Eurozone Crisis

Stephen Hammond Excerpts

Tuesday 15th November 2011 Westminster Hall

[Stephen Hammond (Wimbledon) (Con)]

I congratulate my hon. Friend the Member for Basildon and Billericay (Mr Baron) on securing this debate. Like him, I spent some years in the City of London, in various institutions. I want to address three things. First, I want to look at the theoretical construction of the euro as it was set up. My hon. Friend talked about the various eurozone summits and why they failed to find a solution. The reality, of course, is that a theoretically implausible project means that any eurozone solution will not be practical. I also want to talk about some of the reactions, and conditions the International Monetary Fund might want to attach to its bail-out, and our interest in it.

The single market was much welcomed in terms of the encouragement of free trade, which then drove some people to the aspiration for a single currency. It was clear that those countries that were going to join would lose the basic levers of economic policy, namely taxation—that is, fiscal policy—as well as interest rates, exchange rates, protectionism and, indeed, unemployment. It was also clear to any undergraduate, or even A-level economist, that the reality was that a fudge might be possible in good times, but not in a recession. The opponents of that view pointed to optimal currency area theory, which showed that the transaction costs would be lessened and that everything would, therefore, be fine. In practical terms, however, we have seen a theoretical misconstruct. The euro was a misconstruct because it failed to recognise exactly what that theory says: for optimal currency area theory to work, the economies have to be homogeneous in nature or flexible in their arrangements, so that they can move to homogeneity, or a currency union needs to be established alongside a fiscal union at the same time; otherwise, the overwhelming point is that whatever is set up in terms of a single currency will fail.

On the economies that were in the eurozone when it began—the wealth of Germany, the emergence of Ireland and the agrarian underdevelopment of Portugal— surely the appropriate description is diverse rather than homogeneous. Moreover, if we look at the policy formulation since the currency has been in existence, we see that there has been no flexibility that would allow movement to a homogeneous economy. Unless we recognise that the project is flawed in theory and do something about the theoretical basis, we will never find a practical solution. It is not surprising that we have had 15 eurozone summits that have provided no solution whatever.

The absurd reactions of Europe’s senior eurocrats are also of extreme concern. They are preventing any serious discussion of a resolution. The basic premise at the moment is, “The euro must be saved, the euro must be saved, the euro must be saved.” Only last week, President Barroso said yet again that the euro should be the norm for Europe. He even denied the UK’s permanent right to opt out. The President of the European Council, Mr Rompuy, also made an extraordinary remark over the weekend when he suggested that, if the eurozone’s integrity was not preserved, the functionality of the internal market could not be taken for granted. That is an absurd proposition. First, we need only look at the history of how the single market functioned before the euro came into being. Secondly, a single market does not need a single currency, but I will not bother to go into the theoretical construct for that.

[Mr Cash]

Does my hon. Friend remember Madame Lagarde saying on 17 December 2010, when she was Finance Minister for France, that they broke all the rules because they wanted to save the euro at all costs? The rules have been broken, and that relates to the stability and growth pact and every single aspect of this.

[Stephen Hammond]

My hon. Friend is right, and my hon. Friend the Member for Basildon and Billericay made exactly that point. I will not go on, but it seems simply ridiculous. If the eurocrats of Europe think that saving the euro is more important than working out the solution to the economic crisis, progress will be, at best, tortuous.

From a UK perspective we must be interested. The idea that we are not interested in what the IMF bail-out is—or, indeed, in the fact there is a eurozone crisis—is clearly wrong. The impact on the UK is extraordinary. We trade with the eurozone, and therefore have a significant interest. My hon. Friend the Member for Cities of London and Westminster (Mark Field) referred to the possibility of a default of Greek banks. It may or may not be true that we have little or no exposure to Greek banks—I think it is broadly true—but we have great exposure to banks that lend to Greece within the eurozone. That contraction of balance sheets will affect lending to small and medium-sized enterprises in the UK. Therefore, we must have that interest.

A basic and necessary precondition of what the IMF must say to the leaders of Europe is that they must recognise their wider international responsibilities. My hon. Friend also made the point about the Germans effectively wanting to control the eurozone, but not being prepared to accept the economic leadership that that implies by allowing the ECB to attempt to solve the liquidity crisis. We should extend money to the IMF, but I am realistic in accepting that, overall, that means the IMF would extend extra money to the eurozone. Any money that the IMF extends to the eurozone should be met with the precondition that the ECB becomes entirely independent and able to print money for the eurozone, or else it is bound to fail.

The IMF also needs, and almost certainly will accept, a necessary theoretical construction that provides a solution. The most likely solution is that we see a number of countries leave the eurozone—leave the euro—and some perhaps form a tighter unit. That being so, the IMF must stand up and say that it is prepared to fund the cost of dislocation for those leaving the eurozone, so that they have a chance to devalue, make the necessary adjustment to living standards and the necessary lowering of labour costs to allow a competitive solution.

[Mr Carswell]

Is my hon. Friend saying that he wants the IMF to fund the cost of eurozone members’ dislocation from the euro?

[Stephen Hammond]

I am saying that I accept that the IMF will make a bail-out to the eurozone. On that basis, one of the best solutions for the eurozone is for a number of countries to be allowed to leave the euro. The IMF will therefore need to fund the cost of the dislocation of those countries leaving the euro to give them any hope, attendant with their devaluation, of an economically sustainable future.

[Mark Reckless]

Will my hon. Friend give way?

[Stephen Hammond]

I notice that I have gone on rather longer than my five and a half minutes. I had a number of other points, but thank you for the opportunity to speak this morning, Mr Caton.

--- Later in debate ---

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

I was interested to hear the comments of the hon. Member for Stroud (Neil Carmichael). I have learnt a lot, including Gerald Ford’s attitude to New York city and the history of the Ugandan shilling. At one point in the debate, I was almost feeling sorry for the Minister, given the heat that he is falling under and that he is simply following orders—it is not entirely his fault—but in the short time available, he needs to explain not only the answers to the questions asked, in particular by the hon. Member for Basildon and Billericay (Mr Baron), who gave a thorough and refreshing contribution, but an area of policy that has not been touched on as much as it should have been and that is central to the debate, which is growth. How will we rejuvenate growth, not only in the UK but throughout the eurozone, as a way to solve the crisis?

The Office for Budget Responsibility continues its relentless drive to downgrade economic prospects, and the European Commission has forecast a massive change in our fortunes. Last year, gross domestic product growth was supposed to be 2.2% in 2011, but a couple of weeks ago, that prediction was downgraded to only 0.7%. We are now forecast to have the slowest growth in Europe, with only Greece, Italy, Portugal and Cyprus growing more slowly in 2011. The Office for National Statistics, however, shows that exports to the euro area were rising by 17.3% in the third quarter, so the eurozone alone cannot be an excuse for the UK’s lack of growth.

Given the fragility of our economy and our vulnerability, I accept that prolonged uncertainty in the eurozone could worsen our position, but it would be disingenuous of the Treasury to suggest that our woes are caused by the eurozone situation. I would be worried if it genuinely thought that to be the case.

[Stephen Hammond]

Will the hon. Gentleman give way?

[Chris Leslie]

Not in the short time that I have available. I prefer to hear the Minister and to deal with particular issues, some of them raised by a number of hon. Members. For example, the hon. Member for Cities of London and Westminster (Mark Field) discussed bond yields and the dangers of the Government giving the impression that we are a safe haven relative to the rest of the world. I am worried about the complacency shown by the Government. Bond yields are as much a function of our relative independence from the euro and the flexibility of having our own central bank. The director of the National Institute of Economic and Social Research, Jonathan Portes, made it clear recently that our gilt yields declining to an all-time low was partly a result of the economy’s weakness, because safe-haven flows are typically accompanied by a rise in the value of the pound or rising stock prices. He could not have been more concise or clear:

“The reason people are marking down gilt yields is because the economy is weak”.

We should not see that entirely as the be-all and end-all of economic policy. The hon. Gentleman is right that we should see it not merely as a safe-haven function, but as a bubble that may burst at any point.

What should the Government be doing? The crisis is far from over, even though the markets have calmed somewhat this week. My right hon. Friend the Leader of the Opposition rightly pointed out that the European summit—the G20 summit—finished prematurely, without adequately solving the difficulties with the EFSF and the permanent bail-out arrangements, and that a further European summit might be necessary to thrash out the issues properly. We also need a proper strategy for jobs and growth throughout Europe and concrete steps to support demand immediately. We have to end the prevarication about the role of the European Central Bank as lender of last resort and to give proper attention to what it takes to make that EFSF firewall stand behind eurozone members.

Hon. Members mentioned the IMF in some detail. In the summer, before the details of the permanent eurozone bail-out fund had been agreed, the Labour party urged the Government to pause before granting additional funding to the IMF. We called for the commencement of the larger eurozone-only bail-out fund to be brought forward and for the Government to negotiate an end to our liabilities via the temporary EFSM. The Minister at the time did not explain what the UK Government were doing to help to ensure that an adequate and permanent EFSF was put in place and, as I said, the European summits came and went, despite the Prime Minister’s attendance.

Ministers, including the Prime Minister, have repeatedly misrepresented our view of the IMF’s role. Today’s debate shows that our concerns are shared across the party divide. Tim Geithner in the United States and people in many other countries have also voiced their reservations. In principle, because of the IMF’s generally vital role in the global economy, we support an increase in its subscription, but I make no apologies for questioning the Government’s stewardship of our public funds. We have a duty to protect the best interests of the UK taxpayer.

We have consistently said that the IMF’s job is to support individual countries with solvency crises and not to solve a structural problem caused by eurozone countries unable to agree the necessary steps to support and maintain their own monetary union. The IMF does have a role around the world and should have the necessary resources, but there should be no IMF funding to plug the gap in the eurozone’s bail-out fund and to do the job that the ECB should be doing. The only way to ensure market confidence in the eurozone is for the ECB, alongside that permanent bail-out fund, to be given the political support that it needs to act as lender of last resort when liquidity problems arise. That is the logic of monetary union that the 17 eurozone countries are signed up to.

I want to hear the Minister’s answers, so I will curtail my remarks. It is vital for the Government to wake up and realise the role that a growth strategy must play in Europe and in the UK. Without that, there could be serious ramifications for the UK and our economy. If the Government fail to act as an honest broker, stepping up to show the leadership that many hon. Members have urged in today’s debate and so that the ECB becomes lender of last resort and that the EFSF has enough weight to become an effective firewall, the eurozone crisis may well deepen further. The Chancellor continuing to talk about Britain as a safe haven betrays a relaxed complacency in the Treasury that is not warranted. Such an approach is misinformed, neglectful and very dangerous in the situation that we face.

Oral Answers to Questions

Stephen Hammond Excerpts

Tuesday 21st June 2011 Commons Chamber

[Danny Alexander]

As I say, growth forecasts are a matter for the independent Office for Budget Responsibility. I am clear that the deficit reduction programme is essential to ensure that we have confidence in the UK economy. Given that the Opposition caused the mess we are trying to clear up, I hoped the hon. Lady would support that.

[Stephen Hammond (Wimbledon) (Con)]

Does the Chief Secretary agree that one of the assessments that we can make on growth is that encouraging job creation in the private sector will see a reversal of the decline in the productivity experienced when the Labour party was in power, and is likely to see growth forecasts continue to rise?

[Danny Alexander]

The hon. Gentleman is right that we need to see the private sector lead the economic recovery. Many of the measures that we announced in “The Plan for Growth”, such as reforms to the planning system, the measures on regulation and some of the tax measures that we announced to support investment, will all help to encourage and support private sector businesses to lead the recovery that we all want to see.

Amendment of the Law

Stephen Hammond Excerpts

Thursday 24th March 2011 Commons Chamber

[Ed Balls]

I will gladly share our plan. First, the economy was strengthening and unemployment was falling—[Interruption.] The Chancellor’s Parliamentary Private Secretary shouts too loudly. Why does he not calm down a little? That may be how they do things in Chelsea and Fulham, but we do not do that in the House of Commons.

Unemployment was falling and growth was rising because we were halving the deficit over the four years. The Chancellor has gone from halving the deficit to trying to get rid of it entirely in four years, by implementing the largest cuts to spending and tax rises of any economy in the world. It is not working. In fact, we heard today that Moody’s, the credit rating agency, is looking at whether it needs to downgrade the British economy because of the threats to growth following yesterday’s Budget.

Secondly, Labour would repeat the bank bonus tax now, raise £2 billion for a second year, and use that to build 25,000 more homes and create 110,000 more jobs for young people who are now not going to get help from the future jobs fund. That was our second plan—and that option was entirely open to the Chancellor, but he chose not to repeat the bank bonus tax, but instead to give a tax cut to the banks.

Thirdly, we would have reversed the rise in VAT on fuel, because the Chancellor’s 1p cut in the Budget—there is still doubt whether that will actually get to motorists—is outweighed by the 3p a litre rise in fuel prices because of the VAT increase that he introduced just a few weeks ago. We cannot blame the Chancellor for the rise in world oil prices resulting from the middle east crisis. He made the right decision not to go ahead with the duty rise, and we would have done the same, given the level of world oil prices. However, the rise in VAT was a complete own goal. It pushed up inflation and prices and cut family budgets. It was a mistake. It was the wrong tax at the wrong time. The Chancellor should just admit that he got it wrong, go to his European partners and say, “Can I reverse this mistake before it’s too late?”

That is our plan, and the Chancellor—[Interruption.] Government Members shout, “Is that it?” but they do not understand the economics of this and the previous Budget. Halving the deficit over four years was ambitious but deliverable. Eliminating the budget deficit in four years means a massive fiscal contraction. Unless we suspend all the laws of economics, assume that no international evidence counts, and believe that fiscal multipliers do not count in our kind of economy, that kind of contraction in fiscal policy and its impact on the public and private sectors is crushing. Only Greece is trying to go faster. We have already seen the biggest fall in consumer confidence for 20 years, and unemployment is up before the cuts have really started to bite.

People are looking to the future and are worried, and the Chancellor is not listening. In his world, that is not a concern. He does not worry about what is happening out there in the real economy but for businesses and families up and down the country, the prospect of rising unemployment year by year, of slow growth last year, this year and next year, and of falling confidence, is a real concern. My advice to the Chancellor is this: take the blinkers off and look at what is actually happening in our economy. It is hurting, but it is not working.

[Stephen Hammond (Wimbledon) (Con)]

We just heard that the shadow Chancellor’s plan is to halve the deficit over the lifetime of this Parliament. For clarity’s sake, will he tell us what the implications of that would be for the cost of borrowing? What advice has he taken on the yields on 10-year gilts, which would clearly move if we cut borrowing?

[Ed Balls]

The hon. Gentleman needs to look at what is actually happening to the yield curve, the term structure and long-term interest rates. He will know that before the election, when the previous Government had a plan to halve the deficit over four years, the long-term interest rate level was pretty much identical to the rate now. That is the fact. Our debt maturity is long, our long-term interest rates are low, and there has been no problem getting our gilt auctions away at any point in the last two or three years. The idea that there was some big impending crisis is a myth invented by the Chancellor of the Exchequer and the leader of the Liberal Democrats to justify the biggest and most unfair U-turn on a manifesto that we have seen in the last 100 years of British political history.

--- Later in debate ---

[Stephen Hammond (Wimbledon) (Con)]

Before I start, let me refer the House to the register. I give advice on transport matters to the Confederation of Passenger Transport, and economic advice to the Professional Contractors Group.

I am delighted to follow the hon. Member for West Bromwich West (Mr Bailey), the Chairman of the Business, Innovation and Skills Committee, who welcomed a number of the measures in the Budget. Some will clearly be helpful, so it was perhaps disappointing that the shadow Chancellor did not acknowledge them. He will probably be relieved to learn that I have little in common with him, apart from the fact that we were both economics undergraduates—I suspect that he was rather more distinguished than I was. I remember one of the first tutorials given by Maurice Peston, now Lord Peston, a former Labour adviser who taught us about economic debate. I just wonder whether the shadow Chancellor needs to reflect on how his proposition that the cuts are being made too fast and too deep is equally a subject of economic debate, and whether, as could be argued, he is being just as ideological and dogmatic as he claims the Government are.

For there are some economic facts—some economic truths—even if the shadow Chancellor did not want to accept them this afternoon. Whatever he says, this Government were left with the biggest peacetime deficit—a deficit that was 11% of GDP, twice that of Germany and Italy, while France had 8.6%. Borrowing is costing £120 million, and let us be clear: the total stock of debt tripled over the lifetime of the Labour Government. Those are facts.

[Mr Mark Field]

Does my hon. Friend also accept that the brutal truth is that for many years we have collectively lived well beyond our means? Only our near-zero interest rates are disguising just how damaging that is.

[Stephen Hammond]

My hon. Friend makes a correct point, and those are true facts. The causes of those facts may be in dispute. There is a clamour from the Labour party about the financial crisis. No one is suggesting that it did not happen, but equally the Labour party cannot escape the fact that this country had a structural deficit before the financial crisis or that Labour contributed at least partly to that crisis, because the regulatory regime that the previous Government put in place made no estimation of systemic risk.

There are risks to the Budget strategy—although I should say from the outset that I support it wholeheartedly. Those risks concern the lack of growth in places such as Brazil, India and China—which are slowing dramatically compared with previous levels—global inflation and the eurozone crisis, which the Prime Minister is talking about today. There are risks to the Budget strategy; it is just that the risks that the Opposition are talking about are not the risks that are real. Their strategy relies on their comment about the cuts being “too fast, too deep”. This is not just about the fact that no international economic body agrees with them, or about their plan to halve the deficit over the lifetime of this Parliament—which the shadow Chancellor reiterated again this afternoon, albeit without giving any detail. That deficit might or might not halve, but the total stock of debt would still rise, as would the cost of servicing it, even at this level.

The shadow Chancellor was wrong blindly to dismiss what is happening in the gilt markets. I read the yield curve this morning, just as he did, and it is clear that 10-year gilts yields are low at the moment. If the market believed that the Government’s debt reduction plan was going to change, those yields would undoubtedly rise and the cost of borrowing would rise substantially from £120 million a day, ruling out any prospect of more of the things that we really want to spend public money on. Labour Members shouted out, “Too fast, too deep,” yesterday, but they should remember that there are risks involved, and that theirs is an equally dogmatic strategy.

It has been interesting to observe the movement in the past year from the Opposition Benches to the Government Benches. Year after year, as we sat on the Opposition Benches, we listened to Chancellors changing their forecasts and changing the length of economic cycles. I would gently say to the Opposition that we have growth in the economy, and that there is growth for the next four years. Its overall level might be tinkered with slightly, but the forecasts often change—

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

Growth forecasts are going down.

[Stephen Hammond]

No, far from it. The hon. Gentleman was not in the last Parliament, when the Chancellor consistently got it all wrong. The Opposition say that the Government’s position is dogmatic, but my contention is that theirs is equally dogmatic.

[Mr Mark Field]

Does my hon. Friend also recognise the massive distinction, in the context of forecasts on growth and throughout the economic sphere, between what happened before the election and what has happened since May 2010? In the past the Chancellor of the Exchequer made the forecasts in his own interests. We have instituted the independent Office for Budget Responsibility, and it is a sign of the robustness of its independence that it has issued the downgrades in the forecasts to reflect changing circumstances.

[Stephen Hammond]

Indeed; I am grateful to my hon. Friend.

The shadow Chancellor, in contending today that the changes were too fast and too deep, once again relied on the Keynesian multiplier. He is an eminent economist, and he should know better than to rely too heavily on that mechanism. It has traditionally held out the prospect that public sector investment has an impact on the private sector, so there could be an element of crowding out and of limiting of growth potential. If the right hon. Gentleman has read the recent academic research, however, he will also know that the size of the multiplier in the growth phase of an economy is about a third of the size of the multiplier when an economy is going into recession. To rely on that thesis is therefore to rely on a very weak economic mechanism.

But let us leave the world of deficit denial behind, and welcome a Budget that does not bow to pressure. It is hugely important that the Government should stick to their policy of deficit reduction, as that is the only way to achieve long-term growth in the economy. Market rates clearly indicate that there is confidence in what the Government are doing, and to be blown off course would result in a loss of confidence. The cost of borrowing and the yields on 10-year gilts, which are important for the cost of industry borrowing and UK Government borrowing, would change. Domestic inflation would rise in those circumstances, and any indication of making a special case for one would result in having to make a special case for another. The Government are therefore to be congratulated on sticking to their policy.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

Will the hon. Gentleman give way?

[Stephen Hammond]

I am sorry; I have no more time.

Many colleagues on both sides of the House, including the Chairman of the Select Committee, the hon. Member for West Bromwich West, have made the point that the macro is always based on the micro. The devil is always in the detail. This is the first Budget for many years in which the detail has matched the rhetoric, and in which the detail on the micro side supports the detail on the macro side. Measures include the corporation tax rate, and the 21 new enterprise zones. Far from being a failed policy of the 1980s, this was a great success. Only earlier last year, when I travelled to Merseyside and Manchester to talk to business people there in my role as a shadow Transport Minister, I found that people were asking for this and were keen for it to come through.

The measures to support small and medium-sized enterprises include research and development tax credits and the change in the enterprise investment scheme, which, alongside what is happening with the banks, will bring new capital into the country. These are micro-economic reforms that will come through to build macro-economic success through growth. The simplification of the tax code, the abolition of regulation, the acknowledgement that the 50% tax rate must be only temporary—these are all key levers of growth. They are a sign that in this Budget, the rhetoric is matched by the detail and the commitment.

Finally, growth must come in order to be fair to families, and again with this Budget, the rhetoric matches the detail. The increases in personal allowances, taking the lowest income earners out of paying tax altogether, ensuring that the 40% tax band is not extended, the freeze in council tax—those measures will all impact on real people, and it is real people and the private sector, not just the Government, who build the growth of the economy. The Budget is to be commended; it is the first for some time in which the detail has matched the rhetoric.

Oral Answers to Questions

Stephen Hammond Excerpts

Tuesday 22nd March 2011 Commons Chamber

[Mr Hoban]

The hon. Gentleman should pay attention to the forecast produced last year by the OBR indicating that the economy would continue to grow in each year of this Parliament.

[Stephen Hammond (Wimbledon) (Con)]

Does my hon. Friend agree that real progress on growth has to be made through not only matching expenditure, but cutting the deficit, and that the OECD says that the only way we will get future growth is by ensuring that the deficit plans are continued and this Government pursue their policy?

[Mr Hoban]

My hon. Friend is absolutely right. The OECD is one of a number of organisations that have supported our plans. The IMF has said:

“The government’s strong and credible multi-year fiscal deficit reduction plan is essential to ensure debt sustainability.”

That theme continues to come across from international organisations, which demonstrates that we are on the right track to get this economy growing again and ensure that Britain continues to live within its means after a decade of a Labour Government who maxed out on the nation’s credit cards.

National Insurance Contributions Bill

Stephen Hammond Excerpts

Thursday 13th January 2011 Commons Chamber

[Mr Hanson]

Indeed. My hon. Friend knows that there are issues relating to the borders between London, the south-east and east and other regions, because there could be differentials relating to new businesses. He made that important point in Committee, and the hon. Member for Portsmouth North (Penny Mordaunt) has made it in parliamentary questions to the Minister. On Second Reading, Government Members asked questions similar to mine on why the scheme was not applicable to their regions.

I am not being aggressive, but am trying to give the Minister a chance to listen to the case. I hope that he accepts that there is a case for producing information, so that he can evaluate it and so that we as taxpayers know how the almost £1 billion of resource has been spent: where it is going, who is benefiting from it and how, and what levels of employment it is creating and where. Amendments 5 and 6 give the Minister an opportunity to have a break after about a year to review the scheme formally and to consider the issues that we will discuss later, which are important to my hon. Friends.

It does not matter where one is unemployed, because an unemployed person is 100% unemployed. For the Minister to say that we do not need to worry if public sector jobs are lost in London, the south-east and east, or in other regions of high employment, and that the scheme does not apply there, is not a positive way forward. I hope that he reflects on the proposals genuinely. I know that he is a reasonable chap and that he will consider them positively. He knows that the Bill will be considered in another place and that these matters can be discussed there, if not agreed today. I believe that a sensible case has been made for the proposals—although I would say that—and I commend them to the House and the Minister.

[Stephen Hammond (Wimbledon) (Con)]

I did not have the benefit of sitting on the Committee, although I did attend Second Reading and I think that I made a short intervention on the Minister.

I will make a short contribution in response to the new clause. I listened carefully to the Opposition spokesman’s speech, and to his closing remark that this is a sensible case that the Minister should accept. I ask the Minister to think carefully about the case that has been put to him. First, the full impact of the policy will inevitably not be shown after the first or second year. With such policies, there can be a significant cumulative effect, which is what the Government are looking for.

Secondly, it has been estimated that the scheme will have considerable benefits. The Opposition spokesman did not query the basis of the estimates made by the Government and outside bodies on the impact of the holiday. We have a pretty good assessment of its impact, so the Government should consider whether the annual report would add to that.

Thirdly, I ask the Minister to consider that the policy is temporary. Although it is a recurring cost, it is only for three years. Were the policy extant for a longer period, the Opposition spokesman’s arguments might have more basis.

Fourthly, the Opposition spokesman made the point several times to the Minister that he could table questions. He did not say whether he thought an annual report would be cheaper than that. If he wanted to do so, he should have given a cost analysis. I fear that the proposal is an expensive way of getting at the information that he wants, and probably does not cover everything.

Finally, when the panoply of talent on the Conservative Front Bench was not as great, I spent four years as an Opposition spokesman. I spoke on various measures that, like the Bill, were extant for the life of the Parliament, such as the Concessionary Bus Travel Act 2007. I made similar requests for annual reports and, time after time, Ministers told me that such proposals would be costly and serve no purpose; that they would of course keep the scheme under review; and that there was transparency through other sources of information available to me. Therefore, before the Minister is tempted by the beguiling words of the Opposition spokesman on transparency and the need to review the policy, I ask him gently to remember that, freed from the responsibility of Government, the Opposition are not accepting the arguments that they made in government.

[Kelvin Hopkins]

I welcome what was said by my right hon. Friend the Member for Delyn (Mr Hanson), and support strongly new clause 1 and amendments 5 and 6.

In the context of the current economic situation and the level of the cuts being imposed by the Government, the Bill is a relatively small reflationary measure. It is a supply-side measure, rather than the direct reflationary measure of additional spending that I would like to see. If I was in government and had £1 billion to spend—I would love that opportunity, but am unlikely to get it, at least in the short term—I would not spend it in this way. We could, for example, increase capital spending programmes in sectors such as construction and restore school building programmes; £1 billion would sustain a much larger capital programme as a measure of revenue support, so that is the direction in which I would go.

[Stephen Hammond]

I am interested to hear the hon. Gentleman’s argument. Has he noticed the latest academic evidence on the size of the public expenditure multiplier? It suggests that in an open economy, the actual size of the multiplier is something like 0.1%.

[Kelvin Hopkins]

I have not seen that academic work, but I will be interested to read it in due course. I remain fairly convinced that spending capital funds on school building actually generates a lot of employment, certainly in my area. The cuts in school spending programmes will have a damaging effect on local employment in Luton. We can debate that in another economic seminar, perhaps, and we shall see. Nevertheless, the measures in the Bill pale into insignificance compared with the overall level of cuts that will be imposed. Some have suggested that the VAT rise alone will cause 250,000 jobs to be lost, which is a staggering figure and surprised me greatly.

In Committee, the Exchequer Secretary leapt on the fact that I was giving lukewarm support to a measure of tax relief, which is not normally my politics. However, it was lukewarm—I said that the Opposition had decided to acquiesce in what the Government were proposing, but that our Front Benchers had tabled substantial amendments. I still believe that tax reliefs are the wrong way to go. They tend not to be as reflationary as direct spending on jobs, particularly in areas where manual workers on relatively low wages tend to spend all their money, which is then circulated in the economy, causing the multiplier effect that the hon. Member for Wimbledon (Stephen Hammond) mentioned. Tax reliefs tend to go at least partly, and sometimes substantially, into savings and have less of a reflationary effect, so I prefer direct spending to help job creation.

The Chartered Institute of Personnel and Development has suggested that there might be as many as 900,000 job losses in the private sector, which is a vast number. Added to the nearly half a million jobs being lost directly through public expenditure cuts, we are talking about 1.5 million jobs being lost. The Bill will go only a tiny way towards countering those massive losses. Indeed, the effect of those job losses, added to the 2.5 million people already unemployed, means that nearly 4 million people will be unemployed, which is a staggering figure. That will be deflationary, because people will become frightened of losing their jobs and stop spending in the shops.

[Stephen Hammond]

I wonder whether the hon. Gentleman would like to clarify the number of private sector job losses that he has just mentioned. Actually, we have seen in the past two quarters—the evidence from the following quarter is the same—that the private sector is creating jobs.

[Kelvin Hopkins]

I thank the hon. Gentleman for that intervention, which gives me the opportunity to say what I have said many times in recent weeks and months. We are still benefiting from the pre-election reflation of the Labour Government. To save the economy from a massive depression, and perhaps from sliding into serious long-term deflation, Labour sharply reflated the economy, and it was absolutely right to do so. We are still benefiting from that, because of the time lag effect in economics.

Equitable Life (Payments) Bill

Stephen Hammond Excerpts

Wednesday 10th November 2010 Commons Chamber

We know now that those rates were deceptive, but during the 1980s those rates were paid and those bonuses added to the asset pool being put together. Therefore, it cannot be gainsaid that, certainly by 1990, most people with an asset share in an Equitable Life policy probably had an amount that was well beyond what was appropriate for the investment that they had made. In other words, they were over-supplied with bonuses during that period.

[Stephen Hammond (Wimbledon) (Con)]

I have taken part in a number of these debates during my short period as a Member, and, unlike some hon. Members, I am not reluctant to praise the Minister. However, in my constituency surgery last Friday I saw an 80-year-old gentleman who accepts the points that my hon. Friend now makes, but makes the point himself that the pre-1992 group are still trapped and unable to take any action. Had they been able to take some action to mitigate or ameliorate their circumstances, they would have done so. My hon. Friend the Minister has done a great job in moving the issue forward so quickly, but I hope that he will at least listen to the concerns of the pre-1992 annuitants.

[Jonathan Evans]

I am grateful to my hon. Friend for that contribution. He approaches the issue with significant expertise, so he will know that, if we are to achieve justice, it is not just a question of treating all those pre-1992 policyholders in the same way as everybody after 1992. One would go back and assess the pre-1992 annuitants’ asset share to see whether they were paid 105%, 110%, 120% or 140% of asset share; and one would correct that, so that the pre-1992 and post-1992 annuitants were dealt with in a balanced way. The danger with the proposed approach is that there will not be that balance. It is already clear, from the question asked by my hon. Friend the Member for Bedford (Richard Fuller), that we do not have a basis for the figure of £200 million; it is a wet finger in the air in order to assess the situation.

The second factor that causes me significant concern is the lack of available actuarial information. I share all the concerns about the Chadwick process, and, although Sir John might have made an observation about the pre-1992 annuitants, he did not compute their liabilities. The danger, therefore, of being seduced by the strong arguments of the hon. Member for Leeds North East, is that we would enter into an open-ended commitment and have great difficulty realising its objective. During the debate, however, he has made a good case on behalf of those annuitants who go back to 1991. We should remember the judgment made by the ombudsman and her terms of reference. Most of the inquiries started looking at the period from 1999 onwards, but most of the condemnation about regulatory failure goes back to events prior to 1991. It is important that the Committee should take that factor into account when invited to say whether compensation should be granted going back very many years before that.

Finance (No.2) Bill

Stephen Hammond Excerpts

Monday 8th November 2010 Commons Chamber

[Chris Leslie]

Were those the only two relevant factors, that might be the case, but of course they are not. There are other tax changes through which the banks will more than benefit from the arrangements. If the Exchequer Secretary had had the patience to wait, I would have elaborated on that. I will come to that quicker.

It is important that the Exchequer Secretary listens to those experts who have talked about the benefit to the banks from the corporation tax change. Lloyds Banking Group plc could gain more from a cut in corporation tax than it loses under the new banking levy, according to analysts at Redburn Partners legal practice. Lloyds, 41% of which is owned by the British Government, might see a 3% rise in its earnings per share in 2012 as corporation tax begins to fall to 24% from 28% over those four years, according to Redburn analyst, Jon Kirk. There will therefore be a net positive for Lloyds. That is one example of a net gain for the banks.

Secondly, the banks have already found a way of minimising their corporation tax liabilities. A report published only last week by the TUC on the corporation tax gap showed a gap between the headline rate of corporation tax paid and the actual or effective rate of corporation tax paid. The TUC’s analysis of data on UK corporate returns showed that the larger a company is, the better it tends to be at reducing its effective rate of corporation tax, which fell from 28% in 2000, when the headline rate was 30%, to about 23% in 2009, when the headline rate was 28%. On that basis, the TUC’s economists predict that by 2014, the largest companies will be paying corporation tax at a rate of no more than 17% on average, while small companies will still be paying corporation tax at 20% or more.

[Stephen Hammond (Wimbledon) (Con)]

The hon. Gentleman will know that there are all sorts of reasons why the headline rate of corporation tax may not reflect the rate of corporation tax that is actually paid, which are to do with credits for R and D, and all sorts of things. He keeps quoting what the TUC report says about larger companies, but what does it say about the banking sector?

[Chris Leslie]

The TUC says that the effective rate of corporation tax for the banks will fall from 25% in 2000 to below 20% this year, which means that, in reality, they are already paying a rate that is below the headline rate that small firms pay. Those findings are certainly eye-catching. All I am saying in new clause 3 is that they merit further review and consideration, which would be a reasonable step to take. Indeed, those findings suggest that we could even be heading towards a regressive corporation tax system in the UK. Small businesses should be paying less in corporation tax than the banks, but the evidence suggests that that might not be the case.

The third wheeze that the banks might benefit from, in their navigation of the corporation tax system, is known as deferred tax, which can be defined as the tax liability that might be payable at some point in the future because of transactions that have already taken place, albeit where there is no certainty about when it will have to be paid. Deferring the payment of tax is not something that ordinary taxpayers can indulge in with great ease, yet it appears that the banks are playing that game on a gargantuan scale, according to the findings of Richard Murphy, the director of Tax Research LLP. He suggests in his recent report that the banks’ deferral of tax reserves are absolutely phenomenal. He calculates that a sum totalling nearly £19 billion, which is nearly half what this country spends on capital projects annually, might not be paid by the banks in corporation tax as a result. He describes that as

“an extraordinary double subsidy going on for these banks.”

Not only were the banks underpinned by the taxpayer in 2008—they are still underpinned in the form of the guarantees offered by the Treasury—but they may receive another fillip, he argues, from that deferred corporation tax gain.

Equitable Life

Stephen Hammond Excerpts

Thursday 22nd July 2010 Commons Chamber

[Mr Hoban]

The hon. Gentleman makes a sensible point and I am grateful for his welcome of today’s statement and the progress that I announced. He is absolutely right about an appeals mechanism, and the Treasury are looking at that proposal at the moment. Policyholders who question the data that are used—some data are quite old and policies are complex—will want a mechanism by which they can appeal, so that is important. However, I am keen to ensure that the appeals process is quick and thorough, so that people are comfortable with the outcome they get.

[Stephen Hammond (Wimbledon) (Con)]

I congratulate my hon. Friend. As someone who took part in the Equitable Life debate in March, I do not recognise some of the wilder accusations that are being levelled against him. May I press him on the key point of his statement, which is the capped figure? I think he confirmed to my hon. Friend the Member for Cities of London and Westminster (Mr Field) that he will review the figure when he reflects on Sir John’s report, but will he confirm that he will publish, and make a statement on, his methodology as to how he reaches it, whether or not he agrees with the report?

[Mr Hoban]

As part of the spending review process, I have already committed to publishing not only the amount of compensation the taxpayer can afford to pay, but the final loss figure. My objective is to be as transparent as possible on that calculation.

Finance Bill

Stephen Hammond Excerpts

Tuesday 6th July 2010 Commons Chamber

[Mr Byrne]

No, I am going to make another important point, on which the hon. Gentleman might want to comment. The question of business investment is vital—it relates to the argument at the heart of the Budget—and I hope that we will have a good debate on it this afternoon. Business investment is the subject of clause 1, which offers, I am afraid to say, no salvation through investment allowances, which drive up investment and which manufacturers say make the world of difference. This is what the senior economist of the Engineering Employers Federation had to say about investment allowances:

“For smaller companies…there will be cashflow consequences …that will hurt their ability to reinvest in their own competitiveness.”

That is because the Government have withdrawn such allowances.

What, then, of corporation tax? We were promised in the Budget a four-year plan to bring down the rate of corporation tax to 24%, but clause 1 offers us just a one-year plan. We do not know whether that is a wheeze to avoid an unhelpful valuation of deferred tax assets—the Chief Secretary to the Treasury was silent on that point—but is it not more likely that the Treasury is simply hedging its bets? The Government promised us certainty on corporation tax, and all we have got is more risk. The truth is that business is not going to bet on a one-year deal when this country’s recovery demands a longer-term planning horizon. The Chancellor might be a gambler, but Britain’s business community is not.

[Stephen Hammond (Wimbledon) (Con)]

The business community are not gamblers. In this Budget, they will see encouragement for the bedrock of our economy—namely, small and medium-sized enterprises. Measures in the Budget such as the small profits rate of taxation will help 800,000 small businesses across London and the south-east, and the small business rate relief will help 48% of the businesses in the region. Is that not the kind of investment that will encourage exports?

[Mr Byrne]

It would be, but it appears to be absent from the Bill.

The economic gamble that the Chancellor has taken in the Budget is quite clear to the business community and, I think, to the House. There is also the question of who pays. The Chancellor is fond of taking the approach that we are all in this together. One writer called that the equivalent of a chorus line from “High School Musical”. However, the Finance Bill disabuses us of any notion that that claim might actually be true. It is now quite clear that the price of this Budget will be paid by people’s jobs, and that the greatest price will be paid by the poorest in this country.

[Mr Byrne]

I look forward to hearing the hon. Gentleman’s contribution to the debate a little later. It was not quite clear whether he was talking about marginal deduction rates or other impacts of the tax system but, like me, he will have noticed table A3 on page 69 of the Red Book, which shows that the marginal deduction rates for people on a 90% deduction rate, for example, have not gone down as a consequence of the Budget; they have gone up.

[Stephen Hammond]

We know from the note that the right hon. Gentleman left for the Chief Secretary that it clearly would not have been he who paid. Will he tell the House exactly where the £50 billion of cuts would have come from under a Labour Government, and how the deficit would have been reduced? Who would have paid in those circumstances?

[Mr Byrne]

Of course—I shall talk about that at length in a moment.