Finance (No. 3) Bill

Andrew Love Excerpts

Tuesday 26th April 2011 Commons Chamber

[The Chief Secretary to the Treasury (Danny Alexander)]

I beg to move, That the Bill be now read a Second time.

The clauses that we are here to debate are another important step on the long road to economic recovery. They will promote growth and provide support for households and small businesses under pressure. They will encourage investment as well as enterprise, and they will help us to clean up the mess that the previous Government left behind.

As we start this debate, it is worth recalling the state of the economy that this Government inherited nearly a year ago. Britain had endured the longest and deepest recession in living memory. We were borrowing one pound for every four we were spending. We had the largest budget deficit in our peacetime history, one of the largest in Europe and the largest in the G20, yet no detailed plan was in place to deal with it—and that was not the end of the story. In the preceding decade Britain had slipped down the international league of competitiveness from fourth to 12th. We had seen our share of world exports decline, and we were considered to be a worse place to start a business than many of our European neighbours.

That was the coalition Government’s inheritance, which is why we have set about restoring confidence and stability to our economy, with a clear strategy for growth. At its heart is a credible plan to tackle the enormous deficit—a plan we are already implementing—so that the current structural deficit will fall in each and every year of this Parliament, and is forecast to be eliminated by 2015. National debt is forecast to fall as a proportion of gross domestic product in the same year, so that we can finally start to reduce the huge interest payments with which this country has been saddled—the lasting legacy of Labour’s failure.

The action we have taken on the deficit has shown that Britain’s economic future is now in safe hands, that this is a Government who know how to manage the country’s finances and that we have a credible plan to deliver the strong, sustainable and rebalanced growth that this country needs.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

If things are so rosy, why has the Office for Budget Responsibility forecast for growth gone down from 2.6% to 1.7%? Why has it projected that unemployment will increase by 200,000 as a result of this and previous Budgets? Why is it that we are doing so badly under this Government?

[Danny Alexander]

I do not think I said that the position was rosy. I was going out of my way to describe the calamitous state of the public finances that the Labour party left.

I would like to touch on growth first. In the Budget we set out four economic ambitions: that Britain should have the most competitive tax system in the G20; that Britain should be the best place in Europe to start, finance and grow a business; that we should be a more balanced economy by encouraging exports and investment; and that we should have a more educated work force who should be the most flexible in Europe. The clauses in the Bill set us on the road to meet those objectives.

For the past decade Britain has been losing ground in the world economy. While other nations have reduced their business tax rates, ours have lost competitiveness. While other countries have removed barriers to enterprise, ours have grown higher still. We cannot afford this to continue. Instead, our plan for growth is based on private sector enterprise, not public sector borrowing—growing businesses, not growing debts—and on securing sustainable long-term investment.

Essential to that is creating a competitive tax system—one that enables our businesses to compete on a global stage. That is why clause 4 will see our corporation tax rate fall by 2% this year. As the House already knows, we will implement further cuts of 1% in each of the next three years, so that by 2015 we will have the lowest corporate tax rate in the G7, allowing businesses to invest more of the money that they earn, hire more workers, export more goods and support the recovery.

--- Later in debate ---

[Ms Eagle]

My hon. Friend makes an extremely good point about confidence and sentiment in the economy transmitting their way into the real figures through their effect on demand.

Even those who gave their personal stamp of approval to the Chancellor’s aggressive cuts agenda last year in a letter to The Daily Telegraph are now voicing their doubts about weak growth. Ex-Tory MP Archie Norman is worried that the Government’s growth predictions are too optimistic and former Asda boss Luke Bond is predicting a two-year retail recession, which picks up on the point that my hon. Friend the Member for Luton North (Kelvin Hopkins) has just made.

The Government are going too far too fast, and we are paying the price in lost jobs and slower growth. Their phobia about the deficit means they are cutting public expenditure much further and faster than any other major economy. They have made deficit reduction the only thing that matters, regardless of how terrible its social or economic effects will be; they appear to be blind to the lessons of history; they refuse to listen to public concern; and they fail to recognise the absolute necessity of re-establishing growth to get the deficit down. Without growth, austerity measures simply make the deficit worse and impoverish the society they are inflicted on. The Chancellor should, as he so notoriously lectured us in February 2006, “Look and learn from across the Irish sea”. Ireland is on its fourth austerity budget with no end in sight. The evidence shows that all the countries that implemented drastic austerity measures saw their economies go into reverse in the fourth quarter of 2010. Those economies shrank in Greece by 1.4%, in Iceland by 1.5%, in Ireland by 1.6%, in Portugal by 1.5% and in the UK by 0.5%. In contrast, both the German and the American economies grew.

The Chancellor is not solving the problem; he is in danger of making it worse. The day after the Budget, the ratings agency Moody’s embarrassed the Government by suggesting that the UK’s triple A rating might be at risk not because of the deficit but because of slower growth. I would take any pronouncement from the rating agencies with a very large pinch of salt, as they are hugely compromised by the part they played in making the banking crisis worse and they need to be reformed, but, unlike the Chancellor, we have neither made their flawed and partial judgments the central justification for our economic policies nor installed them as the most important judges of our success by giving a dangerous credence to the fiction that the UK’s ability to finance its debts is at risk for reasons of petty party politicking. Their influence makes the inconvenient point for the Government’s political cuts narrative that growth is equally important to successful deficit reduction. Without growth, the deficit will not be sustainably reduced.

[Mr Love]

According to the Government, one of the major contributors to growth in coming years will be an increase in net exports, but with all our European partners struggling, as has been shown, how are we meant to get that increase in net exports and demand?

[Ms Eagle]

With a 25% devaluation in the value of our currency, we certainly ought to be seeing strong increases in economic performance, but my hon. Friend makes an important point about demand in other areas of the economy, especially in the European Union, which is our largest export partner—60% of our exports go there.

The Chief Secretary will already have seen the growth figures for the first quarter of 2011, and I am looking at his face for any scrutable or inscrutable reaction. The figures are due to be released tomorrow, so he has an advantage over the rest of us. I do not know whether he is going to give us any facial hints as to what is in them, but if the OBR’s three-times downgraded forecast of 0.8% is right, the economy will have grown a tiny 0.3% over the past six months against the 1.8% it achieved in the previous six months under the influence of the previous Government’s policies for recovery. As the Financial Times says today,

“it will be difficult to claim that the recovery is self-sustaining unless Wednesday’s number is at least 1.2 per cent and possibly as high as 1.7 per cent.”

The Government’s growth strategy is a hotch-potch of reheated Thatcherite fiddling on the supply side. At its centre is the dubious belief that the most important driver of economic growth is creating a low corporate tax jurisdiction for multinationals, but the economic literature shows that growth tends to be higher in countries that have a higher investment in social and intellectual assets, as well as good capital infrastructures. The Government have a simplistic view that cutting corporate taxes will automatically lead to more investment, but we believe that an investment strategy is needed and that it sends the wrong signal to cut investment allowances. The £200 million one-off extra investment in science and apprenticeships, although welcome, is dwarfed by the £5 billion-a-year cost of reducing corporate taxes, which will help growth only if that money is reinvested in business activities in the UK. The Government’s decision to abolish the regional development agencies and cut regional growth funding by two thirds has set back many viable plans for development that could even now have been building an economic recovery in every region of the UK.

Despite the biggest squeeze in living standards since the 1920s, the OBR is forecasting that one quarter of economic growth this year and a third next year will come from UK households and will be financed by a sharp increase in household debt. Close study has revealed something that the Chancellor chose not to mention in his Budget speech: the OBR expects families to go deeper into debt each year between now and 2015 and expects household debt to rise to a record high of 175% of disposable income, or £77,000 per family, by the end of this Parliament. The Chancellor claims that the only thing that matters is getting Government borrowing down, but he does not say that his plan is to pass that debt directly on to already hard-pressed families. Although they did not cause this crisis, ordinary hard-working people and families are being made to pay for it. People are suffering under the pressure of the Chancellor’s hike in VAT, sky-high petrol prices and inflation, and we know that his real economic strategy is to force people to take on even more debt just to make ends meet.

What then of the sector that caused the crisis? Instead of making the banks pay more this year, the Government are giving them a tax cut. Project Merlin, the Government’s so-called final settlement with the banking sector, is a damp squib. As the majority shareholder, the Government have just approved, for the chief executive of the nationalised Royal Bank of Scotland, £7.7 million in pay and bonuses for last year despite the bank’s having lost £1 billion. It has also emerged that bank lending to small businesses fell again in the first quarter of the year. Lending to small businesses is vital to recovery and despite all the promises from the banks it is going down, not up. The Government should not be giving the banks a tax cut, but should follow Labour’s suggestion and repeat the bank bonus tax this year. That extra money could be used to build 25,000 extra affordable homes, to create more than 100,000 jobs to help tackle youth unemployment and to boost enterprise in the regions.

The Government are hellbent on taking us back in time to the divided Britain of the 1980s. The Tory leaders in the coalition are trying to re-enact the failed Thatcherite policies of the past, which resulted in one part of our society being divided against another. Not only are they making life tougher for people, but they are kicking away the ladders to a better future. They are teaching people to blame the weak and despise the poor. It is happening all over again, just like in the 1980s, but this time the Liberal Democrats are helping them to do it. At the weekend, the Deputy Prime Minister accused the Prime Minister of “defending the indefensible”, but I think that the Deputy Prime Minister and his Government colleagues are doing a pretty good job of that themselves. In public they complain, but in private they roll over and agree to every damaging Tory plan.

The Government fail to recognise the pain that their economic strategy is inflicting on people up and down the country. They want Britain to have a smaller state; they want to create a nastier, meaner, shabbier society that leaves people to fend for themselves; and they are trying to fool the country into believing the myth that the economic storm was all Labour’s fault and that this extreme and dangerous fiscal consolidation programme is the only option to deal with it. The Government need not have cut this far or this fast, because there is a better, fairer and safer way. They need to wake up and accept that their economic polices are not working and are just hurting, and they need to change course before it is too late.