National Insurance Contributions Bill

Steve Baker Excerpts

Thursday 13th January 2011 Commons Chamber

[Kelvin Hopkins]

I shall speak briefly in support of the amendment. I strongly endorse what my right hon. Friend the shadow Health Secretary and, indeed, my hon. Friend the Member for Walthamstow (Dr Creasy) have said. Strains in the health service are already being felt, as are pressures on jobs. In my constituency, we are already seeing job losses in the primary care trust and the hospital trust.

There are obvious points to be made about the increasing costs of modern treatments and the reorganisation mentioned by my hon. Friend the Member for North Durham (Mr Jones), who is no longer in the Chamber. Even Conservative Members have suggested that that reorganisation will lead to further privatisation of the health service, and private health services are inherently more inefficient than public health services. The Americans spend twice as much on health as we do, yet millions of Americans have no proper health cover, because private sector health care is much more expensive than public sector health care. We want to keep public health care in the public sector. Indeed, I believe that even the services that have already been privatised should be returned to a full public national health service. I am sure that Nye Bevan would agree. No doubt he is turning in his grave at this moment at the thought of what the Tories are going to do to the health service, but that is a debate for another day.

However, there are other, less obvious points to be made about the health service. It is, for example, inherently labour-intensive. Unlike manufacturing, it cannot take advantage of productivity gains. Its costs rise not in line with inflation, but in line with average earnings. If we are to ensure that health service employees are properly paid, there must be real-terms increases equivalent to the rise in earnings, not just the rise in prices. In general, earnings rise more quickly than prices as the economy grows, although that is not necessarily the case at present. If we are to have a health service that is as good as we wish it to be, we must bear the employment costs in mind.

I agree with what my right hon. Friend the Member for Wentworth and Dearne (John Healey) said about what Labour achieved during its 13 years in office by increasing spending and improving the quality of the health service. The previous Tory Government had left it in a terrible state. However, although the improvements have been massive, there is still more to do. We must not allow health service funding to be threatened in the ways that have been mentioned today. Amendment 8 is important because it will ensure that that funding is protected. There are many other problems in the health service, and we must not put more pressure on it. We do not want what happened at Stafford hospital to happen elsewhere because of underfunding and understaffing in wards. We must ensure that the service is properly funded.

[Steve Baker (Wycombe) (Con)]

I cannot help wondering whether the hon. Gentleman realises that Buckinghamshire, for example, has inherited an underfunding of 17% per head in comparison with the national average. I am afraid that Labour did leave us a legacy of underfunding, although only in certain parts of the country.

[Kelvin Hopkins]

I believe that there is a massive difference between the proportion of gross national product spent on health under the Tories before 1997 and the proportion spent on it now. Although I think that we should spend more on health—I have always argued that we should spend as much on it as Germany and France, but we have still not quite reached those funding levels—we have made massive improvements.

For a long time I complained that health service spending in Luton was below the fair funding target. We lobbied our own Ministers heavily on the issue, and I think that we made some progress in persuading them to move in the right direction, but we must ensure that health funding in all areas increases as a proportion of GDP. I hope that Buckinghamshire as well as Luton North will benefit in that regard.

We must accept that improving health care sometimes means increasing rather than decreasing labour intensity. Health care will improve if a ward containing 20 beds and two nurses is given a third nurse. That is certainly true in the elderly care sector, about whose future I am seriously concerned. The fact that our population is ageing is an additional major burden for the health service. We all want to ensure that we are cared for properly when we are elderly—even more elderly than I may be at present. When we are elderly and need care, we want that care to be properly funded, so that we do not suffer in the later stages of our lives.

I strongly support what was said by my right hon. Friend the Member for Wentworth and Dearne, and I hope very much that the Government will accept the amendment.

Loans to Ireland Bill (Allocation of Time)

Steve Baker Excerpts

Wednesday 15th December 2010 Commons Chamber

[Mr Bone]

Mr Speaker, you would rightly tick me off if I answered that question. That is a matter for the Second Reading debate, because it is to do with the issues in the Bill. I am expressing no view on that at the moment. However, unless we have adequate time to discuss those issues, the hon. Gentleman’s point might not be clarified.

Lack of parliamentary time cannot be an excuse for this motion. The advantage of splitting the debate over two days is that it would allow a proper debate on Second Reading today. I believe that many Members would like to take part in such a debate. It would also allow amendments to be tabled in the normal way, and enable us to have a proper debate in Committee, with time for a debate and votes on each of the amendments. There would also be time for a Third Reading debate.

I understand that the Government have tabled a manuscript amendment today, although I have not seen it. That amendment has been tabled without allowing Members the time to consider it. That just shows the weakness of this procedure. If the allocation of time motion were defeated, we would have a full Second Reading debate and the Government would have to rearrange their business to provide for the Committee stage and Third Reading. The loan would still go through, but the Bill would have been properly debated and, if necessary, amended. Defeating the allocation of time motion would not wreck the Bill; it would simply give more time for proper scrutiny so that the Bill could be improved. We have already seen that the Government have tabled a manuscript amendment. What will happen if, during the 15 minutes of the Second Reading debate, a Member decides that they want to table an amendment? They just will not have time to do it.

How does the motion fit in with the principles behind parliamentary sittings? The present timetabling of our sittings is broadly based on the Jopling reforms and encompasses three principles. It is against those three principles that we should judge the Bill today. The first is that the Government must be able to get their business through, and, within that principle, ultimately control the time of the House. Secondly, the Opposition must have the opportunity to scrutinise the actions of the Government and to improve or oppose legislation as they think fit. Thirdly—this is of more interest to me—Back-Bench Members on both sides of the Chamber should have reasonable opportunities to raise matters of concern from their constituents. A number of my constituents have contacted me with concerns about this Bill.

A major role of Members of Parliament is to scrutinise and review legislation. It is a well-known fact—I doubt that anyone in the House would disagree with this—that the better the scrutiny, the better the Bill. It is also a major role of Members of Parliament who are not members of the Executive to hold the Executive to account, whichever party or parties make up that Executive. That is one of the most important roles we have as Members of Parliament. This motion removes that role. It is appalling that the coalition Government should try to stifle that essential function. I have long campaigned for more transparency and debate in Parliament. I strongly believe in strengthening the role of the Back Bencher. The erosion of parliamentary power to scrutinise legislation has been a long-adopted approach by successive Governments. This motion, I am afraid, is a step too far. Individual Members of Parliament attach a great deal of importance to scrutiny and accountability, and problems arise when the Executive try to deny us that right.

The Government have declared that amendments must be tabled before Second Reading, which is ludicrous. They ask MPs to table amendments before we have had a chance to hear what the Minister has to say. How can MPs properly table amendments when they have not heard the details and the arguments? Despite that difficulty, 11 amendments have already been tabled. The Government were forced to produce a three-page document—I have it with me—of amendments, and another five-page document on their justification for rushing the Bill through. These documents were produced only in the last few days. How can they, and the amendments, realistically be scrutinised if the Bill goes through all its stages today? It is just not possible.

The House of Lords got rather fed up with the Commons bouncing it, so it has now come up with a procedure whereby the Government have to answer a number of questions—I think it is eight—before they can get a Bill such as this through. Those questions are printed in the explanatory notes to the Bill. Let us look at some of them for a minute, and see whether the answers hold up to scrutiny.

The first question is: “Why is fast-tracking necessary?” The notes go on to explain that the proposal is for a bilateral loan, and that the timing of the UK’s proposed loan is currently unclear. They state:

“It is necessary to fast-track the Bill so that the UK’s international partners can be confident that the bilateral loan will be implemented.”

That is an absolutely hopeless answer to the question. It does not tell us why the Bill is being fast-tracked. It is ridiculous to suggest that our international partners would think that, because we had not taken another day or two to debate the Bill, the Government were not going to proceed with the loan.

The next question is:

“What is the justification for fast-tracking each element of the Bill?”

Again, there does not seem to be an answer. The notes state:

“The Bill is a short Bill, with few substantive provisions other than to provide for sums required by the Treasury”.

Yes, the Bill is short because many of the provisions deal with statutory instruments and affirmative resolutions. It is an important Bill, but it is short because many of the provisions do not go into detail. That is exactly why we need a proper Second Reading debate. I do not think that the Government have answered that question either.

The next question is a good one:

“What efforts have been made to ensure the amount of time made available for parliamentary scrutiny has been maximised?”

The answer is:

“The Bill is being published on the same day it is introduced and arrangements are being made for amendments to be accepted in advance of second reading in the House of Commons.”

How on earth does that answer the question about making time available for parliamentary scrutiny? It is like the Prime Minister being asked a question at Prime Minister’s questions and giving an answer to a completely different one. It might be a good answer, but it is not the answer to the question that was asked.

The next thing that the Lords want to know is this:

“To what extent have interested parties and outside groups been given an opportunity to influence the policy proposal?”

The answer talks about our European Union colleagues, but the key is in the last sentence, which states that

“there has been limited opportunity to give interested parties and outside groups an opportunity to influence.”

By the Government’s own admission, they have failed in regard to that question.

The next question asks whether the Bill includes a sunset clause. The Government can argue, with some justification, that it does, because it stipulates a period of five years. It does not tell us when the loans are to be repaid, but it places a five-year limit on the period in which they can be made. That is not what is normally understood by a sunset clause, however. Sunset clauses normally stipulate that in, say, a year’s time, Parliament will look again at the legislation to see whether it is correct.

The next question is:

“Are mechanisms for effective post legislative scrutiny and review in place? If not, why do the Government judge that their inclusion is not appropriate?”

The answer states:

“The Bill provides for regular reports”.

On that one, I will give the Government a tick. So far, they have passed one of the six tests. The next question is:

“Has an assessment been made as to whether existing legislation is sufficient to deal with any or all the issues in question?”

The Government do not really answer that one. They say:

“Statutory authority for such expenditure is required in accordance with the Concordat of 1932 between the Government and the Public Accounts Committee.”

I am unclear as to what that means, but it does not seem to answer the question that has been asked. The final question is:

“Has the relevant Parliamentary committees been given to opportunity to scrutinise the legislation?”

The explanatory notes were drawn up in such haste that the spelling of the question was incorrect, but the simple answer to it, as I hope my hon. Friend the Member for Stone (Mr Cash) might confirm, is that no such scrutiny has taken place.

In concluding my opening remarks, I want to say a few words about what I think is wrong. Let me state to the House how this mother of Parliaments should work in relation to timings of debates. The driving principle of reform should be the redistribution of power—from the powerful to the powerless. That means boosting Parliament’s power to hold the Government of the day to account. The House of Commons’ historic functions were to vote money for Governments to spend, and to scrutinise laws. It now barely bothers with the first, and does the second extremely badly. There was a time when legislation that had been formulated after months of civil service and ministerial deliberation was sent to the House of Commons which would pore over it, shape it and send it back, get it back, look at it again and improve it some more—Bill by Bill, clause by clause, line by line. Every piece of legislation would be put under intense scrutiny. Is it legally sound? Will it be effective? Is it worth the cost?

Let us compare that with today. Let me take Members on the journey of a piece of legislation as it passes through the modern House of Commons. It is likely to have been dreamt up on the sofa of No. 10. A Bill is drafted and it is sent to the House for a couple of hours of routine debate among a few MPs. Then the bells ring, the whips are cracked and suddenly, out of nowhere, all the Members turn up to vote. More often than not, they do not even know what they are voting for. The Bill limps through. Then it goes into Committee. The Committee’s duty is to look at the detail clause by clause, but it is packed full of people that the Whips have put there. So, surprise, surprise, the Government rarely lose a vote on any of the individual points of detailed scrutiny. Then it is back to the House to do it all again—debate, bell and then vote to wave the legislation through.

Every Bill now has a programme motion setting out how much time can be spent scrutinising and debating each part. There are automatic guillotines, and the time allowed for scrutiny is set in advance, before anyone can see whether or not a particular issue is contentious or complex. Watching a Minister in the Commons drawing out one point for an hour to fill the time, to an audience of dozing Back Benchers—that is not accountability. How can the mother of all Parliaments turn itself into such a pliant child?

Unfortunately, I cannot claim credit for that last section of my speech. It was in fact from a speech on fixing broken promises delivered on 26 May 2009 by my right hon. Friend the Member for Witney (Mr Cameron). I do not think that Ministers on the Front Bench today want to upset the Prime Minister. So they have an opportunity, before the conclusion of the debate, to say that they will withdraw the allocation of time motion, and that we will have proper debate.

For many years I have sat on the Back Benches imploring others to give more time for Parliament to scrutinise legislation. I believe that to be the fundamental role, not only of the Back Bencher, but of Parliament itself.

[Steve Baker (Wycombe) (Con)]

I am most grateful to my hon. Friend for giving me the opportunity to say just how much I stand behind the Prime Minister in his remarks, which my hon. Friend has so generously shared with the House. However, does my hon. Friend agree that if this bail-out is necessary at all, it is an emergency?

[Mr Bone]

My hon. Friend is tempting me to enter the debate, which I am not going to do, and as time is short, I shall conclude my remarks.

Time is all we have as Back Benchers, and if that is taken away from us, so is power. I urge all parliamentarians in the House to vote against the guillotine motion.

Banking Reform

Steve Baker Excerpts

Monday 29th November 2010 Commons Chamber

[Mr Umunna]

I am going to make progress, because I do not have much time.

I welcome the introduction of the independent banking commission, which the new Government were right to set up. Without pre-empting the commission, I firmly believe that we should separate retail from investment banking. There is some consensus on that, but it is a question of degree.

[Steve Baker (Wycombe) (Con)]

Will the hon. Gentleman give way?

[Mr Umunna]

I am afraid I am going to continue.

Do we go for the Dodd-Frank model, which has just been implemented in the United States, or the Glass-Steagall model, which was in place from the 1930s until recently? Mervyn King has moved a little on the issue. At the Treasury Committee last week, he was very clear that he would not give his view on it until the Vickers commission reports, but Lord Turner doubts that it is possible to separate proprietary trading from commercial banking. That is why I am sympathetic to the Glass-Steagall model, but I am happy to see what the banking commission comes forward with.

I shall conclude by considering some wider issues. I should like two key outcomes from the reforms currently being implemented. First, to pick up on the comments of my hon. Friend the Member for Leeds East (Mr Mudie), we need to return to the notion of our banks as a utility. They are a utility and should be treated as such, because they are absolutely essential to our everyday lives. We have lost sight of their purpose, because we have a allowed a big, shadow banking structure to evolve while 1.75 million adults on lower incomes do not have access to basic banking services. I should like us to introduce a universal banking obligation, so that everybody has access to such services. It is a great shame that the Government have decided to do away with their commitment in the coalition agreement to introduce a people’s bank through the Post Office, because that would have been very good.

Secondly, I agree with the hon. Member for South Northamptonshire that we need greater diversity in the sector. It is dominated by a few major players, and there has been only one start-up entrant in the market, Metro bank, since 2008. In particular, I should like serious consideration to be given to breathing life into the mutuals sector. Why do we not seriously consider remutualising Northern Rock and Bradford and Bingley, as opposed to privatising them, so that we increase the diversity of providers in the sector for our constituents?

There is no magic bullet when it comes to reforming financial regulation. The previous Government made a good start; it is absolutely crucial that the coalition Government build on that.

--- Later in debate ---

[Steve Baker (Wycombe) (Con)]

Like other Members, I welcome this debate and congratulate the right hon. Member for Oldham West and Royton (Mr Meacher) on securing it. I will oppose the motion for two reasons. First, I believe that the Government have acted briskly within the terrain of the current debate. I will speak about that terrain, because I believe it should be moved. Secondly, I should like to challenge the notion that we should have a clearing house for over-the-counter derivatives.

I believe that the question of whether a clearing house should be provided, and under what circumstances, is a matter not for legislators but for the market. The problem with derivatives is accounting rules that allow profits to be recognised many years in advance, and that substantially reduce the capital requirements for derivatives in comparison with loans. That, of course, is inflationary in itself, stoking the activity that has caused the problem.

Not only has regulation of derivatives been of poor quality, but derivatives are susceptible to regulatory arbitrage. Indeed, as was mentioned earlier, financial institutions employ large teams of very intelligent people specifically to construct derivatives to arbitrage away the regulations that are put in place. A clearing house would obfuscate counterparty risk, with unintended consequences, and, as clearing houses always do, it would reduce the demand for cash balances in banks, thereby promoting inflation. For all those reasons, I believe it falls to us as legislators to create the right environment for banking, based on property and contract, not to mandate any particular solution such as a clearing house.

To challenge the terrain of this debate, I should like to take the House back to a landmark in the development of British monetary and banking orthodoxy—the Bank Charter Act 1844, also known as Peel’s Act. It represented the victory of the currency school over the banking school. The former had realised that systemic crises and banking collapses were largely attributable to the excess creation of fiduciary media—that is, claims on money not backed by a fund of actual money. The Act, introduced by Peel, therefore eliminated the practice of banks issuing their own notes. Unfortunately, the currency school had not realised the economic equivalence of notes and demand deposits, so the Act left the banks virtually unmolested in their ability to issue fiduciary media.

My hon. Friend the Member for Bromsgrove (Sajid Javid) mentioned the wall of money that hit the markets, and we might reasonably ask where that wall of money came from. It has become common practice to say that interest rates were too low for so long, and therein lies the insight. When that happens, people are encouraged to borrow and the banks are encouraged to extend fiduciary media well in excess of real savings. Low interest rates ought to indicate prior production and real savings, but when central banks deliberately suppress interest rates and issuing banks pour fuel on the fire by issuing fiduciary media, what we find is that wall of money hitting the market. In our case, that money principally headed off into the housing market.

At the heart of our difficulties is the fact that there was an omission in the 1844 Act. The deposit-taking banking system is built upon that Act and a body of case law, which have left the banks with the legal privilege of treating demand deposits as their own property. That allows the system as a whole to create a wall of fiduciary media. That is the heart of our crisis, but it is not part of the mainstream contemporary debate, and I believe that it should be.

In the last minute of my speech, I should like to touch on some other issues that have not formed part of the debate, the first of which is risk management. The entire brilliant edifice of modern financial theory is built on the assumption that risk in markets follows a Gaussian distribution, but that is not true. Market events follow a long-tailed distribution, as Mandelbrot and others showed. I very much wish that risk managers would take that into account in their strategies.

If we were to look more broadly at the money and banking system, and ask ourselves how we could characterise it, we would find central planning, legal privilege, the socialisation of risk, Government monopoly, complex regulations that are often arbitraged away and, of course, ad hoc intervention. We would not find clear property rights, freedom of contract and the consequences of bearing one’s own risks.

We have a lot to do in money and banking, but we must transcend the problem of blaming individual bankers. Yes, individuals have done much wrong, but the system is deeply flawed and we can trace its flaws back to the development of the British monetary orthodoxy. It is that orthodoxy that we must challenge.

--- Later in debate ---

[David Mowat]

I intended to address that later in my remarks, but I shall take it head on. Lehman Brothers was a bad bank and it rightly went bust. However, that affected a whole lot of other banks, which required massive Government bail-outs, because there was no firewall. Nothing in my remarks will imply that retail banks such as Northern Rock will never go wrong or need to be saved. Frankly, my hon. Friend’s example makes my point rather than contradicts it.

Two or three hundred years ago, capitalism was developed by joint stock companies, which was a clever and wonderful thing. If such companies made the right decisions and were wise, they prospered and grew. The other side of that was that companies failed if they made unwise decisions or mistakes, lost money, or failed to recognise risk—Gaussian distribution or not. In the past 15 to 20 years, unintentionally, a new type of company has emerged. Such companies are not subject to the same penalties for risk as other businesses. That creates moral hazards and poor decisions. In the end, that was a large contributing factor to what happened in this country two years ago.

The arguments in favour of a firewall are overwhelming, but what are the arguments against it? The principal argument against a firewall has been the subject of the most intense banking industry lobbying imaginable, and I hope that when the time comes to legislate, hon. Members and the Government do not bow to it.

The first argument is that such a separation implies that investment banking, derivatives and all that goes with that are casino-type activities and of less value to society. I do not think that at all. I sold my business to investment bankers, I like investment bankers and I understand why we sometimes need derivatives. I have no problem with those instruments, but I do have a problem with the fact that if the people using them mess up, they cannot go bust, because there is not a firewall between their activities and the rest of the banking world. That is the problem.

The second argument was raised just now by my hon. Friend the Member for Central Devon (Mel Stride)—the Northern Rock and Lehman Brothers example. I will not repeat what I said, except to say that Lehman Brothers should have been allowed to go bust, but should not have been able to bring in billions of dollars of taxpayers’ money after it, as it did.

The third argument is that a firewall would be too complicated: banking has now got global and is so mixed up that we cannot separate out investment banking and retail banking. Well, we can. The Basel III agreement contains a requirement that the capital considerations for each part of the banking portfolio be different. That can be done.

The fourth argument is that we can do all this with capital ratios and that if we impose them on banks we will not need this firewall, this separation. That is partly true, but actually they are not mutually exclusive—we need both—and, as was said earlier, capital ratios, unless we are careful, will shrink bank balance sheets and reduce lending at a time when we want more credit. What I am proposing would not do that.

The fifth argument is that, if we did this in this country, in front of the rest of the world, it would put our banks at a competitive disadvantage. That might be true—it is a reasonable argument—but I would say two things in response: first, the banking sector in this country is about four to five times as significant, as a proportion of GDP, as it is in any other country, so we ought to be leading the world in this regard. It matters more to us. Secondly, even if the argument is right, it is not a reason for us not to try to get the world behind us, create these firewalls and get this under control.

[Steve Baker]

My hon. Friend makes a compelling case. Will he consider the case of fixed-rate products—fixed-rate savings or fixed-rate mortgages—because it seems to me that such products are bound to bring the savings and loans business into contact with the investment business, through interest rate swaps?

[David Mowat]

I thank my hon. Friend for that intervention. My third argument was that these things are all so complicated and mixed that we cannot separate them out in the way I propose. I made the further point, however, that we have to do that, under Basel III. However, as recently as 15 years ago, firewalls were in place, so it is not that difficult and it can be done, if there is the will. The requirement on moral hazard is such an overriding necessity of capitalism that when it goes, it is terribly dangerous. And it has gone now, which is the guts of what we have been talking about for most of this afternoon.

I am not the only one saying that. Paul Volcker, who was previously head of the Federal Reserve, and John Reed—not the John Reid who used to sit on the Labour Benches, but the John Reed who used to run Citigroup—have asked for this firewall to be put back in place. The Governor of the Bank of England, too, said that of all the different ways we could choose to organise a banking system, the way we have chosen to do it in the UK is among the worst imaginable. We have to act on this. It is very important, and I hope that, notwithstanding the Vickers report, the Government will show leadership on this matter.

Draft EU Budget 2011

Steve Baker Excerpts

Wednesday 13th October 2010 Commons Chamber

[Chris Heaton-Harris]

I suppose so; I have heard it put in slightly more complicated terms. At the end of the qualified majority voting process, member states coalesce into different groups and it is quite remarkable that we have so many member states on our side at this time. That is something else that the Labour Government utterly failed to achieve on any occasion when it came to the budget. I think we are heading in the right direction.

I want the House to give our Economic Secretary the strong message that a number of us are simply reflecting the views of the people who elected us to this place. They see a lot of money being wasted and a lot of excess in the European Union and they know that we want to do something about it, but we need to negotiate from a very strong position. I know that the Economic Secretary is an unbelievably good negotiator. She speaks many languages when she goes abroad to talk to our European friends and those with whom we have to negotiate. I would like her to know that when she goes into those negotiations she can say, “This Government have taken a perfectly reasonable position. We are reasonable, but look at the Members of the House of Commons who are trying to represent their constituents—they are absolutely livid about the position the Government are taking just to get a half-decent cut, or maybe a standstill, in the European budget.” We are trying to give extra force to her argument—nothing more, nothing less.

I commend what we are doing in the European Parliament. My colleague James Elles, a Conservative Member of the European Parliament, has tabled many fantastic amendments, some of which might go through, because he is an able negotiator who knows the institutions very well, and some of which will not. However, we will still end up in the same position whereby, at the end of the process, the European Commission’s budget is bigger this year than it was last. That is unacceptable to the British public.

President Barroso recently gave a state of the Union address. I talk about that because I want to put into context where the argument sits now. We might be talking about the 2011 budget for the European Parliament, and I am trying to look forward to how we negotiate in the negotiations that are just opening up for the next financial framework. President Barroso put his cards on the table in his state of the Union address: not only does he want more money, but he wants to raise it in a completely different way. A former Minister for Europe talked about own resources; essentially, President Barroso would like to have a European tax. There is a debate for us to have on that.

Some people want a European tax because more member states are having debates such as the one in the Chamber today whereby their parliamentarians say, “You are spending a lot of money from direct taxation, not from the way you used to raise it.” My hon. Friend the Member for Hertsmere (Mr Clappison) referred to that and it is unacceptable in the current economic climate.

[Steve Baker (Wycombe) (Con)]

My hon. Friend adds a great deal to the Chamber with his wealth of experience. For those of us who are new to the EU institutions, will he explain how members of the British public may cast a vote to dismiss President Barroso?

[Chris Heaton-Harris]

That is a good question. I am not convinced that it is possible. There is only one way to get rid of any European Commissioner, and that is to get rid of the whole lot. That involves a process that an individual constituent— [Interruption.] No, I did not. I was way too young to be there.

Equitable Life (Payments) Bill

Steve Baker Excerpts

Tuesday 14th September 2010 Commons Chamber

[Steve Baker (Wycombe) (Con)]

I wonder whether the hon. Member for Derby North (Chris Williamson) has been listening to the same debate as I have. I hope that his constituents do not read his speech in isolation, because in the debate to which I have been listening Government Back Benchers have made it absolutely crystal clear that they will stand up for the members of Equitable Life.

I support this short, technical Bill, but I should like to make some wider points. I endorse many remarks that previous contributors have made, but I disagree on a couple of minor points. Those points are on the margins but, in the long term, absolutely vital, so I hope that Members will bear with me.

One key point is that the state manufactured the problem, or at least manufactured it to the extent that it is with us today: the state enabled Equitable Life to continue to attract new business when it should have folded. If I have understood correctly what I have been told, I should note that if Equitable Life had folded at the first opportunity, a smaller number of policyholders would have received 90% of their due, many years ago. Instead, state action means that very large numbers of people today are concerned about receiving much less, many years after the fact.

In government we have been handed a situation in which there is no doubt that the state must compensate Equitable Life policyholders, and it must do so honourably. That is what many of us signed up to in good faith, even though we knew that the cupboard was bare. The simple fact is that a fair sum must be found.

However, we should not pretend—as, I am afraid, Equitable Life’s own briefing note does—that by paying a demonstrably fair level of compensation, the Government would, at a stroke, restore people’s faith in saving for their retirement. This is a difficult point, but I should like to make it anyway. It is vital for the future that we reaffirm that the Government have nothing to give without first taking it. The state can only tax, borrow or debase the currency. It can only transfer wealth; it cannot create it. In the case of Equitable Life, the state has shown itself incompetent to supervise pension funds and incompetent to clean up the mess that it makes. It also turns out that the state is incompetent to run pension funds.

In my speech on 22 June, I cited “A Bankruptcy Foretold”, a paper by the Institute of Economic Affairs that set out the true scale of the national debt. I am afraid that the numbers have been updated over the summer, as the Office for National Statistics released some further figures. Writing on the IEA’s website, the author, a Mr Nick Silver, who is an accomplished actuary, points out that the state now owes, including pension liabilities, a staggering £6.5 trillion. To save Members from reaching for their calculators, I should say that full compensation for Equitable Life victims would amount to one tenth of 1% of our current national debt, including pension liabilities.

Having considered the assumptions about how that pension liability might be met, Mr Silver writes:

“Looked at this way, the UK is effectively an enormous unfunded and effectively bankrupt pension scheme, with a large speculative holding in some banks and a sideline in running a small island state off the northern coast of France.”

Perhaps he exaggerates, but having read his paper I am afraid I must suggest that he does not. That is what we have been reduced to.

We must see the Equitable Life situation in context—and it works both ways. Government Members know that the billions add up, but I am afraid that we are getting to a point at which the trillions are adding up. In the short term, we must absolutely deal with this problem; we must maintain our honour and help the members of Equitable Life.

It turns out that the state is not competent to supervise pension funds or run them. Bearing in mind the events surrounding the banking system, other Members might agree that we can fairly say that the state is not competent to supervise financial services at all. I believe that we need sound financial law, not arbitrary intervention by regulators. I am happy to say that tomorrow my hon. Friend the Member for Clacton (Mr Carswell) and I will introduce a Bill that will begin to indicate the right direction of travel.

In this Parliament, we must deliver an honourable settlement for Equitable Life policyholders. There is absolutely no doubt that we are under an obligation to do so. But let us not pretend that wealth transfers can encourage saving or that the Government have an inexhaustible horn of plenty from which to insure everyone’s risks at the expense of everyone else. If we are truly to honour our constituents, we must face the world as it is, and together construct a more hopeful future, in which the Government cease to trample the forces of social co-operation thereby manufacturing problems greater than those that they face.

In the meantime, it is clear from what we have heard today that if the Government give EMAG members a haircut of very much more than 30% to 40%, the Government will have a very rough ride.

Capital Gains Tax (Rates)

Steve Baker Excerpts

Wednesday 23rd June 2010 Commons Chamber

[Huw Irranca-Davies]

I will make a little progress first, and then give way.

The question that we should be asking is: how does this country get itself out of the recession more quickly and in better shape, rebuilding manufacturing and the private sector, with minimum damage to society—to front-line services and vulnerable people and communities —and also while minimising job losses, because we have been there before? I have not always been an MP. I used to work in the private sector, and I went into lecturing. When I was a lecturer, three types of essay were put in front of me. There were the poor ones, and I would offer constructive advice and say, “You need to do this to get better.” There were the essays that were done very well, and even then I said, “You need to tweak and adjust and do better.” There were also the ones that had misunderstood the question. I noticed in the Budget statement yesterday that the headline issue was dealing with the sovereign debt crisis. That was repeated by the hon. Member for Bournemouth East today when he said that the priority is to ensure our financial status to ensure our credit status. Those things are vital, but surely it is at least equally important to avoid the situations that we had in the 80s and at other times. Measures such as the current proposals lead unnecessarily —this is a judgment issue—to greater unemployment than that mentioned in the Red Book. Such levels of unemployment would lead to greater damage to individuals and communities. I really hope that the Chancellor is correct in his approach and that the Liberal Democrats are supporting the right way forward, but I worry that we have seen this all before.

Let us look at some of the detail. The Government are going to adopt the consumer price index for the uprating of benefits and tax credits from April 2011. The effect will be that benefits and tax credits will diminish and wither year after year. On disability living allowance, the Government will introduce the use of objective medical assessments for all DLA claimants from 2013-14. I am waiting to see the detail on that, because extensive work had already been done by the previous Government on welfare reform, medical assessments and the test. The lack of detail is what worries me. Is this approach about using the stick or the carrot? If it is entirely about using the stick, I guarantee that we will be punishing people who are very vulnerable and who do not have a voice to object. If it is about using the carrot as well—our Government were focused on that and I think that the Secretary of State for Work and Pensions, who was looking into social mobility for the Government, suggested that measures should be more about using the carrot—where are those resources to come from? The worrying thing about this Budget is that we have no detail, and I should like to see that detail as rapidly as possible.

On tax credits, from April 2011, the second income threshold for the family element of child tax credit will reduce from £50,000 to £40,000, and from April 2012, the family element of child tax credit will be withdrawn immediately after the child element. Therefore, it is not just higher-rate taxpayers who will be hit by the measures; working couples could also be hit. The combined salaries of two people on low to middle incomes will take them out of that.

Let me touch on one other aspect of detail—the cost of housing benefit. Yesterday, the Chancellor used one example to illustrate how the system is broken. Various pieces of research could have shown another 100 examples similar to the Chancellor’s, but they would be examples of the extremes. Let me put a concern to the House. What will happen if the policy makes families homeless? What will happen when children are dislocated from their schools or their friends, or when vulnerable families are removed from social care packages and support as they flee to cheaper rent areas? Has any thought whatever been given to the effect of the policy on ghettoisation? Was there any discussion in the run-up to the Budget with organisations that represent the homeless, vulnerable families or children in poverty? I would really like to know that.

[Steve Baker (Wycombe) (Con)]

I happen to have worked personally with the Centre for Social Justice in the past couple of years, and I know that colleagues there have put enormous effort into all the areas that the hon. Gentleman has just listed. Of course the CSJ is independent, but the Secretary of State for Work and Pensions is now in the Cabinet. The hon. Gentleman should rest assured that the Conservative party has put enormous effort into all those things.

[Huw Irranca-Davies]

I thank the hon. Gentleman for his reassurance, but I will be reassured when I see the detail. I will be reassured when I see that this policy will not have the impacts that I have just laid out. We are privileged to be here and to be able to speak up for people. Let us speak up, as I am sure he would want to do, for those who could be disadvantaged by the unforeseen consequences of this response to Daily Mail headlines.

“Ending payments like the health and pregnancy grant and slashing child tax credits at a £40,000 joint income threshold is going to put pressure on families already struggling.”

Those are not my words, but those of Bob Reitemeier, the chief executive of the Children’s Society. He added:

“We are also concerned about the amount to be clawed back from the welfare bill over the next five years as the chancellor aims to find savings of £40 billion.”

Gingerbread, the charity for single parents, has said that families having a second child could be worse off by up to £1,200 a year. Chief executive Fiona Weir said:

“Having a baby puts the family finances under pressure. These cuts will really hit families with young children hard.”

The concerns are not mine alone, therefore, and I am genuinely not indulging in party politics. I will say well done to the Government if their proposals are right and they work, but my real fear is that they are acting prematurely and going in too hard, when there are alternatives that are not being considered and which I shall turn to now.

The Chancellor and the Business Secretary regularly cite the examples of Canada and Sweden when it comes to cutting deficits. However, I shall repeat until I am blue in the face that both countries acted against a backdrop of strong economic growth in their export markets. Unless I have missed something, that is not available to countries in Europe, or the eurozone.

Other positive elements in the case of Canada and Sweden were currency devaluation and the active use of monetary policy. However, in the first case we have been there and done that already with sterling and, in the second, hon. Members will know that our base rate is already low.

Without those three little helpers—those three legs of the stool—we do not get the economic support or growth that, under the plans being put forward by the coalition Government, are essential if we are to mitigate the worst excesses of the proposed cuts, beyond the Red Book. What we do get is all the pain of savage cuts, and absolutely none of the gain. That will go on for years.

In fact—I hate to say this, but I am not alone in doing so—we could well go backwards. If, in a year, we are slipping backwards or limping along like some invalid at the bottom of an economic cycle, it will not be because people such as me failed to stand up and make the opposing case. It is important that someone does that, alongside the economists outside the House.

Budget Resolutions and Economic Situation

Steve Baker Excerpts

Tuesday 22nd June 2010 Commons Chamber

[Chris Leslie]

No, we have to be mature and grown-up about these issues. It is important to recognise that the best way to address our deficit is to have a pro-growth strategy, because it will be through growth that we generate receipts, so that we can make improvements. If we have to restrain public expenditure, doing so in such a short space of time, with such severity, is an exceptionally risky strategy. In Sweden, and even in Canada—countries the Conservatives keep citing—such changes were made over 10 or 15 years. Yes, they rebalanced and consolidated, but for the Government to do so with such fervour betrays what is really going on in the Conservative party. Ideologically, the Conservatives secretly enjoy the cutting back of public expenditure. They hate state expenditure—they absolutely loathe it. They take a certain kind of masochistic relish in scaling back public expenditure.

[Steve Baker (Wycombe) (Con)]

Does the hon. Gentleman recognise that there is not just one school of economic thinking but at least three? Keynesianism, monetarism and the Austrian school have very different ideas about the rate at which we should cut and about how the economy would recover. Will he at least recognise that in academia there are real differences in economic thinking?

[Chris Leslie]

I could not agree more. That level of maturity is refreshing, but the Chancellor of the Exchequer saying that there was consensus that the measures had to be taken in a particular way shows how the hon. Gentleman departs from his Front-Bench colleagues. I hope he will have the foresight to listen to the differences of opinion and recognise the possibility that austere and harsh public expenditure reductions, as well as some of the tax increases, could have a harmful effect on the economy. We do not know about the individual measures, but we have already heard from my right hon. and learned Friend the Leader of the Opposition about the effect on unemployment, as shown in the forecasts from the so-called Office for Budget Responsibility, appointed while the Conservatives were in opposition.

--- Later in debate ---

[Austin Mitchell]

We are doing something to resolve it, and that is to get growth. The only way to bring down borrowing and get the economy moving so that it can bear a heavier burden of debt repayment is through economic growth—all the rest is simple piggy-banking and economic ignorance. If I am going to have to face a chorus of that kind of piggy-banking attitude for the rest of my speech, it will be very unfunny, and I had intended it be as humorous as I could make it.

We have to accept that borrowing is important, and that borrowing by a Government is not the same as borrowing by a household. That is because Government borrowing stimulates the economy, growth and jobs. Borrowing in a recession is a virtue. Indeed, it is absolutely essential, because if the private sector is contracting and credit is tight, and if people are not spending, borrowing is the only way that purchasing power can be kept up, so that the economy can be stimulated. It is simple Keynesianism, and I am surprised that the Tory party seems to have forgotten Keynes.

[Steve Baker]

The hon. Gentleman has said the word himself, so I will make the same point that I made to the hon. Member for Nottingham East (Chris Leslie) earlier. The hon. Gentleman is just rehearsing Keynesian arguments that died in the 1970s. Even the Labour party in the ’70s understood that, to the extent that Keynesianism worked at all, it only succeeded in stimulating inflation. Would he please consider the inflationary effects of the policies that he is recommending?

[Austin Mitchell]

Well, where are they? The Government claim that we have been borrowing at too high a level, yet in 2008 the Conservatives were keen to accept—as an electoral manoeuvre—our spending targets, saying that they would adopt the same targets themselves. Did they mean that we should not have borrowed to save the banks? Should we have let the banks go under, with the cataclysmic consequence of credit contracting in our society? Much of that borrowing went into saving the banks. Should we not have done that?

--- Later in debate ---

[Stewart Hosie (Dundee East) (SNP)]

I congratulate the hon. Member for South Northamptonshire (Andrea Leadsom) on her maiden speech. She brings great experience to bear, and her description of accountability versus the tripartite, in the differences between Barings and Northern Rock, was instructive. Many of us remember that there were so many cracks between the three pillars of the tripartite they were unable even to agree a weekend takeover of Northern Rock, which led to a five-month hiatus before the action to nationalise was finally taken. I agree entirely with the hon. Lady, who said enough today to show the whole House that she will be a huge asset to her constituents and her party.

Before I comment on the Budget proper, I have a question for Members on the Treasury Bench about the bank levy. The Chancellor said it would apply to the balance sheets of banks and building societies, and to the UK operations of banks from abroad. He sensibly said that there would be deductions for tier 1 capital and insured retail deposits, and a lower rate for longer maturity funding. However, we already have the financial services compensation scheme and some banks are also paying considerable amounts towards insurance premiums for the asset protection scheme for non-performing distressed assets.

Furthermore, the European Banking Authority proposed both a European deposit guarantee fund and a European bank stability fund. Will the levy be discounted, or deductions made, on the basis that funds are going to those schemes too? I make the point not because I do not want the banks to take their full share, but because for every £1 billion in bank levy, there is £20 billion less to lend in the real economy. A little understanding of the relationship between the bank levy and other draws on banks’ cash would be helpful.

The Chancellor clearly confirmed the position of the economy. There is a deficit of £149 billion—10.1% of gross domestic product—and national debt is still about £1 trillion. Using the treaty calculation, we know that it is due to hit £1.3 trillion by 2015-16, which is still about 80% of GDP. In the real economy, our balance of trade position last year was £32 billion in the red and there was a catastrophic £82 billion deficit for trade in goods, which was no doubt a consequence of Labour’s managing to lose a million manufacturing jobs between 1997 and the start of the recession. Notwithstanding what was in the Budget statement, I found it heartening that in so many maiden speeches, particularly during the debates on the Gracious Speech, Members spoke about rebalancing the economy and supporting manufacturing in their constituencies. We certainly need to do that.

The economic backdrop to the Budget—the mess left by Labour—is clear, and demonstrates many of the irresponsible decisions taken by the Labour Government. However, I shall concentrate on the implications for Scotland and the UK economy of the solutions proposed by the Chancellor. To summarise, he said there would be an additional £32 billion reduction in spending by 2014-15, as part of an additional £40 billion in so-called fiscal tightening by the same year. That is an extraordinary additional amount to take from the economy.

It is worth repeating how much the UK economy has been supported over recent years by Government spending. At the time of last year’s Budget, Government consumption was up 2% on the year, which helped keep the economy afloat when household consumption was down 1.9%, business investment was down 24% and gross fixed capital formation was down 14%. That was investment in productive assets for the future.

Household consumption is now 0.5% lower than last year, while business investment is still down 11% and gross fixed capital is down 5.7%. Government consumption was up 3% on the year, to support the gap and keep the economy going. I hope the Government are right about their plans, but I have a serious question about the Office for Budget Responsibility forecast that from 2011 onwards business investment would rise at rates between 8% and 11%. I very much hope that the OBR is right, but they seem to be heroic growth figures. I hope that we are not in the same position with the new Government’s business investment figures as we were with the old Government’s raw, vulgar growth figures—overstated—and I hope that the OBR is correct. We are certainly not out of the woods yet economically.

Although Labour cut the Scottish budget and the UK budget in real terms in this financial year and Labour ensured that the UK was one of only two countries in the G20 without a fiscal stimulus package this year, the new coalition Government appear to be ignoring much of the evidence that only Government consumption shored up and supported the economy when private spending and investment had fallen through the floor. I hope that the Government are not blind to the fact that such support is still necessary.

Given that the Chancellor’s comments today on accelerating the attack on the structural deficit confirm the presumption that most of the savings will come from cuts, he runs the very real risk of pulling the rug from under what remains fragile growth and risks undermining economic recovery. Given that the ratio of cuts to tax increases has gone from 2:1 to 4:1, his comments certainly confirm that we are pointing in the direction of a 25% reduction in unprotected departmental spending—an extraordinary reduction in many Departments’ budgets.

The OBR has downgraded growth forecasts—this was published today—from the 3.2% growth figure published by the previous Government for four of the next five years and the 2.1% to 2.35% average trend growth figures that it published on 14 June to 2.3% for 2011 and 2.7% to 2.9% thereafter. The implications are massive real-terms cuts affecting both Scotland and the rest of the UK. Although a £400 million real-terms cut to Scotland this year was announced in Labour’s last Budget, this Budget will deliver further billions of pounds in real-terms cuts on top of the £330 million in cuts that come from the £6 billion cuts announced earlier this year but deferred until next year by the Scottish Parliament.

The problem is that we were all critics of the last Government for not holding a comprehensive spending review, but, of course, the departmental expenditure limits in the Red Book today give no clarity, as they do not go past 2010-11. Although the Chancellor offered a deal of information, those figures were not—unless I have missed them completely—in the Red Book today.

[Steve Baker]

This emergency Budget is much needed, and I hope that we can forgive my right hon. Friend the Chancellor if it is missing some of the detail that the hon. Gentleman wants.

[Stewart Hosie]

I appreciate that this is an emergency Budget. The emergency has been going on for some years. It was foretold by this Government, who said in opposition that they would introduce this Budget. They have had plenty of time to prepare, and they have done so as well as they possibly could. My criticism is that, if the Labour party did not have a comprehensive spending review with the pre-Budget report last autumn and if it did not have one with the Fiscal Responsibility Act 2010, in which it set out £57 billion of cuts in a single year, and if it did not have a CSR with the March Budget, which imposed real-terms cuts on the UK and Scotland this year—that criticism was made by the Tories in opposition, as well as by the Scottish National party, having heard the Chief Secretary’s announcement of £6 billion in early cuts a month ago—perhaps we could have had one with this Budget, but I take the hon. Gentleman’s point that the Government have been in power for only a few weeks.

Given the cuts that we have seen and the growth forecasts that have been laid out by the OBR, my assessment is that they can only add to the cumulative £25 billion shortfall in available public expenditure in Scotland over the next 13 years that is a consequence of the previous Government’s plans. With an accelerated attack on the structural deficit, I fear that that cumulative figure may become worse.

The Chartered Institute of Personnel and Development has warned of overall UK unemployment pushing past 3 million. I genuinely hope that the OBR is right and that unemployment will peak this year at 8.1%. Time will tell, but I suspect that the cuts that we are likely to see will mean that that figure is optimistic. Of course, we hope that those who are in jobs will stay in jobs and that unemployment will not push beyond the forecast peak of 8.1%, because if it does, there will be a reduced tax yield, higher benefit costs and less spending in local economies. In short, today’s plans, like Labour’s at the previous Budget, might make the task of tackling the deficit and debt more difficult.

I suppose that my criticism of this Government is similar to that of the previous Government. We needed a credible deficit consolidation plan that took account of all economic circumstances, rather than a high-risk assault on public sector spending. Given that market confidence is based on the credibility of the deficit consolidation plan, rather than simply the speed of the cuts, I do not understand why the Government chose to use the Canadian model of perhaps 20% reductions over three years, rather than the New Zealand model over the medium term. The New Zealand model was equally successful, and such an approach would have allowed the UK Government to choose to take advantage of £50 billion of medium-term savings by cancelling Trident and its replacement.

The hon. Member for Great Grimsby (Austin Mitchell) made the point that sustained, above-trend growth in the economy is the real solution to the deficit and the debt. Given the tough situation that we are in, we need a proper, serious and sensible discussion about actions that have been taken, and indeed those that have not. Although I recognise that the Budget includes cuts in business tax and I welcome the move to reduce corporation tax, the decrease in capital allowances and the annual investment allowance will take £7 billion from business over the next four years. I wonder whether that approach will have a disproportionate impact on growing businesses that use the investment allowances, while benefiting firms that get on with their business and enjoy the corporation tax benefits but do not necessarily invest and recruit more people.

When the Government took the appalling decision to scrap video games tax relief, why did they not take their own advice, which was published only this month in the spending review framework, to

“Protect, as far as possible, the spending that generates high economic returns”?

One would have thought that we should be protecting and growing investment in that field, because it is exactly the kind of area that could generate the high economic returns demanded in the framework. When the money from the fossil fuel levy is sitting in an Ofgem account, why did the Government not decide to free it up for investment in Scotland’s green future, instead of simply reviewing the position? Why, given that it was Conservative party policy, did the Government not move to introduce quickly a fuel duty regulator that would deliver fairness to business and stability to allow them to plan transport and haulage costs, instead of punting the proposal into the long grass?

It is clear that ordinary people will pay the price for the recession, as we see from today’s announcements on VAT and benefits. The jobs and necessary spending power of ordinary people in the public sector will be lost. Many in the private sector might come under huge pressure when the public sector contracts awarded to the private sector dry up or end.

Much of the Budget might represent short-term thinking. The Public and Commercial Services Union estimates that there is some £123 billion in uncollected tax, yet this Government’s plans, like those of Labour before them, could well lead to a reduction in the head count at Her Majesty’s Revenue and Customs just when such people are needed most to maximise the revenue yield. Although I hope that I am wrong, there is a clear risk that the plan set out in the Budget will lead to a stagnation of growth. Perhaps Lord Mandelson’s threat of 10 years of austerity under Labour will come true, albeit with different parties at the helm.

Whoever is in charge, it is obvious that Scotland can no longer afford to be tied to an economic policy set out in successive UK Budgets that could undermine public services when we need them most, lead to the loss of spending power as public sector employees lose their jobs, and result in public sector contracts in the private sector drying up, and still also be tied to a fiscal regime that, at least under this Budget, fails to deliver the agenda for long-term growth that Scotland and the Scottish economy desperately need.

It is time to take full fiscal responsibility for reshaping and growing the Scottish economy, with the transfer of fiscal powers and responsibility from Westminster to Holyrood; to give the games industry a chance to grow and prosper; to use the fossil fuel levy to invest in our green future; to ensure both that the deficit is tackled properly over the medium term and that we do not take risks with a short-term consolidation. My great fear about the Budget, as was the case with Labour’s plans, is that while recovery is fragile, to suck out consumption, clearly in excess of 3%, 4% or, indeed, 5% of GDP in single years, almost certainly runs the serious risk of tipping the economy back into recession and, as I have said, of making tackling the deficit and the debt, which is important, more difficult rather than more straightforward.

--- Later in debate ---

[Steve Baker (Wycombe) (Con)]

When I came to the House today, I expected to hear a great deal of Keynesian argument and I have not been disappointed. I am sorry that the hon. Member for Great Grimsby (Austin Mitchell) is no longer in the Chamber, as I wanted to congratulate him on his comprehensive grasp of Keynesian arguments. Unfortunately, it was also excruciating.

I am told that Keynes thought that the safe upper limit for the size of the state was 25% of national income. He might have halved the size of Government, so we can applaud the Budget as extremely moderate and thoughtful.

I have to tell those who propose deficit spending that it is inherently unsustainable. When Governments spend with a deficit they are bound to inject funds in a particular location in the economy and that is bound to create a pattern of economic activity that can be sustained only with deficit spending. We all accept that deficit spending cannot go on for ever. As one of my hon. Friends explained earlier this week, last year we were able to borrow only because we created a hole in the market for bonds using quantitative easing. That is so dangerous. In the past the world has seen the effects of printing money to pay off Government deficits, and I would dread to think that this country should live through such a circumstance.

I am reminded of some words published in 1945:

“I see now more clearly than ever before that even our greatest troubles spring from something that is as admirable and sound as it is dangerous—from our impatience to better the lot of our fellows.”

That is a quotation from Karl Popper, who is an interesting philosopher because, like his contemporary, Friedrich Hayek, he was a socialist until he understood where that philosophy went.

I am interested in the general well-being, particularly as Wycombe has not only great wealth but significant poverty and income levels everywhere in between. We must take seriously the realities that we face. I am glad that the Budget has included an announcement that there will be a review of pensions, and I should like to speak on that. I am grateful to my hon. Friend the Member for Stourbridge (Margot James) for having brought up the subject.

The Institute of Economic Affairs published a paper called, “A Bankruptcy Foretold”, in which it explains that the Government use cash-basis accounting, whereas any commercial firm would use an accrual basis. Our accrued pension liabilities are therefore not on the Government’s balance sheet. If they were, at April 2010, the true public liability would be £4,771 billion. The Office for National Statistics has suggested that the banks’ full liabilities should be included in the public liability. That would make it £6.3 trillion. Those numbers are preposterous.

I should like to break down the last number, because it is so preposterous: first, the official debt, £772 billion; the cost of financial interventions, £73 billion; the current accrued public sector pension liabilities, £1,179 billion; liabilities to current pensioners, £1,120 billion; and the liabilities for future basic state pensions, £1,211—I am nearly there—and future additional pensions, £467 billion. Somewhat laughably, we can deduct from that catalogue of disastrous numbers the national insurance fund balance of a staggering £51 billion.

Those numbers have a profound implication, not for this year or the Parliament, but for the next 10 to 20 years. If we are serious about the general well-being, public sector pensions, the state pension and those vulnerable people who will rely on all those things—I include members of the armed forces currently serving us—we will need to think today about how we will fund those pension liabilities. I am glad that there will be a review of this subject and that one of the right hon. Members who sits on the Opposition Benches will head that review.

I should like to turn to our economic future in the international context. The Bank for International Settlements published a paper—working paper 300, which I recommend to hon. Members—that considers the future of public debts, the prospects and implications. In my hand, I have a set of graphs that show the public debt for western European nations, plus Japan and the United States, disappearing exponentially. Hundreds of per cent. of GDP are owed by the nations of the western world, including Europe and Japan. The situation is dire. By 2040, our largely age-related debt is projected to be five times GDP. By 2040, our interest payments would be more than a quarter of GDP. I do not know about the rest of the House, but I do not believe that we will ever get there. Long before interest payments reach 25% of GDP, we will have a social catastrophe. We cannot allow that to happen.

Perhaps bond investors with short time horizons of days and weeks will continue to put their faith in the nation’s ability to repay, and perhaps they will not demand higher interest rates. Perhaps, as some people suggest, debt can be inflated away, but let us not forget that we are talking about index-linked debts; we are talking about pension obligations.

The Bank for International Settlements set out a different view. It pointed out that the path of growth pre-crisis was insufficient to pay those liabilities, but that now our prospects are worse. It pointed out that financial restraint historically has only stabilised the debt, without substantially reducing it. It also pointed out that swings from deficits to surpluses have been historically accompanied by falling interest rates and rising growth. I think that we can rule out the former, and at the moment it seems that our growth prospects are modest.

The Bank for International Settlements explains that it is ultimately not possible to roll over ever higher Government debts and that sooner or later debts are monetised, leading to inflation. It explains that that inflation may or may not be controllable. Perhaps there will be future political pressure to inflate away the debt but, of course, expectations of inflation automatically increase interest rates. In any event, inflation is a poison that hits pensioners, savers, and those on low and fixed incomes hardest. As I said, my concern is the general well-being.

We cannot afford further to distort the structure of our economy with inflation, so what is to be done? It seems that we are at the limits of taxation. We cannot borrow our way out of the problem and nor can we inflate our way out of it. We might well be impatient to better the lot of our fellows, but past impatience to better their lot has created huge liabilities that future taxpayers will have difficulty paying. If Members on both sides of the House are serious about building a better society, we have no choice but to reform radically the size, scope and role of the state. We must urgently see to it that our pension liabilities are funded and that public sector pensions are reformed. I congratulate the Chancellor on an emergency Budget that makes a strong, moderate and reasonable start at dealing with the serious problems that face us not just today, but in the decades ahead.

Economic Affairs and Work and Pensions

Steve Baker Excerpts

Tuesday 8th June 2010 Commons Chamber

[Steve Baker (Wycombe) (Con)]

Thank you, Mr Deputy Speaker, for the opportunity to give my maiden speech. Some Members may know that I am a skydiver. I am happy to tell the House that this is far more terrifying than two miles of air and a hardstop.

I congratulate those hon. Members who have spoken before me. I was particularly encouraged by the words of the hon. Member for Belfast East (Naomi Long). When I served in the Royal Air Force, Belfast was a name perhaps to strike terror into our hearts, but I am very encouraged that today, with the Alliance party, the hon. Lady is healing divisions and has a positive story to tell.

I also congratulate my hon. Friend the Member for Grantham and Stamford (Nick Boles) on a very charming speech, and I am sure that he suits his constituency very well. Having lived there for a number of years, I know that it is a charming place and I congratulate him on his win.

It is a great honour to enter this House and I am grateful to the people of the historic constituency of Wycombe for sending me here. I very much look forward to serving them. Throughout my campaign, I was strictly forbidden to quote Disraeli, as he fought the constituency at least three times I think, and lost. Today, as we are in coalition, it is my great pleasure to use this perhaps well known quote from a campaign speech in High Wycombe:

“I am a Conservative to preserve all that is good in our constitution, a Radical to remove all that is bad. I seek to preserve property and to respect order, and I equally decry the appeal to the passions of the many or the prejudices of the few.”

In representing Wycombe, I well understand Disraeli's sentiments and his reasons for writing “Sybil or The Two Nations”.

Wycombe is a constituency of astonishing diversity and contrast and yet unity in adversity. From the wealth and beauty of the Hambleden valley, through the tougher areas of the town—some Conservative Members do represent constituencies with pockets of severe deprivation—to the affluence of Tylers Green and Hazlemere, from the stoic Buckinghamshire traditionalists of old Wycombe to our large ethnic communities, Wycombe is a microcosm of contemporary Britain. I am proud to represent an area that defies expectations and encapsulates contemporary Britain.

The most consistent theme of my candidacy was, above all, the tribute to my predecessor, and I feel I can scarcely do him justice. Paul Goodman enjoyed the respect and admiration of all sections of the community, his parliamentary colleagues on both sides of the House and his party. He set out aspiring to Sir Ray Whitney's qualities of shrewdness, courtesy, unselfishness and kindness. I know that Paul surpassed his own aims and that this House will miss him. Paul’s top priority was Wycombe hospital, and I have to say for the benefit of the Bucks Free Press that it will be my top campaigning priority. I mean that sincerely; no other issue compares to it, in terms of its ability to create anxiety and concern.

As a trustee of a charity for economic education, I would like to give what is perhaps an alternative perspective on the cause of the banking crisis; I hope that Members will indulge me. I should like to put to them a proposition that is uncontroversial: around the world, the system of money is a product of the state. Our monetary system is characterised by private banking, with a fractional reserve controlled by a central bank, which determines monetary policy and has a monopoly on the issue of legal tender. A Monetary Policy Committee sets interest rates.

The banks have the legal privilege of treating depositors’ money as their own. In the words of Irving Fisher,

“our national circulating medium is now at the mercy of loan transactions of banks”.

In the other place, in the Banking Bill debate of 5 February 2009, the Earl of Caithness explained eloquently the base of 19th-century judicial decisions—and yes, our system of money has evolved since then—that enabled that situation to take place. He called it

“the fault which has led to every major banking and currency crisis during the past 200 years, including this one.”—[Official Report, House of Lords, 5 February 2009; Vol. 707, c. 774.]

The Bank Charter Act 1844 ended the practice of banks over-issuing notes, but it left them virtually unmolested in their ability to issue deposit currency to be drawn by cheque. That loophole haunts us today. Unlike the situation in respect of any other commodity, in the case of money, price controls do not drive the product off the market. Artificially lowered interest rates increase the demand for credit, and decrease the supply of savings, but the legal privilege granted to banks means that they can meet demand by extending credit that is unbacked by real savings. There is a good argument to say that that causes the boom-and-bust cycle, the misdirection of resources in the capital structure of production, and over-consumption by consumers. That is the biggest problem that we face today.

We could talk about the moral hazard of having a state-backed lender of last resort and state deposit guarantees, and of the socialisation of the cost of failure; I only wish that I had time to touch on the accounting rules on derivatives. Perhaps that is for another day. My political hero, Richard Cobden, spoke on the subject. He held

“all idea of regulating the currency to be an absurdity”,

but I see that time is short; I shall have to save the rest of the quote for another day.

Today, money is a product of the state. The Bank of England controls the price, quantity and quality of money. Perhaps if we were talking about any other commodity, there would be far less confusion over and questioning of the cause of the crisis. If money is a product of the state, we should ask ourselves, “Is this a good idea?”

In the coalition, we have a Government ideally suited to be conservative to preserve what is good, but radical to change all that is bad. If we are to have a once-in-a-generation, fundamental review of the role of government, let us also examine government’s role in the system of money and bank credit.