Budget Resolutions

Debate between Edward Leigh and John Redwood

Wednesday 11th March 2020 Commons Chamber

[John Redwood (Wokingham) (Con)]

I have declared my business interests in the Register of Members’ Financial Interests, although I am of course not speaking for them.

I congratulate the hon. Member for Ilford South (Sam Tarry) on an excellent maiden speech. He was warm and informative about his predecessor, who was much respected on both sides of the House. He rightly drew attention to injustices and problems which he has a passion to solve. I would just like to reassure him that there is no monopoly on wishing to solve those problems on his side of the House. That is what we are all here to do.

It is a great pleasure, for the first time in about five years, for me to be able to welcome the actions of the Bank of England today. It is a pleasure to see the Bank of England and the Treasury co-ordinating their work, and doing things that are massively in the public interest. For the past five years, it has been my miserable task to be the one voice in this House pointing out that the Bank of England has consistently got its economic forecasts wrong and that it had made a number of very bad decisions. I have been particularly critical of the way it decided to tighten monetary policy and slow the economy from spring 2017 onwards, culminating in the very ill-judged decision it made at the end of last year to increase the counter-cyclical capital buffers, which meant denying loans to businesses that wanted to expand or to solvent people who wanted to buy a new car or a new home. It was a very bad policy and it is wonderful news today that the Bank of England, with its new Governor, has started off on a much better basis and has cancelled those counter-cyclical buffers. It is the single biggest amount of money we are talking about in this debate. As the Bank of England itself calculates, it means up to £190 billion more is now available for good projects, for business requirements and for individuals who want to borrow for big ticket items. Of course, banks must still be prudent and sensible in the way they advance that money, but the previous controls were too tight. Against the background of world downturn, it is very important that that firepower is made available.

Just to reinforce the position and to deal with the special problems that the virus is now likely to create, the Bank of England also put forward a new medium-term lending scheme for the banks, so they can get access to large sums of money—up to £100 billion in total—at the new very low rate of 0.25% to lend on to medium and small-sized enterprises. Again, that was something I was very keen for it to put forward. I am delighted that it has returned to this idea. It is much needed, I fear, because we already see the virus having a very negative impact on certain businesses, most obviously in aviation and other transport, but now also in events and some other tourism-related activities where we see the pinch already being established by the virus. If, as we fear, it spreads more, that is going to get rather worse, so I welcome the double set of actions by the Bank of England. I am not sure that 50 basis points off the interest rate makes very much difference. It is not something I would have done myself, but I can see that it was well intentioned and it sends a very clear signal that borrowing should not only be available but cheap in these very extraordinary times.

I also welcome the fiscal stance the Government have adopted in the Budget. If anything, it is on the prudent side of what one might have expected in the current circumstances. Some of my colleagues will find that curious coming from me, a former hawk, on how much this country can afford to spend and borrow. However, in these circumstances, and against the massive monetary and fiscal tightening we have experienced for some three years and the very noticeable slowdown or faltering of the world economy, it is obviously sensible to have a fiscal stimulus. The £18 billion underlying stimulus is definitely at the bottom end of the kind of range that many people were thinking about.

On top of that, there is the £12 billion package which the Government have wisely put forward. They stated that if the virus problem gets worse there will be more. I hope it will be the case that the virus problem does not get that bad and we do not need to spend the £12 billion or anything like it, but I am pleased the £12 billion is there by way of additional resource for the health service should the need arise and as additional money available particularly for the business sector, which, in certain circumstances, if we have anything like the experiences of some other countries abroad have now had, would need cash injections. I am very pleased that thanks to the Bank of England it will not just be a question of lending at cheap rates through the commercial banks, but that in some cases, particularly in hospitality and tourism-related areas that are already being fairly badly hit, it will be a reduction in their bills.

I listened carefully to the very long address by the SNP spokesman, the right hon. Member for Ross, Skye and Lochaber (Ian Blackford). I cannot see how that party’s VAT proposal would help, because VAT is turnover-driven and we are talking about businesses that lose much or all of their turnover, so it would not deal with the problem. The Government have a much better answer: to take a cost that businesses cannot get out of quickly or avoid—their property cost—and say that the Government should not be charging them for using property when no money is coming in, because there is no turnover as they have lost their customers. I agree with the Government.

[Sir Edward Leigh (Gainsborough) (Con)]

I was not allowed to intervene on the leader of the SNP, but surely any sensible person would come to the conclusion that when faced with an existential threat to our country, such as the coronavirus, we are much better dealing with this together, as a United Kingdom, than as separate nations.

[John Redwood]

My right hon. Friend and I think that, but more importantly, that is what the Scottish people voted for just a few years ago, when we very wisely and democratically said, “Yes, let the Scottish people decide.” They did decide and I wish their elected representatives here would understand the result of the referendum and remember that their colleagues told us at the time, when asking for it, that it would be a once-in-a-generation matter. While I am a democrat who thinks that these things occasionally need exploring, we cannot explore them every five years. These are fundamental things that are very disruptive if we keep going into them. I had to wait many years to get an EU referendum—rather longer than I wanted—but I do not think we should have one every five years. That would be quite inappropriate.

To go back to the Budget judgment, I was interested to see that quite substantial increases in spending, which we need in health, education and police, for example, have been relatively easily accommodated. It is good to see already in the first-year figures—for 2020-21— £4.6 billion of Brexit savings coming through. It is very good to see that there will be another £10 billion on top of that by the end of the forecast period, so the Brexit bonus is available and is beginning to come into these figures.

It was also good to see the £6.6 billion of interest cost reduction, thanks to the quite substantial falls in interest rates that had occurred before this month. The point that I was making to my right hon. Friend the Member for Bromsgrove (Sajid Javid) is that those savings would be considerably bigger if we forecast them at today’s interest rates, because interest rates for Government borrowing have fallen even further. He countered and said, “Yes, but you still have to be very careful because you can’t necessarily assume that that will go on into the future.” The bad news is that interest rates are going to stay low for a bit, but the good news is that the Government can borrow for 30 years for practically nothing, so now is surely a very good time to lock those interest rates in so that the future interest rate programme is very cheap, as well as the present one. It is something the Government need to think about. I know they have issues about how long they fund, but this is surely a time to move in the direction of longer funding so that we lock the very low rates in.