Finance Bill

Angela Eagle Excerpts

Tuesday 20th July 2010 Commons Chamber

[Mr Gauke]

The fact is that the big risk to growth for this country would have been if we had done nothing about the deficit. If we had tried to ignore it, we would have found ourselves having our credit rating downgraded, as has happened to Greece, Portugal, Spain and now the Republic of Ireland, and we would have faced a contagion of sovereign debt. We have taken the necessary actions to ensure that growth is secure and the fact is that the OBR projections have far greater credibility than the previous Government’s—we have learned about how political they were in making their growth forecasts. Our growth forecasts have credibility. Our public finances have a credibility that they did not before. We can be proud of that.

As we have heard, the previous Treasury team believed that an increase in VAT was necessary and that was only blocked by the previous Prime Minister. One can hope that the previous Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), has seen the error of his ways. I noticed that he did not feature in the Division Lobby opposing the VAT increase—perhaps we have persuaded him, after all, that his views on VAT were unwise. We have succeeded where the shadow Chancellor failed.

We have heard legitimate concerns about how the most vulnerable in society will be protected, but we have sought to provide such protection in the Budget. For example, we have committed to the uprating of the basic state pension through a triple guarantee of earnings prices or 2.5%, whichever is highest, from April 2011. We have taken steps to increase the child tax credit.

[Ms Angela Eagle (Wallasey) (Lab)]

I thank the hon. Gentleman for his generosity in giving way. On this point about uprating pensions, will he take this opportunity to admit that the shift from the retail prices index to the consumer prices index as the definition for which all benefits and now all pensions will be indexed is scored as plus £6 billion in the Red Book, which means that he is taking that amount of money from some of the most vulnerable and poorest people in the country?

[Mr Gauke]

We have taken measures to secure the public finances for the longer term, but we have done so by protecting the poorest in society. We have provided a triple guarantee for pensioners and we have finally restored the earnings link that our predecessors did not succeed in restoring in 13 years. In addition, we have taken steps to increase the child tax credit by £150 next year and by £60 in the following year. As a result, levels of child poverty after the Budget will remain unaffected, taking into account all the measures of the next couple of years.

--- Later in debate ---

[Ms Angela Eagle]

I am listening to the hon. Gentleman’s arguments very carefully. Will he tell us whether he is so disappointed that he will now finally consider not going into the Lobbies to support the Budget on Third Reading?

[Andrew George]

Perhaps the hon. Lady was not listening to my opening remarks when I said that on balance, because there are many measures that I approve of, even though I am disappointed by this particular measure, I will be supporting the Government. This is, of course, a Finance Bill and not the Budget as a whole.

I was reassured, but I seek further reassurance from Treasury Ministers, regarding the promise that the Government will not revisit the current list of zero-rated and 5%-limited VATable products and services and that they certainly have no intention of reducing those lists or in any way cutting the number of VAT-exempt, zero-rated or VAT-limited products and services such as those that we have been debating.

--- Later in debate ---

[Ms Angela Eagle (Wallasey) (Lab)]

We have had an interesting debate on the Third Reading of the Finance Bill, although it has gone over a lot of old ground, with no surprising new positions taken on either side. The Exchequer Secretary to the Treasury claimed again that the Budget is progressive—a claim that I shall dispute soon. The hon. Member for West Suffolk (Matthew Hancock), who is not in his place, set up a straw man to knock down and will come to realise that literature reviews do not translate into effective speeches. The hon. Member for St Ives (Andrew George) paraded his conscience around the Chamber again but told us, unsurprisingly, that he would be supporting the Budget after all, even though he admitted that it was regressive. People will note his crocodile tears. In the usual way, the speeches made by the hon. Members for Daventry (Chris Heaton-Harris) for Dover (Charlie Elphicke) and for Stourbridge (Margot James) supported their side of the House.

I commend the speech made by my hon. Friend the Member for Wakefield (Mary Creagh), who put before the House the real cost increases for women—especially those with young children—under the Finance Bill. That seemed to prompt much hilarity among Government Members, which I thought revealed more about their attitudes than about her concerns. She also mentioned the housing benefit and disability benefit changes outlined in the Red Book, and many millions of vulnerable people will be worried about those as the spending review approaches.

My hon. Friend the Member for Streatham (Mr Umunna) made an extremely good speech and put some facts about recent economic history on the record and my hon. Friend the Member for Chesterfield (Toby Perkins) pointed out the fallacy of private sector see-saws suddenly moving in to take over the spaces that the public sector has vacated. Such things are such an important part of the ideology of the Government. The hon. Member for Stourbridge at least did the decent thing by recognising that there had been a global recession, but she said that we were not prepared for it, although she knows that net Government debt before the credit crunch was the second lowest in the G7.

The Finance Bill puts into place a Budget strategy that is a huge gamble with the future prosperity of Britain. The Chancellor began by telling us that it was an emergency—that it was the “unavoidable Budget”. He has tried throughout this process to persuade the country of two things: first, that Labour somehow created the deficit all on its own; and secondly, that the only solution is to cut it further and faster than our plan to halve it over the lifetime of this Parliament would have done.

Neither of those assertions is true, and here is why. Extraordinarily, Ministers and Government Members, from the Chancellor on down, have failed to let the words “credit crunch” so much as pass their lips during the entire proceedings on the Bill. The attempt to rewrite recent economic history is one that George Orwell’s Big Brother would have recognised and admired. The fact is that the banking crisis, which started in the American sub-prime mortgage market, caused the biggest global contraction that we have experienced in the real economy since the Wall street crash in 1929 turned into the great depression and led directly to the outbreak of the second world war. Since they will never say it, let me reiterate that this crisis was not caused by the irresponsible public spending of Governments but by the greed and criminal recklessness of the banking and financial sector. Any analysis of current conditions that ignores that basic and obvious fact, even if only for the purpose of generating convenient political propaganda, risks a dangerous miscalculation of the appropriate remedy.

[Nadhim Zahawi (Stratford-on-Avon) (Con)]

rose—

[Ms Eagle]

I will not give way because the hon. Gentleman has not been here for the entire debate; if he had been, I would have done.

We see in this Finance Bill that the Tory-led Government have made precisely that error with their deliberate, ideologically driven choice to go for a much more aggressive and reckless slash-and-burn strategy for public spending than the objective economic conditions, or even the bond markets themselves, required. The decision to opt for a balanced budget in four years is driven not by the objective economic conditions but by an ideologically driven political belief in a small state, a belief which is now apparently shared by the Liberal Democrats. Similarly, the decision to cut the deficit by imposing a 77% to 23% ratio of public spending cuts to tax rises is a choice driven not by the objective economic conditions but by the same belief in a small state apparently shared by the Liberal Democrats. It is a ratio of pain never before achieved in the UK, and it was not shared with the voters before the election. No mandate for this was established in the general election. Ministers have admitted that the cuts will be painful, but they have failed to acknowledge the scale of the pain that they have chosen to inflict. The apparent relish with which they choose to announce huge and ongoing cuts does them no credit whatsoever, and it will be seared into the memories of the millions of victims of their sadistic fiscal policy for years to come.

The propaganda techniques are chilling. Carefully chosen, extreme examples of excess in public expenditure are leaked by the Government to sympathetic tabloids to be highlighted in screaming headlines and make the case for more cuts. Government websites coarsen the debate still further by parading a stream of ignorant vitriol whipped up by sensationalist reporting, so it is suggested that workhouses are to be reopened, benefit claimants sterilised, and immigrants deported. If this is the nice face of the Tory party, then God help us, and shame on the Liberal Democrats for going along with it. The apocalyptic and absurd scares that they have issued about the UK economy resembling that of Greece—we heard it again today—have been not only fundamentally wrong but deeply irresponsible, and they have risked precipitating the very loss of confidence they purport to avoid.

This Finance Bill signals the biggest and most sustained public spending cuts in UK peacetime history, coupled with increases in taxes such as VAT that will directly take demand out of the economy just when recovery is fragile and still needs nurturing. That is why it is such a gamble. Labour Members are not the only ones who are deeply worried about the choices that have been made in the Bill. Following the Chancellor’s “austerity Budget”, the International Monetary Fund has just cut its growth forecast for the UK for both this year and the next. The OECD has criticised the decision to abolish the future fobs fund and other employment support packages as short-sighted and warned that the scale of job cuts in the public sector will slow down the recovery.

As a direct result of the June Budget and this Finance Bill, the now notoriously named Office for Budget Responsibility has had to revise upwards its estimates of job losses in the public sector. At the same time, it has revised downwards its growth forecasts and hoped that no one would notice that it excluded 550,000 people who work in state-owned enterprises from being in public sector employment, even though the Office for National Statistics classifies them as such: thus public sector job losses are likely to be even higher. The OBR’s prediction that the anticipated “recovery” will generate 2 million extra jobs in the private sector in just five years has caused widespread incredulity, because that target has never been achieved in the modern era. It has certainly never been achieved at a time when huge public spending cuts are likely to dampen employment prospects in the private sector and austerity measures are being imposed simultaneously in almost every developed economy in the world.

[Kelvin Hopkins]

Exactly the same predictions were made about unemployment falling because of the 1979 Budget—in fact, it went up to 3 million.

[Ms Eagle]

People should learn from their economic history; I only wish that this Government would.

The OBR’s heroic assumptions about export growth and business investment also strain credibility, but Sir Alan Budd will not be around for much longer to defend his forecasts, whatever happens in the real world. One thing is clear: we cannot all export ourselves out of trouble at the same time. Because world trade has been so badly impacted by the global credit crunch, the UK has experienced a 25% devaluation of its currency without any noticeable upturn in export performance. Prime ministerial trips to China accompanied by huge cuts in Government support for new industrial activity in the UK do not seem to be the right response to this challenge.

The Finance Bill contains no strategy for growth, yet growth is the best way of dealing with any deficit. In place of a growth strategy, we see a pious, dogmatic belief—often restated today—that the private sector will miraculously spring to life and fill every space vacated by the Government. This is in the teeth of massive private sector deleveraging, damaged confidence and an ongoing lack of affordable bank lending. The huge hike in VAT will damage demand at a crucial moment. This is an example of blind economic faith—it is not a serious growth strategy. The Bill contains no hint of an alternative if this blind economic faith turns out to be misplaced. There is no fallback position if the economic gamble that the Chancellor has outlined starts to go wrong. How high will unemployment have to rise before the Chancellor looks again? Why, once more, is unemployment a price worth paying?

Finally, I want to look at who is paying for the measures contained in the Finance Bill. The Chancellor has repeatedly asserted, “We’re all in this together”, but we have to judge him by his actions rather than fine words, and his assertion of social solidarity turns out to be a cruel joke. The Finance Bill and Budget measures are regressive, not progressive. They hit the poorest hardest. The VAT hike is the regressive centrepiece of a regressive budget. The stealth move from retail prices indexation to consumer prices indexation for all benefits and all pensions takes £6 billion in savings from the poorest and most vulnerable and gives at least £50 billion, and possibly £100 billion, to employer pension schemes, at the risk of employee representatives. The losses mount year on year, for ever into the future.

Analysis has shown that the Budget takes a massive 21.7% of income from the bottom 10% of the income distribution and a mere 3.6% from the top 10%. My right hon. Friend the shadow Secretary of State for Work and Pensions has shown that of the £8 billion net revenue raised by the measures before us, £6 billion will be raised from women and children, with only £2 billion being raised from men. Like Flashman in a tight spot, the Chancellor has chosen to put women and children first. He has put them first in the firing line, bearing the brunt of his tax rises and spending cuts.

This Finance Bill takes a huge gamble with our still fragile economic recovery. It gambles that a vicious bout of self-inflicted austerity will not tip us back into a recession or a long period of low growth, and that we will be able to export our way into growth at a time when a globally synchronised austerity signals otherwise. It is regressive, threatens social cohesion and hits the poorest hardest, and we cannot support it.