Budget Resolutions and Economic Situation
Debate between Lord Tyrie and Mark Garnier(8 years, 9 months ago)
Commons ChamberRead Full debate Read Hansard Text
Mr Andrew Tyrie (Chichester) (Con)
The Leader of the Opposition has made the most difficult speech of the parliamentary year. He is responding to a Budget that he has not seen. I have not seen it either, as a matter of fact. I would be interested to know whether he feels that that was the speech of a democratic socialist; I think it was. It was certainly spoken with great sincerity, but I wonder whether—he can nod and tell me whether he agrees or disagrees—he now accepts, as John Smith and Tony Blair did, that a capitalist economy, properly regulated, is the most powerful source of prosperity and growth yet invented.
Mr Tyrie
I am not going to put the right hon. Gentleman under any pressure.
The Chancellor deserves a great deal of credit for the recovery, and I have said so before; so does the Prime Minister—he has just slipped out of the Chamber—who has backed the Chancellor, I think, for the most part. The last six years have been extremely difficult at times, and it is a defining achievement for the Government that they have led the country out of the worst crisis in modern history and that they are now stabilising the public finances, which looked, and indeed were, completely out of control in 2010. We should not forget the scale of the challenge that beset the then coalition Government.
The Chancellor has talked about storm clouds gathering. I think he called it a “cocktail of risks”, coming particularly from abroad. He is certainly right about that. Emerging markets are slowing down, capital markets are faltering and the eurozone is edging back towards a serious crisis. If all that is sustained, the UK economy is going to take a hit. Of course, as the Office for Budget Responsibility has pointed out, the uncertainty in the short term about the EU referendum will not help either. We have seen all that reflected in the OBR’s forecasts, particularly on productivity. The Chancellor is right to be extremely cautious.
If I get time, I will say something briefly about the fiscal rules, and their merits or otherwise; there are some problems with the fiscal rules. I will also say whether fiscal policy should be so frequently adjusted to take account of forecasts as a consequence. I might say something, if I get time, about the way in which Budget measures are advertised so far in advance, which I am not sure is at all helpful.
First, I want to answer one central criticism of the recovery that is now under way—we did not hear so much of that from the Leader of the Opposition, although there were hints of it from time to time—and that is the assertion that the UK is in the grip of an unsustainable debt-driven, consumption-led recovery. Frankly, the statistics do not support that. Of course, one might say that the statistics are not worth much, because they have come from the Office for National Statistics and other sources, and we have discovered that they are of very little merit. Sir Charlie Bean is trying to improve statistics. They are the only figures we have got, however, and on the basis of the figures we have got, that claim, which is certainly widely made, does not hold up.
Investment has contributed a third of the total growth since the depths of the recession in the middle of 2009, despite accounting for only one seventh of GDP in recent years; that is the figure for the past five years. Debt as a proportion of household income has remained well below crisis levels, and recently productivity and real wage growth, which are the hallmarks of a sustainable recovery, are also showing signs of a pick up—something that the Chancellor did not emphasise in his speech—so I do not think that that argument holds up. Even if it were true that the recovery was very uneven as a consequence, that is what I would expect. The bigger the shock—this was a very big shock, the biggest in modern economic history—the more uneven the recovery is likely to be. Growth returns only a result of a fundamental reallocation of capital after a major crisis and more efficient use of that capital in the places to which it goes.
That process, this time, has been made particularly difficult by a profound weakness of the banking system. Firms, especially small and medium-sized enterprises, appear unable to obtain the capital they need to invest and grow even now. Again, that is something that the Chancellor did not emphasise. Although it is true that the average rate of interest for new advances is not very high—around 4%—the total stock of outstanding loans to SMEs tells its own story. It is falling, and has been falling pretty steadily for several years, even though the economy is recovering. That suggests that SMEs are not able, perhaps because of some form of rationing, to get the money that they need to grow and to sustain economic activity. That is a question that we need to come back to in the context of banking reform. Above all, we need desperately to get much more banking competition into the SME market and into the retail banking market.
I said that I would query the fiscal rules, and I am going to do so, as indeed has the Treasury Committee in an earlier report. The Chancellor was able to show a good deal of flexibility when it mattered in the last Parliament. His fiscal rules provided him with a good deal of leeway to adjust policy in response to the euro crisis, which was a heck of a shock to adjust to. He recently imposed three new restrictions on himself. First, there is this new surplus rule. Then there is the ring-fencing of three quarters of public spending. Now we also have the tax lock, which prevents rises in VAT, national insurance and income tax, which collectively account for three quarters of tax revenue.
Making fiscal rules all began with the efforts of Tony Blair and the former right hon. Member for Kirkcaldy and Cowdenbeath to restore credibility to Labour’s economic policy in the 1990s. Since 1997—I have taken a look at the fiscal rules and if somebody wants me to go through them all, I will, but that will only delay the House—I have worked out that we have had six, so the average life of those fiscal rules has been three and a half years. I am afraid that the record of this Government and the coalition Government is no better than that of their predecessors; actually, it is somewhat worse. There is some merit in the Government’s giving guidance to markets and the public about their intentions, particularly their long-term and strategic intentions, but the rules have been presented, as their names suggest, as something far more permanent. They are called guarantees, rules, mandates, charters or pledges. Of course, as each one has been broken, it has not done much for the quality of politics and political discourse, and it has not done anything for economic credibility. The Government’s fiscal credibility does not derive from the rules or the mandates; it comes from the fact that they have tackled the deficit and have got it down from 10% to about 3% or a bit more.
Parties on both sides of the House now have fiscal rules. The new Labour shadow Chancellor—I do not think he is new Labour himself, but he is the recently appointed shadow Chancellor—has recently come up with one of his own. Both parties are at it, but I do not think the rules of either of them are offering much.
Budget Resolutions and Economic Situation
Debate between Lord Tyrie and Mark Garnier
Mr Tyrie
That was a very interesting short speech. The hon. Lady made some important points, which I will not have time to address, with almost all of which I profoundly disagree and with which—this is the point I was trying to make—I think a large proportion of the House now disagrees.
The new Committee has a heap of new things to look at as a result of this Budget: the Green Paper on pensions and savings, the £12 billion of cuts to the welfare bill, the living wage, the new fiscal target, the shake-up of Sunday trading laws, the inheritance tax threshold changes and the avoidance measures, among much else. We will do our very best to report back to the House on these issues, and as soon as we can.
The plain fact, which I think is widely—almost universally—accepted, is that the backdrop for this Budget is dramatically better than it was when the Chancellor stood up and the right hon. and learned Member for Camberwell and Peckham replied exactly five years ago. The Chancellor deserves a great deal of credit for having brought about that transformation in the country’s economic fortunes.
I think, though, that it is worth mentioning a few risks in the economy. The first, which I consider very important and to which the Chancellor alluded, is the euro crisis and the Greek problem, which has the potential to turn from a manageable challenge into a major catastrophe. Were Greece to default, the United Kingdom could not take for granted the relatively compressed bond yields that help to keep our debt service costs low. The second is the bursting of the stock market bubble in China. Thirdly, we shall have to adapt to the moment when interest rates start to rise, because it could prove a shock for those who have become too used to the idea that they can remain at an artificially low level.
That is without taking account of quantitative easing—£375 billion of it—which will have to be unwound. I want to put down a marker about QE, on behalf of Parliament. When it is unwound, it may make a profit or a loss, and that profit or loss will need to be examined by the House and the Treasury. It is a matter for us, and not exclusively for the Bank of England. Any losses that are borne by QE do not score against the Bank’s balance sheet; they score against taxpayers. I think it extremely important for the House to be closely involved when big decisions are made about QE.
Mark Garnier (Wyre Forest) (Con)
Does my right hon. Friend agree that one of the biggest vulnerabilities of the economy is household debt, which is currently greater than the national debt at slightly under £1.5 trillion?
Mr Tyrie
Yes. We have a long way to go before we can fully restore a savings culture in this country. The savings ratio is still unacceptably low, much lower than it has been historically. There is a great deal more to do, and I think that the pensions and savings reform Green Paper will have a role in that.
Since my hon. Friend has—indirectly—raised this issue, let me add that, during the last Parliament, the Treasury Committee briefly examined the question of whether pensions could be treated like individual savings accounts. The idea did not find much favour in the press at the time, but I personally think that it merits careful consideration.
Budget Resolutions and Economic Situation
Debate between Lord Tyrie and Mark Garnier(9 years, 9 months ago)
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Mr Tyrie
I have not brought all the survey data along with me, but I can supply it to the hon. Gentleman if he is interested. He makes a valid point, which is that there is a lot more work to be done fully to restore confidence to the point that is needed to unlock cash piles on the balance sheets of some of Britain’s larger businesses. For smaller businesses, investment is often not taking place at the level we would like, although it is much better, because the small and medium-sized enterprise lending market is still relatively weak. The banks are not supplying them with the resources they need. We desperately need to break down what still amounts to a banking cartel on lending. We need to get to the point where these small firms—the new firms that create so much wealth in Britain—can get access to the lending they need.
Mark Garnier (Wyre Forest) (Con)
Does my hon. Friend agree that a very good indication of confidence is the extra 2 million-plus jobs and 450,000 new businesses created in the past five years?
Mr Tyrie
I agree entirely, but I will not linger on the point, because I am sure that my hon. Friend will be making his own speech in his own way very shortly.
What has also happened is that many people have found ways of improving quality and value for money in the goods and services they provide, whether in the public or the private sector. That has generated a good deal of force for the recovery—something that is not fully captured in productivity statistics. Governments do not create wealth; they either get in the way of it or create the conditions for it.
Independent Financial Advisers (Regulation)
Debate between Lord Tyrie and Mark Garnier(14 years ago)
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Mr Andrew Tyrie (Chichester) (Con)
I apologise for breaking up my hon. Friend’s excellent speech. Does he agree that a crucial point that we must get across to the FSA tonight is that the increase in these compliance burdens will be paid for by the consumer who will therefore lose out? The loss of perspective from the FSA and the inflexibility of its approach in implementing the changes are reflected in the large number of people here today.
Mark Garnier
Absolutely, and I am very grateful to my hon. Friend the Chairman of the Treasury Committee for bringing that up.
The £1.7 billion costs being pushed on to the consumer mean that £1.7 billion will be taken out of the savings pool. We simply cannot take that approach if we are trying to encourage people to save and to pay off their debts. That is why the changes are so fundamentally wrong. IFAs will have to bear the brunt of them, especially those with small operations where the requirement to sit exams, recapitalise and install new compliance systems, as well as all the other requirements of RDR, will often be handled by the same individual who is offering advice to the customer. Hector Sants estimated that implementation might mean a loss to the IFA community of 20% of the professionals who work in this arena today. Adair Turner has said that this is an acceptable cost, but I do not agree. It is unacceptable that up to 3,000 professionals according to the FSA’s figures, and more according to other research, will lose their livelihoods. Among those who stay, the cost will be passed on to the consumer, as my hon. Friend the Member for Chichester (Mr Tyrie) has said.
There are many questions to ask. Will the RDR deal with the cowboys? Will a reduction in the number of IFAs encourage a savings culture or detract from it? Is it right that when we are encouraging entrepreneurs to set up new businesses, the outgoing regulator should be bringing about such devastating change to this industry? My constituent Mike Jeacock is typical of the type of IFA who is threatened by the RDR. He runs a high street shop in Stourport-on-Severn and he networks for new business among his mates in the Stourport Workmen’s Club. These are not high-rolling wealth managers prowling family offices in Mayfair. We are talking about people who earn a living honestly servicing the financial interests of people who can afford little but who need financial advice.
The retail distribution review is a significant market intervention, and market interventions, particularly of such a fundamental and far-reaching nature, require overwhelming evidence of consumer detriment and the appropriateness of the solution. In addition, any solution needs to meet cost-benefit requirements. Does the RDR satisfy these tests? It appears to be based on a combination of unfounded assertions, limited and contradictory research and, as regards some of its solutions, little more than a hunch that the outcome will somehow be better than the present system.
It is estimated that up to 10,000 experienced IFAs of good standing will be forced to retire for no valid reason.