Oral Answers to Questions

Alison McGovern Excerpts

Tuesday 8th February 2011 Commons Chamber

[Mr Gauke]

The National Audit Office has investigated and examined that as a matter of course. There is no question of sweetheart deals. The reality is that HMRC is seeking to recover as much tax as is due. That is what it has done in a number of cases. I am not going to comment on individual cases. That is a matter of confidentiality; I do not get to see the details. None the less, I think wild allegations have been made against HMRC, for which there is little or no evidence.

[Alison McGovern (Wirral South) (Lab)]

I was just checking and realised that the Government’s own business planning projections show that the proportion of young people on the dole by the end of this Parliament will be reduced by less than 1%. Will the Chancellor explain what his plan is to increase the number of jobs made available to those young people?

[Mr Osborne]

This country has a problem with youth unemployment that has been apparent for a decade. Even in the boom years during the middle part of the last decade, youth unemployment was increasing and a whole generation was being left behind. I hope that we can achieve some kind of cross-party consensus on trying to reform our welfare system so that people do not get trapped in poverty and work always pays. We are reforming the new deal and replacing it with the Work programme so that we are more effective at giving young people the training they need and the opportunities that have been lacking for the last decade.

Oral Answers to Questions

Alison McGovern Excerpts

Tuesday 21st December 2010 Commons Chamber

[Mr Hoban]

My hon. Friend is absolutely right. We are very fortunate in this country. Because the Government took difficult decisions to tackle the deficit when we came into office, we are in a much stronger place now—consider the turbulence in the eurozone. The difficult decisions that we took ensured that we stepped back from the brink of bankruptcy.

[Alison McGovern (Wirral South) (Lab)]

Global action on regulating the financial services sector through groups such as the G20 is vital. The House of Lords Economic Affairs Committee recommended a pre-funded deposit insurance scheme. It said:

“The Government should move towards pre-funding of the Financial Services Compensation Scheme as soon as”

possible. Why has the Treasury turned its back on that important measure?

[Mr Hoban]

If the hon. Lady speaks to building societies, which are finding it difficult to lend at the moment, she will hear their concern about the amount that they pay towards the financial services compensation scheme. Contributing to a pre-funded scheme would add to that burden and reduce the ability of banks and building societies to lend to support the recovery.

Banking Reform

Alison McGovern Excerpts

Monday 29th November 2010 Commons Chamber

[Alison McGovern (Wirral South) (Lab)]

I begin by congratulating the Backbench Business Committee and my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) on securing this debate, which has been illuminating and measured. I join the hon. Member for North East Cambridgeshire (Stephen Barclay) on the important point that he made at the beginning of his speech: in the City, there has been a lack of recognition of the depth of anger among many of our constituents. The hon. Gentleman is right about that, and I hope that this debate can start to set that issue right in some way.

I want to make three swift remarks. My first is about the tripartite arrangements. I want to take the House back in time. I well remember when interest rates were set by politicians. In many ways, our tripartite arrangements have been a success. As economists predicted before the change, Bank of England independence aligned to inflation targets has allowed an independence, a clarity, a robustness and a rule-based approach. It is important to recognise that. We have been discussing a lot, and people have rightly raised, some issues to do with the failures of regulation, but we need to recognise why we changed to the tripartite arrangements and consider the importance of that change in 1997.

However, today I want to suggest that we cannot just question and consider regulation, important though that is; we need to look for a change of culture in the financial services sector as well. Many people have already recognised the imbalance in respect of the major role that financial services play in our economy, but I do not think that that imbalance is mainly regional—it is not a case of London and the south-east versus the rest of the UK at all. We know of the importance of banking in Scotland, and in my own area of Merseyside, many people work in the financial services sector or in organisations that contract to it. In 2007, such activity amounted to 14% of PAYE and 27% of corporation tax.

I want to make the point that the impact of the sector is not just that regulation might help or hinder small business; as we have all seen, it also has a massive impact on public services. Getting right the structure, regulation and culture of the sector is one of the most important jobs that we have to do.

I turn to the importance of the changes that we all want. First, on regulation, the issue is about not just capital requirements but the work that Basel III might—and must—do on liquidity requirements. In many ways, the credit crunch is misdescribed; it should be described as a “liquidity crunch”. The question that we need to ask of all banks relates to their access to liquidity as much as to capital.

Whoever has the supervisory powers, whether the Bank of England or the Financial Services Authority, it is important to determine what those macro-prudential powers actually are. Furthermore, we must have a credible means, transparent and understood by all, of dealing with failed banks. A process needs to be in place. People have mentioned living wills. We need to make sure that what happens with failed banks is understood by all, so that the risks lie with shareholders and people within the system rather than with an implicit taxpayer guarantee. We will see that as the place that we are trying to get to.

Finally, I leave the House with this thought. If we are to understand the crisis that we went through in 2008-09, we must realise that it was not merely a crisis of regulation. The commission on banking reform that the Government rightly set up should listen to the Chartered Institute of Bankers in Scotland. It has warned Sir John Vickers that new regulation will fail if it is not combined with

“a firm commitment to embedding a culture of high ethical, professional and technical standards amongst bankers throughout the industry”.

That point is really important. Those of us who see the importance of the financial services sector want a change in its culture as much as a change of regulation. That has to be about high ethical standards.

In conclusion, I hope that the measured nature and thoughtfulness of this debate will send a message to all about the seriousness in which we hold these reforms.

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[Andrew Bridgen]

The hon. Gentleman makes that point, but the previous Government encouraged and took part in an orgy of credit: in fact, they led it, and invited individuals and corporations to join in, safe in the knowledge that the former Prime Minister said that he had ended boom and bust, which now sounds as ridiculous as King Canute claiming he could turn back the tide. The taxpayer now has the hangover from that 10-year orgy of credit.

Under the former Prime Minister’s watch, the Bank of England deliberately stoked a consumer boom that led to spiralling house price inflation and massive levels of personal debt. This is not just my opinion, but that of the previous Governor of the Bank of England, the late Lord George, who said of that period:

“We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term.”

That approach led to 20% house price inflation when the consumer prices index was running at 2%, led to financial institutions such as Northern Rock offering 120% mortgages, and ultimately led to a run on a British bank and the financial crisis of 2007. Opposition Members might blame America, global markets, or even the fact that we are not in the euro, as ridiculous as that sounds, but this misguided belief, and the hubris of the previous Prime Minister in believing that he had ended boom and bust, helped to contribute to the banking collapse. It is fascinating that the shadow Home Secretary—or perhaps I should say the shadow shadow Chancellor—stated that the cause of the deficit was not the previous Government’s borrowing, but rather the collapse of tax revenues. He failed to recognise that tax revenues based on rapid house inflation and excessive consumer credit are totally unsustainable.

The failure of the previous Prime Minister’s regulatory regime also contributed to the problem. It was clear in the early part of the decade that the UK had an unsustainable consumer credit funding gap: the IMF said so, as did the previous Governor of the Bank of England. The power to regulate had been transferred from the Bank of England to the Financial Services Authority and the Treasury, with an inadequate definition of roles and responsibilities. It was an absolute disaster, as was shown at the height of the Northern Rock crash, when Mervyn King was asked, “Who is in control?” and his answer was, “That depends on how you define ‘in control’.” The answer was that nobody was in control, and no one could see who was in control. One cannot have a third of a problem—one wants all of the problem or none of it. That was part of the difficulty.

So where do we go from here? I am a firm believer in sound money. A sustainable banking system is one where lending policies are closely in sync with the projected economic activity of the people it serves, not driving them.

[Alison McGovern]

Does the hon. Gentleman recall, as I do, that the previous Conservative Government left the country with a deficit of 3.4% which was going towards ongoing spending, unlike the debt in 2008, which accorded with the “borrow to invest” rule? In relation to sound money, what does he think about that?

[Andrew Bridgen]

I thank the hon. Lady for her point. She, like me, was not in this place at that time. I was in business running a corporation. I fixed the roof while the sun was shining, and I put my company into net credit three months before the banking crash happened.

We need a Government—and a regulator—who do not deliberately go to sleep at the wheel for political advantage, as the previous Government did. We must never let a bubble like the one that built up under the previous Government build up again. Our plan for growth depends on a sensible and sustainable banking system alongside more powerful incentives from Government. We must never return to the bubble that ended in the financial crisis and allowed banks to lend unsustainably under a tick-box regulatory system and a short-termist, feckless Government concerned more with political advantage than with the long-term interests of the country. In short, we need to look at creating a body that is solely in charge of financial stability and has responsibility for macro-economic supervision.

Comprehensive Spending Review

Alison McGovern Excerpts

Thursday 28th October 2010 Commons Chamber

[Mel Stride]

My hon. Friend is entirely correct, and there is no doubt that if the Government had not taken prompt action as we did in the emergency Budget in June, we would have been that close to a Greek-style economic meltdown.

[Alison McGovern (Wirral South) (Lab)]

Will the hon. Gentleman explain to the House how our debt was similar to that of Greece, given that the Debt Management Office in this country has been far better and we have far better terms? The question of whether the debt is sustainable is what leads to crises, not the amount of deficit, given the size of our economy.

[Mel Stride]

The answer to that is that we came that close because the credit rating agencies, such as Standard & Poor’s, came that close to downgrading our triple A status. The consequence would have been that the Government, in funding their debt through their bonds and gilts, would have had trouble getting those debt requirements away, interest rates would have risen, mortgages would have gone up through the roof and the businesses on which we are counting to pull us out of the malaise that we are in would have been crippled by higher interest rates. That is the basic economics that Labour Members fail to understand—

Savings Accounts and Health in Pregnancy Grant Bill

Alison McGovern Excerpts

Tuesday 26th October 2010 Commons Chamber

[Alison McGovern (Wirral South) (Lab)]

The Minister has talked about what happened in the past and about the actions of the last Labour Government. Will he tell us whether his party supported the recapitalisation of the banks that protected our financial services system, which led to the deficit?

[Mr Hoban]

Yes, we did support the recapitalisation of the banks, but I am not sure where the hon. Lady’s point is leading. The deficit is a consequence of the huge growth in spending under the last Government, and their failure to ensure that the fiscal position was sustainable.

This year, the child trust fund would have cost more than half a billion pounds, and that money would have been locked in for up to 18 years instead of supporting people now. That is a luxury that we simply cannot afford, given the fiscal challenge that we face. We also could not afford to introduce a new scheme like the saving gateway, which would have cost £300 million over the next five years, just as we started to tackle that challenge. Nor can we afford to continue to spend £150 million every year on giving cash payments to all pregnant women, whatever they spend the money on and whatever their incomes.

--- Later in debate ---

[George Freeman (Mid Norfolk) (Con)]

It is a pleasure to follow the hon. Member for Strangford (Jim Shannon). I am conscious of the number of Members who want to speak tonight, so I shall try to be brief. I want to make three key points. First, we need to draw breath and remind ourselves why we are having to take these measures. Secondly, I want to draw the House’s attention to some of what I believe to be the flawed thinking underlying the measures that we are withdrawing. Thirdly, I shall touch on the lack of support for them from a number of independent commentators whom one might have expected to be more vocal.

We heard a lot from Opposition Members earlier, accusing us in somewhat hysterical tones—it is nice that they have now calmed down a little—of unwarranted glee at cutting back from the most vulnerable in society. Those accusations almost reached the point of suggesting that that was what we had come into politics for, which is the most appalling and, frankly, shameful accusation, and one that they do not need to nod their heads at now.

It is worth reminding the House, and those listening in the Gallery, why the coalition is having to take these measures. It gives us no pleasure at all, but the truth is that we have inherited from Labour an historic crisis in our public finances. We have a debt of £700 billion, and debt interest would be set to rise to £67 billion a year if we had not set about tackling it, which these measures are part of. Our current debt interest payments are £120 million a day. Opposition Members need to bear all that in mind before they accuse the coalition of irresponsible measures. The irresponsibility is illustrated by the deficit that they bequeathed to us and to the future generations that we are all trying to help.

Without a plan to tackle the deficit, there would be a real risk that confidence in this country’s public finances would collapse, that international markets would lose confidence in our gilts, and that interest rates would start to rise. That would trigger the real catastrophe that we are trying to avoid. Everyone knows that we have to tackle the deficit. Surely no serious commentator, and no serious politician on the Opposition Benches, would suggest otherwise. It is simply disingenuous and mischievous to claim to be a serious party of government and then to scream foul when a responsible Government take the important measures to deal with the legacy that it has left us.

The flawed thinking behind some of the payments that the Bill covers can be seen as philosophical, economic and practical. First, as a number of speakers have highlighted, the measures do not target the poorest in society; they do not, in fact, do anything to tackle the really deep and challenging poverty traps into which many people fell through the complex layers of tax credits that the former Prime Minister insisted on imposing. They do nothing to undermine the dependency on the state, which all progressives in this House now seek to try to unravel. Anyone reading the work of Professor Giddens—new Labour’s philosopher-king—would understand that that is not an accident. In his seminal book—I commend it to Labour Members who have not read it—he sets about defining modern citizenship as a dependency on the state. It should be no surprise to us that the last Government took every opportunity they could to increase dependency on the state. Those of us in the coalition who want to release citizens from dependency would take issue with that philosophy.

Economically, there has been some flawed thinking. At a time when Labour Members were building up historic debt to £700 billion, some of my constituents might well have considered it something of a gimmick to set about giving back small amounts of money that the beneficiaries will not receive for 18 years in some form of apparent largesse when what people were really going to inherit was a historic deficit and all that went with it.

I defer to my hon. Friend the Member for Gloucester (Richard Graham) in respect of his earlier comments on the inefficiencies in management. I noticed in the Library briefing that management fees were running at £700 million, so it is odd to hear Labour Members defending putting money into the pockets of fund managers.

Finally, let me deal with the lack of support for these measures from independent commentators, whom we might have expected to be more vocal. When I went to the Library to find out what responses there had been to these cuts, I found two examples to which I would like to draw the House’s attention. Barnardo’s, commenting on the child poverty figures, said:

“We want to see child poverty reduced to 1.7 million by 2015—the missed 2010/11 target. The Government must now play catch-up. It can be done. Our Government has made the first step, by vowing to cut child tax credits to middle income families and the Child Trust Fund. To continue on the right foot all it has to do is invest that money saved in our country’s poorest children.”

The report of the Child Poverty Action Group—other Members have mentioned it—provides another example. Its briefing of 2005 pointed out that the child trust fund would not benefit children until they were 18, stating:

“Given ongoing problems with the administration of tax credits, and the much publicised inadequacies of the Social Fund, we believe it would be more appropriate and more effective to divert additional funds and administrative time and energies to improving elements of provision that are designed to support low income families rather than on a scheme which many commentators believe will disproportionately benefit higher income families.”

On the grounds of the nature of the deficit we have to deal with, the flawed thinking behind the policy and the lack of support for it, it seems to me that, far from being an hysterical over-reaction, these measures are perfectly reasonable and sensible, particularly in the light of the coalition’s commitment, set out in the Budget and the comprehensive spending review last week, to the retention of Sure Start, the introduction of the £7 billion pupil premium, the targeting of child benefit at the most needy families and tax credits. Some Members have already referred to them.

[Alison McGovern]

Will the hon. Gentleman give way?

[George Freeman]

I am just wrapping up.

Also important is the Institute for Fiscal Studies’ analysis, showing the Budget measures will not increase child poverty. Far from being irresponsible, I suggest to the House and to people more widely, that these are regrettable, but responsible, measures from a Government who take seriously their responsibilities to tackle the deficit left by the previous Government.

[Kate Green (Stretford and Urmston) (Lab)]

This is an incredibly serious debate and I would like to address what I believe are important points raised on both sides of the House. I shall deal with all three elements of the Bill—the health in pregnancy grant, the child trust fund and the saving gateway proposals—in the context of what I understand to be important drivers for this Government, such as reducing inequalities, improving social mobility and improving child outcomes. I shall also consider the extent to which the proposals meet the Government’s own fairness test.

I start with the proposal to abolish the health in pregnancy grant. There is considerable evidence to show the impact of poor maternal nutrition—during pregnancy and, importantly, prior to conception—on low birth weight, and the impact of that on a series of outcomes for child development down the line, including educational attainment and health outcomes. I certainly agree with the Conservative Members who said that a grant in the seventh month of pregnancy was not sufficiently early to achieve everything we would want to improve the well-being of pregnant women and their unborn children.

For women on low incomes, affording a healthy diet is a challenge. Indeed, women reliant on safety net benefits will, if they are under 25, have an income of £51.85 a week; and if they are over 25, £65.45 a week. Those amounts are sufficient to meet the minimum income standard determined by the Joseph Rowntree Foundation—£44 a week in order to afford a healthy diet. However, once we take into account other expenditure that has to be met out of those benefit payments—fuel, clothes, travel, personal items, insurance, utilities and so forth—it means in practice that women conceiving and bearing children on benefits could find themselves with as little as £10 a week to spend on food. Clearly, none of us could eat a healthy diet on that.

It is right, as Opposition Members have repeatedly pointed out, that despite its perhaps unfortunate name, the health in pregnancy grant has the potential to achieve much more than simply help with a healthy diet. It helps to meet a number of the costs associated with preparing for and coping with the arrival of a new baby. Obviously, parents across the income spectrum will be grateful for any help. Although I was rather pooh-poohed by the Minister when I suggested that such a grant is likely to be spent pretty readily so it will also help the economy, there is lots of evidence to show that if we give money to parents at a time when their costs rise, they will go out and spend it quickly—they need to; there are items that they must buy. This will make a modest contribution to our economic regeneration, although that was hardly the overriding reason for introducing the grant in the first place.

[Alison McGovern]

Does my hon. Friend agree that this is similar to other kinds of grant such as the winter fuel payment, which we award in cash terms to get people through what is an expensive time? It is most efficient not to cross-question what it is actually spent on, but these grants are important in recognising that people go through difficult and expensive times.

[Kate Green]

That is absolutely right on a number of fronts. First, as my hon. Friend says, this sort of grant is designed to help with specific expensive times in the course of people’s lives. It is important to recognise that specifying what it gets spent on is not necessary to ensure that it does good. In fact, there is a lot of evidence to show that if we give more money to parents, particularly to mothers, they will spend it on things that will help their kids.

I understand the concerns of Government Members about universal benefits, but this is a universal benefit. It goes to people who are financially better off as well as to those in greater need. As Opposition Members have repeatedly sought to explain, universal benefits are the most effective for reaching the poorest. They are the easiest to administer and the easiest to claim; there are no complicated cliff edges or recalculations. As such, I believe it is important to retain a range of universal benefits within the totality of support for families with children. I therefore think that the health in pregnancy grant has a useful role to play.

Even if we accept for a moment Government Members’ concerns that the benefit has been poorly targeted, that is hardly a case for scrapping it outright, especially when basic benefits are too low for the poorest women to be able to afford to eat healthily before their child is born. Surely, far from seeking to abolish the benefit, an ambitious Government who were keen to improve the outcomes of the poorest families and children would want to extend its scope or consider other ways of improving the adequacy of out-of-work benefits.

--- Later in debate ---

[Kate Green]

I hope that Conservative Members and the Minister will hear that contribution in the spirit in which we all feel it. This country has a poor record on outcomes for looked-after children, who enter adult life singularly poorly provided for financially. The child trust fund was a small step towards beginning to rectify that. As my hon. Friend says—and I hope the Government heed this—if the child trust fund is no longer to be the mechanism through which looked-after children are given some sort of nest egg with which to embark on adult life, I hope that Ministers will look for another way to secure the financial futures of such children. It is not sufficient to say that we will improve education, health and Sure Start support, important though those are. Plenty of evidence shows the importance for young people, especially those from disadvantaged backgrounds—and looked-after young people most of all—of having a financial asset behind them.

The hon. Member for Gloucester (Richard Graham), who I am sorry is no longer in the Chamber, cited the briefing that some Members had received from the Save Child Savings alliance. I was struck by the numbers he shared with us: 4.5 million child trust fund accounts are open; £2 billion is under management; and £22 million a month is saved in those funds. That is a lot of money being saved and set aside for our children’s futures. I strongly urge the Government to take note of that success. The vast majority of families saving are on modest, medium or lower incomes, certainly of less than £50,000, and many of them on much less. The hon. Gentleman mentioned that, I think, 24% of families were not saving at all. He is right to draw attention to the position of those families, but I question what they will save with instead, if we remove the child trust fund. If the Government do not save on behalf of the poorest children, I very much doubt that a tax break, for families who probably do not pay tax anyway, will suddenly magic up savings for the poorest children. I ask the Government to address that point.

The child trust fund is well targeted for its purpose, which is to deliver an asset to young people as they start out on adult life. Better-off families can afford to support their children with university fees, renting their first flat, buying their first car, perhaps starting a business, having a gap year—all markers of social stability, and therefore at the heart of what the Government rightly want young people from low-income backgrounds to be able to participate in. I am genuinely at a loss to understand why a Government who repeatedly, and unjustly, lambast Labour’s record in relation to social mobility and inequality, should totally dismantle a savings vehicle that has the potential to reduce inequalities, and instead propose a savings vehicle that will widen those inequalities by benefiting only those who are better off.

I am just as puzzled by the Government’s attitude to the saving gateway. Pilots in different parts of the country have shown that, coupled with outreach and money advice, it helped to support a savings habit, provided low-income families with a cushion enabling them to cope with crises, allowed them to build up modest assets over time, and made possible additional savings that would not have been possible otherwise.

I am surprised—more than surprised; indeed, I am shocked—that a Government who are happy to extend tax breaks to savers and to maintain them on ISA savings, pension contributions and inheritance tax will not provide support to boost the savings of the poorest. I ask Ministers how that can possibly be fair.

[Alison McGovern]

I thank my hon. Friend for giving way again. She is making a comprehensive and excellent speech. Does she agree that what the financial services sector needs now are additional deposits, and that offering tax breaks to those who are already saving will not be half as effective as continuing programmes which, according to all the evidence, produced those additional deposits and improved the savings culture?

[Kate Green]

I think that the Government should be very wary about dismantling a scheme that has generated additional savings, for exactly the reason that my hon. Friend has given.

What concerns me most is the impact of the Bill on the Government’s commitment to reducing inequality. We already have a significantly unequal distribution of assets. Up to 20% of households have no assets at all. The highest-earning 10% hold half the assets, and two thirds of households have savings of less than £3,000. I accept that we are not handing on a proud record to the incoming Government, but I would have expected them to conduct a rigorous equality impact assessment of their own proposals as a result of their determination to do a little better than that.

The equality impact assessment that accompanies the Bill is thin in the extreme. It fails in any way to recognise the lower earning power in the labour market of women, disabled people and members of ethnic minorities: a lower earning power that translates into a lesser ability to set money aside in savings, and ultimately, therefore, into lower asset holding. Its analysis of the saving habits of members of ethnic minorities is scanty, although research from the Runnymede Trust would have informed the Government quite quickly that at least 60% of Asian and black British families have no savings at all. The fact that that is twice the number of white households in the same position should concern us greatly.

Finance (No. 2) Bill

Alison McGovern Excerpts

Monday 11th October 2010 Commons Chamber

[Ms Eagle]

The hon. Gentleman is arguing that we should do the opposite of what the Government decided to do in June. I hope that, in due course, we will see him in the Lobby with us.

[Alison McGovern (Wirral South) (Lab)]

I thank my hon. Friend for giving way and welcome her to her new role. I am pleased to see one of my Wirral constituency neighbours at the Dispatch Box. I was not a Member of the House at the time, but I recall the temporary VAT reduction to 15% as being just that—a temporary improvement for consumers to build confidence. Will she assist me? Was that the case and how does that measure compare to the VAT proposals made by the Chancellor in his Budget?

[Ms Eagle]

Clearly, that measure was temporary and well signalled in advance—a cut to boost the economy in the short term in the most effective way. The interesting thing about what has been announced since June is that the VAT increase appears to be permanent. We are also seeing a range of other announcements, such as the shift from the retail prices index for benefit increases to the consumer prices index—not temporary to deal with a situation in front of us, but seemingly permanent.

--- Later in debate ---

[Alison McGovern]

How will that increased confidence play out in different regions where—for the right reasons, because work is cheaper in such areas—public sector jobs are now focused? How does public confidence work in an area where a high number of public sector workers face redundancy?

[Mark Simmonds]

The hon. Lady makes a fair point, and I should say two or three things. First, the national insurance changes that the coalition Government have made will make it better and easier for employers to take on new employees in the private sector. Secondly, the Treasury is working on the regional fund to address the difficulties that are faced in some regions, which, I would argue, are over-dependent on public sector jobs, so that people can move into the private sector quicker than would otherwise be the case.

The second element of the expansionary fiscal contraction is to encourage business to invest, and I do not agree with the fundamental argument of the shadow Treasury spokesperson. There is a direct inverse correlation between Government borrowing and business investment, which means that when Government borrowing declines business investment goes up, and vice versa. That would be especially true if it were supported by expansionary monetary policy, which it is and, I hope, will be for the foreseeable future.

Opposition Members may say, “That all sounds very well theoretically, but has it ever happened in practice?” The simple answer is, yes. It has happened twice in recent times—not only in the early 1980s, when the then Chancellor of the Exchequer, Geoffrey Howe, reduced public expenditure and interest rates and, therefore, stimulated economic growth, but—

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[Nic Dakin]

I think that there was a large feeling at the Conservative party conference last week that the Conservatives should have done better in the general election, given that they faced a Labour Government who were clearly struggling in the face of many challenges. I am interested in the hon. Gentleman’s spin on the outcome of the last election, but the reality is that nobody won it. What has happened since is that the Government parties have shown skill in developing a narrative that runs along the lines of what the hon. Member for Boston and Skegness (Mark Simmonds) outlined—it was also added to by the hon. Member for Bristol West (Stephen Williams)—which is essentially that everything comes down to Labour spending profligately and a massive deficit that needs to be tackled fast and furiously. That is the narrative, but it is not the truth. The truth is far closer to what we heard from my hon. Friend the Member for Bassetlaw, who demonstrated that what has really happened is that our deficit lies alongside that of Germany. The problem is serious, but it does not require us to go as far as is being suggested.

[Alison McGovern]

Does my hon. Friend agree that it is not merely we on the Labour Benches who disagree with the fake narrative that the Conservatives and Liberal Democrats are putting forward, but the recent report by the International Monetary Fund and the International Labour Organisation? Those bodies have tried to persuade countries such as ours not to disinvest from the economy, because they are worried about jobs and employment.

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[Mr Brian Binley (Northampton South) (Con)]

I cannot let this opportunity pass without saying how good it is to follow the hon. Member for Bassetlaw (John Mann). He always speaks honestly, from his own, rather unique perspective, and he enlivened the first match of the season—to my mind anyway. However, he is the only man I know who can play for both sides in the same match, and I enjoyed his contribution.

The Minister talked about the need to support businesses large and small. You will know that I share that view, Mr Deputy Speaker, because therein lies the nub of whether the Budget strategy will succeed or fail. A flourishing business sector is vital to a sustained economic recovery, and small and medium-sized enterprises are a major element in the growth agenda. They are responsible for slightly more than 50% of the private sector work force, and they are the sector that will provide the jobs and wealth to make the Budget strategy work, given the opportunity. Sadly, however, the economic downturn hit the sector especially hard. SMEs were in the process of growing 2 million jobs over a 10-year period, when at the same time UK plc was shedding 1.5 million. If ever there was a trend to prove that SMEs are capable of creating growth, those figures ought to bring us comfort. The downturn exposed their vulnerability, however.

Everyone knows that we need to mend the roof while the sun is shining, and to stock up the larder during the good times—everyone, that is, except the members of the previous Labour Government. They told the regulators to apply a soft touch, and they failed to keep an eye on the big picture. As a result, banks were over-leveraged, bad debts mounted, asset lending ratios got out of kilter and banking institutions became unstable, resulting in a global recession. Many small business men saw it coming, and many of them took action. My company was one of those that acted at the appropriate time. Sadly, however, our recently deposed Prime Minister failed to do so. How could he, when he so arrogantly believed that he had done away with bust? No statement made in recent years will come back to haunt a man as much as that one will continue to do.

Sadly, the regulators are now overcompensating for their negligence by making heavy demands, especially on the very sector in which growth is most likely to occur—the SME sector—and things will get worse unless we do something about it. The Basel Committee on Banking Supervision has recommended that banks increase their capital reserves even further. Banks are being asked to increase their common equity as a percentage of core capital. However, just as the pendulum swung too far in the good times, so it is swinging too far in the opposite direction now, and that is having an adverse effect on lending to small businesses. Banks have already taken major steps to increase capital reserves, and there is every chance that the Basel proposals will be approved in December. That would take more money out of the economy and lock it up in bank vaults just at the time when business needs more working capital to finance growth.

[Alison McGovern]

What would the hon. Gentleman say to the representatives of small businesses in Wirral, to whom I speak regularly, who are concerned that they will no longer be able to benefit from investment allowances or benefit to the same extent as big businesses from the Government’s recent cuts in corporation tax?

[Mr Binley]

As the founder of two small businesses, I can tell the hon. Lady that investment benefits are not the major concern. The major concern is the ability to get money from the banks to act as working capital. I can see that the incentives those benefits provide are helpful, but they are not the core problem that small businesses are facing at the moment. The truth is that the Government will have to review a number of areas of policy in order to deal with the core problem.

I was saying that the banks were building up their capital assets to a dangerous degree. J. P. Morgan has recently announced new rules that will increase its risk-weighted asset base by 25%. Research also suggests that Barclays will achieve an even greater increase, of some 44%. Of course banks must be soundly based and properly regulated, but we have to get the balance right. All the evidence suggests that the capital reserve build-up has a sizeable detrimental effect on the ability of SMEs to capitalise on growth opportunities. As I said earlier, that will threaten the Budget strategy, unless the Government deal with the problem, and I hope that the Economic Secretary will come back to me on this matter.

Research by the Federation of Small Businesses suggests that 24% of SMEs are already having difficulty coming to terms with current increases in the cost of money, and the new capital requirements will compound that situation. This could not come at a worse time. More businesses are in danger of going to the wall through overtrading during the upturn than folded during the downturn.

--- Later in debate ---

[Alison McGovern (Wirral South) (Lab)]

First, may I congratulate the hon. Member for Skipton and Ripon (Julian Smith) on his fine maiden speech? As a railwayman’s daughter, my recollections of being forced as a small child to suffer the Settle to Carlisle railway as a holiday are still with me. His is an extremely beautiful part of the country and he made an excellent maiden speech.

I welcome many of the measures in this Bill. As has been said, many of them will receive cross-party support and were due from the previous Government’s Budget in March. A good, effective tax system, well resourced, is the mark of an excellent democracy, so it is important that Members of Parliament take care to ensure that our tax system functions well. I therefore want to say something about tax and its collection, and to highlight two vital points where this Government have missed an opportunity to implement change that could benefit our economy at this very difficult time.

Hon. Members may not be aware that many employees of Her Majesty’s Revenue and Customs work in Liverpool, the Wirral, Merseyside and the Liverpool travel-to-work area. Many such staff now work in my area as a result of the shifting of Government work to areas where wages are lower and it is more effective to locate staff. Their work is largely not commented on, especially in this place, even if it is good, high-quality work. We often talk about public servants, but few of us ever think to congratulate those working to ensure that our tax system functions well—that is part of what I want to do today.

I hope that the House will permit me to share the fact that one of my first experiences as a newly elected Member of Parliament was of some HMRC staff coming to see me at my newly opened constituency office. They were very fearful of changes that the new Government looked as though they might implement and they wanted to raise some of their concerns with me, particularly those relating to the resources that might be available in the future. As has been mentioned, over the past three years they have increased the yield from interventions by 60%. That is a good record and all of us want to see that continue. We legislate in this place—we debate and we pass Bills that become law—but that is all just words; we are dependent on the good work of HMRC to make real our choices and decisions. So we should not treat those staff with scant regard and we should take seriously the problems that they might have. In fact, my experience of meeting and speaking to HMRC staff has revealed that, like many in the public sector at this time, they are operating under a cloud of uncertainty.

I appeal to Ministers to act with transparency as much as they can, to keep in consultation with staff at all times and, in particular, to pay attention to whether HMRC has sufficient resources to act out the consequences of the choices that they make. The child benefit changes might place further work burdens on HMRC staff and we politicians owe it to those staff to ensure that they have enough resources to act on the consequences of our decisions.

I wanted to discuss a couple of opportunities that the Government have allowed to pass them by. One main feature of the Budget that concerned me greatly was the VAT rise to 20%, and I believe that Grant Thornton has estimated that that increase will cost individual households about £500 a year. There is sincere concern among many people about the harm that that could do to our economy. In my area, the recovery is fragile. I am very grateful for the intervention of Deloitte, which has put on record where business and consumer concerns lie. However, I know from speaking to people in my constituency that business confidence is still fragile and I worry what the increase in January will do. I worry what the increase in the cost of the contents of their shopping baskets in January will do to families, and I worry that because of the VAT rise many small businesses in my constituency will face a tougher time after Christmas than they have in the past 12 months.

Let us be clear that we have every indication that that measure is a permanent rise—it is a permanent shift in who pays what tax. We debated earlier the contrast with Labour’s temporary VAT reduction. I remember very well the restaurants in my area putting out temporary notices amending their menus—it was very clear to everybody that it was part of the stimulus and part of the Government’s work to get us through that time. That is not the case with the current VAT rise, which is a totally different thing. It is a regressive increase in tax.

I absolutely believe that, over time, we must seek to reduce the deficit, but I do not feel that raising VAT is the way to do it. One thing that has not been mentioned so far is the impact of a lower tax take on the deficit. We need to recognise that part of that lower tax take has come from unemployment caused by the global downturn. We need to make strategic investment in this country in the things in which we have a competitive advantage—in high-tech areas—so that we can increase employment and bring the budget back towards balance. That is the way to do it, rather than introducing a permanent shift in who pays tax in this country. It will hit families in my area harder than many; in fact, it will hit families harder in Wirral than it will hit those who live down the road in Cheshire, in the Chancellor’s constituency.

My second point builds on some of the debate that we have had this evening about businesses of all sizes. I am thinking specifically of small to medium-sized businesses in my constituency, representatives of which I have met recently. In fact, since I was elected in May I have been speaking with businesses in my area, which—hon. Members might not know this—are science-led. We have an excellent part of the knowledge economy in my constituency as well as many high-tech businesses that supply the electronics industry in Korea and other places. We have Unilever, which carries out high-end research; staff at Unilever’s research and development lab in my constituency have more than 200 PhDs among them. There are also many feeder businesses to those science and high-tech industries. Investment allowances are no small fry to us.

In two cases recently, I have been called in to meet a business that is about to move jobs out of my constituency. In both cases, after having analysed the situation, it has seemed that capital investment in new technology could have stopped that. The motivating factor for the removal of those jobs is the lack of capital investment and I want the Government to pay great attention to what more they can do to incentivise business to make capital investment in our country, because that will make our economy sustainable in the long run.

Let me contrast that with corporation tax, which helps big businesses that are already in profit to keep their profits. A corporation tax cut across the board does nothing to incentivise business to make capital investment. Only this morning I was speaking to people at a business in my constituency. I asked what one thing I could tell the Government to do that would help their business to invest for the long term, and they said, “Help us make those investments: introduce more allowances that enable the investment that will help to protect our employment for the long term.”

[Alec Shelbrooke]

Does the hon. Lady not agree that competitive corporation tax would attract international investment into this country and develop jobs for our economy? We must play on the global stage, not just in Britain.

[Alison McGovern]

We have competitive corporation tax. The hon. Gentleman is right that we must play on the global stage. Many of the companies in my constituency that I am talking about play on the global stage. I have seen the difference that other countries have made in working with business to ensure that they invest in their technology, which keeps them here for the long term. Let us consider, for example, the historical difference in the German automotive industry, where the Government did just that. We came very late as a country to that approach—to that industrial activism and to that investment in high-tech industry to secure employment for the long term.

I ask Ministers to consider their role. When we are dealing with global companies, the Government must always discuss with them the changes in their industry and what the next move needs to be in investment. I do not feel that an across-the-board corporation tax that hands profits back without any discussion about what is done with them is the way forward.

[Charlie Elphicke]

Does the hon. Lady not note with concern that the UK’s high rate of corporation tax, relatively speaking, has caused a whole load of British companies to leave the UK, thus destroying jobs and money?

[Alison McGovern]

I merely disagree on the facts. I disagree that we have had an overly high level of corporation tax and that we have not had inward investment. I would invite the hon. Gentleman to come with me to Vauxhall Motors or Unilever in my constituency, where they have just invested millions of pounds in high-tech kit that means that that research will go on in this country in the long term. I disagree with the hon. Gentleman on the facts, I do not think that what he says is the case, and I do not think that that is what is happening. There is a risk that it might happen in the future, unless the Government show an active approach to working with businesses to ensure that they have the right incentives to stay and invest in Britain.

In conclusion, I have three points that I ask the Government to take into account. I ask them to consider, on an ongoing basis, the effectiveness of HMRC and whether the resources allocated are enough to bring in the necessary taxes to bring the budget further towards balance. I question what more they can do to promote real growth and the rebalancing of our economy. I worry about the effect of the VAT rise on those people who are least able to cope with it and that that will yet again distort the economy in Britain. Our economy actually operates very differently in different geographical areas. I do not mean to point out a north-south divide, because parts of the south-west are likely to suffer in similar ways to my area. We need to be careful at this important time. Much can be done to work with businesses and assist them in making investments, and I hope that the Government will consider that as the Bill goes forward.

[Richard Harrington (Watford) (Con)]

I start by congratulating my hon. Friend the Member for Skipton and Ripon (Julian Smith) on making such an excellent maiden speech. He was erudite, and he was absolutely correct in what he said about David Curry, a man I know. My hon. Friend described his experience from his constituency and as a small business man, and I have had exactly the same experiences myself. I could not disagree with a word he said, and he said it very well indeed.

I have listened to a number of speeches today—in fact, I think I was five years younger when I got here, although it was only a few hours ago. I did not want us to repeat the debate that we had on the Budget before the recess, because this debate is to discuss what the hon. Member for Wallasey (Ms Eagle) described as technical innards. However, we have heard about a lot more than technical innards, and much has been said about the economy in general.

I must say that I cannot believe the advancing amnesia among the Opposition. They seem to be in denial about what happened. The right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), as Chancellor of the Exchequer, decided that he wanted dramatically to expand the economy by borrowing a huge amount of money and spending it on almost anything that there was to spend money on, but it did not work. As soon as the Opposition’s denial ends and they say, “Okay, we tried it, but as it turns out it was irresponsible and did not work”, we can have serious budget debates. Instead, we have heard arguments such as those from the hon. Member for Wirral South (Alison McGovern) about people putting signs up in restaurants about a small reduction in VAT, which was apparently the great fiscal stimulus. I would love her to find one person in her constituency or in the whole country who said, “Oh, VAT is about 2% less, we’ll go and eat tonight.” Such things just did not happen.

[Alison McGovern]

I feel moved to defend myself. The point is that a VAT reduction would give the economy an immediate boost and signal temporary Government action to get us through. I believe that the hon. Gentleman is wrong about the impact of VAT cuts, but if he knows of some statistics or evidence I would be very happy to hear it.

[Richard Harrington]

Well, the cut cost in excess of £300 million, and it is common sense that people do not change spending decisions based on a 2% difference.

I shall move on, because time is running short and I wish to talk about two parts of the Bill. The first relates to the British film industry. The Bill contains a technical adjustment to film funding to allow more leeway in calculating the amount that is surrenderable for tax credit. That sounds complicated, but it is sensible. The real issue is the need for appreciation by this House of the film industry’s economic contribution.

I must confess to having a constituency involvement, in that Leavesden film studios, where much of “Harry Potter” was filmed, are in my constituency. The American company Warner Bros has announced that it is acquiring the site, and that there will be a big increase in employment. Hopefully those studios, as well as Pinewood, Elstree and many others, will continue their prosperity.