Budget Responsibility and National Audit Bill [Lords]

Debate between Alison McGovern and Alec Shelbrooke

Monday 14th February 2011 Commons Chamber

[Alec Shelbrooke]

My point is proved by that sedentary intervention. Labour Members think that the whole financial crisis is down to the banks.

There is no doubt that the banks contributed to the global recession, but there is equally no doubt that this country was one of the worst placed countries in being able to deal with the downturn. Let us not forget what a structural deficit is. Again, I see Opposition Members shaking their heads, completely in denial of the fact that this country was living way beyond its means. One does not rack up a £1 trillion debt in the good times if one is acting sensibly. While £120 million a day in interest is going to foreign nations, we see councils around the country, especially Labour-run councils, cutting front-line services that impact on the public and trying to blame the Government, yet never mentioning what we could have done with that £120 million a day. We have to get a grip on the economy.

I want to return to the OBR, because I am conscious, Mr Deputy Speaker, that you have been trying to keep the debate on track. Let us consider the name of this body —the Office for Budget Responsibility. “Responsibility” is a word that has been lacking in the governance of this country and its fiscal policy, not only in the Treasury but, as we recently learned from senior civil servants, in other Departments that lost control of spending. We in this House have to be responsible and move things forward.

[Alison McGovern]

The hon. Gentleman rightly says that we should be cautious. How successful does he feel that previous attempts to add caution to Budgets were? The National Audit Office has previously examined the assumptions made by the Treasury. For example, it was assumed in the March 2010 Budget that GDP growth was 0.25% lower than it really was. Would he like to comment on how those previous attempts at caution might feed into the OBR’s future work?

[Alec Shelbrooke]

As the hon. Lady suggests, previous forecasts and attempts at caution came from many different angles. The public will recognise that the OBR is giving us a proper set of figures that can be relied on. If the Chancellor of the Exchequer then ignores those figures and ploughs ahead, not only would the calls from the Opposition be deafening but the public would know that the Chancellor was acting against their interests.

--- Later in debate ---

[Alison McGovern (Wirral South) (Lab)]

It is a pleasure to follow the hon. Member for Elmet and Rothwell (Alec Shelbrooke), whose robust arguments I always enjoy, if not agree with.

The purpose of this Bill is to separate politics and economics, which is not always an easy job but is one that it is important to do. There is a body of academic understanding about the importance of the independence of judgments, forecasting and transparency, and that importance is recognised and understood on both sides of the House. In many ways, the Bill makes clear Labour’s economic legacy of the past decade—rules-based economic policy. The reasons for the sustainable investment rule and the golden rule were clear: after decades of boom and bust, it was felt that the way forward was to establish clear lines of accountability and rules by which economic policy might be set.

[Alec Shelbrooke]

I agree that the golden rule was important, but how does the hon. Lady respond to the fact that the dates of the cycles were moved to fit in with what the then Chancellor was claiming instead of sticking to the timeline that he originally outlined for the fiscal cycle?

[Alison McGovern]

Understanding the business cycle has been the job of economists since the dismal science began. The fact that it is difficult does not make it the wrong thing to try to do. I applaud some of the work that has been done by the Treasury and others in trying to find a better way forward. The hon. Gentleman asks an important question that cannot be dismissed by saying, “Oh, this is just people politicking.” Understanding the business cycle is extremely difficult.

When we consider the importance of rules-based economic policy, it is important to reflect on the fact that the Office for Budget Responsibility is to fiscal policy what the independence of the Bank of England was, and remains, to monetary policy: that is, it is an external-to-the-Treasury body that is charged with an important economic function that will drive the policy prescriptions that the Government make, in liaison and discussion with, and working alongside, independent chairs and officials from the organisations concerned. I have no doubt that that is an extremely difficult job. I wonder how real that independence can be. That is an important question for us to consider as the Bill moves through the House. The OBR’s work will be inextricably linked with Departments.

That point was brought home to me by the answer to a parliamentary question in which I asked the Department for Work and Pensions for forecasts of the number of young people who would be unemployed through the life of this Parliament. The Minister of State, Department for Work and Pensions, the right hon. Member for Epsom and Ewell (Chris Grayling) wrote:

“The Department produces projections for business planning purposes which are aligned to the overall independent claimant count forecasts published by the Office for Budget Responsibility”.—[Official Report, 31 January 2011; Vol. 522, c. 587W.]

I wondered what the nature of that alignment would be. I understand that it will be an iterative process as business planning projections are made and discussed in challenged conversations with the OBR. It will not be easy to maintain the independence of this body, but we must all strive to do so.

If you will allow me, Mr Deputy Speaker, I will take this opportunity to say that I mentioned that parliamentary question in Treasury questions last Tuesday, and said 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%.”—[Official Report, 8 February 2011; Vol. 523, c. 153.]

I misspoke, and should have said less than one percentage point.

It will be a difficult job behind the scenes to maintain the independence of the OBR. Lars Calmfors, who has been mentioned, has argued that it will be difficult to stop or prevent behind-the-scenes negotiations with the Treasury. However, I believe that the Government have set such store by the independence of the OBR that they want it to succeed and its independence to be maintained. As hon. Members have suggested, it could have increased accountability to Parliament via the Treasury Committee. I am sure that the members of that Committee will be perspicuous in demanding that accountability and independence.

To conclude, I will make a few remarks about rules-based economic policy. I take it from this debate that it is agreed across the House that the right way to make economic policy is to set out ahead of events the rules and principles that the Government wish to stick to, and that the Government should allow themselves to be held up and judged on the basis of those rules. What could possibly be the problem with that approach to making economic policy? In some ways, we are already seeing the problem. Young people in this country who are unemployed because of the global shock face significant difficulties. We have to ask ourselves how the rules that we have set as the basis of our economic policy allow us to act to ensure that our economy runs well. Surely, economic measures are the tools to aid a well-functioning society, not the other way round. If so, our economic policy must be able to respond to shocks.

Not only must the Government say what the rules for their economic policy are and allow themselves to be judged by independent bodies on those rules, as they are doing; they must also say how they will respond to crises. Should this country find itself in a further economic downturn, facing an even worse situation for residents of this country, especially those on the lowest incomes and at the start of their careers, who face severe unemployment, how will the Government use the flexibility in their economic policy to return the country to growth, and how will their economic rules take account of the possibility of shocks? This is a significant challenge for the Government and I hope that all hon. Members will add to the scrutiny of the Bill as it progresses.

Finance (No. 2) Bill

Debate between Alison McGovern and Alec Shelbrooke

Monday 11th October 2010 Commons Chamber

[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.