Investing in Britain’s Future

Alan Johnson Excerpts

Thursday 27th June 2013 Commons Chamber

[Danny Alexander]

I am aware of my right hon. Friend’s views on HS2, as is the House. She should know that Hitachi is considering the Wylfa power station as part of its acquisition of Horizon. As for her last point, I will certainly take it up with her.

[Alan Johnson (Kingston upon Hull West and Hessle) (Lab)]

I was pleased to hear that the Government intend to upgrade the A63 at Castle street in my constituency, in accordance with the last Government’s 10-year highways plan. However, the road currently cuts the city off from the waterfront. Will the Chief Secretary agree to work with the Secretary of State for Transport and the right hon. Member for Tunbridge Wells (Greg Clark), the cities Minister, to ensure that the Castle street project includes an iconic land bridge that will enable us to fulfil our economic potential by connecting the city with the waterfront?

[Danny Alexander]

I am grateful to the right hon. Gentleman for his comments and of course I will do that. That is why we have funded the local growth deal under the Heseltine recommendations, and this road investment will also help to unlock port facilities for greater use, for renewables among other things.

Humber Economy (Fiscal Support)

Alan Johnson Excerpts

Tuesday 27th November 2012 Westminster Hall

[Alan Johnson (Kingston upon Hull West and Hessle) (Lab)]

It is a pleasure, Mr Amess, to serve under your wise and sagacious stewardship. On this miserable, damp morning, I thought we might begin with some poetry. One of my predecessors as MP for Hull was Andrew Marvell, who wrote the following line in his most famous poem, “To His Coy Mistress”:

“I by the tide of Humber would complain”.

I realise that I am addressing not a coy mistress, but the Economic Secretary to the Treasury, the hon. Member for Bromsgrove (Sajid Javid), and I am not here today to complain. This debate is not about disagreements with the Government—not that disagreements do not exist, but that is for another time and place. This debate is about the contribution that Hull city region, which is centred on the Humber estuary and embraces the four unitary local authorities of Hull, East Riding, North East Lincolnshire and North Lincolnshire, makes to the UK, and our determination to forge a new economic future for our sub-region. It is a debate about working with the Government’s stated policies, not against them.

MPs have worked across the political divide and the geographic divide of the River Humber to establish the Humber local enterprise partnership. We are extremely grateful to the Financial Secretary to the Treasury, the right hon. Member for Tunbridge Wells (Greg Clark), who is still the Minister for cities, for his assistance in securing a pan-Humber local enterprise partnership last year. Historical mutual suspicion had always divided the north and south banks, thus ensuring that the huge economic advantages of working together across the estuary were never realised. We failed in the past collectively to market the area, its capabilities and its opportunities, engaging instead in internal competition that meant that effort and resources were not used to best effect.

It was recognised a long time ago that the best way to build a bridge across the Humber was to build a bridge across the Humber, but the ever-increasing cost of using it undermined its benefits. We are grateful for the help we received from Her Majesty’s Treasury and the Department for Transport in our campaign to halve the Humber bridge tolls. The subsequent radical changes required to the composition of the Humber bridge board and the way in which future tolls will be set will be established in the Humber Bridge Bill, due to be published this week.

The Government have recognised the potential of our sub-region by establishing not one, but two enterprise zones on the Humber, one of which, at 534 hectares, is the biggest in the country. While I am in the unusual position of praising the Government, let me add that the Treasury is to be commended for abandoning its plans to impose a 20% VAT rate on static caravans. Given that 95% of the caravan manufacturing sector is based in East Yorkshire, that was a welcome decision, which almost makes amends for the trauma caused by proposing it in the first place.

We are determined to build on those advances, and to move away from a culture of dependency and to take on more responsibility for our own destiny in accordance with the Government’s localism agenda. We are fortunate to have secured the services of Lord Haskins of Skidby as chairman of our local enterprise partnership. He and his colleagues are in the process of producing a five-year plan for the Humber. However, Chris Haskins realises more than anyone that our success will depend on delivery rather than documents, and on tangible achievements rather than worthy aspirations.

Let me talk a little about our sub-region. The Humber is the largest trading estuary in the UK and the fourth largest in Europe, with a chemicals and processing sector worth £6 billion a year and international expertise in ports and logistics. It has a world-class university; it has an international airport, and, contrary to myths about its geographical isolation, it is within a four-hour drive of 40 million consumers and more than 60% of the country’s manufacturing capacity. Colleagues will no doubt focus on the many attributes of this beautiful part of the world and the opportunities that exist there, but I want to focus on four specific issues where the Government need to concentrate their attention.

First and foremost is the new economic opportunity presented by the emerging renewables sector. The Humber is at the forefront in developing biomass power generation. It has significant potential for tide and wave power, but offshore wind power provides the most significant and immediate advantages. Siemens chose the Humber as its preferred location to site a multi-million pound investment in a manufacturing and final assembly plant, primarily because of our strategic location within 12 steaming hours of the large round 2 offshore wind farms and the three huge round 3 zones at Hornsea, Dogger and Anglia.

Green Port in Hull has existing and planned port infrastructure with deep-water access next to large available development sites. If Siemens comes to the Humber, it will bring tier 1 suppliers and begin to populate the renewables manufacturing cluster that can transform our economy and that of the UK. With the added advantages of the Able marine energy park on the south bank, Grimsby’s well established operations and maintenance hub and the marine research expertise at Hull university make the Humber uniquely well suited to offshore wind and able to attract other manufacturing companies to the area.

The Minister will know that, although local institutions and politicians have done all they can to finalise the Siemens investment, we have yet to move from memorandum of understanding to signed contract, the main stumbling block being a perceived lack of commitment by the coalition Government to the long-term support that will be necessary if substantial sums are to be invested by companies that operate globally and have plenty of alternatives to manufacturing in this country. If Siemens does not come to Hull, it will not come to the UK, and Germany or Denmark will be the likely beneficiaries.

The Department of Energy and Climate Change takes the lead on energy policy, but the Treasury has been extolling the virtues of shale gas to a degree that has concerned potential investors in renewables and led them to believe that a dash for gas will downgrade the commitment to renewables. We understand from press reports that the Energy Bill will be published this week. We hope that its contents will give the necessary reassurance to Siemens and other potential investors. We suggest that its publication be accompanied by a high level of engagement by the Chancellor and his ministerial team personally to reassure the sector in general and Siemens in particular of the Treasury’s commitment to the goals set out in the climate change legislation and to providing the means to ensure that they are realised.

The second specific issue relates to the fact that the problems facing us in the Humber area are more economic than social. It is true that since the collapse of the fishing industry, Hull and Grimsby have struggled to cope with the social consequences, but it is equally true that few companies came to the Humber to take advantage of the large pool of surplus labour that was created. It is also the case that, as far as I am aware, not a single Department has ever been relocated to the Humber sub-region.

As the recent, splendid report by Michael Heseltine proposed, more Government work needs to be relocated to the north, and our city region should be a prime destination. However, as well as relocating Government work, the coalition needs to devolve public funds. If the commitment to localism is genuine, there must be a recognition that with the LEP in place we are better able than Whitehall to allocate financial support for skills, welfare to work, regeneration and other important issues, such as transport.

I understand the importance of city deals, and the Humber LEP will put forward a bid in the next few weeks, but the Government need to be more radical in their approach to localism. This is an over-centralised country and if regional development agencies are not to be the solution, LEPs are the only show in town. I believe that the best way forward is for the Government to conduct some pilot schemes for devolving money to those who know how to spend it more effectively to deliver the outcomes required for meaningful growth, and the Humber LEP is keen to be one of the pilot locations.

The third specific area is something that is of great interest to the right hon. Member for Tunbridge Wells in his capacity as cities Minister. For the city region to work effectively, Hull, as the 10th largest city in England, needs to be given the same opportunities as the other nine. The Core Cities Group is understandably reluctant to admit new members and thus dilute its effectiveness in lobbying the Government, but Hull and the Humber can benefit from the advantages afforded to core cities. Indeed, it would be perverse not to provide assistance on the basis of need, rather than on whether a city is part of a club, membership of which is outside the Government’s control. The tightly drawn boundaries around the city of Kingston upon Hull are one reason why it suffers in some comparisons with cities where the leafy suburbs are included in the city boundary—that is practically all of them—but that must never be allowed to become an excuse for poor performance, particularly in education.

As the Heseltine report rightly points out, a factor holding our economy back is the absence of a meaningful economic focus on the sub-region. That does not require our city boundaries to be changed; it requires a genuine commitment to the cities at the heart of all city regions, rather than just those in the Core Cities Group. We are keen to find innovative economic models, perhaps built around tax increment financing, that could create revenue streams to increase Hull’s economic asset allocation.

The final issue that we want the Government to focus on is the investment in our transport links that is so essential to economic growth. In 2010, the Government accepted that the case for addressing the problems on the A63 on the north bank and the A160 on the south bank had been made. Although those schemes were not affordable in the reduced highways investment programme announced at the last comprehensive spending review, we received assurances that they would be among the first to be addressed in the next spending round. Hull MPs were due to meet the Under-Secretary of State for Transport, the hon. Member for Wimbledon (Stephen Hammond), regarding the A63 today, but the Department has cancelled the meeting for the second time. Given the importance of transport infrastructure, we trust that that meeting will be given sufficient priority and that it will be rearranged quickly.

As far as the rail network is concerned, the pressing need to electrify the line to Hull beyond Selby has been raised with Ministers and requires urgent attention. There may well be an opportunity for some private sector funding if we can get the prospect of electrification on the agenda either by devolving some of those matters to sub-regional level, as I have mentioned, or by moving more quickly to address those issues from Whitehall.

I have only touched on the Humber LEP’s potential to drive the kind of economic growth that our country needs. I have not mentioned, for instance, the huge potential for developing our strengths in digital gaming, content creation and the creative sectors. With the first 4G wireless network in the country, strong existing skills provision and expertise on both banks of the Humber, we aim to release that potential, and the Minister will be relieved to hear that there is nothing that he needs to do to help us.

I have set out some areas where we require the Government’s help. Lord Heseltine’s report could have been written for sub-regions such as the Humber. His visit to the area obviously influenced some of his thinking and his basic analysis must be right. With devolved Administrations in Scotland, Wales and Northern Ireland, and with a mayoral system in London, the north of England needs significant devolution to local enterprise partnerships so that economic development is tailored directly to the individual challenges and opportunities of our communities. The Chancellor commissioned the Heseltine report, and we would like to bring a deputation from the Humber LEP to talk to the cities Minister.

Time is of the essence. The Prime Minister told the CBI last week that he wants

“every Department in Whitehall to be a growth department.”

He compared our current industrial situation to being on a war footing. I have never known a time when the business community on the Humber has been more willing to engage with the challenges that we face, or when local authorities have been more innovative in seeking solutions to our problems. Local MPs are working together, cross-party and cross-Humber, like never before, but that will all be in danger of dissipating if we do not move swiftly to turn five-year plans into actual projects.

I started with Andrew Marvell, and I will end with his plea in “To His Coy Mistress”, by Humber’s tide. It is famous for the couplet:

“But at my back I always hear

Time’s wingèd chariot hurrying near;”

The debate is a plea to ride the chariot rather than be knocked down by it.

[Several hon. Members]

rose—

--- Later in debate ---

[The Economic Secretary to the Treasury (Sajid Javid)]

It is a pleasure to serve under your chairmanship, Mr Amess. I thank the right hon. Member for Kingston upon Hull West and Hessle (Alan Johnson) for securing the debate and for taking a thoughtful and constructive approach to an important issue. I also thank the other hon. Members who spoke: the hon. Members for Kingston upon Hull North (Diana Johnson), for Great Grimsby (Austin Mitchell) and for Kingston upon Hull East (Karl Turner), and my hon. Friends the Members for Cleethorpes (Martin Vickers) and for Brigg and Goole (Andrew Percy).

First, I will quickly give an overview of the Government’s priorities, using their fiscal capabilities, which have been set out in Budgets. We repeated them in the Budget of 2012, and they are the creation of a stable economy and a fairer, more efficient and simpler tax system, and the bringing in of reforms to support growth. The Budget and the national infrastructure plan that we published at the time of the autumn statement in 2011 set out the relevant steps and the priorities for the country as a whole, and included specific measures for the Humber economy.

Three areas in which the Government have acted to help the whole UK quickly are cuts in corporation tax from 28% in 2010 to 22% by 2014, which will benefit companies throughout the country, including the Humber region; changes in the personal allowance, which have already meant that 74,000 people in the Yorkshire and Humber region are being taken out of tax altogether, and 1.8 million will benefit; and increased spending in the Growing Places fund, which has been established to provide funding for infrastructure needs. We have heard much this morning about local enterprise partnerships and two in the region have already received almost £70 million.

Several hon. Members mentioned Lord Heseltine’s report “No stone unturned in pursuit of growth”, and I am pleased that it has caused excitement. Most people talked about it positively and that is welcome. I hope that they would agree that the Government deserve credit for looking at new ways to stimulate the economy and for commissioning the report. We are considering it, and I am pleased that hon. Members have taken note of it.

A number of Members mentioned unemployment in the region. They are right to be concerned about it; we all are, and the Government most certainly are. In the Yorkshire and Humber region, unemployment rose by 1.8% between 1997 and 2010; but so far under this Government, it is down by 0.6%, which I am sure all Members welcome.

I want to move on to some of the specific issues raised by the right hon. Member for Kingston upon Hull West and Hessle. He made three or four key points, and I want to address them all in the time that I have. First, he mentioned energy policy, and Siemens in particular. He referred to the fact that, last week, the Government announced an agreement for going forward on energy policy, which has, I think, delivered a clear and durable signal to investors, including Siemens. He is right that the Energy Bill will be published this week and, naturally, the Bill will bring a lot more information forward. The agreement and the Bill will show that the Government have taken a serious approach to the issue. We believe that they will bring forward up to £110 billion of much-needed investment in the economy, which will support up to 250,000 jobs, of which at least 700 will, we hope, be secured by Siemens in the Humber region.

When the energy Bill is announced, colleagues will see that we have taken a constructive approach. With that and the national policy framework that has already been announced, coupled with the strong support for renewables in the Humber region through the regional growth fund, companies such as Siemens and others in the region that might want to establish themselves in renewables will find some Government support.

The hon. Member for Kingston upon Hull North mentioned the possibility of having a branch of the green investment bank in her region. I will most certainly make that representation on her behalf to my colleague the Secretary of State for Business, Innovation and Skills.

A number of colleagues rightly mentioned transport, and the importance of that type of infrastructure investment in the region, both now, in creating jobs during the investment period, and in the longer term, in making the region more attractive for investment. The Government have made substantial commitments to improving major road connections in the Humber region. Two road schemes in the area are being developed by the Highways Agency, and construction will potentially start in the next spending review period: the A63 Castle street improvement and the A160/A180 Immingham scheme. I noted the comments of my hon. Friend the Member for Brigg and Goole regarding the A63; it is good of him to support a road that does not run through his constituency but that, no doubt, supports the wider region. Those are two of only six schemes in England that the Department for Transport announced development funding for in May 2012. In addition, on 20 November the Secretary of State for Transport announced that the A160/A180 scheme will be part of a programme of accelerated development for four major road schemes, which will aim to cut 18 months off the original construction timetable.

Work is under way on the East Riding of Yorkshire council’s A164 Humber bridge to Beverley route improvement scheme. The £10 million scheme, to which the council is contributing £2.3 million, was confirmed in the Chancellor’s statement last November.

Briefly, on a couple of other Government initiatives that have helped the region, I have already mentioned the local enterprise partnerships, of which there are two for the region, in a wider sense. There are also more than 24 enterprise zones throughout the country, two of which are in the Humber, and which will be allowed to keep the growth in business rates that are created in the zone over the next 25 years.

There is also the regional growth fund, worth £2.4 billion, which will help to grow private sector-led jobs throughout Britain. Winners from the first two rounds are expected to create more than 10,000 direct and 16,000 indirect jobs in the Yorkshire and Humber region, including a £25 million joint bid by East Riding of Yorkshire council and Hull city council to stimulate private sector investment in the constituency of the right hon. Member for Kingston upon Hull West and Hessle.

The right hon. Gentleman mentioned city deals, and he will know that the Government have agreed a set of ambitious city deals with eight core cities outside London, to help them to maximise their growth potential. Following that, the Government have taken forward what we call the second wave, and he will know that Hull and Humber is possibly one of the 20 other cities that have been invited to submit an expression of interest in taking the deal forward. A decision will be made in the early part of next year.

I noted the right hon. Gentleman’s request for a meeting with my right hon. Friend the Financial Secretary to the Treasury. I have already asked my right hon. Friend about that, and he would be absolutely delighted to meet the right hon. Gentleman. He wanted me to specifically point out that he takes a very keen interest in the Humber region.

My hon. Friend the Member for Cleethorpes was absolutely right to say that when we focus on cities we must not forget the provinces. The Government must ensure that our policies help all areas, including smaller towns and villages, and not just our great cities.

I want to talk a little about public spending. A number of Members referred to the changes in public spending and their potential economic impact, perhaps suggesting that local authorities in the Humber region have taken disproportionate cuts. It is fair to say that the previous Government left the public finances in—let us put it generously—a very difficult situation, and we have had to take necessary action to deal with that.

[Alan Johnson]

I am grateful to the Minister for his commitment to my meeting the Financial Secretary. We are all mystified as to why the A63 was not mentioned in the same announcement on 20 November. I do not expect the Minister to have an answer to that, but does he agree that since a junior Minister at the Department for Transport has twice cancelled a meeting with Hull MPs, the Secretary of State for Transport should now meet us as soon as possible?

[Sajid Javid]

I thank the right hon. Gentleman for that comment. I do not know why that meeting has been cancelled. I am sure that there is a constructive reason, but I will take his point to the Minister and ensure that he is aware of the strength of feeling on that issue.

Static Caravans (VAT)

Alan Johnson Excerpts

Thursday 26th April 2012 Commons Chamber

[Mr Stuart]

My hon. Friend is right. I am not sure that I am ever going to get on to the issue of the non-anomaly that this measure is tackling. We are fortunate that Roger Tym & Partners produced a report on the economic impact of UK holiday parks in January this year, showing that 85% of static units are privately owned and that the remaining 15% are rented out as part of a park’s letting fleet. The market that will be most hit is the one that drives profits on these parks and drives investment. I do not think that the Treasury factored that into its calculations properly.

[Alan Johnson (Kingston upon Hull West and Hessle) (Lab)]

I am grateful to the hon. Gentleman for arranging this serial intervention event.

This afternoon I spoke to Lord Haskins, who is the chair of our local enterprise partnership and the business leader in Hull. He believes that the damage resulting from this measure will, at a stroke, remove all the advantages of our two enterprise zones and local enterprise partnership. Should not the voice of business take precedence in this debate?

Finance (No. 4) Bill

Alan Johnson Excerpts

Wednesday 18th April 2012 Commons Chamber

[Alan Johnson (Kingston upon Hull West and Hessle) (Lab)]

I join the hon. Member for Waveney (Peter Aldous) in supporting new clause 6, and I wish to make a few brief points.

First, on the anomaly issue, in the early ’70s a Conservative Chancellor looked at towable caravans, which are VATable, and residential caravans, which are not, and decided that so-called static caravans should be classified as residential property and therefore not be subject to VAT. In the ensuing 40 years, every Chancellor, both Labour and Conservative, has made the same decision.

In the global recession of 2008, the caravan industry was hit hard. In my neck of the woods, east Yorkshire, we know how difficult that was. I took a delegation to meet the well-known caravan user Lord Mandelson, to make the argument that the industry needed a bit of help from his Department—which was not at that time known as the Department for Business, Innovation and Skills. [Interruption.] Yes, yachts were his main form of holiday. In the entire history of the caravan industry, so great has been its feeling that it could survive independently without Government help that not a single official in the whole vast empire of that Department knew anything about it. Frankly, apart from a bit of tinkering around the edges of the car scrappage scheme, there was not much that we could do for the caravan industry. As a result, companies went bust, people went bankrupt and the supply chain was hit very hard.

Through its own efforts, however, the industry is now getting its head back above water. Atlas Leisure Homes in my constituency went into receivership in 2008 and lost 250 jobs. It has fought its way back and now employs 120 people in an area that has been badly hit by unemployment. Companies in the supply chain have had similar experiences. Meadley International Transport is involved in distribution. It is run by a father, his son and his daughter. He put in the whole of his pension and all his assets to get Meadley through the global downturn, and it, too, is now getting its head back above water.

This measure will destroy Atlas and Meadley. It will destroy small businesses across the country. It will destroy an industry that is almost the last purely British success story in the manufacturing sector. Some 95% of UK caravans are made in this region. In 2008 and 2009, people did not decide not to buy a caravan; they deferred that purchase. If those companies had gone out of business, German and Dutch firms would now be prospering from the fact that a market is developing again.

[Karl Turner (Kingston upon Hull East) (Lab)]

As my right hon. Friend will know, I have three such manufacturers in my constituency. One of the biggest is Willerby Holiday Homes. It is based in east Hull and employs 700 people. I spoke to its chief executive today. He tells me the firm has been operating a three-day week since the banking crash in 2007, but he hopes it may return to full-time work in the next few months. He says it is ridiculous to expect that to be able to happen if this VAT measure is introduced.

[Alan Johnson]

My hon. Friend raises a crucial point. I say the following to those on the Treasury Bench: this was meant to be a Budget for manufacturing; it was meant to be a Budget for growth in the British economy; it was meant to be a Budget that ended some of the anomalies in the north-south divide.

How can we go ahead with this measure, given that hon. Members in all parts of the House know the effect it will have on jobs and British manufacturing, and know that the savings of about £40 million to £45 million set out in the Treasury’s own document will be far exceeded by the costs in unemployment, waste and redundancies throughout the country? How can the Treasury possibly decide, after 40 years of looking at this, that this is the year in which it needs to put the price of caravans up? Again, its own figures show that that will lead to a 30% reduction in demand, although the National Caravan Council says that the real figure will be more like 75% or 80%. I believe Treasury officials now understand that their own analysis was deeply flawed.

[Diana Johnson (Kingston upon Hull North) (Lab)]

As a Hull MP, I wish to stress that we are facing job losses in so many private sector businesses, from BAE Systems, Comet and P&O to many others across the city. It sounds as if we may end up with thousands more job losses as a result of this measure, and we really cannot afford to see that happen in our city.

[Alan Johnson]

My hon. Friend is right because, on the Treasury’s assessment, more than 1,000 jobs are going to be lost. Some 90% of this manufacturing industry is based in east Yorkshire. I say to those on the Treasury Bench that this is not an industry that has asked for help from the Government—indeed, in 2008-09, it had to pull itself up by its bootstraps. Having done that, this is not a question of its asking the Government for any help; it is about asking the Treasury and the Government not to inflict on that industry a possible death blow to a great British manufacturing success story.

[Mr Graham Stuart (Beverley and Holderness) (Con)]

It is my pleasure to follow the other speakers. Like all those who have spoken so far, apart from those on the Front Bench, I shall speak to new clause 6 and the proposal that the Finance Bill should set out that this House will not approve, in a future statutory instrument, the imposition of VAT on static caravans. So much has already been said, but I must point out that my constituency contains ABI, a major manufacturer in the heart of Beverley; companies in the immediate area that are part of the supply chain; and a series of parks along the Holderness coast that depend for their profits on the sales of static homes, as we discover when we speak to the owners.

The Treasury’s assessment of the impact of introducing the VAT is that there would be a 30% reduction in sales. When we think about the employers in the various constituencies in Hull, in my constituency and in those of my right hon. Friends the Members for Haltemprice and Howden (Mr Davis) and for East Yorkshire (Mr Knight), we find that so many companies are involved. More than 90% of the production of static caravans in the UK is concentrated in east Yorkshire and, as has just been said, so successful is this industry in the UK that nearly all the caravans that are bought and installed in the UK are built there. So my constituency has a great concentration of all those who may suffer from a 30% reduction in demand—manufacturers and all the people who work in that area, suppliers, and the parks themselves.

Bank Bonuses

Alan Johnson Excerpts

Tuesday 11th January 2011 Commons Chamber

[Alan Johnson (Kingston upon Hull West and Hessle) (Lab)]

(Urgent Question): To ask the Chancellor of the Exchequer to make a statement on bankers’ bonuses.

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

We inherited from the previous Government a failed system of banking regulation and a situation where billions of pounds had been provided to bail out bankers with nothing demanded in return. It was a something-for-nothing deal that rightly left the British people seething with anger, and the British people and this Government will not accept extravagant bonuses this year without a change in behaviour. So this is what we are doing.

First, we are replacing the disastrous tripartite system for regulating banks that was established in 1997. Instead, our plan is to put the Bank of England clearly in charge. Secondly, we have created the Independent Commission on Banking to review the structure of the banking sector and address the issue of banks that are too big to fail. The previous Government’s failure to address that issue brought this country’s economy to its knees. The commission will report this autumn. Thirdly, we have introduced a permanent levy on the banks, in the face of opposition from the previous Government. This new banking tax started coming into effect last week and, once fully operational, will raise £2.5 billion each and every year, or £8.8 billion over this Parliament. We are also looking at the International Monetary Fund’s proposed financial activities tax, and we will work with international partners to secure agreement. Fourthly, we have demanded that the banks sign up to the code of practice on taxation—[Hon. Members: “Ooh!”] Well, the previous Government created the code, but we discovered that only four of the 15 major banks had signed up to it when we came into office. All 15 have now signed up to the code of practice. We are also legislating in this year’s Finance Bill for tough anti-avoidance measures directed at some of the practices in the financial sector that no one had previously attempted to stop.

Specifically on remuneration and bonuses, on 1 January this year we introduced the most stringent code of practice of any financial centre in the world. For the first time, there will be a strict limit on the amount of bonus payable in up-front cash. Also for the first time, there will be a requirement that 50% of bonuses be paid in shares or other non-cash instruments, which bank employees will not be allowed to sell on for an appropriate period. Guaranteed bonuses will become the exception and not the rule, as was the case under the previous Government, and crucially, the new bonus code has been significantly extended. It will cover payments and bonuses at 2,500 firms, whereas the code that we inherited covered pay and bonuses at only 25 individual financial firms.

When it comes to the Royal Bank of Scotland, I am having to deal with the thoroughly inadequate contract negotiated by the previous Cabinet; the House might not be aware that it puts no constraints on RBS bonuses for this year. Indeed, the contract signed by the previous Government explicitly encourages RBS to pay bonuses at market rates. Despite this, we have made it clear to RBS that we will have a smaller bonus pool than last year and that it should be a back-marker in the industry, instead of the front-runner it once was.

In the coming weeks, all the banks will be announcing their pay and bonuses for this year. I confirm that we are in discussions with the banks to see if we can reach a new settlement, where the banks pay smaller bonuses than they would otherwise have done; are more transparent about those they do pay; make a greater contribution to local communities and regional economies; treat customers more fairly; and, above all, lend materially and verifiably more than they were planning to lend to the businesses of Britain, especially the small businesses, so that they can grow and create jobs this year.

This is what a new settlement with the banks should look like: they should lend to the British economy; contribute to the British Exchequer; provide jobs for British people; be responsible on pay and bonuses; and make sure that Britain is a world centre of a properly regulated and internationally competitive financial services industry. If the banks cannot commit to that, I have made it clear to them that nothing is off the table. I will keep Parliament informed of our discussions—and if the Opposition who created this banking mess have a better idea, let us hear it.

[Alan Johnson]

We are here to hold the Government to account. I have with me the coalition agreement, and I believe that I can still sense the scent of the rose garden upon it. This is what it says in paragraph 1:

“We will bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector”.

Where are those detailed proposals? When will we see them? Here is what the Chancellor said in his spending review statement in October:

“Fairness also means that, across the entire deficit reduction plan, those with the broadest shoulders will bear the greatest burden; those with the most should pay the most, and that includes our banks… Today we set out very clearly, for all to take note of, our objective in taxing the banking industry going forward… Our aim will be to extract the maximum sustainable tax revenues from financial services.”—[Official Report, 20 October 2010; Vol. 516, c. 951-956.]

But he has given the banks a tax cut from £3.5 billion to £1.2 billion and they will benefit more than any other sector from the cut in corporation tax. Cuts affecting children will contribute well over £5 billion and students will contribute £2.9 billion. Does the Chancellor think that children and students have the broadest shoulders? The man who said in opposition that no bonus should be higher than £2,000 will not even implement legislation forcing transparency about those receiving more than £1 million.

Where is the Deputy Prime Minister who, when not signing student pledges not to increase tuition fees or unveiling posters about VAT bombshells, was saying:

“Doesn't it make you angry that the banks have been allowed to ride roughshod over our economy, and are still handing out bonuses by the bucket load?”?

So in just seven months, the coalition goes from the scent of the rose garden to the stench of broken promises. The Chancellor who said, “We’re all in this together” bows to the rich and powerful while bearing down on everyone else. His sneering arrogance will not get him out of this one.

Oral Answers to Questions

Alan Johnson Excerpts

Tuesday 21st December 2010 Commons Chamber

[Mr Osborne]

The first thing that I would say is that, of course, deficit reduction is an essential platform for economic growth. The fact that this Parliament, almost alone in Europe, is not having to discuss the sovereign debt crisis is in itself testament to the success that we have had. But we need now to turn around many Departments that have not really thought for years about this question: how do we stimulate private enterprise and private sector growth? We have inherited government machinery that is not equipped to deal with that. We are turning that around, and the Budget in March is the focus point that I expect all Departments to work towards.

[Alan Johnson (Kingston upon Hull West and Hessle) (Lab)]

Responsibility for our manufacturing sector rests, of course, with the Secretary of State for Business, Innovation and Skills, who had some interesting things to say this morning about the “Maoist” nature of this Government. [Interruption.] Does the Great Leader—or rather, the Chancellor—recognise himself in the Business Secretary’s description of “cack-handed” Tories? Strictly speaking, does the Chancellor believe that the reason we have waited so long for any sign of a strategy on jobs and growth is that he is out of step with his Cabinet colleague?

[Mr Osborne]

The Business Secretary is a powerful ally in the Government in promoting growth—and, frankly, he has forgotten more about economics than the shadow Chancellor ever knew. I refer the shadow Chancellor to the statement that he gave recently about his own party:

“On economic credibility, we are in a really worrying position.”

[Alan Johnson]

We see this morning record borrowing for November, unemployment higher than expected and inflation well above where it should be. According to the Office for Budget Responsibility, we are about to destroy £5 billion of economy activity through the increase in VAT on 4 January. The Institute for Fiscal Studies says that absolute poverty—not relative poverty—will rise for children and working age adults, with 900,000 more slipping below the breadline over the next three years. If the Chancellor has not got a plan B yet, is he hoping to get one for Christmas?

[Mr Osborne]

I am glad that the shadow Chancellor reminds the House of the terrible economic inheritance that we are struggling with—and overcoming. He talks about the public borrowing figures today, and I am glad that he has brought them up, because they are a reminder of the fact that we have a record budget deficit. He is—if he wants to do Christmas analogies—the incredible no-man: every time we have put forward any proposal for deficit reduction, he has said no. He is running out of time to come forward with sensible credible contributions to the economic debate about how we get Britain growing again, because at the moment the Christmas lights are on but there’s no one at home.

Loans to Ireland Bill

Alan Johnson Excerpts

Wednesday 15th December 2010 Commons Chamber

[Mr Osborne]

If the hon. Gentleman will allow me, I have already taken an intervention from him. Many Members want to speak, and I have spoken for an hour.

[Alan Johnson (Kingston upon Hull West and Hessle) (Lab)]

Get on with it, George.

[Mr Osborne]

Well, I took a lot of interventions. I’m sorry about that, but there we go—there’s no gratitude in this place!

Let me conclude. The Government have taken action to put our own house in order. We were once seen as part of the problem; we are now part of the solution. It is in our national interest to help Ireland, and I commend this Bill to the House.

[Alan Johnson (Kingston upon Hull West and Hessle) (Lab)]

We will support the Bill. The more I listen to the Chancellor, the more my admiration and respect grows for his predecessor, my right hon. Friend the Member for Edinburgh South West (Mr Darling). On 8 May, my right hon. Friend negotiated arrangements under which the UK remained outside the €440 billion European financial stability facility and ensured that we did not contribute as much as a rusty old drachma to the bail-out of Greece.

[David T. C. Davies]

Will the right hon. Gentleman give way?

[Alan Johnson]

I will take interventions later.

In his statement on 22 November—repeated today—the Chancellor said that he counselled his predecessor against joining the European financial stabilisation mechanism, which was a pre-existing fund involving all 27 member states and was worth only a seventh of the larger facility. As the Chancellor said, my right hon. Friend the Member for Edinburgh South West is in his place and if he catches your eye, Mr Deputy Speaker, he can give his recollection of that conversation.

However, given that the mechanism—the smaller amount—was decided by qualified majority voting, it seems that agreeing to ensure that we stay out of the €440 billion EFSF was a good deal for our country, particularly as my right hon. Friend ensured that none of the mechanism of which we were part was used to bail out Greece. That was a good deal all round, and a lesson for our inexperienced Chancellor in the art of negotiation. Indeed, the quip going round a couple of years ago, when the collapse of the banking industry in Iceland was closely followed by what happened in Ireland, was: what is the difference between Iceland and Ireland? Answer—one letter and six months. A modern variation could be to ask, what is the difference between Darling and Osborne? Answer—five letters, six months and £6.6 billion.

[Mr Cash]

When the shadow Chancellor says, as the Chancellor said, that the process was triggered by a qualified majority vote, I am sure that he would agree that that is not strictly true, because it resulted from a request by a member state. The final solution or arrangements are made by virtue of a qualified majority vote at the end. That is a qualification, but it does not alter the fact that, on the basis it was explained to us, article 122 was almost certainly unlawful and the use of article 136 would have been a better route. However, we appear to be entrapped into article 122 for the current purposes.

[Alan Johnson]

I believe that the hon. Gentleman will seek to address that in his amendment to clause 3, which we will discuss later. On the specific issue, there is no doubt that the mechanism was decided by qualified majority voting. All 27 European member states were part of that. I know from experience of negotiating in Europe over many years that it is a pretty turgid process and one has to be on one’s toes. My right hon. Friend the Member for Edinburgh South West can speak for himself, but I think he got a very good deal for this country on Greece.

The Chancellor must take responsibility for the deal that he has negotiated and not try spuriously to blame his predecessor, as he did again in his evidence to the Treasury Select Committee on 8 December. He had a choice about whether the UK should contribute to the Irish rescue plan. In principle, he has made the right choice, but before us today is a hastily drawn-up Bill that does not set out the terms of the loan, the interest rate or the repayment schedule. Colleagues from all parties will want to explore and probe those matters in Committee, and we particularly want to get to our amendments on clause 2, so a goodly proportion of the time available to us this afternoon may be better spent on that. It is therefore not my intention to detain the House for long on Second Reading.

[David T. C. Davies]

Does the shadow Chancellor share my gratitude that the decision is being taken in this Chamber and not by a group of unelected bankers in Frankfurt? That is because we did not listen to Opposition Members—we have never supported joining the euro, which would have meant that the decision would not have been ours to make in the first place.

[Alan Johnson]

I always try to avoid sharing the hon. Gentleman’s pleasure. I shall come to the nature of the deal, because in debating the Bill we are discussing one element that constitutes a little more than half of the money that the UK taxpayer is putting into the deal.

The argument for treating Ireland as a special case is clear. I shall reiterate some of the points that the Chancellor made. Our two countries are intertwined in commerce, in trade, in banking, in culture and in sport. We share a language and a land border. Not only is Ireland one of our five largest export markets but, as the Chancellor said, one part of the United Kingdom—Northern Ireland—sends 40% of its exports across the border to the Republic. The situation in Ireland could cause significant damage to UK financial institutions and create instability in both sovereign and bank debt markets. The UK is Ireland’s largest creditor—we are talking about almost €112 billion—and I understand from a newspaper report last week that the Royal Bank of Scotland and Lloyds have Irish loan books worth 82% and 53% of net assets respectively.

In its report last month, the International Monetary Fund singled out Ireland to demonstrate what it called the “key underlying vulnerability” of UK banks’ exposure to foreign banks. The support programme assures the protection of senior bond holders in Irish banks from any losses, thus affording a greater level of protection to UK banks. For all of those reasons and many more, it is in this country’s interest to support this package.

I want to raise three concerns. The first, which was raised in a couple of interventions—including by the hon. Member for Stone (Mr Cash)—is the open-ended nature of the commitment. There is a distinct possibility of more money being required for Ireland after 2013, given the tendency of Irish banks to downplay the severity of their situation and the tough conditionality being applied alongside concerns about European growth. In those circumstances, should we not make it clear to our European partners that the EFSF must be used for any further financial support, rather than giving the impression that this is a well into which further buckets can be dipped?

That is particularly relevant to my second concern about the balance between the contributions made by the various mechanisms. The €440 billion EFSF—the facility— for eurozone countries only is being tapped for 4% of the total resources that eurozone countries have agreed to make available for Ireland. The smaller EFSM—the mechanism—of which we are part and to which we contribute, was not used at all for the Greek bail-out. The EFSM is offering 37.5% of its available resources for the Irish bail-out. Why was that formulation chosen and why is the total amount we are contributing double the amount that we would have had to pay if we were a eurozone country?

[Mr George Osborne]

I am not sure that the shadow Chancellor is correct in that assertion. First, our contribution has been calculated on the basis of what we would have paid if we had been part of the facility. That is how the £3.25 billion figure was broadly arrived at. Secondly, the mechanism currently in use was created after the bilateral agreement was put together for the Greek bail-out. It was never available to be used for the Greek bail-out, which took place as a series of bilateral loans across Europe. As I understand it, over the May weekend the facility was put in place to address the crisis and article 122 was drawn upon to create the mechanism, so it could not have been used for Greece at that point.

[Alan Johnson]

I am grateful to the Chancellor for that intervention. However, it does not explain why the £3.25 billion he has just mentioned is the bilateral loan. That is the equivalent of what we would have put into the Irish bail-out had we been members of the eurozone. However, we are also putting in £2.6 billion through the EFSM and £800 million through the IMF. With the bilateral loan added to the other donations of British taxpayers’ contributions that we are making through the mechanisms, we are putting in double the amount of money that other European Union countries are contributing.

[Charlie Elphicke]

Surely, the right hon. Gentleman’s point highlights the lack of wisdom in signing us up to the stabilisation mechanism on 9 May.

[Alan Johnson]

This may be news to the hon. Gentleman, but his party is in government now. As I said, my party ensured that we contributed nothing—not a penny, not a euro, not a drachma—to the Greek bailout. The Chancellor is coming before this House with a £6.6 billion contribution to Ireland, which we support, but the various aspects of the mechanism need to be explained and understood.

[Mr Bone]

The shadow Chancellor is on to something here. It is bizarre that less money is being taken from the €440 billion fund than from the €60 billion in the EFSM. Would he have encouraged the Government to vote against the use of that €60 billion?

[Alan Johnson]

We have the €60 billion fund, about which the hon. Member for Dover (Charlie Elphicke) intervened, and we have a second fund of €440 billion. I am simply pointing out—the public deserve to know this—that only 4% is coming from the larger amount and 37% from the smaller amount. I am curious about that, and we need to understand the logic of it.

[Mr Hollobone]

Is the shadow Chancellor’s point that the European Central Bank is keeping these funds to rescue Portugal, Spain and perhaps Italy in due course?

[Alan Johnson]

Maybe.

[Mr Mark Field]

I will try to make a more helpful point. Given that the Opposition are supporting this loan arrangement, does the shadow Chancellor think it desirable that part of it should be bilateral and therefore agree with the structure that the Chancellor has put in place?

[Alan Johnson]

I do agree that part of it should be bilateral, for all the reasons that I have mentioned. As various members have commented, however, we need to understand why the formulation has been made—because it could be setting precedents; because there is a larger pot of money out of which a lesser sum of money is being brought; and because the Chancellor can come back to this House, by virtue of a statutory instrument and seek further money for Ireland. We need to be clear what we are letting ourselves in for.

[Charlie Elphicke]

rose—

[Alan Johnson]

No, I will not give way—perhaps later.

I am also curious about the following piece of distorted logic. In the Treasury Committee, the Chancellor said that it was okay to set austerity aside in order to make a loan to Ireland because of the promise of repayment. He said that this loan “adds to our debt” but

“We’re getting back a very important asset which is a commitment from the Irish government to pay us back with interest.”

What puzzles me is which part of that definition of a sensible loan did not apply to Sheffield Forgemasters. [Hon. Members: “Oh.”] I am sorry that Government. Members groan about British manufacturing industry. My right hon. Friend the Member for Sheffield, Brightside and Hillsborough (Mr Blunkett) raised this issue during the Chancellor’s statement on 22 November. Why does the Chancellor agree a huge loan to Ireland on the basis he cited but reject a modest £80 million that would be paid back with interest and boost the opportunity of British manufacturers to have a substantial stake in the civil nuclear energy supply chain, which is currently dominated by overseas companies? At a time when we are looking for jobs and growth, the logic of that escapes me.

My third concern is the prospect of each eurozone country being bailed out as its economy falls into crisis without addressing the root causes of the continent’s problems.

[Mr Cash]

Is the shadow Chancellor aware that serious discussions are going on about increasing the €400 billion facility, and probably doubling it? In response to my hon. Friend the Member for Kettering (Mr Hollobone), is not the whole European Union, not to mention the world at large, confronting a very dangerous and difficult situation?

[Alan Johnson]

Yes, but that is a matter for the eurozone. If the Chancellor is right in his prediction that perhaps this can ensure that we come out of the €60 billion mechanism, the facility and the other moneys, then fine, but as we are making a big contribution—more than we would have done had we paid the amount that a eurozone country would have paid to rescue Ireland—we must be in a position to influence this debate.

[Mr George Osborne]

I must correct this point. We are paying pretty much exactly what we would have paid if we had been a member of the euro; that is how the bilateral loan is being calculated. Germany is paying both through the facility and through the mechanism, and so are France and the other members of the euro. Other countries are paying twice. Ours is a bilateral loan like those of Sweden and Denmark, and they too have been calculated in a similar way.

[Alan Johnson]

I am grateful for that clarification; we will look at that very carefully. What the Chancellor is saying is that France and Germany, through their IMF contribution—[Interruption.] The Financial Secretary says no. The point I am trying to get at—perhaps the hon. Gentleman can clear this up when he replies to the debate—is that if the UK is putting in a bilateral loan that is equal to the amount that we would have paid as a eurozone member, and we are putting in money through the IMF as well as £2.6 billion through the mechanism, how does that relate to the money that France and Germany are contributing? As far as I am aware, they have no bilateral arrangements, so the money is going through the IMF, or through the stability facility which accounts for only 4% of the resources. That is a point that we need to hear about.

[Claire Perry (Devizes) (Con)]

The shadow Chancellor says that he supports the idea of a bilateral loan because Ireland is such an important trading partner for Britain. I am delighted to hear that he is going to support the Bill. However, will this be another situation like the graduate tax whereby he will say one thing and the rest of the shadow Cabinet will say another?

--- Later in debate ---

[Alan Johnson]

I will not bother to take an intervention from the hon. Lady next time, because that point does not even begin to be germane to this problem.

My third concern is how we are going to draw a line under this matter. We had the Greek bail-out, and now we have had the Irish bail-out. There is no sign of any real stability in the eurozone to stop such events happening again.

[Andrew Gwynne (Denton and Reddish) (Lab)]

Is it not important that Europe gets ahead of the crisis? As we saw with the Greek bail-out, such short-term measures do not solve the fundamental problems across the eurozone.

[Alan Johnson]

I am coming to exactly that point.

Some Conservative Members think that the root cause is the single currency. I do not share that view. The euro had nothing to do with the property boom and bust, and a failed euro would be an economic and political disaster with repercussions well beyond our continent. Ireland needs a healthy eurozone, or it will end up with years of deflation and unemployment, and we will be less likely to have our loan repaid.

As the loan that we are being asked to approve is equal to the amount of money that we would have contributed had we been a member of the eurozone, surely that gives us the right to influence the necessary debate on what action is needed to address the underlying causes of this recurring crisis. This bail-out buys time, but there is no sign that Europe’s leaders know how to put it to good use. In May, we had the Greek bail-out; six months later, we have to deal with Ireland. In neither case is there much sign that these countries have resolved the core dilemma, which is solvency.

Collective austerity across Europe offers countries with high debt burdens no way out. Cutting demand in Germany is the last thing that Ireland needs at the moment. What we are seeing in Europe bears out the IMF’s conclusion that fiscal austerity does not boost short-term growth and that deficit cuts are more painful if they occur simultaneously across many countries. Ireland needs a healthy eurozone with markets such as Germany consuming Irish goods, or it will end up with years of deflation and unemployment. Having engaged in repeated rounds of austerity, with VAT rises, welfare cuts and redundancies, Ireland still finds growth elusive: it has been consistently poor for the past three years. Indeed, the economy has shrunk in 11 of the 14 quarters since the beginning of 2007, and sluggish growth has made getting the deficit down much harder.

[Mr Bernard Jenkin (Harwich and North Essex) (Con)]

When a country becomes over-indebted, it can either enslave itself to the debt or inflate and devalue. Is it not clear that the fundamental problem is that none of the countries in the euro can inflate and devalue to get out of their problems? That is why some Conservative Members are saying that it is only a matter of time before some of these countries fall out of the euro, and that we would be better off planning on that basis than pretending that we can hold back an unstoppable tide.

[Alan Johnson]

The hon. Gentleman is right that the single currency gives Ireland no mechanism to devalue its currency, and that that causes it a problem. However, there are two extremes to that argument. The first says that the eurozone is unfinished business; what started as a currency harmonisation needs to move to the next stage. I heard the president of the European Central Bank say on the radio last night that the next stage should be political integration. My party does not agree with that; nor I am sure does the hon. Gentleman’s. Further integration is one extreme that we should not go to.

The second extreme says that if Ireland simply withdrew from the euro or the eurozone, its problems would be solved. I do not believe that to be the case. The eurozone has to recognise the problem that its countries cannot devalue and must find a mechanism that ensures that this problem does not keep happening to country after country. The hon. Member for Harwich and North Essex (Mr Jenkin) has a view, as do many of his colleagues, on the answer to this ongoing problem. I do not agree with him, but I believe that it is central to stop this happening to other countries, and to stop it being a regular event. The fragility of the recovery, especially in Europe, emphasises the need for decisive action to resolve the underlying difficulties faced by eurozone countries.

The situation in Ireland is a huge embarrassment for the Chancellor, exposing as it does his poor judgment and rich hyperbole. At the time of the comprehensive spending review, he claimed that our country was on the brink of bankruptcy. He now proposes a loan of an amount that is well over half the cumulative debt interest savings that he claimed he would make over the spending review period. There is also the paradox of his support for Ireland’s banks, but his opposition to the previous Government’s successful measures to protect British banks.

Finally, there is the Chancellor’s frequently expressed belief that Britain should look to Ireland for inspiration, which he expressed both before the banking crisis, when he urged us to emulate the “Irish miracle”, and since the crisis, with his desire to copy some of Ireland’s painful austerity measures. His gloriously misjudged 2006 article in The Times is now well known:

“Ireland stands as a shining example of the art of the possible in long-term economic policymaking”.

He is in good company. I shall quote from the Prime Minister in the Belfast Telegraph on 26 October 2006.

[Nadhim Zahawi]

rose—

[Charlie Elphicke]

rose—

[Alan Johnson]

No, I will not give way. The Prime Minister said:

“That is why a priority for any Conservative government led by me will be to create a much better environment for business… We know it can be done. Just look at the Republic of Ireland.”

Two years later, at exactly the time when Ireland’s six largest banks were forced to borrow €20 billion from the European Central Bank, the Prime Minister said that Ireland had

“a ‘future fund’ of assets, providing security against future liabilities and unknown shocks coming down the line.”

Perhaps those on the Treasury Bench will update us on how that future fund is doing in Ireland. Finally, in June 2008, at a Cameron Direct event in Harlow, he said:

“When it comes to the engine room of the country, the economy, you know you can look across to southern Ireland where they have created a dynamic economy. Well we’ve got to do that right here.”

Our message to the Chancellor as we prepare to support his Bill is not to replicate Ireland, but to repudiate the measures that put its economy in such a perilous position.

We understand that there is an O’Donnell circulating a plan B in Whitehall against the Chancellor’s wishes. As the Chancellor said in The Times, the Irish have

“much to teach us, if only we are willing to learn.”

[Several hon. Members]

rose—

Autumn Forecast

Alan Johnson Excerpts

Monday 29th November 2010 Commons Chamber

[Mr Osborne]

Our economy was unstable, our public finances were out of control and our country was on the international watch list to avoid. We took decisive action. Now, the independent Office for Budget Responsibility has confirmed that the British recovery is on track, our public finances are under control, 1 million jobs are set to be created and our economy is rebalancing. Today we are taking further measures to secure growth and create prosperity. We are doing so based on the foundation of stability that we have now secured. Britain is on the mend, and I commend this statement to the House.

[Alan Johnson (Kingston upon Hull West and Hessle) (Lab)]

Let us move from bombast to reality. Here is what the OBR says:

“As we discussed in Chapters 3 and 4, past experience and common sense suggest that our central forecasts for both the economy and the public finances are almost certain to be wrong and that there are upside and downside risks to both.”

The only question is on which side of wrong they actually fall.

This Government have committed our country to a rate of fiscal consolidation that has been attempted only twice in living memory, and on both occasions by countries that benefited from strong growth in a benign global environment. In the current economic crisis, no country other than Ireland has attempted to cut so deeply, so quickly. The Chancellor is always telling us that we have the highest fiscal deficit in the G20. That is not true: the US has a proportionally higher fiscal deficit than ours, and the Americans plan to reduce it by less than half over the next five years. Japan, which has roughly the same level of deficit, has learnt from its experience over the past 10 years and plans to cut by less than a quarter. The Chancellor has chosen to take an unprecedented gamble with people’s livelihoods and the country’s future, and he has done so on the basis of a fundamental deceit: that when he assumed office, the public finances were worse than expected. The OBR exposed that deceit last year, and it has confirmed it today, so will the Chancellor now tell all those Back Benchers behind him—all those Tories who claim to their constituents that things are worse than they expected, and of course those who tell them that they have never had it so good—that they will have to find a new excuse? Nothing in his statement today can hide the fact that it was the balanced approach of my right hon. Friend the Member for Edinburgh South West (Mr Darling)—[Hon. Members: “ Where is he?”] Snowed in, in Scotland, probably. It was the balanced approach of my right hon. Friend that saw growth return at the beginning of the year, saw the recovery gain momentum and led to nearly 1 million fewer people claiming out-of-work benefits than predicted. That was the previous Chancellor, not this one.

As expected, the OBR has produced a higher growth forecast for this year than at the time of the emergency Budget, but this is the result of an approach that this Government have rejected. The reckless gamble that coalition Members support is still to come; the Chancellor is in the casino, but he has not yet spun the wheel. The OBR’s judgment of the future matters more than its revised forecast for a year that is almost over.

Does the Chancellor accept that the OBR does not expect the fast momentum built up this year to be maintained? Indeed, it is explicit in saying that it expects a slow recovery. Next year, as spending cuts begin to take effect and the VAT hike dampens demand, the OBR is revising its growth forecast down from 2.6% before the emergency budget to 2.3% immediately afterwards and to 2.1% now—it is going south. Looking beyond next year, the forecast for growth over the first four years of the recovery is reduced to an average of 2.4%. This compares with a 3.1% average growth in the far from pain-free recoveries from the two Tory recessions in the 1980s and 1990s. That growth was largely driven by growth in the financial sector and in public services, neither of which will be in a position to help this time.

Lower growth means fewer jobs, and in this weak recovery the OBR, having changed its mind, is now forecasting something that the Chancellor could not bring himself to say—namely, that unemployment will rise next year. It no wonder that the Conservative-led Local Government Association pointed out last week that front-loading cuts in local authorities will lead to 140,000 job losses next year, which is much higher than originally expected. The Chartered Institute of Personnel and Development estimates that the increase in VAT on 4 January will cost 250,000 jobs, more than three times as many as our proposed increase in national insurance, which the Conservatives called a tax on jobs.

The Chancellor tells us that public sector jobs will be protected by his decision to cut welfare benefits, but this works both ways: can he tell the House what the additional hit to private sector jobs will be from those welfare changes? For families up and down this country, a jobless recovery will be no recovery at all. This Government have no interest in protecting jobs, no alternative measures if the gamble fails and, worst of all, no plan for jobs. Indeed, since just last week their growth plan has actually shrunk, from a White Paper that was supposed to contain proposals, to today’s promise to talk: there will now be a debate, a discussion.

The Government’s plans rely on a huge increase in exports and business investment. Let us hope they materialise. But it is a gamble to assume that cuts on the scale envisaged, with cyclically adjusted public borrowing reduced by 8% of gross domestic product in just five years, will automatically be compensated for by exports. Exports need markets, and there is nothing to suggest that the global economic climate will assist us in achieving the kind of boost to growth that we have not seen for 60 years.

The Chancellor talked about his plans for corporation tax. Everyone wants a tax system that supports business, but he has abolished investment allowances for manufacturing to pay for a cut in corporation tax that will give a further £1 billion to the banks. Can he tell us what sense there is in helping companies that make large profits for little investment, at the expense of businesses that will invest heavily in the UK? We were very pleased to hear his announcement on GlaxoSmithKline and the patent box. We were pleased because that was our proposal. It was me, as Secretary of State for Health, with the former Business Minister, Lord Dyson, who argued for that in Cabinet. That is why it was in last year’s pre-Budget report. It is an excellent proposal. It was a Labour proposal.

Here is an idea for the Star Chamber that the Government are going to form. Why not help UK advanced manufacturing in the civil nuclear supply chain by giving an £80 million loan to Sheffield Forgemasters? That is an idea that they can chew over for the next four months.

The Chancellor talked about developments relating to Ireland. As I said last week, we support the financial assistance offered to Ireland, but the lessons of Ireland cannot be ignored. As a Financial Times leader said last week,

“a slower pace of consolidation might have been its best bet at encouraging growth.”

That is a lesson for us as well.

The Chancellor’s analytical ability in respect of Ireland was demonstrated in his 2006 article, which has been widely quoted, but in 2008, just two years ago, confident that Ireland would not be affected by the financial crisis that was just emerging, he said that Ireland now had

“a ‘future fund’ of assets built to provide security against future shocks and liabilities. Their public finances are well placed. Their competitiveness has risen. Their institutions are stronger.”

Ireland had

“used the fat years to prepare for the lean years.”

The Chancellor was wrong about Ireland, and he is wrong about the United Kingdom. The autumn statement does nothing to alleviate the summer madness that led him to gamble so recklessly with our future.

[Mr Osborne]

I think the shadow Chancellor made the mistake of writing his response before he had seen the OBR’s forecast. He predicated all of it on there somehow being lower growth, when in fact growth is higher in every quarter and every year than was predicted in the June forecast. I assume that he also wrote his response before the European Commission produced its forecast today. I am sure that he has now seen it. He read out a list of countries, but the European Commission predicts that over the next two years we will grow more quickly than Germany, France, the United States of America, Japan, the eurozone and the EU average. If one is going to read out a list of countries, one might as well start with the most accurate and recent forecast for their economies.

As I have said, the shadow Chancellor’s response was not much of an analysis of what the OBR has said today. He skated over the fact that because of the welfare changes that we have introduced, we have been able to reduce the public sector headcount reduction that is required by any deficit reduction plan—including, presumably, the plan that he will one day propose. He should at least acknowledge that the welfare changes achieve that. He and the leader of his party have some important choices to make in the next few months as we vote on some of these measures. They must decide whether they will support welfare reform or would rather see a higher number of public sector job losses, but that will be a decision for them.

The shadow Chancellor said that he did not believe in the rebalancing of the economy, and that the assumptions for exports and investment that I had made were fanciful. They are, of course, the estimates made by this independent body, the appointment of whose members, as I have said, was ratified by the Treasury Committee. The shadow Chancellor accused me of having no alternative measures to present. I thought that that was a bit of a cheek, because as far as I can tell the Labour party has a blank sheet of paper as its new economic policy. He talked of the importance of protecting intellectual property and supporting the growth of patents, and then praised, I believe, James Dyson. The last time I checked, it was we, rather than the shadow Chancellor, who had consulted him, but so be it.

[Alan Johnson]

Lord Drayson.

[Mr Osborne]

Ah. Well, I am sure that Lord Drayson also had some interesting things to say. [Interruption.] I welcome, by the way—[Interruption.]

Financial Assistance (Ireland)

Alan Johnson Excerpts

Monday 22nd November 2010 Commons Chamber

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

With permission, Mr Speaker, I should like to make a statement regarding financial assistance for Ireland.

I hope Members will understand that an announcement had to be made at the weekend, ahead of markets opening this morning. Last night, I spoke to the Chair of the Treasury Committee and the shadow Chancellor to keep them informed of the latest developments.

The United Kingdom, alongside the International Monetary Fund, the European Union, the eurozone and other member states, is participating in the international financial assistance package for Ireland announced last night. We are doing this because it is overwhelmingly in Britain’s national interest that we have a stable Irish economy and banking system.

The current Irish situation has become unsustainable. Its sovereign debt markets had effectively closed and had little prospect of reopening. While Britain’s market interest rates had fallen over the past six months, Ireland’s had risen to record levels, and Ireland’s banks had become completely reliant on central bank funding to maintain their operations. In the judgment of the Irish Government, as well as of the IMF and others, this situation could not go on.

Members will understand that it would not have been appropriate for us in recent weeks to have engaged in public speculation about whether Ireland should request assistance from the international community, but I can now report that we have been engaged in intensive private discussions with the G7, the IMF, the EU and the Irish Government on plans for the eventuality that Ireland would request support. At the G20 meeting in South Korea two weeks ago, I was one of the European Finance Ministers who issued a joint statement that provided a brief respite. At the ECOFIN meeting last Wednesday, my colleagues and I discussed the Irish situation with Finance Minister Brian Lenihan, with whom I have also kept in touch directly. Following meetings in Brussels, the Irish Government committed to engage in a short and focused consultation with the IMF and the EU. On Thursday a joint mission arrived in Dublin, and in the last few days I engaged with my counterparts in the G7, the euro area and the EU about the way forward.

Following intense work over the weekend between the Irish and international authorities, last night Ireland’s Prime Minister, Brian Cowen, made a formal request for assistance. This was followed by statements from the G7, the IMF, the Eurogroup and European Finance Ministers that they would

“provide the necessary financial resources for Ireland to implement its fiscal reform plans and stabilise its banking system.”

The statements made it clear that there were two components to the rescue package. The first puts beyond doubt Ireland’s ability to fund itself. The international assistance package will support an ambitious four-year fiscal strategy which the Irish government will set out later this week. This will see a fiscal consolidation of €15 billion by 2014, of which €6 billion will be implemented next year, as part of a strategy leading to a target budget deficit of 3% of GDP in four years’ time. The second part of the assistance package is a fund for potential future capital needs of the banking sector. This will support measures to promote deleveraging and ensure restructuring of Ireland’s banks, so that its banking system can perform its role in supporting the economy.

Let me turn to how the package will be financed. This is a joint programme, with funding from both the IMF and the EU. The amount of money involved will, in part, depend on the IMF’s analysis of what is needed, and Prime Minister Cowen has said that he expects it to be less than €100 billion. The international community is working on the rough assumption that the IMF will contribute about one third of the total. The total European package will provide the other two thirds. Based on the significant reform of the IMF agreed by G20 Finance Ministers last month, the IMF is well placed to play a leading role in this international effort. The UK, of course, is an important shareholder of the IMF and we will meet these multilateral obligations. I would like to reassure the House that the IMF is currently well resourced and able to meet the cost of the package for Ireland.

The European element of this package will primarily come from two sources of funding agreed in May before this Government came into office: the €60 billion European financial stabilisation mechanism; and the €440 billion European financial stability facility. The balance between the European mechanism and the eurozone facility will be determined in the coming days. The United Kingdom is not a member of the euro, and will not be a member of the euro while we are in government, and so we will not participate in the eurozone stability fund. To be fair to my predecessor, he kept us out of that fund, but he did agree to the UK’s involvement in the European mechanism two days before we took office. I made it clear at the time that I did not believe he should make that commitment. However, it operates according to qualified majority voting and so we cannot stop it being used, and to exercise that vote at this time would, I judge, be very disruptive. So the EU will lend money to Ireland on behalf of all 27 member states, and the UK must accept its share of this contingent liability, which would arise in the unlikely scenario that Ireland should default on its obligations to the EU.

On top of this, I have agreed that the UK should consider offering a bilateral loan to Ireland, as part of the IMF and European package. I judge this to be in Britain’s national interest. Let me explain why. We have strong economic relations with Ireland. Ireland accounts for 5% of Britain’s total exports—indeed, we export more to Ireland than to Brazil, Russia, India and China put together. Ireland is the only country with which we share a land border, and in Northern Ireland our economies are particularly linked, with two fifths of its exports going to the Republic.

Just as our two economies are connected, our two banking sectors are also interconnected. I should stress that the resilience of our own banks, which are now well capitalised, means that they are well placed to manage any impact from the situation in Ireland. But two of the four largest high street banks operating in Northern Ireland are Irish-owned, accounting for almost a quarter of personal accounts. The Irish banks have an important presence in the UK. What is more, two Irish banks are actual issuers of sterling notes in Northern Ireland. It is clearly in Britain’s interest that we have a growing Irish economy and a stable Irish banking system. By considering a bilateral loan, we are recognising these deep connections between our two countries and, crucially, it has helped us to be at the centre of the discussions that have shaped the conditions of an international assistance package that is of huge importance to our economy. Of course, this is a loan and we can expect to be repaid. In fact, Sweden has already deemed it to be in its national interest to consider a bilateral loan to Ireland.

Now that the Irish Government have requested assistance, a lot of the detailed work of putting together the package can take place. I understand that Members are keen to hear the specifics, such as the rate of interest on the loans, the repayment periods and the contribution from each of the various elements of the package. I shall keep the House informed.

Later this week, the Secretary of State for Northern Ireland and my hon. Friend the Financial Secretary to the Treasury will be in Northern Ireland to discuss the situation there. I will ensure there is a specific discussion in the House if there is a bilateral loan, and we will need to take primary powers.

Finally, let me say something about the future of the various European support funds, which are being discussed later this year. Both the Prime Minister and I are very clear that when it comes to putting in place a permanent eurozone bail-out mechanism, the UK will not be part of that.

This is a situation of great difficulty for Ireland and it is a tragedy when it did so much to improve its competitiveness with low taxes and flexible labour markets, but the truth is that it had a hugely leveraged banking sector that was badly regulated—a pattern that we have had to deal with in our own country. In addition, because Ireland is a member of the euro, exchange rate flexibility and independent monetary policy were not tools available to it when the crisis took hold. The arguments against Britain joining the euro are well rehearsed, not least by me, but although “I told you so” might be correct, it does not amount to an economic policy.

When the coalition Government came into office, Britain was in the financial danger zone. We have taken action to put our house in order. We were once seen as part of the problem, but we are now part of the solution. Ireland is a friend in need and it is in our national interests that we should be prepared to help at this difficult time. I commend the statement to the House.

[Alan Johnson (Kingston upon Hull West and Hessle) (Lab)]

I thank the Chancellor for advance notice of his statement and for keeping me informed about developments over the weekend.

The Opposition agree with the Chancellor’s basic argument that Ireland is a friend in need and that Britain should not simply ignore the plight of one of our biggest trading partners because it is in the eurozone and we are not. So we are in principle content to support a role for the UK in assisting Ireland to secure economic stability.

The Chancellor talked about the resilience of our banks, and the question that many people will be asking today is why he thought it was wrong for the previous Government to support British banks but right for his Government to support Ireland’s banks. On the crucial question of ensuring that Britain’s contribution is fair and balanced, will he first explain how our relative share of the burden will be calculated and what his definition of “fair” will be?

Secondly, will the Chancellor give his expectation of the proportion of UK support that will go through each European route—the European financial stability facility, the stabilisation mechanism and the bilateral arrangements—and the rationale for that distribution? He said that he disagreed with the agreement that my right hon. Friend the Member for Edinburgh South West (Mr Darling) made in May to enter the European stabilisation mechanism, yet the Chancellor is seeking to provide bilateral support. Why does he need to provide bilateral support when the other routes are available? Will he also tell the House how, when and where each element will appear in Government accounts?

Thirdly, what interest rate is to be charged on our loans, what form will it take and when does the Chancellor expect to receive full repayment? I understand the issues he mentioned about not being able to tell us now, but if he cannot give us any indication, when and how will that information be reported to the House?

Fourthly, what conditions will the Chancellor seek to apply, and is he preparing this proposal unilaterally or in conjunction with our European partners? Will there be any attempt to interfere with Ireland’s right to set its own tax rates? Will the Chancellor tell us to what degree he believes the difficulties are a consequence of Ireland’s adoption of the euro? What does he think this will mean for the future of the single currency? When his right hon. Friend the Foreign Secretary was asked if he thought the euro would survive, he shrugged his shoulders and said, “Who knows?” That strikes me as being at the least undiplomatic and at most unworthy of the great office he holds. It could even be said to be making “I told you so” into an economic policy. How would the Chancellor answer the question about whether the euro will survive?

Finally, it is clear that Ireland’s efforts to cut its deficit so deeply and quickly have failed to lead to growth in the economy. The private sector has not taken up the slack caused by the huge cuts to public services, so will the Chancellor agree that growth is crucial to Ireland, Europe and, indeed, to the UK’s full recovery and tell us what steps he is taking to encourage growth as part of this package? In 2006, he said that we should “Look and learn from across the Irish Sea”. In a eulogy of the deregulation of the financial services sector, he asked:

“What has caused this Irish miracle, and how can we in Britain emulate it?”

Now he needs to assure us that he has learned other lessons from across the Irish sea. The last time he made a statement from that Dispatch Box, he said that Britain was on “the brink of bankruptcy”, but that was clearly not the case. Now he is proposing to make a substantial contribution to a country that really is on the brink. One lesson from Ireland should be salutary: exaggerated rhetoric affects confidence and loss of confidence can lead to economic disaster.

[Mr Osborne]

I certainly agree with that last statement. First, I welcome the support in principle that the Opposition have given to this decision and I well understand that the shadow Chancellor, like everyone else in the House, will want to see the specific terms and conditions. The IMF-EU team hope to conclude those in the next couple of weeks and then, of course, I will bring those details to the House.

On burden sharing between the different European channels, we will make no contribution through the stability facility—the eurozone facility. In relation to the mechanism—money lent off the back of the EU—if Ireland were, in an extraordinary situation, to default on that then we, as one of the 27 members of the European Union, would have a contingent liability. That is how the mechanism operates. On the terms of the bilateral loan, we have not yet set a figure on that, but it will be in the billions, not the tens of billions. On that, too, I will come to the House when I have a specific figure. As I have said, we will be required to take primary powers to make that bilateral loan and I would hope to have Members’ support in doing that.

The shadow Chancellor mentioned the mechanism. In the period between the general election and the creation of this Government, to be fair, as I said in the statement, the former Chancellor of the Exchequer made it clear that he did not want the UK to be part of the eurozone facility, but he did agree to the use of the mechanism. It is based on article 122, the original intention of which was to provide support to eurozone members in dealing with natural disasters. At that time, I said that I did not think that we should be committing to that, but that debate was had in May. The mechanism exists and, frankly, for the UK to say now that we will vote against its use would, as I have said, be very disruptive.

The question of the accounts is for the Office for National Statistics and the Office for Budget Responsibility. My understanding is that the loan will of course add to borrowing but that we will get an asset in return—an Irish commitment to pay back the loan—and that it will not add to the deficit.

On the conditions attached to the loan, I would expect them to be part of the international package agreed with the IMF and European Union contributions, so I would not expect radically different conditions for the UK.

I think it is well known that corporation tax has been the subject of discussion in some European Union capitals, but not here—we believe that countries should be free to set their own tax rates. The Irish Government have to make some very difficult decisions about their fiscal package over the next four years, and how that package is composed should be a decision for them—provided, of course, that the international community is satisfied that it is credible, and I am absolutely sure that we will be satisfied.

Finally, the right hon. Gentleman asked two questions, one about the future of the euro and so on. As I have said, we made lots of arguments about not joining the euro 10 years ago and I do not—[Interruption.] I cannot remember what the Opposition’s official policy is, but it probably does not bear consideration. I would just make the point that I am dealing with the situation as I find it today. We can debate the merits of the euro at another time; I have to deal with the Irish situation.

On the deficit and Ireland’s decisions, I have to say that in all the discussions I have been involved in during recent weeks, not a single person around the international tables has suggested that Ireland should be doing less to address its fiscal situation. I would have thought that the current economic environment in the world would surely remind everyone of the risks run by countries with very high budget deficits and no credible plan to deal with them. Unfortunately, we inherited a higher budget deficit than Ireland’s, so I hope that the right hon. Gentleman and the Leader of the Opposition, in this big rethink they are having, will re-evaluate their opposition to a fiscal plan that has taken Britain out of the financial danger zone, which means that we are not one of the countries speculated about at the moment. I hear today that the Leader of the Opposition says that their economic policy is a blank sheet of paper. Quite frankly, I do not think that it would be much use taking that into an international negotiation.

Oral Answers to Questions

Alan Johnson Excerpts

Tuesday 16th November 2010 Commons Chamber

[Mr Osborne]

I can give my hon. Friend that assurance. A few months ago, he and I visited some small businesses in his constituency, many of which were suffering under the burden of a tax code that has grown from 4,900-odd pages in 1997 to 11,500 pages today. The Office of Tax Simplification is specifically looking at the taxation of small businesses as well as at the issue of tax reliefs. The small business report will be coming out later next year, but we will get an interim report in time for the Budget.

[Alan Johnson (Kingston upon Hull West and Hessle) (Lab)]

I add the congratulations of this side of the House to Prince William and Catherine Middleton on their engagement. If they need a photographer, I understand that there is one available now. There has been a nice juxtaposition of announcements this morning. Does the Chancellor think that he is aiding tax simplification by raising VAT to a nice round 20%, and does he agree with his Cabinet colleague, the Business Secretary, who once described an increase in VAT as

“a tax on the poor to absolve the sins of the rich.” ?

[Mr Osborne]

I have to say to the shadow Chancellor that his position on VAT is completely incoherent. It is well known that my predecessor, the right hon. Member for Edinburgh South West (Mr Darling), was planning a VAT increase, had pressed the Prime Minister at the time for a VAT increase, and—he is in the Chamber so perhaps he can confirm this—when asked about it on “The Andrew Marr Show” after the election, said that of course he would have gone ahead with one.

[Alan Johnson]

That was not the question. The fact that one looks at every available tax before reaching a conclusion is nothing new. The conclusion we reached is that VAT should not be increased and that national insurance should be. The Liberal Democrats have been very fair in the way that they have betrayed the electorate. They have broken promises across the age divide—children, students and pensioners—so there is no age discrimination there. The Conservatives specifically said that they would not increase VAT. During the election campaign, we said that if they did not increase national insurance, they would increase VAT. The Prime Minister denied that and said that they had no plans to increase VAT. He said that VAT was

“very regressive, it hits the poorest the hardest”.

I can promise Members that it does. We are now in the unique situation in which we face a tax rise that our Prime Minister has promised will affect “the poorest the hardest”. At the time, the Conservatives said that an increase in national insurance would be “a tax on jobs”. The Chartered Institute of Personnel and Development said that it would lead to 75,000 jobs being lost while an increase in VAT would cost 250,000 jobs.

[Mr Speaker]

Can we have a question from the shadow Chancellor?

[Alan Johnson]

Why is the Chancellor proceeding with this tax on jobs that hits the poorest the hardest?