Draft EU Budget 2011

Kelvin Hopkins Excerpts

Wednesday 13th October 2010 Commons Chamber

[Justine Greening]

The hon. Lady is assuming that those Members who have tabled amendments will press them to a vote. Perhaps she is prejudging the outcome of the debate. We welcome the debate because, tomorrow, I shall be in Brussels pressing our case in respect of the European Union budget, and it is vital that we are able to say that we have scrutinised the document thoroughly in our European Parliament.

In regard to the European Union, matters such as the single market, enlargement and environmental standards have seen real progress, but the EU budget does not have pride of place among the EU’s achievements. I will not hide from the House the Government’s frustration that some of our partners—and those in EU institutions—do not seem to understand how bizarre it is, when national budgets are under such extraordinary pressure, that the EU should be immune from that. So here in the UK, the week before a very tough spending review, it is only right that we should subject the EU’s budget for 2011 to the same level of scrutiny as our own national accounts.

As I said to the hon. Member for Birmingham, Edgbaston (Ms Stuart), I will be in Brussels tomorrow, holding discussions with Commissioner Semeta, the Belgian presidency and MEPs on this very subject, pressing them to take the close, objective, pragmatic and responsible look at the EU budget that is long overdue, just as we are doing in the House today. I will, of course, come later to the previous Government’s giveaway of the rebate, which is one of the main reasons why we will see our contributions rising over coming years, but let me begin by summarising this Government’s approach to the Commission’s EU budget proposals.

At the beginning of the debate, let me also clarify our response to the amendments: I absolutely agree with the sentiments of both. Amendment (a) was tabled by my hon. Friend the Member for Stone (Mr Cash) and I would like to take this opportunity to pay tribute to the time, effort and work he has put into scrutinising not just the EU budget but a whole range of areas in which the EU has become involved. His persistence has certainly paid dividends in ensuring that this matter has maintained the prominence in the UK Parliament that it absolutely deserves.

[Kelvin Hopkins (Luton North) (Lab)]

I agree with much of what the hon. Lady has said, particularly about the splendid work done by the Chairman of the European Scrutiny Committee, of which I am also a member. The Government now have the power to do something about the budget. Having complained about it for so long—I agree with those sentiments—is it not time for the Government to say no to the European Union on these matters?

[Justine Greening]

In fact, we are doing just that. I will come on to more detail about what we are doing now and what we plan to do, clarifying the arguments that we are putting to the European Commission.

Let me be clear that the Government will support the amendment tabled by my hon. Friend the Member for Stone. We very much welcome the pressure applied to the European Parliament to reject the proposed rise. We will do our bit as Ministers and as a Government to put pressure on that Parliament, and particularly on our MEPs, to reject any proposed rise. When the shadow Minister, the hon. Member for Bristol East (Kerry McCarthy) makes her speech following mine, I very much hope that she will confirm that the Opposition will press their MEPs to oppose any rises in the EU budget. Perhaps my hon. Friend the Member for Stone will want to press her further on that.

Amendment (b) was tabled by my hon. Friend the Member for Clacton (Mr Carswell) who, despite spending less time in this House than my hon. Friend the Member for Stone, has also clearly established his role as one of those MPs who scrutinises all EU matters carefully in a way that adds quality to our debates. I want to make it clear to him that we absolutely agree with the sentiments behind his amendment. We want to see the 2011 budget cut. The problem with the amendment is that if we withdrew our money from the EU, under its terms that would be illegal. We cannot support an amendment that would make our action illegal, so we will have to reject it, but I can tell my hon. Friend that if he had worded the provision slightly differently, we might well have been able to support both amendments. It is with regret that we have to reject his amendment, despite agreeing with its sentiments.

Let us talk about our concerns over the EU budget. It is not just the size of the draft EU budget but its effectiveness that is an important matter of concern.

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[Kelvin Hopkins]

I am sure that it is of interest to the House that the amount to which the Minister has referred is twice the amount that the Government propose to save by cutting child benefit.

[Justine Greening]

That is the sort of argument that I have been presenting to other European countries, including the French Minister who was in London a few weeks ago. As the hon. Gentleman says, it is simply untenable for the EU budget to remain unchallenged when across Europe we are making incredibly difficult decisions on our national budgets. The way in which the hon. Gentleman phrased his argument is exactly the same as the way in which I have been pitching ours to our European partners. We are hopeful that, over time, there will continue to be a growing sense among them that we do indeed need to start challenging the European budget that is currently proposed.

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[Justine Greening]

So, my hon. Friend is right to raise that issue.

In conclusion—

[Kelvin Hopkins]

Will the hon. Lady give way?

[Justine Greening]

No, I think I need to wrap up.

We are absolutely committed to pressing for the EU budget to be smaller. We will not have rises in the EU budget undermining our attempts and our desire to tackle our fiscal deficit. We will challenge the 2011 budget, which does just that.

I welcome the support of this House in sending a common view to Europe. I hope that we will be able to do that later tonight and I look forward to seeing whether we get support from the main Opposition party on this matter, too.

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[Kelvin Hopkins (Luton North) (Lab)]

It is a great pleasure to speak in this important debate, although I will not detain hon. Members for long. First, I commend the Chair of the European Scrutiny Committee for what he said. It is interesting to see him as a restraining voice in Euroscepticism. What he said is common sense. The Government have to go to Brussels or Strasbourg—or wherever they meet—with, one would hope, the united backing of the House or, if not, at least the united backing of those on the Government Benches. I will certainly be supporting the hon. Gentleman’s amendment; indeed, I will support both amendments if they are put to a vote.

I have been a member of European Standing Committees for some 13 years. Over those years I have debated European budgets countless times, yet in all that time none of them has been approved by the European Court of Auditors. We just seem to nod through the fact that a budget costing the countries of Europe billions every year is not approved by auditors. We just accept it. One cannot imagine the British Government doing that—not having their Budget approved by auditors—every year.

There has been a significant increase in our net contribution, and that will continue. Attention was drawn to the problem yesterday—very well, I thought—by the hon. Member for Bury St Edmunds (Mr Ruffley) in Treasury questions. Indeed, I have spoken many times about the Blair deal—the deal made that December night a few years ago when, apparently without consulting very many people, he arbitrarily gave away a significant proportion of our rebate. The Economist—not a supporter of left-wing Eurosceptics such as myself—said that no deal would have been better than that deal, and it was right. I shall therefore be supporting the amendments.

The budget is fundamentally flawed and has been so since its inception. Throughout that time, the core of the problem has been the common agricultural policy. I have called many times for the common agricultural policy to be abandoned and for agriculture policy to be returned to member states. Member states have different agricultural industries, and each of us would choose what to subsidise and how to subsidise it. Our own agricultural sector needs some subsidies, particularly in certain areas—an example would be Welsh hill farmers—to preserve our rural heritage and industries; it is sometimes necessary for them to be sustained by subsidy. The way the CAP operates is nonsense, however. We have changed it over time, but it has not been properly dealt with.

Another problem is that the net redistributive effect of the budget acts in an arbitrary way, in that some relatively rich countries are net recipients, whereas some relatively poor ones are, unjustly, net contributors. We have a smaller agricultural sector than many other countries, and we have, unfairly, been a net contributor. I would not agree with Mrs Thatcher on many things, but I thought it was right that she negotiated a rebate. [Hon. Members: “Hear, hear!”]

I shall differ from Conservative Members now, however, by saying that I should like a socialist approach to Europe, whereby the redistributive effects of the budget are balanced in such a way that the poorest countries are net recipients and the richest are net contributors, in proportion to their relative living standards and the success of their economies. As one of the richer countries, we would no doubt be a net contributor, but such a system would be rational and fair. The budget as it stands is neither rational nor fair.

We ought to return to the Blair agreement. If we are to negotiate a more sensible budget with our European colleagues, we should start to look at contributions again. If our own contributions had been negotiated in sterling cash terms, rather than euro cash terms, we might not have suffered so much as a result of depreciation. We are paying more because we necessarily depreciated our currency, although I am glad that we kept our own currency and that we are able to flex it according to our own needs.

Other countries have suffered terribly through being unable to do that—Ireland is a case in point. In real terms, it is part of the sterling economy, not the euro economy, and it has suffered as a result of our depreciation, because it has been unable to depreciate its currency. I have told Irish colleagues whom I have met through the European Scrutiny Committee that the logical thing for them to do would be to recreate the punt and devalue against the euro to come into line with sterling. That would be very beneficial for the Irish, and I hope that they will consider doing it at some point. It would be fairer for us if contributions were measured as a proportion of gross domestic product, because they would not be subject to change as a result of depreciation.

I have spoken many times on the European budget, and I believe that it is nonsense. I am waiting for common sense to appear on the horizon, but it has not done so yet. I hope that, if we have to have net fiscal transfers in the future, they will be considerably smaller because there will not be a CAP. I also hope that they will be related to the relative prosperity of the member states, so that the poorer nations benefit and the richer ones contribute.

[Michael Connarty]

I respect my hon. Friend’s logic, even though I do not support his conclusions on the European Union. He has a background as a trade union negotiator, and I cannot understand why he thinks we should tell the Government that they cannot have a negotiating position and that they must adopt the position that they are given. Surely they need to be able to negotiate what they are looking for—namely the cash equivalent—regardless of how it is balanced within the budget. They will be negotiating with 27 other countries, along with the Council and the Parliament. Is not my hon. Friend’s instinct as a trade unionist to give the negotiators the flexibility to come out with a deal, rather than to given them strict instructions on what they must come out with at the end of the negotiations?

[Kelvin Hopkins]

I thank my hon. Friend for his intervention, but I believe that all negotiators need to have something in their back pocket—something to argue with. If the Government go into the negotiations saying, “My members will not tolerate an agreement unless it is satisfactory”, that will give them some strength. I hope this House will provide that kind of support to negotiators. I would much prefer to be on the Government than the Opposition side, but I hope that the Government will stand up and do the right thing.

Finally, the Minister spoke about standing up for British interests, but that sort of nationalistic approach does not go far enough. What we need is an arrangement that will secure the support of other member states. We have to persuade them that we need a more rational and sensible approach to the budget that is also fair to all concerned—and, indeed, considerably smaller in view of the need to abolish the CAP. If we can get others on our side, we might start to make progress, but if we argue simply in nationalistic terms, I do not think we will.

That said, Britain has a strong negotiating position. If we were in a position to push hard, we would know that the EU needs our membership more than we need to be a member of it. We have a massive trade deficit with the rest of the EU, which gives us a strong negotiating position. If we were challenged by other strong states, they would know that their economies would suffer if we were no longer part of the EU. If we had trade barriers between member states, they would suffer much more than we would. The point has been made many times.

I have some figures with me. Our trade deficit with the rest of the EU in July—the last month for which figures are available—was £3.9 billion. That is for one month, so we need to multiply that by 12 to get an idea of the annual figure. That amount was an increase on the £3.2 billion of the previous month. The EU needs Britain, so let us try to make an EU that is looser, more democratic and leaves greater powers to member states. Let us have an EU that has not a nonsensical budget, but one that is fair and beneficial to all concerned.

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[Mr Clappison]

If there were a search for economies in the European budget, one of the best places to start would be the External Action Service. I have a suspicion that although some of its activities might be worth while, the prime motivating force behind the establishment of what is in effect a diplomatic service is the promotion of the European Union itself rather than the interests of member states or their citizens. I suspect that there might be scope for economies.

Let us be clear that what is being sought is planned increases in the External Action Service. Let us spell out the facts of what it will cost so far as it stands—as the Economic Secretary made clear. So far, the cost of the External Action Service, which is on the record under the so-called budget neutrality, is €400 billion. The diplomatic service has 3,700 employees and posts in about 130 nations in the world, many of which already have British diplomatic representation. Spending of that magnitude compares, I am afraid, with the search for economies that is being made in our Foreign Office, where savings of much smaller amounts of money are sought all the time in the face of the demands that have been made to try to economise. It would be sad to see the Union flag taken down in some countries in the world while the European flag was run up. I would regret that, as I think our Foreign Office does a good job in the world and represents the interests of our country. Its prime consideration is to represent this country and our citizens’ interests, rather than searching for exterior political objectives to do with the European Union.

This has been a very good debate. I commend the line that has been taken by the Economic Secretary. The facts are stark and anybody who reads these budget documents will be shocked that such increases are sought by the European Union at this of all times. It also prompts a question about the relationship between the European Union institutions, the Commission of the European Union, our constituents and the man on the street in every European state. What must be the attitude at a time when there is so much concern about the economy, when people are suffering and when cuts are being made if the European Union somehow feels that it is immune from those pressures and can go on increasing its expenditure?

[Kelvin Hopkins]

Let me reinforce that point. When referendums have been held in a number of countries, the people have voted against the European Union, in essence. That has happened in France and Holland, and in Sweden when they voted against having the euro. The hon. Gentleman is absolutely right.

[Mr Clappison]

I am grateful to the hon. Gentleman for that contribution. He has a very consistent record on this issue.

An increasing proportion of our laws, certainly as a result of the past 13 years, are being passed in the European Union, which searches constantly for new fields over which to exercise authority. It has made its way into home affairs and justice and it has huge ambitions regarding security and criminal justice. It also seeks to have an increasing influence over foreign affairs, with the establishment of a Foreign Minister and a diplomatic service. We know that it has all those great ambitions and we would do well to reflect, in the House, on what the increases in the budget say about the EU’s attitude toward individual citizens and its accountability to them.

Finance (No. 2) Bill

Kelvin Hopkins Excerpts

Monday 11th October 2010 Commons Chamber

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

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

As observant Members will note, this is the second Finance Bill of this Parliament and the third one this year. The date of the general election earlier this year reduced the time available for scrutiny of technical measures in advance of that election, and the short timetable available between our emergency Budget and the summer recess has made it necessary to have a third Finance Bill to address various technical measures.

Given the content of this Bill, I suspect that there will be a fair amount of cross-party consensus on the matters in it but, in any event, I would like to congratulate the newly appointed shadow Treasury team. In particular, I congratulate the hon. Member for Wallasey (Ms Eagle), the shadow Chief Secretary to the Treasury, both on her election success as a member of the shadow Cabinet and on her appointment to her current position. She will bring considerable experience of Finance Bills to the shadow Treasury team, both as a former Minister and from the Finance Bill earlier this year.

Although he is not present, I should like also to congratulate the newly appointed shadow Chancellor, the right hon. Member for Kingston upon Hull West and Hessle (Alan Johnson). He stated over the weekend that his first task was to read an economics primer, but he also expressed the need to hit the ground running, because of the Finance Bill today. Whatever his education programme, I suggest that he should not necessarily begin with the scrip dividend treatment of real estate investment trusts or the taxation of long cigarettes. However, we wish him well in that process.

At the emergency Budget in June, my right hon. Friend the Chancellor set out this Government’s fiscal mandate, acting swiftly to tackle the deficit and restore credibility to the public finances. In the short, summer Finance Bill, we quickly put the core elements of the Budget on to the statute book, reassuring the British people and the financial markets that we would not allow Labour’s debt to spiral out of control.

[Kelvin Hopkins (Luton North) (Lab)]

The Minister mentioned cigarettes. Are the Government going to do anything to tackle the £4 billion that is lost through cigarette smuggling? That is four times the amount of money that they are apparently hoping to save by cutting benefits to the better off.

[Mr Gauke]

The hon. Gentleman makes the fair point that there is too much cigarette smuggling, and this is a matter that we are keen to address. My right hon. Friend the Chief Secretary to the Treasury has already announced proposals to provide additional funding to Her Majesty’s Revenue and Customs to tackle cigarette smuggling, among other things. I very much welcome the hon. Gentleman’s intervention but, let us be honest, it would be unrealistic to say that we could prevent all cigarette smuggling. We can, however, take steps to reduce it. That would be to the benefit of the Exchequer, and I am pleased that the Government are moving ahead and doing that.

It is our determined actions that have restored confidence in the economy, stabilised the nation’s credit rating and halved interest rates on Government short-term borrowing. We are saving money today so that we can invest in tomorrow. Ours is the right approach for the country, and that has been widely recognised. Only a fortnight ago, the International Monetary Fund said that our deficit plan was essential to restoring confidence in the UK’s public finances and “supports a balanced recovery”. That is the approach that we will take forward, including in the spending review.

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[Ms Eagle]

The hon. Gentleman is even more melodramatic in his rewriting of history—his historical revisionism of what was going on in the UK economy—than the Chancellor. I had thought, having watched that performance, that that was impossible, but perhaps the hon. Gentleman should try out pantomime this year as Christmas approaches.

I was about to say before I was so rudely interrupted that, rather than encumber himself with the tedious technical detail in this Budget, the Chancellor decided to start behaving like the Liberal Democrat student activists we all come across at university and to take it in parts. This is part two. As a result, we have in today’s Bill what can best be described as the technical innards of a Budget; I think that the Exchequer Secretary used other words. In fact, most of the clauses, as he pointed out, are the technical innards of the last Labour Budget, which was presented in March 2010. However, it is the duty of the Opposition to scrutinise the detail of all Budgets, and we certainly intend to fulfil that obligation tonight.

Measures included in the Bill are important to the workings of the taxation system—the Minister did the House a service by going through them in great detail—but they have failed to inspire much interest or controversy in the outside world, perhaps because they have been signalled for a long time. The measures were subject to consultation under the previous Government as well as the current one when they were in development. Some might even say that they were prototype proposals, because that is the way that things tend to be done in the Treasury. That is attested to by the lack of much comment on or reaction to the proposals even among the taxation professionals who usually pore over the technical details of Finance Bills with fine-toothed combs. In respect of this Finance Bill, those professionals have been strangely unmoved—I might even say indifferent.

[Kelvin Hopkins]

I, too, congratulate my hon. Friend on her appointment to the Front-Bench team and I am pleased to see her there. Is not the fact that this is a mouse of a Bill, given that we face a £120 billion tax gap that the Government are doing nothing to reduce, and that 1% of that sum would save more money than their cut in benefits?

[Ms Eagle]

My hon. Friend is right to point out that there are two sides to the deficit reduction equation. Clearly, one side of that is collecting the taxes that are due in an appropriate fashion, and I shall say more about that later in my speech. He is right that we need constantly to keep that side of things in mind.

I was about to pay tribute to the Institute of Chartered Accountants, which was one of the few organisations to submit comments on the Bill when many had fallen by the wayside. Perhaps it is up to the Opposition to be vigilant when others have taken their eyes off the ball.

As my hon. Friend said, it is odd that we are debating a seemingly uncontroversial and overwhelmingly technical Finance Bill in the midst of one of the most difficult and dangerous periods for the UK and world economies in many generations. We have lived through the largest banking and financial crisis in the global economy since the Wall street crash of 1929. It has caused a deep and painful global recession, and we are struggling with the aftermath of the rescue of the world financial system from the colossal market failure that was dramatised by the collapse of Lehman Brothers in 2008. That inevitably caused budget deficits to soar everywhere, but especially in the more advanced western economies.

The UK was particularly affected, in part because of the size of our banking and financial services sector. The concerted action co-ordinated at the London G20 conference averted a catastrophe, and we are now witnessing a tentative economic recovery. However, that recovery remains distinctly fragile.

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[Ms Eagle]

That is true. Clearly, the Chancellor and Prime Minister are on record, up to and including in 2008, as doing precisely what my hon. Friend says and supporting our spending commitments as they were at the time.

Although the recovery remains distinctly fragile, the June Budget took a huge and risky gamble with it. Since then, confidence in the UK’s economic prospects has fallen off a cliff and business surveys, such as that by Deloitte which I asked the Exchequer Secretary about, demonstrate that economic sentiment is darkening. There are increasing signs that the tentative recovery is stalling and that the economic storm clouds are gathering once more.

[Kelvin Hopkins]

I agree entirely with what my hon. Friend is saying. Is it not true that those who invest and those who are lacking confidence now are simply aware that cutting spending, cutting jobs and cutting benefits will drive the economy into recession, and that nobody will invest when we are diving into a recession? Does she agree that in the early part of this decade Britain had a relatively low level of public spending as a proportion of gross domestic product compared with, for example, Scandinavia?

[Ms Eagle]

My hon. Friend is right on both points, but he also raises an important issue about what Keynes called “animal spirits”. It is fair to say that all the signals are that the animal spirits are somewhat more depressed now than they were a few months ago and that the things that have depressed them are the decisions that were announced in the June Budget.

Ominous noises are coming out of the recent International Monetary Fund meeting about currency wars and competitive devaluations, and they offer worrying echoes of conditions that led to the great depression in the 1930s. Dominique Strauss-Kahn was not joking or exaggerating when he warned the IMF meeting about the dangers that the huge increases in unemployment will pose for our democratic institutions. Yet none of this is referenced in the measures before us today.

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[Ms Eagle]

I remember the detailed discussions that we had on that issue in previous Finance Bill debates. The hon. Gentleman has probably been in more of them than I have. The issue is not the abolition of allowances that are 40-odd years old and increasingly do not recognise the changed shape of UK industry. It is about abolishing allowances completely to fund a cut in mainstream corporation tax, with the result that the incentives for investment are taken away at the point of investment.

One of the measures that the Bill ought to have contained but does not is the creation of a tax relief for the video games industry. We all know in the House that in the UK we have a particular expertise in creating video games, which was beginning to create high-value jobs in the UK in what has become a multi-billion-pound industry. We also know that our brightest software engineers are being tempted abroad by generous and possibly illegal tax breaks, and that we risk the decimation of our UK base if we do not respond. That is why, while we were in government, we developed the video games tax credit, which was to operate along the same lines as the film tax relief. In opposition, just before the election, the Conservative party supported that. On 13 April 2010 the hon. Member for Wantage (Mr Vaizey), now the Under-Secretary of State for Culture, Olympics, Media and Sport, said:

“We are committed to a tax break along the lines of the video games tax credit. We have been calling for tax breaks for the video game industry for the last three years.”

Like so many other things said during the general election campaign, that pledge was abandoned immediately after it. We will want to explore the issue further in Committee.

Before the Minister uses the standard Treasury line about how the video industry can always make use of the research and development tax credits that are available more generally, he might care to put all our minds at rest and deal with the nasty rumours swirling around that the entire R and D tax credit may be at risk in the cuts to come. Perhaps the Economic Secretary will reassure us on that point.

Another notable omission from today’s Bill is any reference to increasing the resources which will allow HMRC to build on its already excellent work to tackle the tax gap. Obviously, as was said earlier, the more that tax due is collected, the more effectively the deficit can be tackled and the less pain our society will be forced to endure during the adjustment ahead. During the conference season the Deputy Prime Minister made much of the need to close the gap between the taxes that are due and those that are actually collected. He made grand and welcome pronouncements that it is “ethically wrong” to avoid paying our taxes. He was followed by the present Chief Secretary to the Treasury who announced, interestingly, that he regarded both tax avoidance and tax evasion as “morally indefensible” in times like these.

[Kelvin Hopkins]

I agree entirely with what my hon. Friend is saying. PCS, Richard Murphy and others have made the simple point that appointing more tax officers would solve the problem. They collect many times their own salary, and it would be highly beneficial to the Exchequer if that were done.

[Ms Eagle]

My hon. Friend is well known for his views on the subject.

Neither of the Ministers whom I just quoted revealed just how successful HMRC has been in pursuing this work in the past three years. HMRC increased the yield from compliance interventions by 60% in the three years to 2008-09. However, we all know there is more to be done and we would all support sensible measures to make such work even more effective.

Following all the fuss about that and the headlines generated, I would have expected to see some extra action in the Bill. However, despite the dramatic headline- grabbing moral assertions, nothing has been added to the Bill to signal the Government’s determination to launch a further crackdown. The worry is that the 25% to 40% cuts in departmental staffing due to be announced in the forthcoming spending review will seriously damage HMRC’s ability to maintain its work on improving tax collection, let alone to launch a further successful crackdown on the tax cheats. Again, this is a topic to which we will return in Committee, but I would be grateful for any reassurances the Minister may be able to offer us tonight that the operational capacity of the HMRC in this crucial area will be enhanced rather than decimated in the cuts to come.

Perhaps the hon. Lady can also explain to the House precisely what signal on tax collection the Government intend to send by appointing Sir Philip Green to advise the Prime Minister on Government efficiency. His own tax arrangements include paying a £1.2 billion dividend to his wife, who just happens to be domiciled in Monaco for tax purposes. Although this is not illegal, the Business Secretary has gone on record as saying that he is unhappy about it, and the Energy Secretary has said that it sends the wrong message. Can the Minister explain how this example squares with the Chief Secretary’s grand pronouncement that both tax evasion and tax avoidance are immoral in times like these? Once more, we must look at this Government’s actions rather than their words. Their decisions will be far more eloquent than thousands of well-crafted press releases or any synthetic outrage.

As we await the spending review, it is abundantly clear that the centre of economic and political attention lies not with the Bill but elsewhere. We would have wanted this legislation to contain at least the beginnings of a plan for growth, but it does not. It should have contained some extra and concrete plans to back up with credible action the Deputy Prime Minister’s fine words on the immorality of avoiding taxes, but it does not. In choosing to cut the deficit further and faster than we proposed, the Government have taken a huge gamble with our economic prosperity. A synchronised deficit reduction throughout the developed economies risks plunging the world back into either recession or a Japanese-style jobless recovery. The Irish example should be a salutary lesson to the Government of the risks that they run with their economic approach.

In the meantime, we will look closely at the Bill and take a keen interest in it as it goes through Committee. We will see whether some of the issues that I have raised can appear as amendments during its passage through the House.

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[Mark Simmonds]

The hon. Lady makes a fair point, and I should say two or three things. First, the national insurance changes that the coalition Government have made will make it better and easier for employers to take on new employees in the private sector. Secondly, the Treasury is working on the regional fund to address the difficulties that are faced in some regions, which, I would argue, are over-dependent on public sector jobs, so that people can move into the private sector quicker than would otherwise be the case.

The second element of the expansionary fiscal contraction is to encourage business to invest, and I do not agree with the fundamental argument of the shadow Treasury spokesperson. There is a direct inverse correlation between Government borrowing and business investment, which means that when Government borrowing declines business investment goes up, and vice versa. That would be especially true if it were supported by expansionary monetary policy, which it is and, I hope, will be for the foreseeable future.

Opposition Members may say, “That all sounds very well theoretically, but has it ever happened in practice?” The simple answer is, yes. It has happened twice in recent times—not only in the early 1980s, when the then Chancellor of the Exchequer, Geoffrey Howe, reduced public expenditure and interest rates and, therefore, stimulated economic growth, but—

[Kelvin Hopkins]

Will the hon. Gentleman give way?

[Mark Simmonds]

In a minute, because the hon. Gentleman might be keen to comment on this point. The correlation also occurred under the previous Labour Government, between 1997 and 1999, when they stuck to the preceding Conservative Government’s expenditure plans. That is when GDP growth under the previous Administration was at its highest, averaging roughly 3.5% per year—significantly higher than during the rest of their tenure. So, the correlation has occurred before, and I see no reason why it should not occur again.

[Kelvin Hopkins]

I hesitate to say this, but I was around in 1979, and I remember it very well. The Government at that time massively increased VAT and increased interest rates. The pound rose, and neo-classical economists, like the hon. Gentleman no doubt, said that unemployment would fall to below 1 million. It actually rose to more than 3 million, and one fifth of manufacturing disappeared. It was only when the Government later reversed those policies that the economy started to expand, but sterling depreciated by 30%, during Nigel Lawson’s tenure, when the economy started to grow again.

[Mark Simmonds]

I am grateful for that intervention. The hon. Gentleman will not be surprised to hear that I do not share his analysis. In fact, the parallels are interesting. I would argue that in the early 1980s Geoffrey Howe and Margaret Thatcher were clearing up the mess that they inherited from the previous Labour Administration, just as the Chancellor of the Exchequer and Liberal Democrat colleagues in the coalition are tidying up the mess that we inherited from the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) and Tony Blair, his predecessor.

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[Claire Perry]

As always, my hon. Friend makes an excellent point based on his substantial experience in the business world. During that process, we showed a clear commitment to doing the right thing for the British economy. We did not do things to maximise political headlines, of which the previous Government were guilty on an almost weekly basis.

What is the result of taking those bold actions? Let us talk numbers. The risk premium on the British economy has dropped by 30% since the election. Long-term interest rates—the 10-year interest rates—have dropped by more than 1%, meaning a 25% reduction in the cost of borrowing. These are not arcane measures thought up by a load of greedy bankers; they materially flow through to the borrowing costs of our constituents, both for mortgage and small business borrowers. The measures mean real growth for the British economy.

Why did we not consider tax measures in the first Finance Bill of this Parliament? The point made earlier on transparency and consultation is a valuable one. We said that we will be a Government who are far more transparent and that we will allow time for consultation.

[Kelvin Hopkins]

I am listening with interest to the hon. Lady. She said that the Government did not introduce tax measures, but what about the rise in VAT, which is a regressive tax? The introduction of a more progressive tax—for example, a tax on the rich or on big business—might have been more acceptable, but a regressive tax will deflate the economy by taking money out of the pockets of ordinary people, who spend most.

[Claire Perry]

I would debate regressive and progressive taxation and the question of income or expenditure with the hon. Gentleman, but I would like to make a little progress, if he will allow me, and focus specifically on the technical measures in the Bill.

The measures were published on 12 July, and I believe that we have had a number of responses to them, and we now feel that we have had adequate consultation to proceed. The House feels that we can cope with the split between two Finance Bills, but I would like Ministers to reassure us that we will revert to one Finance Bill as soon as possible, as the situation normalises. In that way, the whole finance package can be given proper scrutiny, and we will not have the kind of piecemeal debate that we are having today.

Finally, let me give some context to the measures. We have heard this before, but I make no apologies for saying it again: we have a record deficit. That is not the result of a financial shock that emerged like the creature from the swamp from America in 2007, but the result of a Government who spent more than they earned in taxes every year from 2002. I have listened with great interest to the representations made by Labour Members. They say, “We were investing. We weren’t ‘spending’; we were building schools and hospitals.” They were building schools and hospitals, but they were borrowing money to do so. In the process, they put the bill on future generations of taxpayers. They talk about being progressive, but that is not a progressive thing to do with the British economy.

The previous Government bequeathed us interest costs of £120 million a day. That is paid largely to foreign Governments, so that they can build their schools and hospitals off the tax pounds that we collect from our taxpayers. There is nothing progressive about that.

What do we get when we discuss the measures? Do we get the intelligent, grown-up debate that the hon. Member for Wallasey (Ms Eagle), the shadow Chief Secretary, asked for? We certainly do not get intelligent, grown-up debate on how to cut the deficit from the few Labour Members in the Chamber. With a very few honourable exceptions, we get opposition to everything. That was amply demonstrated during today’s statement by the Secretary of State for Work and Pensions. We now have the extraordinary situation of Labour Members, in opposing everything, wanting to tax the poorest families in this country to pay £1 billion in child credit to the richest 15% of families. I suggest that, by opposing everything, Labour Member get themselves into some extraordinary technical tangles.

Conservatives want to talk about deficit reduction, but Labour Members put up the ideological barricades, saying, “You’re bad Tory cutters. You’re bad Lib Dem ideologues.” Behind the sound and fury, one question remains unanswered: what would Labour Members cut? Where would their £44 billion-worth of spending cuts fall? If they oppose everything in our deficit-reduction plans—the plans are supported by the International Monetary Fund, the OECD, the CBI, the Bank of England, Tony Blair, Peter Mandelson and everyone but Labour’s Front-Bench team—they weaken their status as a viable Opposition.

I shall finish if I may by quoting Labour’s new shadow Chancellor, the right hon. Member for Kingston upon Hull West and Hessle (Alan Johnson). No, this is not about his need for an economics primer; it relates to what he has said about the British people. He said:

“I think the reason why they took to the coalition is they thought, well, here’s someone rolling their sleeves up and getting down to the job.”

We are getting on with the job. The measures in this Bill are part of that, and I urge every hon. Member here tonight to vote for the Bill, as I shall be in the not-too- distant future.

[Charlie Elphicke (Dover) (Con)]

I wish to add my congratulations to my hon. Friend the Member for Skipton and Ripon (Julian Smith), who spoke in the most heartfelt way about his heartbreakingly lovely and beautiful constituency and in the most thoughtful and considered way about the impact of regulation on smaller businesses. I also wish to congratulate the shadow Chief Secretary to the Treasury on her elevation and the hon. Member for Nottingham East (Chris Leslie) on returning to the Front Bench, even if it is not the Front Bench that he would have preferred to be on—no doubt he is a patient man who will wait to have another go in due course.

This Budget, with this Finance Bill, is an essential piece of legislation. We have a country that is all but bust; its budget deficit is more than £150 billion and we face a structural deficit of £109 billion, according to the Office for Budget Responsibility. What does that tell us? It tells us that two thirds of the current extra borrowing each year has nothing to do with the recession and the global financial crisis, and has everything to do with the economic incompetence of the previous Government. The Leader of the Opposition urges that instead of adopting a fiscal position of raising taxes by one third and cutting spending by two thirds, we should make it 50:50. My hon. Friend the Member for West Suffolk (Matthew Hancock) has calculated that that would raise people’s taxes by another £1,300. Such a massive bombshell would not be constructive in this difficult fiscal environment. The Government have taken difficult decisions on taxes, but the further tax rises that the Opposition urge on us are not at all responsible or helpful.

It is therefore right that the coalition is taking the economically responsible and sensible position to step right and stabilise our country and its finances, but we need to have growth and a growth agenda. It is helpful that corporation tax is being reduced to 24% over the next few years, and I hope that in time the Government will be able to go further and bring it down to about 19%. I hope that they will give serious and substantial consideration to a holding company regime such as exists in places such as the Netherlands and Luxembourg, so that the UK becomes a holding company international headquarters of the European time zone. The UK and London, rather than the continent itself, would thus become the jumping off point for Americans investing in Europe, which would provide a massive fiscal stimulus to the UK economy and would make it the financial headquarters centre and the international business centre of the European time zone. We should be very alive to the competitive fight that we have with our European friends, and seek to maximise our position and that of London as the international financial and business centre of this time zone.

We may get a fiscal bounce out of encouraging large businesses to move to this country, set up here and stay here—I note that WPP and Hiscox have left and moved overseas, as have others—but if we want long-term sustainable development and growth, and more jobs and money over the longer term, we need to consider smaller business, because it has a stronger sense of growth over the long term and it supplies the entrepreneurial flair that creates more jobs and money.

[Kelvin Hopkins]

I entirely accept the need to sustain small businesses, but small businesses live off two things: first, big businesses, which make orders for them; and, secondly, demand in the economy, as we go for meals out, get building alterations done to our homes and so on. If people are not spending because they are frightened of losing their jobs and having their pensions and benefits cut, that damages small businesses at least as much as it does big businesses.

[Charlie Elphicke]

I would agree with the hon. Gentleman that confidence plays a massive role in our economy—and nowhere more so than with our smaller businesses. The confidence that we have seen since the election seems to be feeding through to the growth figures, which seem to suggest that we are coming out of the recession faster than anyone thought we would. Personally, I think we should be more positive about the prospects for the economy and the prospects for faster growth over the medium term, given the nature of the stabilisation and the confidence that the coalition Government have provided to the country. However, that does not mean that there is not more we can do for small businesses. We can and must, as my hon. Friend the Member for Devizes (Claire Perry) and others have said, have more liquidity for the small business sector. It has been too locked up in banks preparing their balance sheets—we need more lending.

Finance Bill

Kelvin Hopkins Excerpts

Tuesday 20th July 2010 Commons Chamber

[Mr Gauke]

The hon. Gentleman was a Member of the House in the early days of the previous Government, so he knows all about rolling up numbers. I could roll up the numbers for how much will be raised from the bank levy—I do not have the details in front of me, but we would get to about £8 billion—but I am not sure that that is a terribly helpful way of approaching things.

The corporation tax reduction is just one part of the wider package to build a private sector-led recovery. Instead of increasing the small profit rate by 1%, we will cut it to 20% in next year’s Bill, which will benefit some 850,000 companies from April 2011. We are increasing the threshold at which employers start to pay national insurance contributions and have announced a package of support for small businesses. The package will also include a reduction in the writing-down value of plant and machinery allowances to 18% and a reduction in the annual investment allowance to £25,000. That will still provide for allowances that are broadly in line with depreciation, while the annual investment allowance will still cover the annual qualifying expenditure of 95% of businesses. Furthermore, we are reducing the main rate of corporation tax this year and changing allowances in 2012. We are giving companies a timing benefit that will form part of the £13 billion extra that will be invested as a result of the changes.

The third and final area that we are addressing is fairness. Clause 2 increases the rate for capital gains tax for higher rate payers to 28%. That progressive change will substantially reduce the incentive for individuals to disguise their income as a return on capital. It will ensure that the appropriate rate of taxation is paid, which is fair in itself.

Avoidance is a significant issue for the Government and it has been a significant topic throughout the Bill’s passage. It was raised with reference to corporation tax and capital gains tax, and it is the target of clauses 8 and 9, which protect about £200 million of revenue a year. I assure the House that the Government are absolutely committed to tackling avoidance and evasion robustly.

[Kelvin Hopkins (Luton North) (Lab)]

Will the hon. Gentleman give way?

[Mr Gauke]

If the hon. Gentleman will forgive me, I am keen to press on.

We have inherited plans to limit tax relief on pension savings for the wealthiest. Under the approach in the Finance Act 2010, individuals on the highest incomes who were able to make very large pension contributions could have continued to get pensions tax relief worth up to £51,000 a year. We have concerns about the complexity and fairness of the previous Government’s approach. Given the state of the public finances, we cannot ignore the £4 billion or more of revenue that the policy was set to raise, and as we are committed to protecting the public finances, the alternative needs to raise no less revenue than the existing plans. We are looking at an approach whereby the annual tax relief available will be restricted to less than half that under the previous Government’s plan, which will significantly curtail the ability of the super-rich to benefit from pensions tax relief.

We have touched on annuities. We want to enable people to make more flexible use of their pension savings. We intend to end the obligation to annuitise by the age of 75 from April 2011, and last week we launched a consultation on the details of the change. Before a new system is introduced in next year’s Finance Bill, this Bill puts in place interim measures that will delay such decisions until an individual is 77. That will prevent anyone turning 75 on or after Budget day from being disadvantaged by having to make a decision before the new rules are in place.

The Bill is at the heart of the Budget changes that are necessary for this country’s tax system. Unlike our predecessors, we do not believe that, in a pit of debt, we should still be digging. We do not believe that we can just borrow to pay for front-line services. In the words of the previous Chancellor:

“If we are not credible in what we do and say, people will assume there will be more borrowing or huge tax rises to come.”

Our predecessors failed that test but we are succeeding.

In the words of the shadow Business Secretary, we cannot wish the deficit problem away. The Bill will promote enterprise. It is progressive and responsible, and I commend it to the House.

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

I am very grateful for the opportunity to say a few things in conclusion to our debate about the panic Budget that has been sped through this place. To all those who have observed these debates about the Budget and the Finance Bill, it is now clear that the Budget is born not of economic necessity, but of political anxiety—anxiety that, if Liberal Democrat Members are allowed to see any more evidence of the damage that the Budget is doing to confidence and growth, they will remember where they buried their Keynesian tradition, disinter it and refuse the Chancellor their support.

The great question that this Budget and Finance Bill should have answered is how do we lock in the recovery that Labour left? Winning that recovery dominated our final two years of office. Not since 1945 has the world been hit by a recession on the scale of that which hit our shores in 2008. The global economy shrank by some 1% for the first time since the war, G7 economies shrank by some 3% and world trade fell by some 12%. What started as a collapse in confidence on Wall street rapidly infected the world’s financial system and triggered a disastrous domino-like collapse in confidence among markets throughout the world. No country, not least one of the world’s great trading nations, could be isolated from its effect, and we were not.

[Kelvin Hopkins]

My right hon. Friend referred to the 1940s, when the deficit was massively higher than it is now. Of course, the magnificent Labour Government of 1945-51 grew their way out of problems by keeping full employment and public spending going.

[Mr Byrne]

Precisely. The Minister could not understand that point from his own Budget, but I shall explain it in more depth in a moment.

On Friday this week, we will be able to test the durability of the recovery that Labour delivered. Almost two years on from the oil price hitting $147 and the collapse of Lehman Brothers, the Office for National Statistics will publish growth figures for the second quarter of 2010, which I am sure all hon. Members await with some interest. But this much we already know. The ONS has told us that our economy has grown by 0.7% since its low point last year; that growth in the first quarter of 2010 was some £8 billion larger than it was in the final quarter of 2009; and that output is growing by about £88 million a day.

The National Institute of Economic and Social Research has also already estimated that output in the second quarter of this year could hit 0.7%. If that comes to pass, it will be no mean achievement, especially when our neighbours tell us precisely how hard it is to sustain recovery. In the first quarter of this year, our last quarter in office, growth in this country reached 0.3%. In Germany, it was lower; in France, it was lower still; in the eurozone, it was lower; and Spain, Ireland and Greece are all forecast to see negative growth this year. Labour is proud to be the party of the recovery, and the question that the Bill should have answered is, how do we guarantee the recovery’s future?

We are proud to have been the party that brought together a global response to the recession. Here in London, countries from throughout the world agreed a plan, including a £1.1 trillion support package, that helped to ensure the revision of global growth from 1.9% last year up to 3.5% this year. We are very proud to be the party that stopped the British banking system collapsing in the face of its exposure to melting international credit systems, and we are very proud to be the party that put in place here at home the most comprehensive recovery plan to protect people’s jobs from the axe, homes from repossession and employers from liquidation.

--- Later in debate ---

[Ms Eagle]

I will not give way because the hon. Gentleman has not been here for the entire debate; if he had been, I would have done.

We see in this Finance Bill that the Tory-led Government have made precisely that error with their deliberate, ideologically driven choice to go for a much more aggressive and reckless slash-and-burn strategy for public spending than the objective economic conditions, or even the bond markets themselves, required. The decision to opt for a balanced budget in four years is driven not by the objective economic conditions but by an ideologically driven political belief in a small state, a belief which is now apparently shared by the Liberal Democrats. Similarly, the decision to cut the deficit by imposing a 77% to 23% ratio of public spending cuts to tax rises is a choice driven not by the objective economic conditions but by the same belief in a small state apparently shared by the Liberal Democrats. It is a ratio of pain never before achieved in the UK, and it was not shared with the voters before the election. No mandate for this was established in the general election. Ministers have admitted that the cuts will be painful, but they have failed to acknowledge the scale of the pain that they have chosen to inflict. The apparent relish with which they choose to announce huge and ongoing cuts does them no credit whatsoever, and it will be seared into the memories of the millions of victims of their sadistic fiscal policy for years to come.

The propaganda techniques are chilling. Carefully chosen, extreme examples of excess in public expenditure are leaked by the Government to sympathetic tabloids to be highlighted in screaming headlines and make the case for more cuts. Government websites coarsen the debate still further by parading a stream of ignorant vitriol whipped up by sensationalist reporting, so it is suggested that workhouses are to be reopened, benefit claimants sterilised, and immigrants deported. If this is the nice face of the Tory party, then God help us, and shame on the Liberal Democrats for going along with it. The apocalyptic and absurd scares that they have issued about the UK economy resembling that of Greece—we heard it again today—have been not only fundamentally wrong but deeply irresponsible, and they have risked precipitating the very loss of confidence they purport to avoid.

This Finance Bill signals the biggest and most sustained public spending cuts in UK peacetime history, coupled with increases in taxes such as VAT that will directly take demand out of the economy just when recovery is fragile and still needs nurturing. That is why it is such a gamble. Labour Members are not the only ones who are deeply worried about the choices that have been made in the Bill. Following the Chancellor’s “austerity Budget”, the International Monetary Fund has just cut its growth forecast for the UK for both this year and the next. The OECD has criticised the decision to abolish the future fobs fund and other employment support packages as short-sighted and warned that the scale of job cuts in the public sector will slow down the recovery.

As a direct result of the June Budget and this Finance Bill, the now notoriously named Office for Budget Responsibility has had to revise upwards its estimates of job losses in the public sector. At the same time, it has revised downwards its growth forecasts and hoped that no one would notice that it excluded 550,000 people who work in state-owned enterprises from being in public sector employment, even though the Office for National Statistics classifies them as such: thus public sector job losses are likely to be even higher. The OBR’s prediction that the anticipated “recovery” will generate 2 million extra jobs in the private sector in just five years has caused widespread incredulity, because that target has never been achieved in the modern era. It has certainly never been achieved at a time when huge public spending cuts are likely to dampen employment prospects in the private sector and austerity measures are being imposed simultaneously in almost every developed economy in the world.

[Kelvin Hopkins]

Exactly the same predictions were made about unemployment falling because of the 1979 Budget—in fact, it went up to 3 million.

[Ms Eagle]

People should learn from their economic history; I only wish that this Government would.

The OBR’s heroic assumptions about export growth and business investment also strain credibility, but Sir Alan Budd will not be around for much longer to defend his forecasts, whatever happens in the real world. One thing is clear: we cannot all export ourselves out of trouble at the same time. Because world trade has been so badly impacted by the global credit crunch, the UK has experienced a 25% devaluation of its currency without any noticeable upturn in export performance. Prime ministerial trips to China accompanied by huge cuts in Government support for new industrial activity in the UK do not seem to be the right response to this challenge.

The Finance Bill contains no strategy for growth, yet growth is the best way of dealing with any deficit. In place of a growth strategy, we see a pious, dogmatic belief—often restated today—that the private sector will miraculously spring to life and fill every space vacated by the Government. This is in the teeth of massive private sector deleveraging, damaged confidence and an ongoing lack of affordable bank lending. The huge hike in VAT will damage demand at a crucial moment. This is an example of blind economic faith—it is not a serious growth strategy. The Bill contains no hint of an alternative if this blind economic faith turns out to be misplaced. There is no fallback position if the economic gamble that the Chancellor has outlined starts to go wrong. How high will unemployment have to rise before the Chancellor looks again? Why, once more, is unemployment a price worth paying?

Finally, I want to look at who is paying for the measures contained in the Finance Bill. The Chancellor has repeatedly asserted, “We’re all in this together”, but we have to judge him by his actions rather than fine words, and his assertion of social solidarity turns out to be a cruel joke. The Finance Bill and Budget measures are regressive, not progressive. They hit the poorest hardest. The VAT hike is the regressive centrepiece of a regressive budget. The stealth move from retail prices indexation to consumer prices indexation for all benefits and all pensions takes £6 billion in savings from the poorest and most vulnerable and gives at least £50 billion, and possibly £100 billion, to employer pension schemes, at the risk of employee representatives. The losses mount year on year, for ever into the future.

Analysis has shown that the Budget takes a massive 21.7% of income from the bottom 10% of the income distribution and a mere 3.6% from the top 10%. My right hon. Friend the shadow Secretary of State for Work and Pensions has shown that of the £8 billion net revenue raised by the measures before us, £6 billion will be raised from women and children, with only £2 billion being raised from men. Like Flashman in a tight spot, the Chancellor has chosen to put women and children first. He has put them first in the firing line, bearing the brunt of his tax rises and spending cuts.

This Finance Bill takes a huge gamble with our still fragile economic recovery. It gambles that a vicious bout of self-inflicted austerity will not tip us back into a recession or a long period of low growth, and that we will be able to export our way into growth at a time when a globally synchronised austerity signals otherwise. It is regressive, threatens social cohesion and hits the poorest hardest, and we cannot support it.

Finance Bill

Kelvin Hopkins Excerpts

Tuesday 6th July 2010 Commons Chamber

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

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

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

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

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

[Kelvin Hopkins (Luton North) (Lab)]

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

[Danny Alexander]

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

--- Later in debate ---

[Danny Alexander]

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

[Kelvin Hopkins]

Will the Chief Secretary give way?

[Danny Alexander]

No, I have given way nearly 30 times already.

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

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

--- Later in debate ---

[Mr John Redwood (Wokingham) (Con)]

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

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

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

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

[Kelvin Hopkins]

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

[Mr Redwood]

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

--- Later in debate ---

[Stewart Hosie]

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

[Kelvin Hopkins]

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

[Stewart Hosie]

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

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

--- Later in debate ---

[Ms Eagle]

Thank you, Mr Deputy Speaker. I was just mentioning the speech by my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East—I cannot pronounce the name of his constituency very well, but it is definitely in Scotland. He made a superb speech about the political nature of economics and the attempts that have been made to hide what are basically political choices by describing them as economic imperatives that are somehow objective. He exposed what he called superstitions and myths around that whole area and demolished a lot of the arguments that the Government have been making to justify the Budget judgment in the Finance Bill. In particular, he talked with great wisdom about the paradox of Government thrift, which he pointed out is completely unlike budgeting for households. I look forward to many more such contributions from him as the Bill goes through its stages on the Floor of the House.

My hon. Friend the Member for Bethnal Green and Bow (Rushanara Ali) also made a good contribution, which I particularly welcome because I enjoyed canvassing with her during her election campaign. She is already well-loved, liked and respected in her constituency. She asked an important question that the House would do well to bear in mind as we consider the policies and legislation before us: where is the justice in the Budget measures, which will hit the poorest hardest? My hon. Friend the Member for Wansbeck (Ian Lavery) pointed out the perverse glee he perceived among Liberal Democrat and Conservative Members over the pain that will be inflicted through the Budget and this Bill. His speech demonstrated the human face of public sector workers, many of whom have found their reputations decried in the newspapers, and the jobs and the contribution that public sector workers make to our society belittled.

My hon. Friend the Member for Bishop Auckland (Helen Goodman) observed that the Budget judgments are very optimistic on jobs and, in particular, growth prospects, and she highlighted the impact on work incentives of some of the policies and Budget changes in the Red Book.

[Kelvin Hopkins]

My hon. Friend talks about the judgments and forecasts. I remember, some 20 years ago, the Tories’ favourite forecasting organisation was the London Business School, which The Sunday Times gave 0 out of 10 for its forecasts because they were always completely wrong. Does she think they are wrong on this occasion as well?

[Ms Eagle]

Time will tell, although there is not widespread acknowledgment in the economic profession that some of the Budget forecasts are right—there is controversy about them. This will play out, however, so we will be able to see who is right in due course.

My hon. Friend the Member for Luton South (Gavin Shuker) talked about the balance of risk in the Budget and the worries about problems with infrastructure investment, the fact that it is being cut in his constituency and the implications for employment incentives. My hon. Friend the Member for Brent North (Barry Gardiner), with his characteristic ingenuity, managed to bring Harry Potter into our Budget deliberations, pointing out that our choices define who we are. I thought there was going to be a fight between him and the right hon. Member for Uxbridge and South Ruislip (Mr Randall), who has, I suspect, enjoyed rather a liquid evening. He was dragged off before anything more untoward happened.

My hon. Friend the Member for Pontypridd (Owen Smith) pointed out the wrong-headedness of the crowding out of private sector investment theory that underlies some of the judgments encompassed in the Bill.

My hon. Friend the Member for Derby North (Chris Williamson) made an extremely good speech about the seriousness of the Budget choices and made a good argument that they are wrong in this case.

Today has been quite an interesting day because of what has been happening in the Office for Budget Responsibility as we have been debating the Finance Bill. As we were coming into this debate, it was suddenly announced that Sir Alan Budd, who has become the oracle in the past six weeks, had decided to retire and leave the OBR after a mere three months in charge. That startling piece of information was played down by the Treasury, as one would expect, but it did prevent the Chief Secretary to the Treasury from praying in aid at every verse-end the forecasts that the OBR has produced to justify some of the policy decisions in the Budget.

The official line is that it was all planned in advance—that Sir Alan was always going to be away after he had set up the OBR—and that, somehow, nothing untoward has happened. However, I would be interested to know whether the Minister responding to the debate tonight can cast any further light—in the interests of transparency, of course—on what on earth has been happening with the OBR and, in particular, with Sir Alan Budd.

[Ms Eagle]

These are issues to which I am sure we will return when the Bill establishing the OBR on a statutory basis comes before the House. However, following the farrago that we have seen, it is important that this House should establish the principle pretty quickly that the head of the OBR should be appointed by this House and be answerable to it. When the Bill establishing the OBR is published, I certainly hope that it contains that provision.

[Kelvin Hopkins]

I have a suggestion: might it not be a good idea to appoint Professor David Blanchflower as the head of the OBR?

[Ms Eagle]

My hon. Friend has certainly made an intriguing suggestion, but we have to establish that this House has the right to appoint the new head of the OBR before we can start speculating about who that might be.

--- Later in debate ---

[Ms Eagle]

I am sure that the newly elected Chair of the Treasury Select Committee will make up his own mind about that, but it would be interesting to see whether Sir Alan would actually appear before any such inquiry, whether or not he were still in his job.

We have seen a steady unravelling of the central claims contained in the Budget since it was first unveiled to the House just 15 days ago, on 22 June. It was billed as the unavoidable Budget, and this is the legislation that has come from it. The Budget strategy and judgments were presented by the Chancellor and his spin merchants as infallible. The choice that he made was to cut the deficit further and faster, and that was offered as the only possible option. That is why these measures are before us today in the Bill, particularly the VAT increase. The neo-liberal economic ideologues who have seized control of our economic policy are in the grip of their narrow-minded dogma, and they will contemplate no alternative.

In truth, a highly risky political gamble is encompassed in this Bill—and it is a gamble with our social and economic well-being. The Government have made a political choice to eliminate the entire structural deficit by 2014-15—hence the revenue-raising measures in this Bill. This goes further and faster than even the Tory party promised in its election manifesto, and it is certainly against the explicit judgment on the dangers of cutting spending too soon, which was a prominent part of the Labour and Liberal Democrat manifestos. This worry about the macro-economic risks of targeting the deficit above every other consideration by speeding up its elimination is well represented in the mainstream economic debate, even if it has not featured at all in the Government’s calculations.

The Budget judgment before us tonight is not just pre-Keynesian; it is actually Hooverite. It is not an economic, but a political and ideological, imperative being pursued in this Finance Bill. This is not an unavoidable Budget, but a huge and risky gamble with the recovery. According to the Chancellor, the overriding problem for our economy now is how the bond markets might react to insufficient austerity.

The fact that the deficit hawks have taken over in the European Union and in the G20 does not make their addiction to synchronised fiscal pain any more desirable than it was in the 1930s. It does make it fashionable, but it still may not work. The fact that these huge cuts in demand will be synchronised also increases the dangers of this policy from a macro-economic point of view. There is increasing evidence that the markets are now beginning to worry about the prospects for growth and the likelihood of a return to low or no growth, Japanese-style.

This was also billed as the emergency Budget. It had to take place immediately after the general election, according to our increasingly melodramatic Chancellor, to avoid catastrophic disruption in the bond markets, threatening the very future of our nation. Nothing matters, it seems, except the deficit. Jobs do not matter and unemployment is a price worth paying. The risk to our social fabric does not matter; it can be dismissed as long as the deficit is eliminated.

We all agree that the deficit has to be tackled, and we had set out a path to cut it by 68% by the end of this Parliament. This was prudent and was far less risky to the recovery than the hazardous path that Government parties have now chosen. How odd it is, then, that the result of all the hype about the economic emergency is a very tiny Bill. We have before us an 11-clause Finance Bill; it is just 26 pages long, and nine of them are superfluous because they are reprinted virtually word for word from the VAT section of the Finance Bill 2009.

[Kelvin Hopkins]

My hon. Friend is absolutely right to warn against the dangers of deflation, which are much more worrying than anything to do with inflation. Is it not even more worrying that the EU nations have collectively decided to cut their deficits, which will just make the problem even worse? Should we not follow the advice of President Obama, who suggested that we still need the fiscal stimulus?

[Ms Eagle]

There is certainly a respectable mainstream economic argument that synchronised austerity is worse for growth and could achieve the opposite of its intended effects on the deficit by increasing rather than decreasing it. My hon. Friend is exactly right.

Here we have this tiny Bill of 11 clauses. After all the hysteria surrounding its creation, why is it that size? I think there is only one plausible explanation. The Bill before us contains just those measures that the Chancellor must be worrying that the Liberal Democrats will wobble on over the summer recess. I would be the first to admit that size is not everything, but we might reasonably have expected that a more complete set of measures would have been forthcoming if we really were in the emergency economic crisis about which the Chancellor has spent the last few weeks irresponsibly stoking up hysteria. Instead, we have a first instalment of the Finance Bill that has been especially designed to padlock the Liberal Democrats into the coalition so that they cannot get out and cause a mess over the summer. Looking at those on the Government Benches, I have to say that some of them seem to be more willing hostages than the others. The twitching has definitely begun somewhere over there, and we intend to encourage that as the Bill continues its passage through the House.

Other differences between the Government’s rhetoric and the grim reality have become clearer in recent days. We were promised a fair Budget: the Chancellor insisted that we would all be in this together. The Budget, we were told, would be progressive, not regressive, with tax rises evenly distributed among income groups. There would be progressive cuts. The pain of spending cuts would somehow be fairly spread, with the rich bearing their fair share as we all marched together towards the establishment of a zero deficit. One by one, those loud assertions have proved to be utterly false.

In an interview in the News of the World on 13 March, before the election, the Chancellor said:

“We are all in this together. I am not going to balance the budget on the backs of the poor”.

Then, on Budget day, he made great play of calculations about the effects of his measures which purported to show that he had delivered on that promise. On closer inspection, however, those assurances dissolved into empty Budget spin. [Interruption.]

Office for Budget Responsibility

Kelvin Hopkins Excerpts

Monday 14th June 2010 Commons Chamber

[Mr Osborne]

I suggest to my hon. Friend that he turns up here next Tuesday.

[Kelvin Hopkins (Luton North) (Lab)]

May I first welcome you to your new post, Mr Deputy Speaker? Will the Chancellor confirm that budgetary policy will remain the responsibility of the Government, who will be fully responsible to Parliament in this Chamber, and that it will not be dictated by the European Union or any of its institutions?

Oral Answers to Questions

Kelvin Hopkins Excerpts

Tuesday 8th June 2010 Commons Chamber

[Justine Greening]

I think that my hon. Friend is probably referring to the well-known Laffer curve. I am sure that he is aware, too, that the tax on bingo participation clubs was reduced in the last Budget from 22% to 20%. As I said, I look forward to talking to the industry over the coming months.

[Kelvin Hopkins (Luton North) (Lab)]

Is it not the case that bingo is taxed more severely than other more dangerous forms of gambling, and that the Government would do well if they at least brought them into line?

[Justine Greening]

I know that that argument has been made by the industry, and I am aware of its campaign on fair taxation. We want fair taxation. One of the Government’s key priorities is tackling the budget deficit, and ultimately the best way for us to support not just bingo clubs but other companies in Britain employing staff is to get the economy back on its feet, creating jobs so that people have money in their pocket to spend, including in bingo clubs.