Budget Resolutions

Jeremy Quin Excerpts

Thursday 9th March 2017 Commons Chamber

[Wes Streeting (Ilford North) (Lab)]

It is a pleasure to follow my hon. Friend the Member for Bristol East (Kerry McCarthy). Given the remarks I am about to make I should declare that I am still an elected councillor in the London Borough of Redbridge, and, as seems to be the case with many other hon. Members in the Chamber, I am an honorary vice-president of the Local Government Association. Perhaps we should declare if we are not honorary vice-presidents of the LGA. I should also say that I am sorry I was not able to be here at the beginning to hear all of the speeches made by the shadow Chancellor and the Secretary of State for Business. Unfortunately, I had to attend an extraordinary meeting of the Treasury Committee. I am grateful to you, Madam Deputy Speaker, and to your predecessors in the Chair, for indulging me.

Yesterday we learned that the Chancellor has a sense of humour, but by the time he sat down my constituents and the country at large had very little to laugh about. In fact, I would wager that the Chancellor himself was not laughing when he read this morning’s newspapers. It is striking that there have been more Opposition Members than Government Members speaking in the Budget debate this afternoon. Presumably, this is because so few Tory MPs are willing to turn up to defend the Chancellor’s Budget: a Budget balanced on the backs of the self-employed; a Budget that failed to address the big challenges facing our schools and hospitals; and a Budget that failed to prepare Britain for Brexit.

This was a Budget that was bad for business: the high street business clobbered by a rise in business rates; the small businesses burdened by quarterly reporting to HMRC, even where they are not liable for VAT; and the self-employed saddled with higher national insurance, even where they earn as little as £16,250 a year. These are the people I was sent to Parliament to represent: the shopkeepers in Barkingside, Woodford, Hainault and Gants Hill who kept their businesses going even as other shops on the high streets were boarded up during the recession; and those who were brave enough to take the plunge and start a business even as the high street was still plagued by recession. I was sent to represent the family businesses wondering whether they will be able to pass on their firms to the next generation, because times are increasingly tough and they worry about the long-term future of the family trade; and the self-employed, who take the risk by taking the plunge and going it alone, taking an idea and turning it into a profit. This was a Budget that hit the traditional economy of the high street and the gig economy of the entrepreneurs. It was good for accountants and bad for small businesses. No wonder that, this morning, so many people woke to read the papers asking why on earth a Tory Chancellor would want to attack enterprise, entrepreneurialism and aspiration.

The Chancellor has said that this is an issue of fairness. Policy wonks in the Treasury and elsewhere in the world of think-tanks will argue that a class 4 national insurance increase is progressive. That is a powerful reminder of what happens when people who understand spreadsheets fail to understand the real economy.

The National Careers Service website suggests that London taxi drivers can earn between £14,000 and £20,000 a year. In a good year, if they are willing to put in excessive hours working the streets, as they often do these days, they may earn slightly more. A triple whammy of rising costs, increased congestion and unfair competition has driven down their wages. Is it progressive to ask taxi drivers, who are already struggling to pay the bills, to pay an extra £240 a year in national insurance? Is it progressive to ask the young tech entrepreneur starting out to find an extra £20, £30 or £45 a month in their early careers? Is it fair to ask people who receive no holiday pay, and who have little job security and the everyday pressures to bring home the bacon, to pay more to the Chancellor when it is small change for him and a big deal for them?

[Jeremy Quin (Horsham) (Con)]

Does the hon. Gentleman welcome, as I do, the improvement in the pension scenario for the people about whom he is speaking, which is worth about £1,800 a year, and which if bought could be worth about £50,000? It is not all one way.

[Wes Streeting]

There have been improvements at the margins, but that does not compensate for the loss of earnings that those on low to medium incomes will feel as a result of the decision taken by the Chancellor in the Budget.

Charter for Budget Responsibility

Jeremy Quin Excerpts

Tuesday 24th January 2017 Commons Chamber

[Mr Hammond]

I think my track record—of one fiscal event—answers the hon. Gentleman’s question. Clearly, I made the decision in November to borrow a discretionary £23 billion to invest in areas specifically focused on raising productivity in the UK economy. So, of course, the answer to the question “Can borrowing to invest ever be sensible?” is yes—if the circumstances are right, if it is a judicious amount of borrowing and if it is precisely targeted to achieve a purpose.

[Jeremy Quin (Horsham) (Con)]

This point is related to the one raised by the hon. Member for East Lothian (George Kerevan). Does the Chancellor believe that the charter gives him enough flexibility to address any economic issues that may come through over this Parliament?

[Mr Hammond]

As I shall explain in a moment, one purpose of the charter and the new fiscal rules is to allow sufficient flexibility to deal with any unexpected, unforecast shocks during a period of more-than-usual uncertainty in the economy.

The OBR’s judgment at autumn statement implied £84 billion of additional borrowing over the forecast horizon, although I should say that the OBR acknowledges a higher-than-usual degree of uncertainty in that forecast. So, at autumn statement, I had to make a judgment: I could have looked for further savings to maintain the trajectory of consolidation my predecessor set out, but I judged that that would not have been the responsible way to support the economy in present circumstances. So, at the autumn statement, I set out our new plan, which offered fiscal headroom, if needed, to deal with unforeseen, unforecast economic shocks, and scope to invest to raise productivity and so to lift real wages and living standards.

Let me set out the principles that inform the fiscal rules I have placed before the House today. First, the public finances should be returned to balance at the earliest date that is compatible with the prudent management of the economy. I judge, in current circumstances, that that will be in the next Parliament, after our EU exit is complete. In the interim, I have committed to reducing the structural deficit to below 2% of GDP by the end of this Parliament. Targeting a structural deficit means that I can let the public finances respond to any unforeseen short-term fluctuations in the economy through the operation of the so-called automatic stabilisers. The OBR forecast at autumn statement 2016 that I will meet this rule two years early. This leaves some headroom—about £27 billion—for a discretionary response to any further shocks, should such a response be necessary.

Secondly, I have committed to getting debt falling by the end of this Parliament. This will be the first time since the start of the century that debt has fallen. Again, the OBR forecasts that debt will begin falling two years before our rule requires.

Delaying the return to balance until the next Parliament not only ensures that we have fiscal headroom to respond to shocks, but means that the Government have scope to invest to improve the UK’s productivity. The productivity gap is the biggest challenge facing the UK economy. It has been said many times before, but I am going to say it again: it takes workers in Germany less than four days to produce what we produce in five days. That means that many British workers work harder—longer hours—for lower pay than their counterparts. This has to change if we are to build an economy that works for everyone.

--- Later in debate ---

[George Kerevan]

I agree with the right hon. Gentleman.

The Chancellor came to the Treasury Committee, and he answered questions clearly and in great detail. He pressed the point he has made today, that the new fiscal rules and the autumn statement were designed to give the Government enough fiscal headroom to meet any unforeseeable circumstances, should economic growth slow as a result of the Brexit decision. I respect that, but why give himself headroom for a future dangerous event? Why not take action now to forestall that event? In essence, the fiscal charter gives the Chancellor room, if the economy begins to slow in two, three or four years’ time, to use a fiscal surplus to invest in the economy and crank up growth. Why not do that now? The new fiscal charter gives the dangerous impression that somehow it will prevent the ill effects of Brexit because the Chancellor can intervene if something goes wrong. Why not use that fiscal headroom now?

The problem, of course, is that the underlying strength of the economy is nowhere near as strong as the Chancellor tried to make out in his introduction. Yes, there is growth but, the underpinnings of that growth over the last year are largely an expansion of consumer spending underpinned by unsecured consumer borrowing.

At the same time, post the Brexit vote, the pound has fallen substantially on international markets, which is stoking up inflation. I cannot imagine a more dangerous situation than for growth to be dependent on unsecured consumer borrowing when inflation is starting to rise.

[Jeremy Quin]

I share the hon. Gentleman’s concern about the growth in inflation, but does he not regard it as in any way contradictory that he may be advocating a massive increase in Government expenditure while warning about the risks of inflation?

[George Kerevan]

Not if we take into account the fact that if inflation starts to rise, the Bank of England, as the hon. Gentleman knows, has decided to let that inflation flow through the economy. The Bank explains that inflation in terms of the falling pound, and it is going to let inflation rise to about 3%, the top of its current forecast range. The Bank thinks that inflation will then start to decline again, but others, such as the Federation of Small Businesses, think that inflation will go above that core forecast. We could be looking at 5% inflation in two years’ time, which would have a crippling effect. [Interruption.]

The Chancellor shakes his head. All I am doing is quoting the Federation of Small Businesses, which is not an irresponsible organisation. It thinks that the Bank of England’s core forecast—taking us up to 3% against the consumer prices index—will actually be exceeded, which is a strong possibility. If we go beyond 3% inflation and head up to 5%—and remember that the Bank of England said that it will not raise interest rates to combat such a rise in inflation—consumer spending will start to fall.

In reply to the question I was asked by the hon. Member for Horsham (Jeremy Quin), my argument is that if consumer spending tanks, we are in a hard Brexit, foreign investment is falling and firms are reluctant to conduct business investment, the only agency left to plug the gap is the Government. I am pointing out that the Chancellor, rather than waiting for that to happen, beyond which point it would take two or three years for the fiscal policy to kick in, should be doing it now. That is the basic point that I am trying to make.

Oral Answers to Questions

Jeremy Quin Excerpts

Tuesday 17th January 2017 Commons Chamber

[Mr Philip Hammond]

Income inequality has been falling, but of course we face challenges as the depreciation of sterling works its way into inflation in the economy. That is an issue on which we will remain very much focused, and I will address it in more detail in the Budget.

[Jeremy Quin (Horsham) (Con)]

Alongside other elements driving recent extremely successful purchasing managers’ index surveys were seven consecutive months of export growth. Does the Minister agree that this is a fine way to underpin our already record rates of employment?

[Simon Kirby]

I agree. The PMI surveys show significant resilience in the UK economy since the referendum. The Prime Minister recently made it clear that we will make a success of leaving the EU.

Autumn Statement

Jeremy Quin Excerpts

Wednesday 23rd November 2016 Commons Chamber

[Mr Hammond]

I recognise the hon. Gentleman’s concern. He will know that I have made two statements since becoming Chancellor seeking to reassure businesses, universities and others who apply for EU grant funding that, where they are successful in such applications, however long the funding runs on, we will underwrite it, so if Brussels does not foot the bill, the Treasury will. But he is absolutely right: we will have to put in place alternative arrangements for the period after we leave the EU. We will have to have a discussion with the devolved Administrations about how that works—between Whitehall and the devolved administrations—and once we get into the negotiation with the EU, we can start to see the direction of travel. I think that it will then be appropriate to have this discussion, but I do recognise the concern.

[Jeremy Quin (Horsham) (Con)]

As the Chancellor pointed out, we have a major productivity issue to address. I look forward to the Green Paper and the benefits of the £23 billion of targeted investment, but may I congratulate him on making that £23 billion-worth of investment within a fiscal framework that is reliable, sustainable and will continue to bring down the record deficit that this Government inherited from Labour?

[Mr Hammond]

I am grateful to my hon. Friend, and we have embarked on the right course of action to protect our economy for the future and to ensure that it can take full advantage of the opportunities that will be available to it.

Savings (Government Contributions) Bill (Second sitting)

Jeremy Quin Excerpts

Tuesday 25th October 2016 Public Bill Committees

[Jeremy Quin (Horsham) (Con)]

Q You mentioned earlier, Mr Davies, that we had to respect the decisions made by people. I am totally with you that pensions are the right way for most people to save for their retirement. You have spoken eloquently about the problems and difficulties faced by the people who most need to save but find it most difficult to do so. Do you really want to deprive them of that ability to get £5 from £4 for another year?

Bryn Davies: No, no. I am not saying that this should not be included in the Bill. I do think probably that it is a bit tokenistic and that stronger measures to deal with poverty and crises caused by poverty within the social security system would be a more effective way of using the money, but I am not saying don’t do it.

[Jeremy Quin]

You would not stand against the principle of doing this, but you would like to do more things— I hear that.

[Jane Ellison (Battersea) (Con)]

Q I have just a brief comment. Does Mr Davies have any modelling or research that he has done to support his concerns around the interaction of these products and auto-enrolment? It would be useful if we could have that.

Bryn Davies: The short answer is that I do not and would not pretend that I did. If I were the only person saying this, I would be worried, but there is a broad swathe of opinion, not least including at least one Member in your own party, expressing these fears, so I do think they need to be taken seriously.

Sale of Annuities

Jeremy Quin Excerpts

Wednesday 19th October 2016 Commons Chamber

[Simon Kirby]

Let me deal with the points in reverse order. The hon. Gentleman will have to wait for the autumn statement to see what the finances look like, but it became increasingly apparent that not only was it not a good deal for consumers—those vulnerable people who we care about—but it was unlikely to provide the kind of income that had first been expected. We consulted extensively with the industry and consumer groups. I had many conversations with the Department for Work and Pensions, and particularly with the Parliamentary Under-Secretary of State for Pensions. The hon. Gentleman asks where information will be provided. The Government are introducing a new money advice service that will provide such information.

I shall finish with a quote from the Association of British Insurers, in whose interest the hon. Gentleman might suppose it was for us to continue with the policy. The ABI says:

“This is the right decision for the right reasons”

and that there were

“considerable risks for customers, including from unregulated buyers”.

We do not want to see unregulated buyers out there or vulnerable people affected.

[Jeremy Quin (Horsham) (Con)]

Does my hon. Friend agree that for a market to work, buyers as well as sellers are needed? To try to create a market where there are not both is an impossibility, and to have done so would have led to a potential disaster for consumers.

[Simon Kirby]

As ever, my hon. Friend makes an excellent point. There were very few people interested in buying those products, which would have resulted in a very poor deal for customers. The market was not big enough to provide value for money and on that basis we decided not to proceed.

House of Lords Reform and Size of the House of Commons

Jeremy Quin Excerpts

Wednesday 19th October 2016 Commons Chamber

[Mr David Hanson (Delyn) (Lab)]

I want to lay my cards on the table straight away and say that I support the motion and I support the comments of my hon. Friend the Member for Wansbeck (Ian Lavery). I have been here for nearly 25 years, and in that time I have voted on every available occasion to abolish the House of Lords. If I have not been able to abolish the House of Lords—self-evidently, I have not—I have voted for change in the House of Lords.

I will propose some changes that the Government could deliver, should they so wish, to improve democracy without achieving my ultimate objective of massive reorganisation of the formulation of the House of Lords. It is not tenable in the 21st century to have an unelected House deciding on policy. It is not tenable to have hereditary peers deciding on policy. It is not tenable to have hereditary peers who are elected by other hereditary peers, with very small mandates—sometimes as few as three votes—deciding policies that affect the lives of my constituents. At a time when the Government are seeking to reduce the membership of this House from 650 to 600 and to remove completely Euro Members of Parliament, whose powers and responsibilities will be transferred back to this House, it is not tenable for us to allow the House of Lords to continue unchanged.

The recently appointed Lord Speaker, Lord Fowler, is a former Conservative MP whom I remember being a member of the Cabinets of Mrs Thatcher and John Major when I first came here. He has said that there is no way the Lords can defend its current size of 820 peers and that

“we’ve been faffing around on this for some time now. And my fear would be that unless we take the initiative here someone else will”.

Let me suggest some simple initiatives. I will set the bar very low, because the Government’s position appears to be that they cannot make massive change, so they will make no change. A proposal to bring some things back into kilter is something that we in this House should support, and I suggest these three simple changes. First, let us remove from the House of Lords the 92 hereditary peers, 91 of whom, as I said in an intervention on the hon. Member for Perth and North Perthshire (Pete Wishart), happen to be men and only one of whom is a woman. Those 92 hereditary peers are elected by as few as three votes.

[Jeremy Quin (Horsham) (Con)]

As the right hon. Gentleman has just said, those hereditary peers are elected. The motion states that the Government should

“put in place plans to significantly reduce the number of unelected Lords”.

Is he proposing that the number of hereditary peers should stay the same, if he supports the motion?

[Mr Hanson]

If the hon. Gentleman listens to what I am saying, he will hear that I have three small points to make—three very low bars. The first low bar is the removal of the hereditary peers. The second low bar is not to fill any more vacancies with unelected peers until the House of Lords gets down to a reasonable size, below that of the House of Commons.

On hereditary peers, let me just say that one of those recently elected is the Lord Fairfax of Cameron, whose great-great-great-great-great-great-something grandfather got his peerage because he was the first Englishman to travel to Scotland to swear allegiance to the new King James I. I happen to think that in the 21st century, we should pick our legislators on more than the fact that one of their ancestors knew how to get to Scotland quite quickly. That is no way to run a modern House of Lords.

Lord Thurso, the last Member to be elected as an hereditary peer, was an hereditary peer but he renounced his peerage, came to this place and sat on the Liberal Democrat Benches until he lost his seat, when he suddenly rediscovered his blue blood. That is no way to run a modern democracy. In April this year, I introduced a ten-minute rule Bill to abolish hereditary peers. A Bill in another place in the name of my noble Friend Lord Grocott is designed to do something very similar to what the hon. Member for Morecambe and Lunesdale (David Morris) has suggested: not to fill the position of hereditary peers who retire or die. Those are both simple steps that could be taken now to remove the hereditary peers. Those things would be part of a wider package in due course, but the Government could certainly do them now. I am sure that no right hon. or hon. Member of this House would object to a small Bill to meet those objectives.

My second suggestion is not to fill vacancies until the size of the House of Lords gets down to that of the House of Commons. What is wrong with that? I want massive change—I have voted to abolish the Lords—but in the absence of consensus, let us look at how we can reduce the number of Members over time. That is perfectly reasonable.

The third suggestion may be revolutionary, but it is an attempt to find a compromise. I agree with the Government that Members of Parliament should represent equal numbers of constituents. Let us do that, but let us keep 650 MPs and have a boundary review on that basis, as my hon. Friend the Member for Wansbeck said. In my part of the world, Wales, we would lose seats under such a review—we have 55,000 to 60,000 electors in each constituency—but we would have the same number of constituents and reasonable representation. But, no, this Government are seeking to reduce the representation from 650 to 600 Members, while in previous 18 months the former Prime Minister appointed 132 peers to the House of Lords.

I am sorry, but I happen to think we need radical surgery and radical change. I have three simple suggestions to get the ball rolling: remove the hereditaries, freeze appointments and consider keeping 650 Members of Parliament with equal numbers of voters, including—dare I say it?—in the Western Isles and the Isle of Wight, which are slightly different. Let us look at those things and make sure we make some radical changes on the road to democratising this Parliament and giving a lead to the rest of the world.

--- Later in debate ---

[The Parliamentary Secretary, Cabinet Office (Chris Skidmore)]

It has been an honour to listen to this well-attended and, at times, feisty and passionate debate. I must admit that I am somewhat surprised at the SNP’s obsession with this particular issue and that they would choose this subject for their Opposition day debate. As my right hon. Friend the Member for Surrey Heath (Michael Gove) noted, we could have discussed other issues. I lost count of the number of times that the hon. Member for Perth and North Perthshire (Pete Wishart) talked about ermine.

Let us look at the public mood on this matter. A YouGov poll of June 2012 asked a simple question on the proposition:

“Reform of the House of Lords is vital: it should be a priority to change the system”.

Only 18% agreed, with 20% saying the House of Lords should be left alone. The overwhelming majority—52%—said that it was not and should not be a priority. The 2015 Conservative manifesto agreed with this principle by saying that it was “not a priority” in the next—meaning this—Parliament.

As the Deputy Leader of the House of Commons said at the beginning of the debate, the House of Lords has begun reform in the last few years. Important reforms have been introduced and they have been successful because they have been driven by the Lords themselves. Since the introduction of the House of Lords Reform Act 2014, for instance, peers have been able to retire simply by giving written notice to the Clerk of the Parliaments.

[Jeremy Quin]

The Minister has referred to reforms that have taken place over the past few years. Does he share my concern about the possibility that the motion, as drafted, could reduce the number of appointed peers to less than the number of hereditary peers?

[Chris Skidmore]

That is an interesting point, which I do not think has been made before in the debate. The motion could, in fact, suggest that the number of elected peers remain at 93, which would cause something of a constitutional abnormality.

Since the introduction of the House of Lords Reform Act 2014, peers have been able to retire. Such retirement is permanent, and cannot be rescinded. More than 50 peers have chosen to retire, including 16 so far in 2016. That important reform has had an impact not just on the numbers in the House of Lords, but on the way in which it operates. The Act also provided for peers to be expelled for non-attendance, and the House of Lords (Expulsion and Suspension) Act 2015 gave the Lords new powers to expel its members for serious misconduct. The cost of the Lords has also been reduced by 14% in real terms since 2010.

Let me now deal with some of the excellent speeches that have been made today. I welcome the return of the hon. Member for Wansbeck (Ian Lavery) to the Front Bench. We once engaged in a debate together in Westminster Hall, but I am glad to see him back in the Chamber, and I am glad to see the rest of the shadow ministerial team as well.

When speaking of the number of peers who had been created, the hon. Gentleman conveniently forgot to mention that it was a Labour Government who created 408 of the current number. More recently, Labour used a peerage to appoint Baroness Chakrabarti to the shadow Cabinet. It is a shame that the hon. Gentleman decided to undermine her position here today.

My right hon. Friend the Member for Surrey Heath made a fiery speech highlighting the essential fact of the British constitution—what matters is what works—and the vital role of the institutions that make up our Union. He also cited a key fact about boundary reform, pointing out that the call for equally sized constituencies had been a clarion call since the Chartists and the People’s Charter of 1838.

My hon. Friend the Member for Weston-super-Mare (John Penrose), my excellent predecessor, said that he was even willing to put his own marital relations at risk for the sake of his belief in reform of the House of Lords. He also said that boundary reform to bring about equally sized constituencies was an essential priority.

Quantitative Easing

Jeremy Quin Excerpts

Thursday 15th September 2016 Commons Chamber

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

I beg to move,

That this House calls on the Bank of England to provide a detailed analysis of the effect of its quantitative easing programme on the financial markets and the wider economy which includes an assessment of the future development of the quantitative easing programme and other monetary policy measures it may consider appropriate to achieve its objectives.

I draw the attention of the House to my entry in the Register of Members’ Financial Interests.

I understand the motivation to introduce the quantitative easing programme back in March 2009. The need to restore confidence and take action to stimulate lending and growth after the financial crisis was well understood. As QE was put in place, many commentators were worried about unfounded risks of inflation, which betrayed an ignorance of what the effects of QE would be.

My primary concern about the Bank of England’s QE programme, the asset purchase scheme, was not that it might lead to some kind of hyperinflation, but instead that it would not necessarily lead to an increase in lending. That was the evidence from Japan, where for a significant period after the introduction of its unconventional monetary policy, lending actually fell. Of course, that outcome has been mirrored here. If we look at M4—also referred to as broad money—its value in January 2010 was £2,220 billion. The figure for July 2016 was £2,210 billion—a slight fall in the value of broad money. Now, the improbable counter-factual is that lending might have been lower without QE; the inescapable fact, though, is that engaging in quantitative easing to the extent we have has not resulted in an increase in the money supply in the UK. It does seem that the asset purchase scheme has predominantly enhanced the balance sheets of financial institutions, without a commensurate increase in lending.

We understand the difference between QE and simply printing money, which is that QE should eventually be unwound, although the mechanisms and timings are the great unknowns of today. Just to put this into context, the Bank of England now owns an eye-watering quarter of all outstanding Government debt—in effect, we have borrowed against ourselves.

When I sought the agreement of the Backbench Business Committee for this debate, it was ahead of the Bank of England announcing further measures in August to add to its QE programme. That means that this is a very timely, much-needed debate, and it is right that, seven and a half years into the QE programme, we in this House take stock of what has been achieved and, indeed, what the interaction between monetary and fiscal policy should be to deliver confidence and growth for our economy.

With the measures announced in August, the Bank of England has authorised a QE programme of £445 billion. The desire to drive down interest rates, coupled with the effect of the QE programme, has seen investors seek other, higher-yielding assets, with a commensurate increase in asset prices and a decline in yields. Given those circumstances, the financial markets have seen a great bull run. The FTSE 100 was at a level of 3,529 on 6 March 2009, ahead of the launch of the QE programme. Last night, the index closed at 6,673, representing a gain in value of 89% over the last seven and a half years. The QE programme has helped to deliver an outcome that means that those owning financial and property assets have done well—that was perhaps an unintended consequence of QE—while, on the face of it, there has been no net positive impact on growth in the money supply.

[Jeremy Quin (Horsham) (Con)]

I note what the hon. Gentleman says on the money supply. The Bank of England reports do indicate an increase in growth in the economy as a result, certainly, of the first round of QE immediately post the first financial crisis, so it may yet have had a positive impact on the level of inflation in the economy and GDP growth—clearly of benefit to us all.

[Ian Blackford]

My contention would be that we have actually had very limited reporting from the Bank of England on the actual effect of the QE programme, and we need a much more detailed analysis. I accept, of course, that there would have been some limited impact on the economy from the QE programme. I will go on to discuss whether we need to balance some of these monetary measures by taking additional fiscal measures, which may have done more to boost sustainable economic growth. That marriage of our responsibilities for monetary and fiscal policies has to be relevant to the point the hon. Gentleman made.

As the Prime Minister herself said:

“Monetary policy—in the form of super-low interest rates and quantitative easing—has helped those on the property ladder at the expense of those who can’t afford to own their own home.”

On this occasion, I agree with the Prime Minister—I do not intend to make a habit of that though.

There has to be a policy response from the Government that recognises that fiscal measures must be taken as part of a balanced approach to deliver the circumstances of sustainable growth. If we look at the growth in financial wealth, we can see the contrasting experience of those who have benefited from this wealth effect at a time that real wage growth has stagnated. We know from an analysis published by the Bank of England in 2013 that QE had boosted asset prices and that the top 5% of households owned 40% of those assets. The analysis from the Bank of England at that time estimated that the top 5% of households had become richer to the tune of £128,000 on average. QE has demonstrably exacerbated wealth disparity between rich and poor.

--- Later in debate ---

[Mr Steve Baker (Wycombe) (Con)]

I am delighted to participate in this debate and congratulate the hon. Member for Ross, Skye and Lochaber (Ian Blackford) on securing it. I certainly support him. Like him, I am pleased to agree with my right hon. Friend the Prime Minister’s comments on monetary policy. That is certainly a first for me, and I hope to explore more with her how we should move forward.

I pay tribute to the journalist Tim Price of MoneyWeek for bringing forward a petition on the parliamentary website against QE, which has so far secured more than 4,700 signatures. I hope that by the end of this debate, with the enormous audience it is bound to draw, there will be a few more signatures.

One of the great tragedies of this subject is that, although we might think it is one of the most important issues of our time, it is not well understood, as can be seen from the attendance in the Chamber. Although the public feel the effects of it widely, their representatives are not as well equipped to participate in debates on the subject as they might be.

I will talk about the two areas mentioned in the motion: the effects of QE and the future development of policy. It might be helpful first to turn to page iv of the last inflation report, which sets out the channels through which monetary policy works. The first is by bringing forward spending by lowering the “real interest rate”. The next is by lowering debt servicing costs, which is the “cash-flow channel”. There is the lowering of funding costs, which is the “credit channel”. It also mentions the “wealth channel”, which is people selling assets to the Bank, so that they can

“reinvest the money received in other assets”,

thereby supporting asset prices. The “exchange rate channel” bears consideration, given that our exchange rate has just dropped. That is an object of Bank policy. There is also the “confidence and expectations channel”, which demonstrates that the Governor, the Bank and the Monetary Policy Committee are aware of the importance of their role in the markets of creating expectations and the effect that that has on the real economy.

The hon. Member for Ross, Skye and Lochaber made some good points about wealth inequality—a matter on which I will dwell. In 2012, the Bank of England wrote a report on the distributional effects of asset purchases. It states:

“By pushing up a range of asset prices, asset purchases have boosted the value of households’ financial wealth held outside pension funds, but holdings are heavily skewed with the top 5% of households holding 40% of these assets.”

After the MPC’s last inflation report, the Treasury Committee picked up on wealth inequality and the extent to which it is promoted by what I would call “easy money” and by QE specifically. The Committee is increasing its focus on the issue. I am glad to see present the hon. Member for Bishop Auckland (Helen Goodman), who serves with me on the Committee, and I look forward to hearing what she has to say. I think that hon. Members on both sides of the House are converging on a genuine concern that the processes of the market are being undermined in their justice by the current set of monetary policies.

If anything, QE has an upside: it has made explicit a phenomenon that has been going on for a long time. The hon. Member for Ross, Skye and Lochaber mentioned the quantities of M4 outstanding. If we look back a bit further, we will see that M4 outstanding in 1997 was about £700 billion. If we plot the quantity of M4 outstanding, we will see an accelerating rush through that supposed moderation and in the quantity of M4 outstanding. Is it any wonder that we seemed to have abolished boom and bust, and seemed to be getting better off, when actually there was an enormous acceleration in the supply of credit, leading to a crisis, broadly a stagnation in the creation of money, and the categorically different economic environment in which we find ourselves today?

This has gone on for a long time. The Office for National Statistics and the Library published a paper looking at price inflation back to 1750. It has an instructive chart—I regret that I cannot put it on the record—which shows, on a linear scale, that the value of money was broadly flat until about 1914-18. There was some inflation during the wars and then, from 1971, the value of money collapsed. What happened in 1971? The final link to gold was severed and money became inflationary. As ever, Governments’ third means of financing themselves after tax and borrowing has been currency debasement, and it is that continuous, chronic expansion of credit that has brought us to the position we are in. Although we are now increasingly concerned about the wealth equality effects—the justice effects—of QE, the point is that the money supply has been chronically expansionary since 1971, and therefore those effects have been going on throughout my lifetime.

I will not read out the whole passage, but in “The Economic Consequences of the Peace”, Keynes wrote:

“By a continuing process of inflation”—

that is, increasing the money supply—

“governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.”

What has changed? Nothing much. That was, of course, only Keynes; I am not quoting some wild-eyed libertarian monetary scholar.

Is it any wonder—I have given advance notice of this—that we see reported in The Daily Telegraph today a speech by the hon. Member for Hayes and Harlington (John McDonnell), in which he said:

“We’ve got to demand systemic change. Look, I’m straight, I’m honest with people: I’m a Marxist… This is a classic crisis of the economy—a classic capitalist crisis. I’ve been waiting for this for a generation!”?

He went on to say, if the House will forgive me for repeating this:

“For Christ’s sake don’t waste it, you know; let’s use this to explain to people this system based on greed and profit does not work.”

I have covered this theme before. The point is that, if this is capitalism, I am not a capitalist. It is not capitalism when money, under the centrally planned and directed policy of a committee of wise men and women at the central Bank, creates a chronically expansionary environment, which we are now beginning to realise has real wealth effects. That is not capitalism. If the outcome is unjust, that is because of our monetary arrangements, in my view. There will be other factors, but I think that that is potentially a profound cause of wealth inequality and injustice in the market economy.

[Jeremy Quin]

I am interested in my hon. Friend’s speech; as is so often the case, he is sharing interesting ideas with the House. I totally get a lot of what he is saying about the inflationary trajectory, but, as a monetarist, would he have supported QE when the policy was launched in 2009—I know that I am going back a bit—given the circumstances at the time? He seems to think that it has run its course and ceased to be effective, but would he have supported it initially?

[Mr Baker]

My hon. Friend asks a magnificent question, one that is discussed on the website of the Cobden Centre—a think-tank that I co-founded. [Interruption.] There, I said it. The question is, “Would Hayek have supported QE?” The consensus of Hayek scholars is that, given all the circumstances at the time, he would have supported it, to prevent the money supply collapsing and the horrific humanitarian consequences that that would have involved. But would he have supported it now to try to stimulate the economy, creating patterns of economic activity sustained only by that expansion of the money supply? Flatly, no. I was not in Parliament at the time, and I am happy to tell my hon. Friend that I did not have to make that decision. We are where we are.

My second point is that I believe policy is now ineffective and counter-productive. The Governor told the Treasury Committee that we have “extraordinary, if not emergency” monetary policy; we have had it since 2009. I believe that if, during that seven-year period, productive investments could have been made, brought forward and induced by these low interest rates, they would have been made by now. When it comes to real productive investment, I think we are into the law of diminishing returns. We therefore run the risk of inducing firms to engage in activities that will not have a return—in other words, banks will make non-performing loans. That is, of course, the problem afflicting the Italian banking system, as we sit here.

The question is whether this monetary policy can produce a self-sustaining recovery and do it in a non-inflationary way. One of my advisers wrote to me before this debate to say that if we

“remove the base effects from the collapse in oil prices—as will happen over the coming months—and then just let the underlying ‘core’ inflation trends continue as they are, CPI would be 4%+ by mid-2017.”

That is something I shall ask the Governor about next time we see him.

Further to what the hon. Member for Ross, Skye and Lochaber said, Andrew Lilico, an economist at Europe Economics, has pointed out:

“In the three months to July 2016…the UK’s broad money supply (on the Bank of England’s preferred ‘M4ex’ measure) grew at an annualised rate of 14.7%”.

When I raised this with the Governor at the last Treasury Committee meeting—I used the monthly figures; it is far starker if we look at it quarterly—I asked whether, if the money supply is currently growing by 14.7% annualised over three months, we should expect more or less inflation next year. I think that I know the answer, but when I put it to the Governor, his answer was that aggregates had moved away from the whole problem of inflation targeting. I encourage the hon. Member for Ross, Skye and Lochaber to have a look at exactly what he said. I shall return to some of the Governor’s remarks in a few moments.

--- Later in debate ---

[Helen Goodman (Bishop Auckland) (Lab)]

I congratulate the hon. Member for Ross, Skye and Lochaber (Ian Blackford) on securing this important debate, and I am pleased to follow the hon. Member for Wycombe (Mr Baker), with whom I have discussed these issues on several occasions.

Inequality is one of the most profound problems facing this country and it is getting worse. The problem of inequality is exacerbating differences between different social groups, dividing families, because there are big intergenerational gaps, and also dividing this country geographically, with very significant regional inequalities. So to learn that the Bank of England’s quantitative easing is expanding these gaps between rich and poor is extremely alarming.

As the hon. Member for Ross, Skye and Lochaber said, the Bank undertook its own analysis of the impact of QE in 2012. I think that what it found was that the top 5% had seen an increase in their wealth of £185,000 and the bottom 50% got no increase in their wealth because they did not have assets.

Unlike the hon. Member for Wycombe, I am not critical of QE in principle or of the package the Bank of England unveiled in the early summer, because I think Brexit is a real shock to the economy and we do need to take action to stabilise it and avert the reductions in growth that would otherwise occur. None the less, I am not satisfied that the Bank had demonstrated that the way in which it was carrying out quantitative easing was the best way, which is why I think it worthwhile for us to examine the issue in more detail.

Just to set in context the increase in the asset holdings of the top 5%—a considerable part of it being in the housing market and property prices—it is worth observing that the average house price in Britain is now £212,000. What we are saying is that, in practice, the Bank of England has given the top 5% enough money to buy another house. Were the Chancellor of the Exchequer to stand up at the Dispatch Box and say, in the Budget or the autumn statement, “I am giving £85,000 to the richest people in the country”, I think that even Conservative Members would be alarmed and concerned, and perhaps even slightly rebellious. But because it is being done by the Bank of England and is rather hidden, we are not seeing the same level of concern, and we need to see the same level of concern.

Moreover, it is a problem when the ratio of average earnings to average house prices is eight to one. That puts the possibility of home ownership way beyond many millions of people, which is why home ownership is falling. Of course we need to address the housing market, and of course we need an increase in the supply of housing, but we are not seeing that at the moment, and QE is making the situation worse.

[Jeremy Quin]

I entirely understand the point that the hon. Lady is making, and I accept what she said about the Chancellor of the Exchequer coming to the Dispatch Box and so forth, but I would not wish the message to go from the House to a broader audience that that was an intended aspect of the policy. When QE was introduced by the last Labour Administration, it was introduced with the perfectly admirable intention of ensuring that GDP growth was improved and inflation targeted. I would not wish the wrong message to go out on the intention of the policy; we are debating potential side-effects that may or may not have occurred.

[Helen Goodman]

What the hon. Gentleman says is absolutely fair, and I agree with him. I would not go so far as to say, “Labour QE good, Tory QE bad”—I think that would be slightly Orwellian—and, as I said initially, I was not saying that I did not think there should have been another package this summer. My questions are about the way in which that is done.

Along with the hon. Member for Wycombe, I have quizzed the Bank of England about the matter on three separate occasions. On the first occasion, when I asked the Governor about the distribution impact, he said that taking account of distribution would be political. I cannot see how giving wealthy people more assets is not political. However, we have questioned the Bank more recently, and it seems to me that people in different parts of it say different things. I think it would be unfair to say that they speak with forked tongues. However, on one hand the chief economist, Andy Haldane, has said that monetary policy

“cannot close other structural faultlines across the UK economy – for example, regional, socio-economic, inter-generational… Monetary policy cannot set different interest rates for different regions”,

and also that UK recovery has been

“for the few rather than the many”.

That seems to be a criticism of an unequal society. Andy Haldane seems to be saying that this is not good socially and it is not good economically.

On the other hand, when the Treasury Committee questioned Sir Jon Cunliffe on the matter, he said:

“I would only point out that we have the tools we have.”

That is a bit like “Brexit means Brexit”. It is a rather gnomic and unhelpful approach. I think it is stalling; I think that the Bank does not want to look at different ways of carrying out QE, and I do not think it is being sufficiently imaginative.

In January I visited the European Central Bank in Frankfurt and asked how it does QE. It does it in different ways, and it is able to do so in part because the financial infrastructure is different in other countries. For example, it does not just buy Government bonds and gilts; it buys bonds in KfW and CADES—the German and French infrastructure banks—and it has a special strand that aims to get more money into the small and medium-sized enterprise sector. So I do not accept the Bank of England saying, “We have the tools that we have and there is nothing different we can do.”

I commend to the Bank some work that the New Economics Foundation has done on this. It seems to me that the Bank could be buying investments in housing associations, for example. In fact, that would be a much better way of dealing with our housing crisis than giving a lot of money to rich people, thereby pulling up property prices. I do not think that the Bank has a very good understanding of the housing market—we have quizzed its officials on that as well. For example, the Governor told us last week:

“Housing finance in this economy is quite sophisticated”.

I do not think that it is sophisticated; I think that it is quite dysfunctional, because we are seeing more and more money going into people exchanging properties, rather than going into more building, which is what would actually make a difference to the housing crisis.

I really hope that the Bank will not only better analyse what it is doing, as the motion suggests—it did commit to come back in September 2018 with renewed analysis of the impact on assets and wealth distribution of this further round of QE—

Charter for Budget Responsibility

Jeremy Quin Excerpts

Wednesday 20th July 2016 Commons Chamber

[John McDonnell]

I will come on to the way in which the fiscal rule implementation has harmed the economy and prevented economic growth, resulting in the slowest recovery from recession in our history, but I shall now press on. I listened—

[Jeremy Quin (Horsham) (Con)]

Will the hon. Gentleman give way?

[John McDonnell]

It would be helpful if I could just finish this sentence.

I listened to the Prime Minister’s answers at questions today, which unfortunately suggested that she will largely be sticking to the fiscal approach that has failed so badly. So the uncertainty continues, and until this Government make their plans clear, Britain will be on hold.

[Jeremy Quin]

On the speed of the recovery, we are coming out of the deepest recession that we have perhaps ever known, and I am sure that the hon. Gentleman would recognise the fact that we have recovered far faster than many of our major industrial competitors.

[John McDonnell]

This is the slowest recovery in our history. The last time a date was put on it was 1066. The way in which we are recovering is on the basis of increased household debt, low incomes and insecure jobs. I do not think that any Government should be proud of that record.

--- Later in debate ---

[The Chief Secretary to the Treasury (Mr David Gauke)]

This Government have been clear that we will not waver in our determination to take every opportunity to stabilise and strengthen the British economy. Ever since we were elected in 2010, we have been resolute in carrying out our plan to build a more resilient economy—one where we invest in our future growth; one where we return the public finances to a sustainable position; and, therefore, one where we are ready for whatever comes our way.

It has not always been an easy course to follow. The Government and the British people have worked hard to fix the public finances. We have had to make tough choices and difficult decisions.

We can be proud of what we have all achieved over the past six years. We have brought down the deficit by almost two thirds from its post-war peak in 2009-10. We have the highest employment on record and the lowest rate of unemployment in more than a decade. There are almost 1 million new businesses in our country since 2010 and, working with the Bank of England, we have strengthened the financial system. That is a long way to have come.

The second thing that we can all be proud of are the strengths that we still have in this country. We are still one of the best places in the world to do business, one of the best places in the world to invest, and one of the most innovative, forward facing and outward-facing countries in the world.

It is because of that hard-won recovery, and because of our hard-working families and businesses and the enduring strengths that we still have here in the UK, that we are all now in a position, and are as ready as we could possibly be, to see out whatever challenges come our way next.

[Jeremy Quin]

On the question of the UK being a great place to do business, does my right hon. Friend agree that cutting corporation tax, which was referred to by the proposer of the motion, is a very positive sign and a way of attracting businesses to locate and invest in this country?

[Mr Gauke]

I completely agree with my hon. Friend. Our record on corporation tax—we cut it from 28% in 2010, it is now 20%, and we have legislated to reduce it to 17%—has made the UK much more attractive. The likes of the OECD have made it clear that corporation tax is one of the most distorting and, therefore, least growth-friendly taxes. The fact that we have moved so dramatically in this era—during which we have also put the public finances on a sounder footing—to make our business taxes much stronger puts us in a much stronger position than we would otherwise be. It is striking that, in survey after survey of international businesses, the position of the UK has improved in terms of our reputation as a place to do business. In particular, our tax reforms have helped attract investment here. I know from the meetings that I have had with international businesses when they are choosing where to locate activity that the fact that our corporation tax regime is more competitive is a factor that helps to drive investment to the UK.

Alongside that, we have taken significant steps to ensure that the international tax system is such that businesses pay the taxes that are due, but it is absolutely right that the UK positions itself as a more competitive place, and that is what we have done.

--- Later in debate ---

[Stewart Hosie]

I agree that confidence will come from a reduction in debt as a share of GDP and a real reduction in the deficit, and I have no aversion whatsoever to genuine, substantial private sector investment. Unfortunately, in the current climate, because of the Brexit decision, there is a bit of a hiatus—substantial investment is being put on hold and might be lost. Trust me, in the competitive international world, every other country in Europe will be saying, “See that £10 billion you were putting into the UK—bring it here.” They will be saying that in Germany and France, and when we are independent, we will be saying it in Scotland too. This is when the UK Government should be stepping in to make sure that any gap in essential investment is filled.

On the alternatives, others have pointed out that the UK can run deficits and allow the ratio of debt to GDP to drift down over time, arguing that the value of debt can be eroded through economic growth. We have not heard a lot about growth. For many years, the mantra from the Government was: growth alone will not solve the problem. I happen to agree, but there has been no plan for growth at all. Instead, we have had almost a fetish and obsession with austerity and cutting debt, irrespective of the growth consequences.

[Jeremy Quin]

The hon. Gentleman says he has not heard enough about growth. I will give him some stats. The IMF says that UK growth will be greater than that of Germany and France. They might well try to lure expenditure in their direction, but our growth is still exceeding that of our European partners.

[Stewart Hosie]

Growth in the UK exceeds that in other countries sometimes. It is higher than G7 averages sometimes; other times it is not. The most up-to-date forecast is for a likely cut in growth to 0.8% next year. That would be lamentable and unforgivable if it is avoidable.

My biggest problem with the charter is that the poor pay the price for this obsession with cuts. The fiscal charter was not delivered in isolation; it was delivered with a welfare cap limiting how much could be spent by Government on certain social security benefits over the rolling five-year forecast period. Performance is then assessed by the OBR, which reports at each autumn statement on whether the relevant welfare spending has met or exceeded the level of the cap. It is highly likely, as we have seen and heard and as the Government have effectively conceded, that the OBR will tell us that the cap has been breached and will continue to be so for the rest of the Parliament.

We have, therefore, a fiscal mandate designed to suck consumption out of the economy; a fiscal mandate driving £50 billion a year more in cuts by the end of the Parliament than is necessary to run a balanced current budget; a mandate that, in essence, delivers inertia and might delay the necessary fiscal and monetary policy steps required to maintain growth; and a fiscal mandate that is ripped up if it fails, without a new plan—which would be necessary—put in its place. That fiscal mandate, in essence, is simply not worth having, so we will vote for the Labour party’s motion today. I would say to the Government, however, that they should suspend the fiscal charter, go for growth and build consensus on a charter or a mandate that has the confidence of politicians, the markets and the public.

--- Later in debate ---

[James Cartlidge]

I will repeat the point. I think that monetary policy comes first in the present circumstances. I think that the Governor of the Bank of England is a very reassuring force in these times. He issued those warnings about Brexit because he was asked to state his opinion, and he stated it as honestly and transparently as he could. Once Brexit was the result—and it was a shock, as I think everyone concedes, even those who wanted Brexit passionately—he was a very reassuring presence for the Government.

As for fiscal policy, Opposition Members have mentioned measures such as huge amounts of investment. This may be only my personal view, but I would always emphasise that it is private sector investment that we should seek to drive, and a key part of that is the credibility of the Government’s overall stance.

[Jeremy Quin]

We hear calls for a fiscal stimulus, and I recall that there were similar calls during the financial crisis. People demand shovel-ready infrastructure projects, saying, “Let’s spend the money,” but such things always take time. The idea that a magic tap can be turned on and immediately flood the economy with a fiscal stimulus is illusory, and that is why people turn to monetary policy first. There are those who get excited and say that we need the ability to change now, but I think that that is a delusion.

[James Cartlidge]

I agree with my hon. Friend, but I would make one point about shovel-ready projects. We have quite an advanced business plan for a Sudbury bypass. If the Government decide to go down the Keynesian route of looking for shovel-ready schemes, we are ready in South Suffolk, and we are waiting for the bypass for which we have been campaigning for many decades.

There is an aspect of the charter for budget responsibility that has not yet been mentioned during today’s timely debate. The charter states:

“The Treasury’s objectives for fiscal policy are to: ensure sustainable public finances that support confidence in the economy, promote intergenerational fairness, and ensure the effectiveness of wider Government policy”.

The phrase “promote intergenerational fairness” strikes me as incredibly important. I hope that my Whip will show me some intergenerational fairness, and allow me a couple more minutes. I will not be long.

We have had a Conservative leadership election, and we are still having a Labour leadership election, but, as far as I am aware, no one has debated the following facts. Our national debt stands at £1.65 trillion; according to the Institute of Economic Affairs, our liabilities amount to £5 trillion; and it is estimated that, by 2062, all pensioner benefits will cost £491 billion. I was going to say a lot more about that, and there is a lot more that needs to be debated, but I am getting the hint.

Surplus Target and Corporation Tax

Jeremy Quin Excerpts

Monday 4th July 2016 Commons Chamber

[Mr Osborne]

The British Business Bank—which was created under a policy announced by me at this Dispatch Box—is working successfully, and I pay tribute to Liberal Democrat colleagues in the coalition Government for helping us to deliver it. Of course it has an important role to play in the future. The right hon. Gentleman is right, in the broader sense, to say that we need to look at what we can do to support demand and credit in the economy. The Bank of England has many tools, and the Governor of the Bank has already indicated that, in his personal opinion, we should be looking at monetary easing.

[Jeremy Quin (Horsham) (Con)]

I congratulate the Chancellor on his fiscal response, and also on his comment on Heathrow in the statement. Will he reassure the House about the strength and stability of the UK banking system, given the reforms of the last six years?

[Mr Osborne]

I thank my hon. Friend for his remarks. I should point out that I did not identify where the additional runway should be in the south-east of England, although I cannot but note that his constituency is next to Gatwick, so that may have been a loaded question.

As for my hon. Friend’s broader point, he is right to point to the stability of the banking system. Although we remain vigilant, we are not, today, talking about a banking crisis, despite a very significant adjustment in financial markets. That is because of difficult decisions made by this Government and their coalition predecessor to strengthen the capital requirements, so that banks have 10 times as much capital as they had seven or eight years ago, and to strengthen the oversight of our banking system by putting the Bank of England in charge. I think that those decisions have been justified by what has happened in the last 10 days, but that does not mean that we can ease up; of course we remain vigilant.