and it always requires specific consent, unless the disposal is to the occupant. In other words, if it is not a right-to-buy sale, a secure tenant’s property cannot be transferred without specific consent. The nature of the tenancies that these constituents enjoy again depends on the intricacies of the story that the hon. Lady has presented to the House.
The Government do not have any intention of changing those arrangements. Of course we are keen to see run-down properties passed on to landlords who are able to invest in them while retaining them for social tenants. I have had the opportunity to announce to the House a £100 million fund for bringing such empty homes back into social and affordable use for social tenants. Those disposals can be to other bodies or individuals, and they could be covered by the general consents in the situation that I have previously outlined.
No application has been received in respect of the schemes that the hon. Lady has mentioned, and I cannot comment on what decision the Secretary of State might take unless one is submitted and there is a proper investigation into the circumstances by the Secretary of State.
The Government have put significant support into social housing in Lambeth. We have committed £18 million this year and next to bring homes up to a decent standard there, with a further £82 million provisionally allocated for the next two years, making a total of £100 million to be invested in Lambeth to bring its backlog of non-decent homes up to a decent standard. A significant amount of money is available to Lambeth from the Government to improve its homes, and she may want to consider encouraging the council to direct some of those resources to the homes that she has mentioned today.
London has been allocated 27% of the new affordable homes to be provided through the affordable homes programme. Combined with the existing commitments, that means that the target of 50,000 new affordable homes by 2012 set by the Mayor is very likely to be reached. I am not in a position today to say how many of those homes will be built in Lambeth, because that is subject to contracts, not all of which have been sold.
Lambeth currently has 25,000 council homes, and according to the housing strategy statistical appendix it has a waiting list of 23,000. In other words, there is an acute demand for social housing there. It is also true that Lambeth has an above-average number of empty social homes, or voids. In April, 4.1% of its stock was vacant compared with a national average of 1.5%. According to the council tax database, Lambeth has 1,676 long-term empty homes, which are those empty for longer than six months.
The hon. Lady might like to consider the fact that given the £100 million that is being provided to Lambeth over the next four years for decent homes, given the investment that we are making in new and affordable homes and given Lambeth’s higher than average number of empty homes and long-term empty homes—