Loans to Ireland Bill

Lord Darling of Roulanish Excerpts

Wednesday 15th December 2010 Commons Chamber

[Mr Alistair Darling (Edinburgh South West) (Lab)]

I agree with the hon. Member for Chichester (Mr Tyrie) that we should be concerned about what is being done within Europe not only to deal with the immediate crisis in Ireland but in relation to the other problems that I believe will arise during the course of next year. The piecemeal approach that Europe has adopted, certainly in the past two or three years, has got to stop. I shall return to that point in the short time that I have available.

I support the Bill and agree with much of what the Chancellor has said. He may feel that that is of absolutely no comfort to him given what some hon. Members sitting behind him have to say. He is absolutely right that because of our interests in Ireland—particularly the interests of the British banks in the Republic of Ireland and the Republic’s banks’ interests in this country—we should be involved in any restructuring discussions. That is very important to us.

Before I deal with the wider problems, I wish to deal with the funding of the rescue, which has been the subject of the debate this afternoon. As the Chancellor has said, we are funding that rescue through the IMF, which we ultimately guarantee, and through a direct loan from the United Kingdom. We obviously hope that that money will be repaid in full, but there is a contingent liability. We are not part of the eurozone fund, and on the weekend of 9 May I spent many hours resisting every attempt from just about every quarter to get us to stand behind the euro. I did not think that was right for us.

We are also making a contribution, of course, through the European financial stability mechanism. That was the subject of a lot of discussion at the meeting of 9 May. I went to Brussels that weekend with no enthusiasm whatever. We had lost the election, but this country was in the unusual position that there was not a Government in place by the Friday, which was the normal situation over the past few decades. Frankly, I had no option but to go, because not to have done so would have been to empty-chair the UK, which would have been quite wrong. I spoke to the right hon. Member for Twickenham (Vince Cable) and the Chancellor, because I felt it appropriate to do so. I thought that in all probability they would both be in office within a couple of days.

I have to remind the House of the circumstances of that weekend. We were meeting at a time of crisis. There was a real sense that the markets were about to have a go at Portugal and Spain, and there is a sense of déjà vu about that, because we are back in that position now. In all probability, the IMF was going to make a loan. There had been a lot of discussions, prompted by the United States, urging Europe to do something about the growing crisis, yet nothing had happened throughout January, February, March and April. It took that emergency meeting in May, when we had to put together a rescue package to persuade the European Central Bank to start buying bonds. That was the critical decision taken that weekend. If it had not bought bonds, there would have been a real problem. That was why we were faced with the situation that we were.

I discussed with the Chancellor what we should do about the financial stability mechanism. He had his reservations and stated very clearly that he was against deploying it, and he asked me whether I should abstain, recognising that the decision was to be taken by qualified majority voting. Both of us recognised, I think, that if we had abstained, the proposal would still have gone through, because everybody else in the room wanted the mechanism to be deployed. I found myself in exactly the same position that he did just a few weeks ago when he was being asked to contribute. He made it clear in a statement to the House on 22 November that he did not believe we should make that commitment, but said:

“However, it operates according to qualified majority voting and so we cannot stop it being used, and to exercise that vote at this time would, I judge, be very disruptive.”—[Official Report, 22 November 2010; Vol. 519, c. 39.]

That was exactly the situation in which I found myself in May, which was why I agreed to go along with the proposal.

However, I have to say that that fund was not used at all when it came to the bail-out of Greece. That was entirely from the eurozone fund that was set up. Obviously I had left office by then and was not part of the discussions, but that is the simple fact of the matter. Once again, Europe was meeting in crisis, and we had to get a package of £500 billion together to get the ECB to meet. Otherwise, it would have done absolutely nothing.

[Sajid Javid]

The shadow Chancellor made the rather incredible statement in his opening remarks that he believes that Ireland’s euro membership has absolutely nothing to do with the predicament in which it finds itself. Does the right hon. Gentleman agree?

[Mr Darling]

The circumstances in which Ireland finds itself are complex, but there is no doubt that one problem is that a common interest rate right across Europe is perhaps inappropriate for an economy that is rapidly investing in an asset bubble. However, I do not have the same phobia about the euro that many Conservative Members still have, 20 years on.

[Mr Cash]

rose—

[Mr Darling]

Talking of which, I give way to the phobic-in-chief.

[Mr Cash]

I am extremely grateful. Did the right hon. Gentleman take legal advice on whether, as I said at the time, the use of the financial stability mechanism was an unlawful deal? Article 122 of the treaty on the functioning of the European Union deals with natural disasters, energy supplies and so on, and it has absolutely nothing to do with financial mistakes or misjudgments. Really, the whole thing should never have gone through, and he should have repudiated it on those grounds.

[Mr Darling]

Yes, but as I said earlier, because of QMV, the deal would have gone through anyway. I also do not agree with the hon. Gentleman’s analysis or that the legal position was that clear-cut.

[Mr James Clappison (Hertsmere) (Con)]

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

[Mr Darling]

No—I will not do so because of the time constraints.

I agree with many hon. Members that Europe urgently needs a robust and workable rescue mechanism. We cannot wait until 2013, which brings me to my second main point.

As I have said, I am concerned about the piecemeal way in which Europe as a whole, and the eurozone in particular, address the problems that they face. Even today, there is speculation that the credit rating agencies might revise Spain’s status, which would be damaging to that country and to the euro. However, the approach that has been taken so far, which fails to recognise that the single currency involves 16 member states and 16 Treasuries, will inherently be under stress in times such as these. We are simply storing up problems for the future.

Germany must recognise that if it wants to keep the single currency, which is important to it economically and politically, there are consequences in respect of transfer payments to help countries that are in difficulty. I also believe that simply telling those peripheral countries that the only remedy lies in austerity programmes that developed countries might baulk at implementing, runs the risk of them—far from being able to repay or service loans—finding themselves deeper and deeper in the mire. The IMF has discussed that problem. When Ministers in different parts of Europe are asked privately where all the growth will come from—for Greece, Ireland, Spain and Portugal—they say, “We don’t know. We can’t be certain.”

Consider the news today. There is rising unemployment. Most of the job losses are in the public sector, and there is precious little sign that the private sector is taking its place. We should be concerned about the “austerity first” programmes that are being imposed across Europe. The dominant political thought at the moment is that if Government’s cut enough, they will get through to salvation. That was tried in the 1920s and early 1930s, and it did not work.

I believe that countries that are in difficulty should look to mend their own houses and to take difficult and controversial steps, but we need to be watchful that we do not get into a situation in which those countries have no way out. If that happens, their consumer and business confidence will fall. Whom do they export to if other countries are shutting down?

The need for some sort of mechanism to address the problems that are inherent in the euro is absolutely urgent. Those problems were simply glossed over 10 or 15 years ago. Let no one think that this is a matter only for the eurozone. As many hon. Members have said time and again, the problem affects us as well, because we are so integrated with Europe and because it is such a big trading partner. Parliament and Ministers need to address the question of such a mechanism. Frankly, we cannot afford to carry on with the current piecemeal approach, which I believe threatens our recovery as much as that of other European countries.

Financial Assistance (Ireland)

Lord Darling of Roulanish Excerpts

Monday 22nd November 2010 Commons Chamber

[Mr Speaker]

Order. I should also mention that Members who were not here at the start of the Chancellor’s statement should not expect to be called. That is what I said in respect of the previous statement and that is our usual practice, to which I think we should adhere.

[Mr Alistair Darling (Edinburgh South West) (Lab)]

I agree with the Chancellor that it is in our country’s interests to do everything we can to help Ireland through its present difficulties. Although he and I agree that I was right to keep us out of the eurozone support fund, some money coming from Europe is partly subscribed by us and also the IMF—but does that not demonstrate that it is in our interests? The fact that he is also willing to make bilateral loans available to Ireland demonstrates that it is our interests to sort out the problems in Ireland. Although he does not have the details, can he tell us how much of that money from us and from other sources will be used to restructure and recapitalise the Irish banks, which is absolutely necessary in Ireland and also, I suspect, in a number of other countries in Europe?

[Mr Osborne]

I very much welcome what the right hon. Gentleman has said, and of course I agree that it is in our national interests, and indeed the interests of other European Union member states, that we bring some stability to Ireland. He is right, as his question implies, to focus on the banking system. The situation in Ireland is different from the situation that Greece found itself in earlier this year, with which he had to deal when he was Chancellor.

On the question of the breakdown between the amount of money going to the banking system and the amount going to fund the sovereign, I am afraid that I cannot give the right hon. Gentleman the exact figures, because they are still being negotiated, but I would say that most of the money will be used to take the sovereign out of the market for a period, and a substantial minority of the amount will be required for a fund to help the Irish banking system.

Comprehensive Spending Review

Lord Darling of Roulanish Excerpts

Thursday 28th October 2010 Commons Chamber

[Danny Alexander]

Thank you, Mr Deputy Speaker.

As I was saying, we have published distributional analyses that clearly demonstrate that those on the highest incomes will contribute more towards the consolidation, not just in cash terms but as a proportion of their income and consumption of public services.

[Mr Alistair Darling (Edinburgh South West) (Lab)]

I am grateful to the Chief Secretary for giving way. So far, he seems bereft of answers to any of the questions put to him. Does he agree with the Institute for Fiscal Studies’ analysis that the June Budget and last week’s spending review can be fair only if the Government include all the measures that I introduced in my Budget prior to the election?

[Danny Alexander]

I think that the phrase “no answers” applies to Opposition Front Benchers on dealing with the deficit.

The measures included in our analyses include measures for which we will introduce legislation, such as the measures on national insurance. Those measures are part of our plan and it is perfectly appropriate that they should be included.

Oral Answers to Questions

Lord Darling of Roulanish Excerpts

Tuesday 13th July 2010 Commons Chamber

[Danny Alexander]

Of course that matters, but what matters more than anything is the risks that this economy would have faced if we had stuck with the plans of the previous Government, which would have risked higher interest rates, lower growth and fewer jobs, and there would have been very big risks in the future.

[Mr Alistair Darling (Edinburgh South West) (Lab)]

I am glad that the Chief Secretary at least accepts the proposition put by the hon. Member for Louth and Horncastle (Sir Peter Tapsell).

We all agree that to get debt down, growth is essential. However, has the Chief Secretary noticed this morning’s remarks by Geoffrey Dicks, a member of the Office for Budget Responsibility, who said that his office had cut its forecasts for growth by 0.5% as a result of the Budget announcements two weeks ago, and went on to say that logically, as he put it, that increased the chances of our economy slipping back into recession?

[Danny Alexander]

He also made it clear that he did not think that that risk was a likely one. In the Budget—this is the important central judgment that the House needs to understand—we have faced up to the fact that if we had carried on with the plans of the previous Government, the big risk facing the economy would have been higher interest rates, fewer jobs, and a reduction in growth, and we would have faced the big risk that we have seen in other countries, which we need to ensure does not happen in this country. Our Budget has ensured that that risk is avoided; the previous Government would not have done that.

--- Later in debate ---

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

The assessment set out in the Red Book is that it is likely that two thirds will be passed on immediately and most of the rest will be passed on over the course of the next 12 months. In some cases retailers may bear some of the increase themselves, and we will obviously be studying the matter very closely.

[Mr Alistair Darling (Edinburgh South West) (Lab)]

Does the Chief Secretary, in the Chancellor’s absence, agree that the independence and credibility of the OBR are absolutely paramount? Sir Alan Budd said to the Treasury Committee this morning that the numbers he released two weeks ago

“were not an appropriate basis for attempting to estimate the effects of the June Budget on general government employment”,

and the Prime Minister was quite wrong to claim that they were. Would it not be better for the OBR to be more accountable to this House, with its appointments being subject to confirmation hearings by the Treasury Committee, and for its deliberations to be completely open and transparent? What we have at the moment is a good idea strangled at birth by the way in which this Government have been treating it.

[Danny Alexander]

The independence of the OBR is not in question. That was made clear by Alan Budd in his evidence to the Treasury Committee today. This is a good idea that was brought forward by this Government, and it will be established in legislation. I do not think it was even part of the former Chancellor’s secret plans before the election, alongside a rise in VAT, a cut in corporation tax and a cut in income tax. Those are measures he should be supporting in this Budget, because he came up with them in the first place.

Capital Gains Tax (Rates)

Lord Darling of Roulanish Excerpts

Wednesday 23rd June 2010 Commons Chamber

[Mr Alistair Darling (Edinburgh South West) (Lab)]

I welcome the opportunity to open the second day’s debate on the Budget. There are two tests to be applied to this Budget. The first is what it does to ensure that we can secure the recovery and get long-term sustainable growth, and therefore support jobs. The second is what it does in respect of fairness and, in that context, what it says about the promises made by the parties that now comprise the Government.

I expect that over the next few days many points of detail will be explored, but I want to look at some of the bigger issues, especially the context against which this Budget needs to be judged. Before I do that, I welcome the Secretary of State for Business, Innovation and Skills to his place. I have not had an opportunity to cross swords with him in this Parliament, and I look forward to doing that and to hearing what his views are now as opposed to what they were a mere seven or eight weeks ago.

I want to start with the context in which the new Government made their decisions on this week’s Budget. Yes, that context has to be the need for us to reduce our borrowing—no one disputes that, although there are very live and real arguments about how fast and the extent to which the deficit ought to be reduced. However, I believe that it must also be seen in the context of growth. For some, like the Business Secretary, what I have to say will not be news because, after all, he largely agreed with the approach that I took during a lot of the last Parliament. However, he seems to have become rather more forgetful in the past few weeks, so a reminder may be useful.

On 28 April, which the right hon. Gentleman may now regard as being ancient history, but for most of us does not seem that far away, he said:

“The deficit problem is easier to solve if there is growth. That is why the next government has to recognise the fragility of the economy and not take action which would precipitate a double dip recession leading to more unemployment and even bigger budget deficits.”

I agree with the sentiments behind his statement. He was right on 28 April, and my guess is that he will still be right on 28 June, but I cannot understand why he has changed his mind in the intervening period. Growth is slightly stronger than before the general election, because at that time we thought that it was just 0.3% in the last quarter. However, although it has improved, it can, on no view, be said to be anything other than pretty modest and pretty fragile. I believe that the measures announced in the Budget yesterday present a risk of derailing that recovery, and worse, of giving rise to a situation in which our economy simply bumps along the bottom for a number of years. In that way, we would not get the growth that we need, and we therefore would not get the jobs. Worse still, of course, we would not have the funds to reduce our deficit and, therefore, our debt.

The past three years have been tough for businesses and families throughout our country and, indeed, many are still experiencing the problems that arose because of the recession. However, as I said, we have seen a return to growth, but it is only 0.3% in quarter one; unemployment has stabilised and begun to fall; and tax receipts are higher than expected, which is why our borrowing is £11 billion less than I forecast in March. All those improvements are a direct result of the action that the previous Labour Government took.

Throughout this debate and for some time to come, doubtless we will hear the now familiar mantra that everything that is wrong and all our problems are confined to one country alone—ours—and that they are due solely to the actions of the previous Government. Like any Government, we got some things right and some things wrong, but I am absolutely certain that the action we took to stop this country tipping from recession into depression was right, as was the action we had to take to stabilise the banking system. I will not yield to anyone who says we should have done differently. We needed to stabilise the economy and to keep people in their jobs and homes. We took that action because we do not believe that in such a situation people should be left to sink or swim. Those actions were taken largely with the support of the Liberal Democrats when they were in opposition, but everything has changed in the past seven weeks.

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

rose—

[Mr Darling]

I will give way to someone who is perhaps an unreconstructed member of the Liberal Democrats, especially one who represents a constituency in the north of Scotland that may be the subject of change because of his leader’s determination to reduce the number of constituencies, particularly in his neck of the woods.

[John Thurso]

I am grateful to the right hon. Gentleman for those kind words, but I suspect I would be out of order if I responded.

May I bring the right hon. Gentleman back to the point he was making and remind him that when the Northern Rock crisis hit, my right hon. Friend the Business Secretary immediately proposed that nationalisation was the correct way forward, and that the Government whom the right hon. Gentleman represented prevaricated for six months before taking that action?

[Mr Darling]

The hon. Gentleman raises an interesting point. He is right that the right hon. Gentleman called for nationalisation at an early stage. The current Chancellor, however, was dead against that. I imagine that if that situation arose now, the Chancellor’s view would prevail and the Business Secretary would have to do what he is told. The hon. Gentleman is absolutely right that at the time I agreed with a lot of what the Business Secretary was saying. For reasons that I will not go into just now because of the various legal requirements and other considerations, we did not nationalise Northern Rock until February 2008, but we were absolutely right to do so then. The Chancellor still thinks that we were wrong, but I am glad to say that the current Secretary of State for Justice believes that our action was right. The action we took, whether in relation to Northern Rock, the rest of the banking system or the rest of the economy, was critical.

[Ms Karen Buck (Westminster North) (Lab)]

While we are reflecting on recent history—the Chancellor yesterday spoke of the levels of debt prior to the economic crisis and blamed a long history of alleged Labour overspending —will my right hon. Friend speculate on why the Conservatives supported the Labour Government’s spending plans right up to the end of 2008?

[Mr Darling]

The Conservatives did so because they thought it expedient, but at the end of 2008, they decided to change tack. In all we heard yesterday, the Chancellor did not explain why, if everything was going wrong and we were spending too much in the previous few years, he was quite happy to support such spending right up until the end of 2008.

[Mr David Evennett (Bexleyheath and Crayford) (Con)]

I am listening with great interest to the right hon. Gentleman’s exposition of what the last Labour Government did. However, if everything is so good, why is our economic and financial position so much worse than those of our competitors after his tenure as Chancellor of the Exchequer?

[Mr Darling]

It is largely because we have a very large financial sector that contributed about 25% of all our corporation tax receipts. When the banking crisis hit, those receipts fell. There is something in the argument that has been advanced on both sides of the House in recent years—although, perhaps in retrospect, sadly not as much as it might have been over the past 30 years —that our economy has become dependent on the financial services sector, particularly on tax receipts. I think we would all like to see that rebalanced. Of course, there is a big question about how we do that, and I cannot for the life of me see how cancelling the help to Sheffield Forgemasters, for example, will go anywhere towards helping that rebalancing. However, I shall come on to that in just a moment.

At the moment, our recovery is fragile. What makes matters worse is that the position in our main export market, Europe, is extremely worrying. I am far less optimistic than I was in March about what is likely to happen in the European Union economies over the next year. Growth in France has fallen back; in Germany, it is pretty flat—just positive; other countries have tipped into recession; and Spain has unemployment over 20% and other well-understood problems. On top of that, whereas the predominant view certainly until the beginning of this year was that we had to support our economies to ensure that we established growth, the Chancellor is right that he can pray in aid the change of view among some of his counterparts, such as in Germany, which is now pursuing policies to reduce the deficit that will impact on demand, not just in that country but within other parts of Europe as well. Germany is our major trading partner. If demand there is suppressed, and if taking large sums of money out of our economy here has the effect I suspect it will have, the result will be reduced demand, which will affect business confidence, its propensity to invest and, therefore, our ability to grow and generate the receipts we need to get our borrowing down. That is a real concern.

There is no doubt that, over the past few months, the balance in the approach has moved away from what one might characterise as the Keynesian towards the more orthodox. I, for one, think that that is a profound mistake.

[Huw Irranca-Davies (Ogmore) (Lab)]

Does my right hon. Friend share my worry about the much-cited examples of the quite savage cuts agendas in Canada, Sweden and elsewhere? They were done against the backdrop of growing export markets, monetary policy and currency devaluations. His analysis of what is happening in the eurozone at the moment should fill us with caution, if not dread, because if the Chancellor’s judgment is wrong, this country is going to hell in a handcart.

[Mr Darling]

My hon. Friend’s point about Canada is an important one. Yes, Canada reduced its deficit quite dramatically. As a result of that country’s provincial set-up, a lot of the action was taken by the provincial governments rather than the national Government. It was taken, however, an the back of a growing US economy. Given the relative size of the Canadian economy compared with the US economy—it is much smaller than the Californian economy alone, for example—there is no doubt that the Canadians could do things on the back of their next-door neighbour’s rising prosperity. Our problem is that our next-door neighbours, the EU, are not in the same position at all—indeed, quite the reverse. Equally, when Sweden was going through a similar exercise, it was helped by the fact that the economy of much of Europe was growing at the time.

[Sajid Javid (Bromsgrove) (Con)]

Does the right hon. Gentleman agree that he should also consider the example of Spain, of which I am sure he is more than aware, when talking about our EU neighbours? Despite having a lower debt-to-GDP ratio than us and a lower budget deficit, it is on the verge of a sovereign debt crisis. Its banks have been frozen out of the borrowing markets for the past three weeks, and it has reportedly held emergency meetings with the International Monetary Fund, the EU and others to try to arrange a bail-out package. Does that not make what we had to do yesterday even more critical?

[Mr Darling]

There is another difference, of course. Official unemployment in Spain is more than 20%. The Spanish construction industry is in dire straits. A lot of Spain’s smaller banks, which are heavily tied to that industry, are finding things difficult. There is a world of difference between the Spanish economy and our own, just as there is a world of difference between the Greek economy and our own.

Just about every day in the run-up to the election, the hon. Gentleman’s party was anxious—desperate even—to compare our economy with the Greek economy. To his credit, the Secretary of State for Transport—he is not here today, but I made this point to him when we were debating on the television last night—said that Britain was nothing like Greece. The idea that we are in the same position as Greece or Spain is complete nonsense. Our economy is much larger and much stronger, and our ability to service our debt is much greater. The average maturity of our debt—as the hon. Gentleman knows, I assume—is 14 years, whereas in Greece the average maturity is three years and in continental Europe it is about five years.

Of course we have to get our borrowing down and ensure that we can get debt down as well. No one would disagree with that. The question for us is how do we do that in a way that maintains growth, so that we can ensure not only that we get growth in our economy and that we do not damage our future prospects, but that we do so in a way that is socially and politically fair? That is the difference, but to compare us with those smaller countries is, frankly, ludicrous, as many in the hon. Gentleman’s party realise.

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

Did the right hon. Gentleman really believe that the previous Government had ended boom and bust, and is that why he put no money away for the rainy day that has now arrived?

[Mr Darling]

The hon. Gentleman was not here in the last Parliament, but I was asked that on numerous occasions. No Government can ever eradicate economic cycles. They have been around for years, and I expect that the current Government will find that they will be around for years as well. What I would say to the hon. Gentleman is this. Just before we went into this crisis, we had the second lowest debt level of the G7, behind only Canada, and although we had a structural deficit, it was much smaller—[Interruption.] Yes, we were borrowing to build schools and hospitals, but when they were sitting here on the Opposition Benches, Conservative Members used to call for more spending on schools, hospitals and the police, not less.

The point is that whatever we do, when we get that borrowing down, we have to ensure that we do it in a way that does not damage the fabric of the economy. Indeed, the Secretary of State for Business, Innovation and Skills said that he was

“very much opposed to the Conservative approach of rushing into cuts…regardless of the condition in the economy. That’s not sensible.”

He was right then and he would have been right now, but he is pursuing a different policy.

[Geoffrey Clifton-Brown (The Cotswolds) (Con)]

rose—

[Mr Darling]

No, I am going to make some progress.

The current context is a fragile recovery, with growth in Europe sluggish. Crucially, however, we cannot assume, as the Government seem to, that it is axiomatic that if we cut back on public expenditure, the private sector will come in and take its place. That is not guaranteed at all. We have seen that in Japan and other countries. Indeed, the private sector often relies on public sector spending in many ways, whether through investment and support or directly, because it supplies goods and services to the public sector.

As I have said, borrowing is too high and we need to get it down. As I said to the hon. Member for Bexleyheath and Crayford (Mr Evennett), our receipts from income tax and corporation tax fell, as did our stamp duty receipts when the housing market went down, but that would have happened—indeed, it did happen—to every other major economy. We are not talking about something that was confined to the United Kingdom. Of course, as unemployment goes up, social security spending goes up as well. Indeed, it is interesting that if we look at what has happened to other countries across the world, we see that the deficit this year in this country is about the same as it is in the United States. If we look at debt and the IMF comparisons that were published in 2009, we find that our debt was less than that of Japan, Italy, Germany and France, and, looking ahead to 2015, it will still be less than that of the United States, France, Italy and Japan.

The idea that we are talking about a particularly British problem simply does not stack up. It is not true, but it is used as a convenient excuse for what the Conservative party always wanted to do. The truth is that the Conservatives supported our spending plans right up until the end of 2008—the hon. Member for North West Leicestershire (Andrew Bridgen) might want to consider this point. Indeed, when the now Prime Minister was challenged—I think by some right-wing newspaper—as selling the pass, he said that those spending plans were “tight”. That was the word he used. He said:

“This is why we are sticking to Labour’s spending totals. Taken alone, these are tight.”

That is what he said in 2008, but now the Conservatives turn around and say that what happened would not have happened if they had been in power for the past five years and that things would have been completely different.

Let us be clear: we all want to see borrowing come down, and we need to ensure that that happens. It is also clear that we need to understand the consequences of what we are doing, so that we do not damage our economy or damage the social fabric of this country. However, to suggest that we should not have done anything to support our economy as we went into recession or that we should not have stepped in to prevent the banking system from collapsing—and it was hours from collapsing—is simply nonsense, frankly. Indeed, if we had not done what we did, the cost, in terms of increased borrowing and higher debt, would have been far higher even than it is today, so that argument simply does not stack up.

We need a sensible plan to get borrowing down, but if we get this wrong we will cause major problems, given the scale and speed of the Government’s action. Again, the Business Secretary said a few weeks ago that

“it would be foolish to rush in significant cuts now which take the economy down even further, which lead to an even bigger deficit problem”.

He was right when he said that, yet the view of the Government of whom he is now a member is rather different. To be fair to the Chancellor, he has been consistent. He has wanted to take this risk for some time, and he is now taking it in great style. Even better, from his point of view, is that he has got the Liberals to front it up. No wonder that, once they are out of this Chamber, Conservative Members are laughing at the very idea of getting the Chief Secretary to the Treasury fronting up the cuts last week in his boss’s constituency. That is indeed new politics; I just wonder how long it will last. All I can say is that if things get better, there is no way that the Conservatives will allow the Liberals to front up any good news when it comes.

I am concerned at this time that we run the risk of derailing the recovery, which is why I took a different view. I thought that we should halve borrowing over four years, rather than go further and faster. Looking at the Office for Budget Responsibility’s forecasts published yesterday, I am concerned that it has downrated the growth forecast for this year, which it published a week before, from 1.3% down to 1.2%, and that it has downrated growth in 2011 from 2.6% to 2.3%. The OBR therefore recognises that growth is going to be suppressed as a result of what is being done.

[Mr Tobias Ellwood (Bournemouth East) (Con)]

Will the right hon. Gentleman give way?

[Mr Darling]

Yes, I suppose so.

[Mr Ellwood]

I am honoured that the right hon. Gentleman has taken the time to give me tuppence-worth of his attention. Will he comment on whether he supports the creation of the Office for Budget Responsibility, bearing in mind his own predictions? In March he stated in this place that the growth forecast for 2011 was 3.25%, but now the Office for Budget Responsibility says that the forecast is 2.6%.

[Mr Darling]

I am glad that I gave way to the hon. Gentleman, because the last time we touched on whether I supported the creation of the OBR, I think that the Chancellor said that I had always opposed it. However, I was careful before the election, and I think that I am right in saying that I did not oppose it as a matter of principle. The present Government decided to set up the OBR. If it works, it is worthy of support, so we will support the legislation in principle, but we will look at the detail. One interesting question is whether the OBR should be responsible to the Treasury or to Parliament—to this House in particular.

[Mr Ellwood]

It has rubbished your forecasts.

[Mr Darling]

Let me come to the forecasts. Forecasting, as I am sure the hon. Gentleman knows, is an art rather than a science. Let us just see, because as I understand it, the OBR is being advised by exactly the same civil servants who advise the Chancellor, and who advised me a few months ago. However, I note that when Sir Alan Budd announced the OBR pre-Budget report a week last Monday, he said that one of the reasons why he had changed his estimate was recent developments, including what is happening in Europe. As I said earlier, I am less optimistic now than I was three months ago about what is likely to happen to growth.

[Mr Ellwood]

Will the right hon. Gentleman give way?

[Mr Darling]

No, I think I have dealt with that point.

There will be some people who argue that the private sector would see faster growth and job creation if there was a swift consolidation that supported looser monetary policy. However, with inflation down, interest rates at 0.5% and bond yields coming down—they were coming down before the election, as well as after it—there is no evidence of suppressed private sector demand, so that argument does not stack up. I am concerned that we may see a situation when there are not the right conditions or the right confidence to bring forward business investment. I am happy to welcome the proposed reduction in corporation tax rates and other business help, but what governs whether businesses come forward with investment is whether they are confident that the economy is going to be growing so that people will buy their goods and services. That is what I am concerned about.

I am also concerned that the Office for Budget Responsibility forecast shows employment taking a hit of about 100,000 compared with what we had forecast previously. The Chartered Institute of Personnel and Development foresees unemployment rising and sticking around 3 million for this entire Parliament. The history of Japan in the 1990s—and, indeed, our own history back in the 1930s—provides a lesson in what happens if we get all this wrong. Wherever we sit in this House, we should all be concerned about rising and persistent unemployment. Not only is it an economic waste; it is also a social catastrophe, as we have seen on many occasions.

[Jacob Rees-Mogg (North East Somerset) (Con)]

rose—

[Mr Darling]

I shall give way to the hon. Gentleman, not least because I had the pleasure of visiting what is now his constituency during the election campaign, and I can see that my contribution there did not quite work out.

[Jacob Rees-Mogg]

I thank the right hon. Gentleman for giving way—and, indeed, for visiting North East Somerset, where he will be welcome again. He has mentioned Japan, and what Japan got wrong. What it got wrong was massive overspending, as a result of which it is now forecast to have a debt to GDP ratio of 246%. Surely that overspending is exactly what we need to avoid.

[Mr Darling]

What Japan got wrong was snuffing out a recovery at a very early stage and never really getting over it. As the hon. Gentleman knows, the Japanese have had complete stagnation for a long period now. The debt is just going up and up, and understandably they are very concerned about it. The new Prime Minister was the finance Minister until a few weeks ago, and understandably, he has huge problems on his hands.

The tests we need to apply to the Budget relate to growth and jobs, which I remain very concerned about; there is a substantial risk there, and I would like to have heard more said about policies to promote growth so that we do not end up with years of very sluggish growth at best or, even worse, bumping along the bottom for some years.

I have said that one of the tests that needs to be applied to this Budget is its fairness and another relates to the promises made about it before the election. Where better to start, then, than with VAT? During the election there was a lot of discussion about that. The Conservatives, like ourselves, said that they had no plans to raise VAT. I remember having a discussion with the Chancellor when he announced his plans not to go ahead with at least some of the national insurance increases, and he said that he would fund that from efficiency savings. I remember saying that I thought that was highly doubtful, and that they would have to raise money from another big tax. Sure enough, VAT is going up.

Interestingly, for some reason, not much was said about efficiencies yesterday, although they loomed very large during the election. We now know that “no plans” on the Tory side meant exactly what Geoffrey Howe said in 1979 when he said he had “no intention” of doubling VAT. Of course he was factually right, as it only went up from 8% to 15%. It was the same with John Major when he was Prime Minister in 1992, and said he had “no plans” to raise “extra resources from VAT”: of course, VAT went up. Even last year, the Prime Minister said in opposition that putting up VAT was regressive. He said:

“You could try, as you say, put it on VAT, sales tax, but again if you look at the effect of sales tax, it's very regressive, it hits the poorest the hardest. It does, I absolutely promise you.”

I assume he was not absolutely promising to do that, but was trying to point out to the questioner that he thought that VAT was regressive. Yet here we have it—VAT going up to 20%, as I always suspected would happen.

What I find even more curious is how on earth the Business Secretary can back this proposal. He cannot have been unaware of the Liberal campaign which spent two days dealing with the “Tory VAT bombshell”. We saw the posters all over the country. They said a Tory Government would come up with “a secret VAT bombshell”, but the only secret appears to be that the Liberals intended to vote for it when it was introduced. The hon. Member for Bermondsey and Old Southwark (Simon Hughes), who is no longer in his place, said last week that he thought VAT was

“the most regressive form of tax”

in that it “penalises the poor”. When the Business Secretary said during the election that he would

“hardwire fairness back into national life”,

did he have this in mind?

I see that there are, wisely, only four Liberal Democrats in the House at the moment; the others are no doubt explaining to their constituents why it is that when they said, “Vote for us and keep the Tories out,” they completely misunderstood the position. It seems to me that this is not just a broken promise, as there are real issues at stake. I was criticised for what I did with national insurance, but I wanted to ensure that pensioners would not have to pay the increased tax and I wanted to protect people earning less than £20,000—of course, that has not happened.

[Phil Wilson (Sedgefield) (Lab)]

The Chancellor keeps saying that we are all in this together, but the headlines in The Financial Times today suggest otherwise. Under the headline, “Well paid breathe collective sigh of relief”, the article quotes someone from RBC Wealth Management saying:

“Many high earners will be breathing a sigh of relief.”

Does that not prove that we are not all in it together?

--- Later in debate ---

[Mr Darling]

My hon. Friend makes a fair point. It is interesting that the Liberal Democrats promised us that if they went into coalition they would get something in return on capital gains tax. They wanted a 40% CGT, yet they appear to have settled for 28%.

[The Chancellor of the Exchequer (Mr George Osborne)]

That is 10% higher than under Labour.

[Mr Darling]

The Chancellor says it is 10% higher, but when I raised capital gains tax to 18%, I remember the angry campaign waged against it by Conservative Members. They said that 18% would discourage enterprise and was a terrible thing, but they seem to have changed their minds on that absolutely and completely. By the way, we are not going to oppose the increase in capital gains tax; especially when there is a higher 50p rate of tax, sooner or later action would have to be taken to stop the real risk of leakage. As I think the Chancellor said yesterday, the real gain from raising capital gains tax comes from income tax receipts. The position of the Liberal Democrats, however, was quite different.

There are other areas, too, where questions of fairness will be raised. Where in the manifestos of either of the political parties that form the Government was it said that they were going to index benefits to the lower inflation index of the CPI—the consumer prices index—which takes about £6 billion away from people whose income, generally speaking, is not that great? Where was it said in their manifestos that they were going to cut more than £100 in relation to child benefit, or to freeze that benefit for three years? Other changes also deserve very close examination. Everybody knows that housing benefit is in need of reform, as is the disability living allowance, but as we all know, these are complicated, difficult and sometimes controversial issues. It will be interesting to see whether the coalition Government can deliver all the things they promised yesterday.

[Geoffrey Clifton-Brown]

The shadow Chancellor said that action would have had to be taken on the CGT rate sooner or later, but I cannot remember him criticising his predecessor when the Labour party reduced CGT from 40% down to 18%. Is he now saying that that was the wrong thing to do, or not?

[Mr Darling]

I am not saying that, and I am bound to say that I do not remember anybody—and certainly not the Conservative party at the time—criticising the reduction of CGT down to 10%. It was believed that it would help and encourage entrepreneurship—[Interruption.] The hon. Gentleman might like to have a long look at that, but I am sure that many arguments can be mounted both ways. As he knows, I made changes in 2007; I remember that the Conservative party’s complaint then was not about the reduction of CGT, but about my increasing it to 18%. As I said, with income tax rates at 50%, it is sensible to keep an eye on this.

I believe that people will find it difficult to characterise a number of measures announced yesterday as fair. On tax credits, the Chancellor said that the Government were going to start to taper away tax credits from household incomes of over £40,000, but that is already true now. In the following year the threshold goes down to £30,000. As we always said during the election—when it was denied—people on incomes as low £15,000 will be affected. Look at table A.5 on page 64 of the Red Book: it is there; it is all set out. It shows that cuts in entitlement to tax credits go far further than the right hon. Gentleman set out yesterday.

I think that the Liberals will have some difficulty in characterising these things as “progressive cuts”. I understand that the leader of the Liberal Democrats points to the table published in the Red Book, which makes it look as if people at the top end are bearing a fair share of the reductions and tax increases, but it shows that only because the Government have published a table showing measures yet to be introduced, including our national insurance increases. The top decile will be paying more because of measures that I, not the Chancellor, introduced. It is slightly disingenuous of the Prime Minister to give the impression, as he did at the end of Question Time, that what the Conservatives are doing is redistributive and fair. That is not the case.

[Mr Edward Timpson (Crewe and Nantwich) (Con)]

The shadow Chancellor has told us that he supports the rise in CGT. Does he also support the rise in the personal allowance by £1,000, the re-linking of pensions to earnings and the freezing of council tax? If he does, why were they not in his last Budget?

[Mr Darling]

Our policy, as the hon. Gentleman will know, was to restore the earnings link from 2012. I can see that bringing that forward to a year in which earnings are likely to be very low had a political attraction. I think that was the subject of exchanges at Prime Minister’s Question Time, and it will not have the cash effect that is thought. As for personal allowances, I am in favour of taking people out of tax if at all possible, but the same people who are being taken out of tax will be paying increased VAT.

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

Further to the intervention of the hon. Member for Crewe and Nantwich (Mr Timpson), will my right hon. Friend expose the nonsense of the supposed council tax freeze announced by the Government and the small amount of money given to local authorities at the 2.5% level? Is not the rug being pulled from under local government through swingeing cuts to grants? How on earth are local authorities supposed to plan ahead and make their budgets? Surely they will not be able to do that until they see the spending review.

[Mr Darling]

I noticed that the spin on Tuesday morning was that council tax was to be frozen in England next year. By the time of the speech, however, the Chancellor was saying that if local authorities did certain things, he would see what he could do to help them, which is not quite the same.

Let me put some questions to the Secretary of State for Business, Innovation and Skills. On the Chancellor’s proposed levy on the banks, will the Secretary of State tell us precisely what the French and German Governments propose to do? I, too, had discussions with my French and German counterparts, but it was not always clear that they were proposing to do precisely what we might have done. Things have clearly developed, and I would like to know what those developments are.

The Chancellor announced measures to help development outside London and the south-east. He mentioned regional funds and other help, so will the Business Secretary give us further details? The Chancellor also mentioned that he wanted to change the approach to pensions tax relief. He made the point that the Labour Government had had a number of discussions; legislation went through on the nod, I think, just before Dissolution. Does the Chancellor’s alternative mean reduced annual allowances? My recollection is that that would affect far more people than we proposed to affect, and is therefore less progressive?

People are right to be concerned about the overall thrust of the Budget in relation to the effect on growth and jobs. Yes, we need to get borrowing down—we all know that—but we must do it in a way that is sensible and will result in us coming through all the problems and being able to grow and secure jobs in the future. The Budget also fails the fairness test. Over the next few weeks and months, we will consider yesterday’s announcement and, equally importantly, the cuts to departmental spending. The Business Secretary’s Department is not protected. Perhaps he will say what the effect of a reduction of a quarter in his budget would be, given that he is responsible for science, universities and business support.

We will return to those big questions. Like all Budgets, this one will be judged in the fullness of time. We are coming through a difficult period, and the action taken by the Labour Government was totally justified. We must be careful not to derail that effort and end up undoing all the work done over the past few years.

--- Later in debate ---

[Vince Cable]

No; we are trying to deal with the problem that the hon. Gentleman and his colleagues left behind.

[Mr Darling]

Since the right hon. Gentleman referred directly to me and to advice and discussions that I may have had, let me say to him that there has never been any argument in the House about the fact that we needed to reduce borrowing. The discussion was always about when the reduction should start—before the election, he and I were on the same side on that—and about the extent to which, and the speed at which, it should take place.

As for Greece and the sovereign debt crisis, I am sure that the right hon. Gentleman will also have been advised that the real problem was that the rest of the eurogroup took far too long to do what was necessary to support the Greek Government. Had they done it in February, when the problems first became apparent, some, although not all, of those problems might have been avoided. As it was, they were allowed to become acute. No one is arguing that we did not need to reduce our borrowing, but we were not in the same position as Greece.

[Vince Cable]

I know that we were not in the same position as Greece. I was not talking about what the Greeks and the eurozone needed to do; I was talking about what we needed to do, and the advice that we received.

There is an evidence base to look at. It is true that, as the shadow Chancellor said in his speech, the cost of borrowing in terms of bond yields was starting to fall under the last Government. That is because markets are driven by expectations, and they expected a change of Government. Since the election, however, and since this action was taken and announced, the cost to the United Kingdom of borrowing, in terms of bond yields, has fallen by 20 basis points. In Greece it has risen by 170 basis points, or 2% in ordinary language. It has risen by 94 points in Ireland, by 95 in Portugal, and by 65 in Spain. Spain is a serious, big country: we are not talking about tiny, peripheral economies. It is a serious country, which was caught up in the financial firestorm that we have had to head off from here. That was the basis on which we made decisions.

Let me now develop that immediate question into the broader issue of the Chancellor’s Budget and the magnitude of the task that we had to undertake. There is, of course, a difference between the problem of the deficit and the problem of the debt. There is a public debt problem, which is growing rapidly, but as the Chancellor has pointed out and as I have often pointed out myself, it is not greatly out of line with what is happening in many other countries, or with what has happened historically. The real problem for the United Kingdom is the massive level of public borrowing. That is why markets are important. The deficit in the last financial year was 11% of GDP; in the current financial year, it is 10.5% of GDP. That money—£155 billion—must be borrowed. My views on that, on how it should be dealt with, and on the kind of radicalism that is needed had nothing to do with the formation of the coalition. My views were set out a year ago, when I wrote a pamphlet which did, indeed, bear a strong resemblance to what the Chancellor produced yesterday in terms of scale, scope and speed.

Let me tell the shadow Chancellor why I feel strongly about the need to act in such a decisive way in terms of fiscal policy. There are two reasons. First, I saw the disaster unfolding under the last Government, when they were overtaken by a major financial crisis for which they were not prepared and to which they had massively contributed. Of course there is a global problem—we know that—but its impact has been much more serious in this country than elsewhere. That is because the Government allowed household debt, in relation to income, to rise to the highest level in the developed world; because they acted and planned on the assumption that house prices rise for ever, although we know from the evidence that they go up and down roughly every 17 or 18 years, as they have done for the last 300 years; and because they created, encouraged and fostered an almost Icelandic dependence on major international banks, the combined magnitude of whose balance sheets represented 400% of our economy.

The Government allowed that to happen. Some of us warned about the dangers, and they took no notice: they said that we were scaremongering. But the crisis hit them, and, having experienced it once, we on this side of the House are determined that such a financial crisis should not happen again as a result of sovereign risk. That is why we are decisive, and why we feel that we need to act.

--- Later in debate ---

[Vince Cable]

I think that the gentlemen to whom the hon. Gentleman refers are mostly talking about competitive deflation in the world economy, which is, of course, absolutely disastrous. The Chancellor referred in his speech yesterday to the fact that other countries that are in surplus have to do the opposite of what we are doing in terms of fiscal consolidation. The Chancellor made that very clear in relation to action to be taken by the Chinese and action that should be taken by countries such as Germany. Of course we understand the wider context.

Let me return to the criticisms about value added tax. The shadow Chancellor put the question in a personal way when he asked why I was supporting the increase in value added tax. The three of us—the shadow Chancellor, the Chancellor and myself—went around the television studios during the election campaign; we were the three Chancellors, a bit like “The Three Tenors”. We had our several encounters and each of us was asked time and again, “What do you think about value added tax?” As I recall, all three of us gave an identical answer: “We have no plans to increase value added tax, but we have not ruled it out.” The reason why we are now having to confront the matter is that there is a bigger structural deficit than was appreciated and action had to be taken. That could have been a tax measure, or it could have been a spending cut. Is that what Labour Members are saying? Do they want more cuts in spending? Do they want another tax? What do they want?

[Mr Darling]

I was just wondering what impression the Liberal Democrat poster about the Tory VAT bombshell was meant to give.

[Vince Cable]

Anybody who read my comments on tax policy over the past year would, I think, hardly imagine that there was a surprise or a bombshell, because I said on many occasions that if taxes had to be increased, it made much more sense to tax expenditure than income or corporate income or employment. That was my view, and I expressed it on many occasions.

Financial Services Regulation

Lord Darling of Roulanish Excerpts

Wednesday 16th June 2010 Commons Chamber

[Mr Alistair Darling (Edinburgh South West) (Lab)]

(Urgent Question): To ask the Chancellor of the Exchequer to set out his proposals for the future of financial services regulation and for the role of the Bank of England.

[The Chancellor of the Exchequer (Mr George Osborne)]

In 1997, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), as Chancellor, established, without any consultation and without telling Parliament, the tripartite system to regulate the financial system. In doing so, he removed from the Bank of England its historical role in monitoring overall levels of debt in the economy. It is well known that the late Eddie George was deeply unhappy with that decision. It is also well known that the tripartite system that the right hon. Gentleman created, and that his successor as Chancellor sustained, failed spectacularly in its mission to ensure stability in the financial markets, and the failure of certain banks cost the taxpayer a vast amount of money. Indeed, British taxpayers funded the largest bank bail-out in the world, and it was only in Britain that depositors queued in the high street to get their money back.

The British people rightly ask how this new coalition Government will learn from the mistakes of their predecessor. The coalition agreement commits us to reforming the regulatory system for financial services in order to avoid a repeat of the financial crisis, and that is precisely what we will do. First, on the structure of regulation, our plan is to hand over to the Bank of England the responsibility for macro-prudential supervision, which should never have been taken away from it. The tools for macro-prudential supervision are the subject of ongoing international discussions. We are playing a full part in that process at European and G20 level, along with the Governor of the Bank and the chairman of the Financial Services Authority. It is already clear that the tools will include capital requirements that work against the cycle, rather than with it.

The coalition Government are also committed to handing to the Bank of England responsibility for the oversight of micro-prudential regulation. It is clear that the central bank needs to have a deeper understanding of what is going on in individual firms. My hon. Friend the Financial Secretary to the Treasury will give further details of the institutional arrangements in a parliamentary statement tomorrow. It is important that the institutions involved correctly follow their own internal procedures before those arrangements are made public, and the Governor of the Bank will be talking to the court of the Bank this afternoon.

The coalition Government will also deliver on their promise to establish an independent commission on banking. The previous Government would brook no debate about the future structure of the banks, the relationship between retail and investment banking, and the questions of how best to protect taxpayers and how to ensure greater competition in an industry that they actively sought to consolidate. The previous Prime Minister did not want anyone to challenge his opinions, but we cannot ignore this debate about the future of banking—indeed, I want Britain to lead it. We will therefore establish the commission on banking to investigate those issues. It will be chaired by Sir John Vickers, who is a former chief economist at the Bank of England, was one of the first members of the Monetary Policy Committee and is a former chairman of the Office of Fair Trading. He is a man of unquestioned experience, integrity and independence who approaches this issue with an open mind. I am today placing in the Libraries of both Houses the terms of reference and we await the conclusions of the commission.

Unlike the last Government, this Government are prepared to confront the difficult challenges of the regulation and structure of the banks. We are prepared to learn the lessons of what went wrong, even if they were not.

[Mr Darling]

I am grateful to the Chancellor for that answer, and I wonder whether I might press him on a number of points. First, he says that the Bank of England will have responsibility for macro-prudential supervision, but he also says that the debate as to what macro-prudential supervision consists of is still up for grabs as it is still being debated internationally. When does he expect those discussions to be concluded?

The Chancellor also says that the Bank of England will have some responsibility for micro-supervision. It has been suggested in some quarters, for example, that the Bank of England, rather than the FSA, might have dealt with whether the Royal Bank of Scotland could take over ABN AMRO. Does he not realise that far from clarifying the situation, this is adding another complication? The risk is that we will have a dog’s breakfast of a regulatory system in which no one knows who is making decisions and no one knows who is in charge. Does he not accept that at a time when there is still a great deal of uncertainty in the banking world and a great deal of turbulence, the last thing that we want is a situation in which it is not clear which organisation is responsible for precisely which activity? If both the Bank and the FSA are responsible for regulating institutions, that is bound to lead to confusion and inevitably runs the risk that mistakes will be made.

Will the Chancellor also tell us whether, in relation to the Bank of England’s responsibility, he is planning any reform to the financial stability committee or any internal reforms so that a committee will advise the Governor? If that is the case, will the Governor be making those decisions or will a committee do so, perhaps on a wider basis? Will he also tell us whether or not Lord Turner, the chairman of the FSA, agrees with his proposals and whether he is now prepared to serve, in effect, as a deputy under the Governor of the Bank of England?

In relation to the proposal to break up banks, will the Chancellor explain how Northern Rock, which was a very simple retail bank on the face of it, would have been saved from collapse simply by virtue of the fact that it was a retail bank and not an investment bank? Will he also explain how his proposal would have made any difference to Lehman Brothers, which did not take a single retail deposit but was a complex investment bank that collapsed with calamitous consequences? Will he tell us, too, whether the commission that he proposes to set up will consider the break-up of British banks such as Barclays or HSBC? Will he tell us how the uncertainty that will inevitably be caused by the work of the commission will help to rebuild the financial stability that we want? At a time when there is that instability, does he not think that it would be far better to keep the FSA working on what it is supposed to be doing—that is, the day-to-day supervision and regulation—bearing in mind that some small minor decisions are sometimes very important, especially if they are the wrong ones?

Is it not the case that the proposal was made in the first place because the right hon. Gentleman was looking before the election for a dividing line between him and the then Government? What we have today is something that has been cobbled together, that is ill thought out, that will add to uncertainty and that runs a grave risk that further mistakes will be made with catastrophic consequences in the future.

[Mr Osborne]

The dividing line is between a Government who want to learn the lessons of what went wrong and an Opposition who have no intention of learning from all the mistakes that they made in office. I find that striking.

The right hon. Gentleman talks about a dog’s breakfast. What about the dog’s breakfast of the tripartite system that allowed the Royal Bank of Scotland to fail and that allowed Northern Rock to fail? He was the Chancellor at the time and he completely failed to see the growing levels of debt in the economy. He and the institutions that were created by his predecessor completely failed to see what had gone wrong in individual institutions. The thing I find extraordinary—perhaps Opposition Members will reflect on this—is that their shadow Chancellor is setting them against reform of the regulation of banks and reform of the structure of the banking industry. That is what he has just done. What we are going to do is to have an open debate about the structure of banks. That debate is happening in the United States of America, in the newspapers of this country and in parliamentary debates here. The only place it was not happening was in the last Government under his chancellorship.

We think that the sensible approach, in order to resolve these issues—[Hon. Members: “Answer the question.”] I am answering the questions—every single one of them. We think that the sensible approach is to set up an independent commission under Sir John Vickers to examine these issues and to take into account the different, strongly held views. For example, John McFall, who was the Chair of the Treasury Committee in the last Parliament, has in recent days put his name to a report that calls for structural reform of the banks. The shadow Chancellor might want to ignore his views, but I want to listen to them and to take them on board as part of an independent commission, and that is exactly what we are going to do.

When it comes to the international context, I think that all of that will enable us to lead the debate. Of course, we have to agree this at an international level, where some of the macro-prudential tools are. As the shadow Chancellor knows, there is a debate taking place in the G20. We hope, in the Seoul summit in November, to have come to firm conclusions on the capital, liquidity and leverage requirements. When we have come to those agreements and when we have international agreement on what those standards should be, we will need a regulatory system here, at home, that is fit for purpose, so that they can be implemented.

Office for Budget Responsibility

Lord Darling of Roulanish Excerpts

Monday 14th June 2010 Commons Chamber

[The Chancellor of the Exchequer (Mr George Osborne)]

With permission, Mr Speaker, I should like to make a statement on the Office for Budget Responsibility, which the Government created on coming into office.

This morning, for the first time in British history, we have opened up the Treasury books and allowed the publication of an independent and comprehensive assessment of the public finances. From now on, Governments will have to fix the budget to fit the figures, instead of fixing the figures to fit the budget. I should like to thank Sir Alan Budd, the members of the budget responsibility committee and all their staff for the impressive work that they have done in short order. A copy of their report has been placed in the Vote Office and in the Libraries.

There has been some interest in whether the OBR would publish all the relevant underlying assumptions and judgments driving the forecast. Today’s report does more than that: there are more than 70 pages of detailed material, much of which has never been published before. For the first time ever, the Government are publishing the assumptions that lie behind the estimates for average earnings, property prices, interest rates and financial sector profits, and, crucially, a five-year forecast for annually managed expenditure. That includes a forecast for the amount of debt interest that we as a country will pay over the coming years.

The creation of the OBR has already impressed the international community and been praised by the International Monetary Fund and the G20. We will now move to put the OBR on a statutory footing with legislation that was included in the Queen’s Speech. From now on, Members of Parliament sent to this House to scrutinise how the Government spend taxpayers’ money will have access to honest and independent figures.

Let me now turn to those figures and what the OBR has uncovered. First, there are the forecasts for growth in the economy. The OBR is forecasting that growth will reach 1.3% this year and 2.6% next year. In future years, the OBR’s forecast is for growth of around 2.8% in 2012 and 2013, and then 2.6% in 2014. Sadly for our country, the forecasts for growth are lower in every single year than the figures announced by the previous Chancellor at the time of the last Government’s Budget in March. He told us that growth would soar to 3.25% in 2011, and then to 3.5% in 2012. When those forecasts were given, neither the Bank of England nor 28 of the main 30 private institutions producing forecasts for the UK were offering such an optimistic central view of the economy; we can only speculate as to why such rosy forecasts for a trampoline recovery were produced only weeks ahead of a general election.

I turn to the OBR’s forecasts for the public finances. The latest outturn data show that public sector net borrowing for last year was £156 billion. The OBR is forecasting that it will be £155 billion this year. It is the highest budget deficit of any country in the European Union with the exception of Ireland. It is £10 billion less than the forecast given only a month before the end of the last fiscal year, but I can tell the House that, based on the OBR’s figures, that £10 billion advantage that we start with decreases to only £3 billion by the end of the Parliament.

The reason for that is that the cyclically adjusted current balance, commonly known as the structural deficit, is forecast to be higher in every single year than what this House was told in March. That is perhaps the most important figure in the report, because the structural deficit is the borrowing that remains even when growth in the economy returns. It is the structural deficit that is a key determinant of whether the public finances are sustainable. This year, the structural deficit is forecast to reach 5.2% of GDP—that is, £9 billion higher than we were told in March. Next year, the structural deficit will be £12 billion higher than we were told before the election.

The OBR’s forecast sees debt rising as a share of GDP throughout the Parliament—and the interest on that debt, which we as taxpayers have to pay, also grows every year. Let me be the first Chancellor in modern history to give Parliament those numbers for the coming years. The OBR forecast is that this is what Britain will have to pay for its debts: £42 billion of debt interest this year, rising to £46 billion next year, then £54 billion, then £60 billion and reaching £67 billion in debt interest payments by 2014-15. Over the course of this Parliament, more than a quarter of a trillion pounds will come from the pockets of taxpayers simply to service the debts left by the previous Government.

The figures produced by the OBR also give us a new insight into the spending plans that we inherited as a Government. They show that, given the OBR’s assumptions, the previous Government would have had to find £44 billion of spending cuts in departmental budgets to deliver their published plans. I can confirm that I have found no evidence at the Treasury for how even a single pound of that £44 billion was ever going to be achieved.

There are two other very important considerations that relate to these pre-Budget forecasts and understate the situation that we inherited. First, these are central forecasts with a fan chart around them to represent the great uncertainty that exists, rather than Treasury forecasts based on an arbitrary reduction in the trend level of output. As a result, they understate the increase in the structural deficit and the reduction in growth. Secondly, and crucially, these projections have been based on recent market interest rates, which are about a third of a percentage point lower in Britain than at the time of the general election. As is widely acknowledged, that in part reflects investors’ confidence that the new coalition Government will take action to deal with the deficit. As a result, as Sir Alan points out in his report:

“In present conditions the likely result is that these economic forecasts are biased upwards”.

That is absolutely crucial to understanding today’s figures, because if we followed the fiscal path set out by the previous Government, that would, again in Sir Alan’s words in the report,

“lead to higher interest rates and so lower economic activity”

than forecast today.

Let me conclude with this point. The independent report published today confirms that this coalition Government have inherited from their predecessor one of the largest budget deficits in the world, forecasts for growth lower than the country was told at the time of the election, a larger structural deficit than had been previously admitted, and a debt interest bill larger than the schools budget.

It is indeed worse than we thought. The public would not have known any of this if we had not set up the Office for Budget Responsibility. Next week, I will return to the House to explain what we will do about it. In the meantime, I commend this statement to the House.

[Mr Alistair Darling (Edinburgh South West) (Lab)]

I thank the Chancellor for his statement. My thanks would be more heartfelt had I not received it just 25 minutes ago. There was a time when statements were supposed to be in the hands of the Opposition an hour before the statement was made, and then 45 minutes. I do accept, before the Chancellor says it, that in my time there were occasions when he did not get as much notice as he wanted. All I would say, in the nicest possible way and in the spirit of consensus, is that if we could try to get these statements in the Opposition’s hands rather earlier, that would be very helpful.

Turning to the substance of the Chancellor’s statement, I welcome the measured approach taken by Sir Alan Budd, and his colleagues in the Office for Budget Responsibility, in presenting his report this morning. Higher borrowing by the Government, as the OBR acknowledges today, continues to support the economy. Indeed, without it, there was a grave risk that a recession could have tipped into a depression; that is why the expenditure was necessary in this country and in other countries across the world. However, as I have said repeatedly, borrowing needs to come down as the economic recovery is established. Has not the OBR forecast that borrowing will be £30 billion lower than I anticipated in my Budget, and does not that flatly contradict the Prime Minister who said last week that

“the overall scale of the problem is even worse than we thought”?

Does not the report say that borrowing is lower not just this year, for which the OBR forecasts borrowing at £8 billion lower than I did, but in each and every one of the next five years? Borrowing is down by more than £30 billion in total. Can the Chancellor confirm whether he and the Prime Minister knew what the OBR’s borrowing forecasts were prior to the Prime Minister making his speech last Monday? If he did not, he was just plain wrong; if he did, he owes us an apology. At the election, the Chancellor and the Prime Minister said that they had no need to raise VAT. Now that borrowing is in fact lower than they thought, is that still their policy?

Turning to growth, the OBR has confirmed my forecast for this year, but it has set out a lower growth forecast for future years—just 2.6% next year. This change is driven partly by what Sir Alan has today labelled “recent events”, particularly events in Europe, where growth is sluggish at best. Is it not the case that what is happening in Europe, our largest export market, will impact on growth here in the UK? Does not that reinforce the need to put in place measures to secure growth here and in other countries in Europe? Does not the Chancellor agree that the impact of action taken across Europe to reduce deficits runs the risk of depressing demand and setting back the recovery unless accompanied by measures to stimulate growth? Does he not accept that growth is essential to cut borrowing? Japan provides an example of what happens if one gets this wrong—recovery is choked off, growth becomes stagnant, and debt rises.

It was because the private sector was weak as the global crisis hit that the public sector stepped in to support our economy. Sir Alan Budd and his colleagues understand that point, because Sir Alan says in his report, at paragraph 3.20:

“Private sector demand contracted sharply in the recession, while government spending contributed positively to GDP growth.”

So much for the claim that our spending was irresponsible and unnecessary. In the same paragraph, he goes on to say:

“For this year”—

2010—

“it is government consumption and inventory accumulation that make the largest contribution to growth.”

In other words, without it there would not have been growth this year. The risk of taking large sums out of the economy is that the recovery will be derailed. Is it not also the case that confidence is being affected by the scaremongering that we see from the Prime Minister and the Chancellor? The Chancellor will have noticed the survey of business confidence this morning showing a reduction in business confidence. That shows that what he is saying is, unfortunately, having a very real impact on the economy.

The Chancellor asked us to focus on the structural deficit. However, he will have read Sir Alan’s very clear statement, at paragraph 4.40 of the report, that

“forecasts of cyclically-adjusted aggregates are subject to particular uncertainty.”

In other words, there is a great deal of uncertainty about what the structural deficit is. But if the Chancellor does take the estimate of structural borrowing from today’s forecasts as the barometer of success, he needs to be clear with people what that means. Will he confirm that it is still his policy to remove the entire structural deficit over this Parliament? If so, will he confirm that, on the numbers published today, he would need to find £118 billion by 2014-15? That is £118 billion of spending cuts, tax rises or both, which will affect millions of people and businesses in this country.

Since the Budget, there has been slightly faster growth at the beginning of this year. There is lower borrowing as tax receipts have come in higher than previously thought. Far from providing political cover for the Conservatives and Liberal Democrats for cuts and tax rises next week, does not the report remind us that growth is still fragile, the recovery is not yet secured and growth is essential, not only to cut borrowing but to secure jobs and a lasting recovery?

[Mr Osborne]

The report reminds us of the complete mess that the economy was in when there was a change of Government.

Let me deal with the right hon. Gentleman’s points. First, I apologise that he received the statement only 25 minutes before it was delivered. I was following the normal practice that had been established in the Chancellor’s private office. Despite having been on the wrong end of that for three years, I note his complaints about the very first statement, and I will look into that.

Let me answer directly the right hon. Gentleman’s question, towards the end of his remarks, about the fiscal mandate. It will be set in the Budget. There is no credible fiscal mandate in place in Britain because we have inherited from the previous Government a commitment, which most of the rest of world does not believe is a serious and credible effort to reduce the deficit. The fiscal rules never amounted to very much either when the crisis came, but we will put in place new fiscal architecture.

The right hon. Gentleman talks about borrowing and economic growth. I remind him that the whole point about the structural deficit is that it is not the part of the deficit that reduces as growth returns. According to the OBR report, it is increasing above the estimates that were given in the March Budget. That is striking given that the out-turn for borrowing last year was, indeed, lower than the Chancellor forecast just three or four weeks, as far as I can tell, before he received the out-turn numbers. He gave a figure in the Budget and out-turn numbers were lower. It is therefore all the more striking that the structural deficit—the crucial part of the numbers: the black hole in the public finances—is higher by a significant amount than he forecast. Of course, we are all concerned about the situation in the eurozone, but 28 out of 30 independent bodies that look at the British economy did not believe that the figures that he gave in the March Budget were accurate. Indeed, we pointed that out at the time. [Hon. Members: “You haven’t answered a single question.”] I did not think that the right hon. Gentleman asked many questions; I have answered both of them.

The right hon. Gentleman makes a point about spending cuts and so on. He pencilled in £44 billion of spending cuts. Until a single member of the Opposition provides us with a clue as to how they would even have begun to achieve those £44 billion of cuts, they will not be taken seriously. The leadership contenders are busily taking their party leftwards into the margins of British politics. They are not addressing the central issue about their fiscal plans, which were not credible. Where would the spending cuts have come from? We are prepared to answer that question. Until they do, they are not contenders for being taken seriously in British politics.

Let me remind the right hon. Gentleman of what one of his Ministers, Paul Myners, said. This was the man whom he appointed—or at least agreed to have appointed—to the Treasury, and the man who sat with him in all those meetings over the years. He said:

“There is nothing progressive about a Government who consistently spend more than they can raise in taxation, and certainly nothing progressive that endows generations to come with the liabilities incurred by the current generation.”—[Official Report, House of Lords, 8 June 2010; Vol. 719, c. 625.]

That is the truth about the Labour party’s position.

The right hon. Gentleman says, “Apologise”. He is the person who should apologise. More to the point, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), wherever he is, should come here and apologise for the complete economic mess in which he left the country.

--- Later in debate ---

[Mr Osborne]

It would probably have to be published, if it were—[Interruption.] Well, just the contents.

As I noted from the remarks of the shadow Chancellor, it is interesting that we have not actually heard from the Labour party about whether it supports an independent OBR. It opposed that when in government—

[Mr Darling]

indicated dissent.

[Mr Osborne]

It was repeatedly opposed by Treasury Ministers when I proposed it. Indeed, one of the most vocal and eloquent opponents was the shadow Education Secretary—I know that the shadow Chancellor has not always got on with him—who put the arguments on why Labour was opposed. If the Labour party wants to change its mind, we are all ears.

Economic Affairs and Work and Pensions

Lord Darling of Roulanish Excerpts

Tuesday 8th June 2010 Commons Chamber

[Mr Alistair Darling (Edinburgh South West) (Lab)]

I beg to move an amendment, at the end of the Question to add:

“endorse the successful steps taken by the previous administration to return the economy to growth, to keep people in their jobs and homes, and to support businesses; note the need for a clear plan to bring down the deficit; respectfully believe that securing the recovery and robust future growth should be central to that plan; further believe that such a plan must be fair and protect front line public services; therefore oppose your Government’s measures to cut the support provided by the Future Jobs Fund for tens of thousands of young people out of work, to damage growth in the regions by scaling back regional development agencies, and to cast uncertainty over support for key low carbon sectors like the nuclear supply chain and lower carbon vehicles; further note that a rebalanced British economy must be built as the UK emerges from the recession; and therefore urge your Government to reconsider the removal of investment allowances which support manufacturing businesses seeking to grow.”

I congratulate all those Members who have made their maiden speeches over the past few days, and commend the speeches that we will hear from new Members during the debate this afternoon.

Before I turn to what I suspect will be the main focus of the debate—the economy—I want to mention a number of Bills in the Gracious Speech on which the Chancellor might want to respond in the course of his speech, which will follow mine. The Government want to bring before the House several measures on which the Opposition can offer complete support or, I hope, can be constructive in their support. The first is the terrorist asset-freezing Bill. That piece of legislation is necessary as a result of a recent decision by the Supreme Court and we will certainly support the Government in getting it on the statute book as soon as possible. I am grateful for the co-operation I received when I was Chancellor from the then shadow Chancellor and his Liberal counterpart.

I appreciate what the Chancellor said a few moments ago about the Office for Budget Responsibility currently operating on an extra-statutory basis, but I hope that the principles on which it will operate—with as much openness and transparency as possible and with us being able to look at the deliberations of the budget responsibility committee and understand its reasoning before it reaches a recommendation—will be part of its practice now and will be in the legislation when it comes before the House. I welcome the fact that Sir Alan Budd, who has been appointed acting chairman of that office, has made it clear that he is willing to speak to all hon. Members. That is important, as the office will work only if it is seen to be non-partisan.

On Equitable Life, all of us know that the process has been long and drawn out. I think the Government may have already found that the process is not straightforward and that the ombudsman’s ruling was not as clear-cut as some people thought. We therefore commissioned Sir John Chadwick to investigate the matter, and I am glad to say that he will report in July. I had thought he was going to report at the end of May, which is what he had told us, but it may be that he has had further discussions with the Treasury. [Interruption.] The Chancellor is saying from a sedentary position that it was at his request. That is fine, but I wonder whether he will make provision for whatever Sir John recommends in his June Budget, or whether the fact that Sir John is reporting in July means we will have to wait for a further Budget to see what provision is being made.

On the financial services regulation Bill, we had many exchanges across the Floor of the House in the last Parliament on this matter, but I simply say to the Chancellor that it would be helpful if he could perhaps tell the House exactly what the coalition agreement is in relation to who has responsibility for regulation. We have read conflicting reports in the newspapers about whether the Financial Services Authority is to be brought within the responsibility of the Bank of England and whether it is the Governor or Lord Turner who is to be responsible for the regulation of the financial services industry. Other reports say that no decision has been made and the decision has been parked. It is important that we have some certainty about that, because the very nature of such things means it is inevitable that some problem may arise quickly. It is therefore important to know who is in charge, as we do not want the FSA and its staff to be concentrating more on their future than on what is happening in the financial services industry.

[Keith Vaz (Leicester East) (Lab)]

On the point about banking regulation, the shadow Chancellor will remember the closure of the Bank of Credit and Commerce International and the Bingham report. That report was commissioned by the previous Government and its conclusions mentioned an independent regulator. It is important that we look carefully at the issue of regulation and that we do not hand back to the Bank of England all the powers for regulation. In his conclusions, Lord Bingham recommended that that should not happen.

[Mr Darling]

My right hon. Friend will know that I have always had reservations about transferring responsibility for regulation to the Bank of England, as I am not sure that it is the best body to deal with it. Certainly, for much of the past 10 years, it has had a good and distinguished record on monetary policy, but I am not so sure whether it should have widespread responsibility for regulation.

My right hon. Friend is also right to draw attention to the Bingham report. The Chancellor will no doubt recall, or I am sure his officials will remind him, that Lord Bingham produced two reports—one was published and one was not. I strongly advise him to read the second, unpublished report, because it sheds considerable light on some of the problems that arose. Perhaps after such a length of time, it might be possible to reconsider whether that report should be published, because I think many of the people concerned would not be so badly affected.

[Keith Vaz]

Will the shadow Chancellor give way?

[Mr Darling]

I will give way once more to my right hon. Friend.

[Keith Vaz]

On the Bingham report, if the shadow Chancellor has read the confidential parts, why did he resist the publication of that second report? That is something that some of us who have been concerned about the liquidation of BCCI for 20 years have urged him to do.

[Mr Darling]

I think it was providing a response to a parliamentary question from my right hon. Friend that obliged me to read the report. I remember spending two days reading it and giving my decision. However, I do not have the benefit of the advice I received, which I now need to remind me why I refused his request at that time. All I can say is that I refused his request for entirely the right reasons but, 10 years later and in the spirit of freedom of information, I am not saying that it definitely should be looked at, but the present Chancellor or whoever is dealing with the issue should look at the matter and perhaps 10 years further on someone else looking at that report might reach a different conclusion. I reiterate, whatever decision I reached was right for the reasons I gave at the time.

May I also tell the Chancellor that it would be helpful if he took the opportunity to spell out the Government’s policy on the banks in which the Government have shareholdings—Northern Rock, Lloyds, the Royal Bank of Scotland—because that is a matter of interest, especially now that RBS is talking about disposing of its Williams & Glyn’s branches and others? I believe it is the view of both main political parties that there ought to be more competition in the system, so a clear statement on Government policy on how we do that would be helpful. We do not want to end up selling a tranche of banks to another big UK operator, because that would mean that we would not get the competition we want.

I was interested to re-read last Friday the Business, Innovations and Skills Secretary’s criticism of the banks’ failure to lend, but it is not entirely clear to me what the new Government are doing to increase bank lending. It would be useful to hear from the Chancellor, or at least one of his colleagues, in the fairly near future on that.

However, the main focus of today’s debate is, inevitably, the economy, as it was in Treasury questions for the past hour or so. Yesterday, predictably, the Prime Minister, as the Chancellor did today, sought to lay the blame for everything the new Government plan to do on the previous Government. There is nothing new in that: new Governments frequently blame their predecessors and it is the easiest thing in the world to do. It is equally unsurprising that the Prime Minister and the Chancellor should go around the country and other parts of the world and say, “The situation is much, much worse than we thought. It’s all terrible and we will have to do terrible things.” By a stroke of good fortune, they have the Liberal Democrats to front up some of the difficult decisions they must take.

[Nadhim Zahawi (Stratford-on-Avon) (Con)]

Did not the shadow Chief Secretary to the Treasury, the right hon. Member for Birmingham, Hodge Hill (Mr Byrne), rather than the new Government, reveal the desperate state in which the shadow Chancellor left the country’s finances?

[Mr Darling]

Forgive me if I have misunderstood the hon. Gentleman, but throughout the three years when I was Chancellor, I do not think that I ever, on any occasion, concealed from anyone the difficulties that we and other economies would face as a result of the deepest global downturn in the past century. There can be no doubt about that.

However, I should tell the hon. Gentleman and his colleagues that by 2008, it was clear that this country, and every other major developed country in the world, faced the catastrophic consequences of the failure of the banking system. Had we not taken action to stabilise the banking system—many of those decisions were opposed by the Conservatives—and to ensure that we supported our economy when private sector investment dried up and died away, we would have had a situation in which recession tipped into depression. That is why we took the action that we did. We were right to do so, and the Conservatives were wrong to oppose us. Our economy is now growing, and as I said earlier, unemployment is half that in the downturn of the 1990s, and borrowing is coming down, because of the action we took in 2008 and 2009. We took that action along with most developed countries.

[Matthew Hancock (West Suffolk) (Con)]

rose—

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

rose—

[Mr Darling]

I shall give way to the hon. Lady first.

[Dr Coffey]

Will the shadow Chancellor explain why, if he was so open about the state of the economy, he would not hold a comprehensive spending review, and why he would not publicise the impending debt payments of £70 billion that the people of this country must pay for his profligacy?

[Mr Darling]

First, I said on many occasions that the right thing to do was to hold a spending review this year, before the end of the current review period ran out. There is still a lot of uncertainty, as I shall explain later, and the hon. Lady would do well to remember that at present, while we are coming out of recovery, our growth is modest. I hope we will see recovery secured, but what is happening in continental Europe and other parts of the world shows that we are not out of the woods yet and there is still a lot of uncertainty around. On the hon. Lady’s main point, however—which I dare say her colleagues will make too—our borrowing and debt levels rose for exactly the same reason as they are rising in America, Japan, Italy, France, Germany and just about every other country in the world: because we went through the deepest global recession in modern times. The hon. Lady might also want to remember that until well into 2008 the Conservatives, far from condemning our spending, were supporting our spending plans. They are therefore in no position to say now that they were opposing all this in times past. That is simply not right.

[Mr Barry Sheerman (Huddersfield) (Lab/Co-op)]

rose—

[Richard Harrington (Watford) (Con)]

rose—

[Mr Darling]

I will give way to my hon. Friend the Member for Huddersfield (Mr Sheerman), and then I shall make some progress.

[Mr Sheerman]

Will the shadow Chancellor join me in recommending Sam Brittan’s article in the Financial Times last week entitled “Now is the time to ask: ‘What crisis?’”? He is a Conservative and he supports the coalition Government, but he says that it does nobody any good to exaggerate the state of the British economy, which he believes is much stronger than that of most of our competitors.

[Mr Darling]

I think it is necessary for anyone charged with responsibility for the British economy to take a measured approach. If things are difficult, they have a duty to speak out, even when that causes them some problems, as I found out myself a couple of years ago. I think it is better that we do that, than not. Equally, however, it does no good to go running around saying the situation is absolutely terrible and dire, because sooner or later we may find that the markets call our bluff; we may find that one day they say, “Whatever you do, it isn’t enough.” I believe that that approach is as irresponsible as saying nothing about a difficult situation.

We must discuss these matters in a reasoned and rational manner, because while it is important that we identify the things that need to be put right, equally we must not give an impression counter to the fact that, fundamentally we have an economy that is coming through this period, that we can get through it and ensure that we have growth, which is absolutely critical in the future. Running around scaremongering and raising all sorts of fears could have the perverse effects of turning market sentiment against us, which we do not need, and of dampening consumer and investor confidence, which is simply not necessary.

[Charlie Elphicke]

The shadow Chancellor says that Government Members are scaremongering by pointing out that the Budget deficit is 13%. We are not scaremongering; we are scared, as the position is extremely serious. The recession was so deep in the first place because the right hon. Gentleman’s colleague, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown)—who has not been seen of late—ran things so badly that the money ran out, which meant that we were more exposed before the recession. The shadow Chancellor should therefore be apologising to the House for the mess that his right hon. Friend and the previous Government have left behind.

--- Later in debate ---

[Mr Darling]

No, I do not agree with that. I think the hon. Gentleman will find that an awful lot of things that went wrong in 2007 were a result of what went wrong in the banking system, not just here but in other parts of the world as well.

[Rachel Reeves (Leeds West) (Lab)]

Does the shadow Chancellor agree with this statement by the Governor of the Bank of England:

“I don’t think you can compare the UK with Greece. There are big differences”?

I suggest that not the least of the differences between our countries is that our debt-to-GDP ratio is about half that of Greece.

[Mr Darling]

The Governor was making a very fair point, as he does on many occasions. It is interesting that even in the past couple of days Government members—the Prime Minister yesterday, and one or two of his ministerial colleagues—are rowing back from direct comparisons with Greece because that may have been very convenient to them in opposition, but it might not be such a good idea now that they hold office.

Our economy is experiencing growth at present, and that is because of the action we took over the past couple of years. I do not intend, as the Chancellor said, to fight the last general election again or to go through everything that happened over the last two or three years—that is, perhaps, for another occasion—but I do say this about the action we took. The fiscal stimulus we put in place—the VAT reduction; the decision to bring forward capital spending; the measures we took to protect people’s jobs and ensure that if people were out of work for a short period we could get them back into work as quickly as possible; the time to pay scheme, which is still helping hundreds of thousands of businesses throughout the country; the car scrappage scheme; and the action we took internationally—have all come together to make sure we came through this recession. Interestingly, although the predominant position of the financial services industry in this country meant that it took us longer to come through into recovery than it took some other countries, Britain has had two quarters of growth whereas other countries, particularly those in continental Europe, have seen their growth slip back and, in some cases, they have slipped into recession. What that tells me is that had the previous Government not taken the action that they did over the past couple of years we would not now be in a position to say, “Yes, our economy is growing.” Equally, our action has meant that although our borrowing is still very high and needs to come down, it is coming down faster than many people believed, even a few months ago.

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

I wish to assure the shadow Chancellor that Conservative Members appreciate that the previous Government had to borrow money during the recession. What baffles us is why they borrowed money during the boom.

[Mr Darling]

I am grateful to the hon. Gentleman for accepting what is obvious: the fact that during a recession Governments do have to borrow in order to support their economies. However, I should remind him that during the earlier part of the previous decade the Conservative party supported our spending programmes, saying that they would stick to our spending levels. The Prime Minister, when he was Leader of the Opposition, said that as recently as 2008. The hon. Gentleman was not here during the previous Parliament, but I can assure him that I do not recall any Conservative standing up to say, “Don’t build a new school in my constituency. Don’t build more housing. Don’t open a new hospital.” Conservative Members were not saying that at all; they wanted more spending in just about every area. So the idea that the Conservative party was behaving in a way that would have meant that there was no borrowing and that the Conservatives would have behaved any differently is absolute nonsense. The hon. Gentleman just has to accept that.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

Does my right hon. Friend agree that some of the measures that have now contributed to the deficit were being demanded by manufacturing industry in order to sustain the corporate manufacturing base needed for us to grow out of recession, the car scrappage scheme being one case in point?

[Mr Darling]

I agree with my hon. Friend. The new Government will find that for every industrialist or manufacturer who says that public spending needs to be cut, in areas that benefit from such spending people take a rather different view. The car scrappage scheme is an example of that, and it made a huge difference to the car industry and the motor vehicle industry in general. As the hon. Member for North West Leicestershire (Andrew Bridgen) said, the action that we took did involve more borrowing and it does result in increasing debt. However, the point is that the cost of failing to act would have been far greater.

The Chancellor was talking about the international consensus. I know something about that, and I can tell hon. Members that over the past three years it was very much in favour of our continuing to support our economies; of course, as we come through to recovery we have to get the borrowing down. Nobody disputes that, and at least two of the parties that fought the previous election were absolutely clear about it—it was never clear what the third party was in favour of, and its position remains something of a mystery even today.

[Stewart Hosie (Dundee East) (SNP)]

The shadow Chancellor rightly says that there was an international consensus, and I supported many of the actions that he took. However, in this financial year, when recovery is not secure, why did he leave the economy without a fiscal stimulus? Ours is one of only two countries in the G20 without a fiscal stimulus, and I still believe it was absolutely necessary for us in order to secure recovery and prevent our slipping back into recession.

[Mr Darling]

What economists call the “automatic stabilisers” are still operating and are still supporting the economy. I have always been clear about this, and I believe that the deficit has to be reduced. One of the reasons why I wanted to halve it within a four-year period was that I wanted to get it down in a way that did not damage the economic or, indeed, the social fabric of the country while that was being done. Obviously I do not know what the new Government are going to come up with, but I suspect that they will not go too far before they start seeing that when they want to reduce expenditure quickly that sometimes has severely damaging consequences. We shall wait to see what happens, but I believe that that is a substantial risk.

[Several hon. Members]

rose—

[Mr Darling]

Before I leave this point I should say something further because a number of hon. Members mentioned our spending in the earlier part of our Government. It is not just about what we did during the recession; it is about the fact that over the relevant 10-year period, there was an unprecedented decade of growth such as this country had not seen before, as well as low interest rates, low inflation and falling unemployment. Gross domestic product per capita grew faster in this country than in any other G7 country even after one takes into account the effects of the financial crisis. The economic environment was one that this country had not had for many years. Of course, we had to deal with the effects of the banking crisis and the downturn that followed, which had a very severe effect on our public finances as well as other public finances.

[Mr David Blunkett (Sheffield, Brightside and Hillsborough) (Lab)]

My right hon. Friend did a phenomenal job as Chancellor of the Exchequer. The measures that he has just outlined and the success were considerable, but is it not also true that back in 2002 his Government, and my Government, finally paid off the second world war and post-war debt that was run up with the Americans in 1947? The final bonds were paid off not by the Conservatives in the 1950s, 1960s or 1980s, but by the Labour Government in 2002. [Interruption.] That is absolutely true.

[Mr Darling]

My right hon. Friend is right. No doubt there will be another occasion to revisit the lend-lease arrangements that the then Government entered into in the 1940s, although I commend to the House Lord Robert Skidelsky’s excellent third volume on Keynes, which deals with this matter quite extensively. Some people thought that we got a pretty bad deal in 1943, but there you are.

[Mr Richard Bacon (South Norfolk) (Con)]

rose—

[Matthew Hancock]

rose—

[Mr Darling]

I shall give way to the hon. Gentleman who I think used to advise the Chancellor at one point.

[Matthew Hancock]

The shadow Chancellor has mentioned the banking crisis several times. With hindsight, does he regret the system of banking regulation that was introduced in 1997, and recognise that it failed?

[Mr Darling]

No, I do not think that was the main problem. The system of regulation that we introduced in 1998 brought together about eight or nine different regulators—self-regulators, as the Conservative party used to be very keen on self-regulation. The problem in relation to the Financial Services Authority, the American regulators and most other regulators was that they simply did not understand the systemic risks that arose in the previous decade or the consequences of the failure of one bank for another. The system in this country was not the problem, but there was undoubtedly a failure on the part of regulators right across the world, including in our country. The FSA’s inquiry into what went wrong in Northern Rock demonstrated that the FSA had spotted problems in Northern Rock in February 2007 but had not taken action. I shall say this in the nicest possible way to the hon. Gentleman: he might want to have a word with one or two of the people who were running Northern Rock—members of his party—who might have had a better look at what they were supposed to have been doing when they were running that bank.

[Richard Harrington]

rose—

[Claire Perry (Devizes) (Con)]

rose—

[Mr Darling]

I shall give way to the hon. Lady. It might be a mistake, but I will.

[Claire Perry]

I thank the shadow Chancellor for giving way. May I say that as a bystander, rather than a participant, in the last Parliament, I was always struck by his excellent manners? As a mother of three children, I am very hot on manners. In particular, when my children make a mess that I have to clear up, I encourage them to say sorry. Would the shadow Chancellor like to apologise to the Government and the people of Britain for the mess he has left for this Government to clean up?

[Mr Darling]

I am glad that I gave way to the hon. Lady for at least the first part of her intervention. I do not agree with her on the second part, but I should like to address that point now. It is true that our borrowing has risen very substantially—

[Several hon. Members]

rose—

[Mr Darling]

I shall not give way. I want to make some progress, because I know that many hon. Members want to make their maiden speeches, and I do not want to be blamed for not allowing them to do so. I might give way before I finish, but not just now.

As I was saying, borrowing has clearly increased, but that has to be put into perspective. Our deficit for this year is broadly similar to that of the US. All other major countries have had the same problem.

We went into the recession with the second-lowest level of debt of any of the G7 countries, but IMF projections for this year show that our debt is lower than that of France, Germany, Italy and Japan. Yes, we have to get our borrowing down and make sure that we start to bear down on debt, and I agree with everyone who says that it is far better to spend money on things other than debt interest. However, it is worth making the point—because it is one that the present Government never do make—that this problem does not affect our country alone. It has affected all countries, and certainly all the developed countries.

It is not a surprise that borrowing and debt went up, because our tax revenues fell dramatically in 2007 and 2008. Our spending on unemployment and social security went up because tax credits were there to help people who lost their jobs. Yes, that was increased expenditure but, if we had cut then, the risk was that we would turn a recession into a depression. That was a cost that I was certainly not willing to contemplate.

We made an active choice to allow borrowing to rise to support the economy. As I said, that policy was supported by the then Conservative Opposition right up until 2008. It was not as though they were saying anything different immediately before that, but I fundamentally disagree with the analysis that the Chancellor made when he was shadow Chancellor. He said:

“Even a modest dose of Keynesian spending”

was

“a cruise missile aimed at the heart of a recovery.”

He said that in 2008, when the banking system and the world economies were close to collapse. That seems to me to be complete nonsense. Of course we will have our arguments about how and at what rate we reduce our deficit, but I simply do not accept the argument that by implication he seems to be advancing—that somehow the previous Government should have been cutting spending just as we were going into a recession. I know of no other Government who were doing that.

[Ian Lucas (Wrexham) (Lab)]

The construction sector is one of the most important barometers of the national economy, and I was privileged to serve as construction Minister. If that spending by Government had not taken place in the last two years, would we not have had a massive increase in the level of unemployment in the construction industry? That would have opened up the horrific prospect of having 3.5 million people unemployed—a level that we reached twice under the Conservative party.

[Mr Darling]

That is indeed right, and many people in the construction industry say that an already difficult situation would have become much worse if we had not done what we did in 2008-09. Not many Conservatives or Liberals—we must include the two together—now stand up and say, “Actually, in retrospect, we shouldn’t have been supporting the construction industry.” I rather get the impression that they are telling local industries in their constituencies something entirely different.

[Margot James (Stourbridge) (Con)]

Will the right hon. Gentleman give way?

[Mr Darling]

I will give way, for the last time, to the hon. Lady, whom I last met in a BBC studio. I got the distinct impression that she did not like Scottish accents, so I cannot resist.

[Margot James]

Will the shadow Chancellor clarify his party’s position on our proposed spending reductions? Before the general election, it was my distinct impression that the Labour party was planning public expenditure cuts of up to 25% across some Departments. In my constituency of Stourbridge, we were extremely concerned when the results of a freedom of information request on the NHS in the west midlands revealed plans for significant cuts to doctors, nurses and beds in our area. By anyone’s definition, they must be front-line services.

[Mr Darling]

I agree with that. If the hon. Lady is worried about spending cuts, she is going to have an interesting time over the next few months. I look forward to the exchanges that she has at future Question Times.

As I draw to a close—

[Robert Halfon (Harlow) (Con)]

Will the right hon. Gentleman give way?

[Mr Darling]

No, I am not going to give way. I want to draw attention to one of the biggest problems that I see in the future. I know that Governments in countries right across the world have to get their borrowing down and reduce their deficits. However, I am particularly worried that, if we do not have some countervailing pressure to support growth and measures to get growth in our economy, we run the risk of having many years of it merely bumping along the bottom, sometimes growing and sometimes not. That will inevitably mean that we will have higher unemployment and that aspirations and sentiment will be affected.

I see that especially in the EU at the present time. The EUROSTAT figures published last Friday went almost unreported in this country, but what is worrying is that we see that Germany’s growth in the first quarter of this year was 0.2%. We see France’s at 0.1%. We see Greece not surprisingly, back in recession. We know that Spain has unemployment of more than 20%. I am glad that the Chancellor enjoys going to ECOFIN so much, and long may he enjoy that. I am fascinated that the Conservatives now find so much succour in Europe. All I can say to him is that I worry that rather too many finance Ministries, yes want to get their deficit down, but are not concentrating on the structural reforms that are necessary within the EU or on measures to achieve growth in the future. That is a real threat.

It worries me that the present Administration here in the United Kingdom also fall into that camp. It is interesting that in the past six months the Prime Minister has made only one speech on growth. It flickered into life in November just before the CBI conference last year. We do not hear what measures the Government intend to put in place to get the rebalancing of the economy that we want to see—measures to encourage private sector investment to come back. It is not coming back yet in sufficient volume to take the place of the public sector investment that the Chancellor wants to take away. We have to have a clear, strategic look at this to make sure that we can get growth in this country as well as in the EU, which after all is our major export market.

[Mr William Cash (Stone) (Con)]

rose—

[Mr Darling]

I knew that if I mentioned Europe this would happen, as sure as night follows day.

[Mr Cash]

I do not want to disappoint the shadow Chancellor, but I am much more interested in the reasons why, when he was Chancellor—despite the tissue of self-justification that we have just heard—he was never prepared to refer to the true level of debt. He said that no Conservative raised it, but a number of us raised the true level of debt from 2008 onwards. Does he deny that the true level, according to the Office for National Statistics, is £3.1 trillion and not the amount that he has been describing over the past few months?

[Mr Darling]

When comparing the judgments that we make about what is necessary fiscally, I do not think that bringing on to the main balance sheet PFI, Network Rail and everything else particularly helps. However, if that is the course of action that he has managed to persuade the Chancellor to take, we will look with great interest at the Budget in a couple of weeks. I just do not think that it is a particularly accurate or informative way of looking at the accounts. I have said that before to the hon. Gentleman.

[Robert Halfon]

Will the right hon. Gentleman give way?

[Mr Darling]

For sheer endeavour, I will give way to the hon. Gentleman.

[Robert Halfon]

Before the last election, in an interview with the BBC, the right hon. Gentleman said that he believed that the cuts needed to be more savage than anything Mrs. Thatcher had done. Does he still hold to that view?

[Mr Darling]

I think that the word “savage” was used by the Deputy Prime Minister, of whom the hon. Gentleman now finds himself a great admirer. It was not a word that I used.

It is important in the task that confronts the whole country and the Government that we do not get ourselves into a situation of almost competitive austerity, in which Governments and countries become blind to the need to secure growth. There is a substantial risk, as I have said for a long time, that if the Government take action prematurely without considering its consequences as a whole, they will choke off the recovery. We have to get borrowing down, but we also have to get growth and recovery firmly established.

[Geraint Davies (Swansea West) (Lab/Co-op)]

Will my right hon. Friend give way?

[Mr Darling]

No, I will not. If we are to maintain jobs and ensure that borrowing does indeed come down, we need to have growth. Policies to achieve that are notable by their absence both in this country and the rest of continental Europe. It is no use Government Members citing what happened in Canada and Sweden. Yes, Canada reduced its structural deficit, but it did so at a time when its next door neighbour, which happened to be the biggest economy in the world, was growing strongly. So the Canadians benefited from a strong US economy. Equally, when Sweden was going through its retrenchment, Europe was starting to grow again. So the comparisons are not entirely appropriate.

We must realise that we need to put in place policies that ensure growth, get our borrowing down and, critically, equip this country to compete in the markets that are going to be opened for it and take advantage of the opportunities that will be here.

As I said during the election campaign and have said since, I believe that the Conservative party remains a risk to the recovery. I believe too that no matter how they dress it up, and how they seek to blame other people, even if they use the Liberal Democrats to cover their true intentions, what they are about is ensuring that they cut exactly the same expenditure as they have always wanted to, and they are using this as an excuse for doing so.

I believe that action does need to be taken, but crucially I believe that we need to ensure that we secure the recovery, and I hope that this Government have got the sense to see that now, before it is too late.

Oral Answers to Questions

Lord Darling of Roulanish Excerpts

Tuesday 8th June 2010 Commons Chamber

[Mr Osborne]

I congratulate the hon. Gentleman on the pun—but this is a very serious national challenge, which whoever won the election was going to have to face. The 11% budget deficit will not disappear. A very large part of it is structural, and so will not automatically reduce as growth returns to the economy. We want to make sure that all political parties, including his, and the brightest and best brains across Whitehall and the public sector, as well as voluntary groups, think-tanks, trade unions and members of the public, are all engaged in the debate and discussion about how, collectively, we deal with the problem. After all, it is our collective national debt.

[Mr Alistair Darling (Edinburgh South West) (Lab)]

First, may I welcome the Chancellor and his team to the Front Bench? I hope that he will join me in sending our good wishes to my right hon. Friend the Member for East Ham (Mr Timms), who remains a member of the Opposition Treasury team and who I am glad to say was in very good heart when I saw him a couple of weeks ago. He is looking forward to returning to the House at an early opportunity.

Unemployment is high today, but it is half what it was in the 1980s. Repossessions in the past couple of years are half what they were in the 1990s. Our economy is growing and our borrowing is coming down. Does the Chancellor accept that all of that is because we, in common with other countries—yes, as part of an international consensus—were prepared to take action to save our economy as we went into recession? Every one of those measures was opposed by him when he was shadow Chancellor.

[Mr Osborne]

It sounds as if we are rerunning the general election campaign. First, may I pay tribute to the work that the right hon. Gentleman did over three years, I think it was, as Chancellor of the Exchequer? He did the job in very difficult times, with the best of motives. Although we did not always agree with each other, as he has just made clear, he was always very courteous to me. I also thank him for the fact that I inherit from him a far more functional and less chaotic Treasury than the one that he inherited from his predecessor.

I make the point to the shadow Chancellor that the situation that we inherited from his Government—I do not say that he is solely to blame for this—is an extremely critical one. We have a very large budget deficit at a time when, as I have said, countries around the world are having to look at sovereign credit risks. We are having to deal with that, and with rising unemployment and growing inequality in our country. Regional disparities are growing as well, and we have to deal with those problems.

The right hon. Gentleman talks about the international consensus. He surely must have noted how, in the month since the general election, the EU, G20, the IMF, the OECD, and of course our own Governor of the Bank of England, have all warned us about the consequences of not dealing early with our budget deficit, and not accelerating the reduction in the budget deficit that he proposed in his March Budget.

[Mr Darling]

I agree that there are many issues that need to be resolved, in this country and others. No doubt we will return to them when the debate on the Gracious Speech resumes.

I want to ask a specific question about the Office for Budget Responsibility that the Chancellor is about to set up. When that body makes its recommendations, will he undertake that it will publish all the underlying assumptions that lead to them? Will he ensure that its deliberations, rather like those of the Monetary Policy Committee, are open and available for all to see?

[Mr Osborne]

I should have joined the right hon. Gentleman in wishing the right hon. Member for East Ham (Mr Timms) a speedy recovery. I understand that he has now sworn in, which is fantastic for everyone here concerned. The fact that he was assaulted in his constituency surgery doing his job as a constituency MP makes the incident all the more chilling, and we all wish him very well.

Let me deal specifically with the right hon. Gentleman’s question. We have set up the Office for Budget Responsibility on a non-statutory basis because we need to pass legislation to make it statutory. The model that we have followed is the approach taken by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) when he set up the Monetary Policy Committee. Sir Alan Budd will be available to answer questions from the Treasury Committee on exactly the kind of points that the right hon. Gentleman raises—such as the underlying assumptions. It is ultimately up to him how he publishes his information, and I do not want to prejudge that, but the purpose of the exercise is for people to have confidence in official figures and growth forecasts, and confidence means transparency. I am sure that the spirit of what the right hon. Gentleman says will be taken on board by Sir Alan.

Government Spending Cuts

Lord Darling of Roulanish Excerpts

Wednesday 26th May 2010 Commons Chamber

[Mr Alistair Darling (Edinburgh South West) (Lab)]

(Urgent Question): To ask the Chancellor of the Exchequer if he will set out the measures that will be implemented across government to deliver the more than £6 billion of in-year spending cuts announced earlier this week?

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

Mr Speaker, I am extremely grateful, both to you and to the shadow Chancellor, for this early opportunity to set out to this House the action that this Government are taking to deal with the urgent economic situation and, frankly, the economic mess that we have inherited from our predecessors. I refer to the House to the written ministerial statement that I laid in the House this morning, which sets out the details of this early action.

The previous Government were borrowing at the rate of an additional £3 billion per week—that is an unsustainable rate. Those huge public debts threaten financial stability and, if left unchecked, would derail the economic recovery. We need not look far across our own continent to see that action to tackle our budget deficit is both urgent and necessary, and this is only the first step in a long road to restoring good management of our public finances.

I set out in a written ministerial statement this morning the details of the spending cuts that we will make for Departments in 2010-11. We have found cuts totalling £6.243 billion—that is £243 million more than originally targeted. However, the budgets for health, for international development and for defence will not be reduced. In addition, because we have been effective in finding savings, we have been able to take the important decision to protect the budgets for schools, Sure Start and 16 to 19-year-olds in 2010-11, which I am sure Labour Members will welcome.

The devolved Administrations will have the option of making their savings this year or deferring their share of the savings until the next financial year, and they will also receive their share of the additional spending that has been agreed as part of this statement. We will help local government to deliver its savings by removing the ring fences around more than £1.7 billion of grants to local authorities in 2010-11. That is consistent with our belief in giving more freedoms to local government.

Our first priority has to be to cut waste; we cannot expect difficult decisions to be taken on spending until we have eliminated the waste. We expect Departments to make savings, which will include £1.15 billion in cutting discretionary areas, such as consultancy, travel and advertising costs. In addition, £1.7 billion will come from delaying and stopping contracts and projects. That will include immediate negotiations to achieve cost reductions from the 70 major suppliers to government. Some £600 million is being cut from the cost of quangos and at least £120 million will be saved through freezing civil service recruitment. We will drive those and other savings through a new efficiency and reform group, which will work with the Cabinet Office and draw on expertise within government. The shadow Chancellor will be pleased to learn that this will be funded from within existing budgets. This action is designed to send a shockwave through Departments to focus Ministers and civil servants on whether spending in these areas is really a priority in the difficult times that we are now facing.

As well as reducing waste and the costs of government, we have started to scale back lower priority spending. We have taken the tough decision to pass legislation to end child trust fund payments—that will save £320 million in 2010-11, with the figure rising to £520 million in 2011-12. The House will be pleased to learn that, as part of the net savings, we will be reinvesting money to provide respite breaks for disabled children.

Quangos across government will have to make major savings in their budgets, and regional development agencies will have to cut back on the spending that has the lowest economic impact. Finally, we have decided to allocate, out of these savings, £500 million this year to measures to invest in improving the country’s growth potential and building a fairer society: £150 million will be used to help to deliver up to 50,000 adult apprenticeship starts; following the complete shambles of the colleges capital programme under the previous Government, an additional £50 million will be allocated to help to fund capital investment in the further education colleges in greatest need; and we are allocating an additional £170 million to fund investment in social rented housing in 2010-11 to help to deliver 4,000 social housing starts—Members on both sides should welcome that. We will also freeze the backdated business rates payments under the eight-year schedule of payments, including in respect of businesses in ports, until April 2011, and we will consider any further action in this area and bring forward any plans before the freeze ends.

These are only the first steps that will be needed to put our public finances back in shape, but I believe that the public and most Members of this House will welcome the fact that we finally have a Government with the guts and determination to take these difficult decisions.

[Mr Darling]

First, I am grateful to the Chief Secretary—I am just sorry that the Chancellor of the Exchequer could not make it. It is important, especially as the Government have difficult decisions and announcements to make over the next few months, that the Chancellor should be ready to come to this House to justify what he is doing. Will the Chief Secretary accept that there is no good reason why the announcement made at a press conference on Monday could not have been made in a statement to the House, where it could have been scrutinised by Members of the House? Will he undertake that, in future, announcements of this magnitude will be made in this House and not through a press briefing?

Secondly, everyone knows that it is necessary for countries across the world—ours included—to reduce the amount of borrowing but to do it in a way that does not damage growth and that does not damage the economic fabric of this country. That is why I believe that to halve our deficit over a four-year-period was the right thing to do, because it would have enabled us to secure the recovery, which is still fragile. Does the Chief Secretary understand that although during the general election campaign the Conservatives said that they would not cut beyond eliminating what they called waste and inefficiency, they have gone far beyond that today? Does he not accept, too, that he campaigned explicitly on a platform of not reducing expenditure this year? Will he tell the House how cutting 10,000 university places can possibly amount to the elimination of waste and inefficiency? That is not being wasteful or inefficient; that is cutting the investment that we will need to ensure that we have the skills in the future.

Will the Chief Secretary also tell us where the Government said that they would cut the job prospects for young people in particular? The future jobs fund meant that young people coming out of university had the prospect of getting work. Instead, tens of thousands of young people will not have work and their first experience in working life will be of being on benefits, not of going into work. How on earth can that be described as cutting waste or inefficiency? Equally, how on earth can the child trust fund be described as wasteful or inefficient, especially when we are talking about low-income families and about getting those children the best possible start in life?

Does the Chief Secretary accept that the House and the country are entitled to know exactly what these reductions, allocated to each Department, amount to in terms of changes to services or provision? What he has done today is to come out and reread the press statement that he delivered on Monday, but he must know when each Department signed up to specific numbers what that would mean. For example, in education, will he confirm whether funding for personalised teaching, including one-to-one tuition, is being protected? In transport, is it right that more than £100 million could be taken from London’s transport or that maintenance on the motorway network will be curtailed? Will he tell us how many jobs will go in the course of this year as a result of the freeze in jobs that was announced and where those jobs will fall?

The Chief Secretary must accept that although it is necessary to ensure that we live within our means, as I have always said, and although it is necessary for us to reduce our borrowing, it would be unforgivable if action were taken by this Government that damaged growth and investment in the future so that instead of getting a long-lasting recovery we found that we risked that recovery at a time when it is fragile. I hope that in future the Chancellor or the Chief Secretary will come to the House to explain what they have done. There will be an awful lot of explaining to be done over the months to come.

[Mr Laws]

I am grateful to the shadow Chancellor for the points that he has raised and I shall seek to address as many as I possibly can. Before I engage in those arguments with him, this is the first opportunity that I have had to address him in his new role as shadow Chancellor and I want to say to him that many people on both sides of the House respect him and respect the work that he sought to do as Chancellor. We appreciate that he took over the economic position and the Treasury at a difficult time and also had to deal with the difficult circumstances of having a Prime Minister of the type that the last Prime Minister was. I pay tribute to the work that he did.

I was very interested in the points that the shadow Chancellor made in response to my statement, but the only thing missing from all the questions that he asked was any acknowledgment of what his colleague, the former Chief Secretary, was able to acknowledge to me in the letter that he left on my desk—the former Government left a situation in which there was no money left. I say to the shadow Chancellor gently that the only thing missing from his statement was a single serious proposal about how to deal with the huge financial deficit, with £156 billion-worth of borrowing and £3 billion-worth of borrowing each week. He is an intelligent enough man to know that there are only three ways of tackling the structural deficit—we can cut spending, cut welfare payments or raise taxes. There was not a single clue in the statement that we just heard from him about how he would address those challenges.

May I also respond to the shadow Chancellor’s point about making statements in the House? Of course, Mr Speaker, we want, wherever possible, to make these statements first and to be held to account for them, but if he is so passionate about this, can he explain why it was the case—[Interruption.]