Amendment of the Law

Angela Smith Excerpts

Thursday 24th March 2011 Commons Chamber

[Ed Balls]

The hon. Gentleman needs to be careful with boastful interventions. Let me read out a quotation:

“The measures we have taken have been commended by international bodies such as the European Central Bank, the European Commission, the IMF and the OECD. They have also won the approval of the international markets.”

That is the financial statement of 9 December 2009 from the Irish Finance Minister. He is no longer in office, because he had OECD and IMF approval for a policy that drove unemployment up, growth down, confidence down and the deficit up. Does that not sound somewhat familiar? [Interruption.] If the hon. Gentleman wants to make a third intervention, I shall happily take it, but perhaps he should reflect a little further before he puts out his next press release.

The Chancellor said yesterday that this was not a tax-raising Budget and he did not need to ask for a penny more. However, when we study the details of the Red Book—in table 2.1 on personal tax, the tax cuts from the personal allowance and the tax increases from the switch to the consumer prices index, and changes to national insurance contributions—we find that the tax increases are bigger than the tax cuts. That is the fact. The increase in the personal allowance, which the Liberal Democrats boasted about with such enthusiasm yesterday, is completely crushed by the CPI increase: that is there in the Red Book. The Chancellor said that he would not come along and mislead the House in his Budget, but that is exactly what he did.

We also found out that because the Government changed the indexation of national insurance and the personal allowance, and because many people in our country—disproportionately women—are in part-time work and on low wages, and pay national insurance but not income tax, yesterday was a tax rise for 400,000 of the lowest-paid workers in our country, disproportionately women and part-time workers. That never made it into the Chancellor’s speech, nor did he say that the personal allowance changes were worth £48 a year, but the VAT rise will cost the average family with children £450; that never cropped up in the speech either. Nor did he point out that the upgrading of the GDP deflator—the inflation measure—means that despite the Prime Minister’s promises last year that NHS spending would rise in real terms year by year, it will actually fall year by year. That is another broken promise from the Prime Minister.

Many business people will be asking, “Why didn’t we have a Budget that did a bit more for growth?” It looks as if I was right in Treasury questions on Tuesday when I suggested to the Chancellor that his growth strategy was so flimsy he needed to beef it up, because he has now cut corporation tax by 1p, which is welcome, and is paying for it through measures on tax avoidance, which is also welcome. However, paragraph B.13 of the OBR’s Budget document reads:

“The OBR was notified of the change to corporation tax and the 1p cut in fuel duty…too late to incorporate any indirect effect of these measures in the economy forecast.”

I do not think he told the OBR until the afternoon before. However, it was able to give some clarity. It said that it believed that

“any such effects would have been minimal.”

This growth strategy has been produced with fanfare and much delay, but since publication his own independent auditor, the OBR, has said that it will have no impact on growth and jobs in our economy. Is that not the reality?

An alternative was open to the Chancellor, and it was one that I have set down. He could have decided to follow the American example and cut the deficit at a steadier pace in order to strengthen growth and lower unemployment.

[Angela Smith (Penistone and Stocksbridge) (Lab)]

Moody’s credit rating agency warned today that the UK’s triple A credit rating could be affected by slower growth. Does that not undermine entirely the Conservative party’s too-fast, too-deep cuts strategy and show that growth is the important aspect of this country’s economic policy?

[Ed Balls]

I accept my hon. Friend’s point. I was tempted earlier to go down that road, because the fact is that in 2006, 2007 and 2008, the credit rating agencies entirely failed to spot the financial crisis in the first place. The Conservative party and the Liberal Democrats are keen to quote credit agencies when they support their case, but not when they do not support their case. The truth is that the credit agencies failed in the crisis, and quoting them at all is very risky indeed.

As I said, the Chancellor should have adopted our plan for deficit reduction, growth and jobs. He also ought to have adopted our plan to repeat the bank bonus tax for a second year, and used it to give immediate help to young people and jobs, rather than cancelling—in fact abolishing—the future jobs fund. As I have also argued, he should have cut VAT on fuel. That would have been a fairer and more substantial approach. However, the fact is that this year, as a result of the Chancellor’s tax decisions in the Budget, fuel tax will not fall; it will rise by 2p per litre. That is the reality.

The Chancellor should have reversed the VAT rise. That was a big mistake. Two years ago, when we proposed a cut in VAT, which got growth moving and unemployment down, he said, “People won’t notice the VAT cuts.” I am sure that he did not notice them himself, and he probably thinks that people will not notice the VAT rise either. The fact is, however, that with consumer confidence and growth down, and unemployment up, people are noticing what is happening and what he is doing. That is why they are so worried.

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[Vince Cable]

The claim to be the greenest Government ever has been vindicated in significant part by some of the key announcements in the Budget—of, for instance, the establishment of the carbon floor price, which is the first effective carbon tax system in the world, and the green investment bank, to which the hon. Lady referred. It has been made clear for the first time that it will be a proper bank—a borrowing bank—although, as a public sector institution, it will have to reflect the position of the public finances.

[Angela Smith]

The carbon floor price, which the Secretary of State has just mentioned, could threaten the international competitiveness of key intensive energy users such as the steel, glass, paper and ceramics industries. How will the right hon. Gentleman ensure that growth does not suffer as a result of the policy?

[Vince Cable]

The hon. Lady makes a valid point. I have already spoken to representatives of the steel industry about precisely that issue.

The Budget referred to the climate change agreements and to more extensive relief. Energy-intensive industries are an issue, but any Government who are serious about carbon reduction will have to deal with such industries in a balanced way.

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[Angela Smith (Penistone and Stocksbridge) (Lab)]

All I can say about the contribution from the hon. Member for Solihull (Lorely Burt) is that it is a bit rich to hear her talk about the stance and policies of the Opposition when she represents a party that, over the years, has perfected and polished the art of opposition based on opportunism.

Some Budgets are remembered for decades to come. Some are instantly forgotten, and some are seen as a missed opportunity. I suppose that only time will tell how this Budget will be remembered. However, my best guess is that it will be seen as a missed opportunity to turn on to a different road that would lead to jobs, growth and long-term sustainable investment in our future.

Yesterday, we needed to see a change of direction, but what we got was more of the same from the Tories. Unemployment is now at its highest level for 17 years, and even more worrying is the latest youth unemployment figure, which now stands at 1 million. That is not only a tragedy for the individuals involved but a national catastrophe. The promise to help 100,000 youngsters is welcome, but it goes nowhere near far enough. It also raises the question of why the Chancellor abolished the future jobs fund last summer, condemning many of our young people to a bleak future. The real fear is that this Government are creating another lost generation, to go with the one that they created in the 1980s. That is my generation, and it has never recovered from the years of Thatcherism. If that happens, the Government will deserve all the scorn that will be directed at them.

Yesterday, we needed to hear how the Government were going to help to get people back to work, but, unfortunately, we heard very little of that. What is being offered pales into insignificance when compared with what the Chancellor has already done to damage our prospects for growth. The fact is that £80 billion is being taken out of the economy over the next four years as a result of the comprehensive spending review. That is twice the amount that we believe to be sustainable.

The 1.2% growth in the economy experienced in the spring of last year vanished in the cold of winter, to the extent that the economy contracted by 0.6% in the last quarter. With the first quarter figures for this year not expected to be much better, there is a real possibility of the country slipping back into the danger zone. Consumer confidence is at its lowest level ever, unemployment is on the up, living costs are squeezing people’s incomes hard, and the full ferocity of the spending cuts will start to bite in April, which is just a few days away.

All these factors have led the independent Office for Budget Responsibility to revise downwards its growth forecast for 2011, from 2.3% when this Government took power, to 2.1% after the emergency Budget, and now to 1.7%. Many people expect even that figure to prove optimistic, with the possibility of growth being even lower over the next couple of years. Even if the OBR is right, the lower growth figures will have dire consequences for people’s jobs and living standards. It is already being said that lower growth figures will add £10 billion a year to Government spending, because of increases in unemployment and welfare benefit costs. To me, that is the economics of the madhouse.

It does not have to be like this. In countries such as America, growth estimates are being revised upwards, not downwards. However, according to Mervyn King himself, we are now seeing the longest fall in disposable income since the 1920s as a result of this Chancellor’s policies, and the Institute for Fiscal Studies is saying that households will be 6% worse off than they would have expected to be for the period from 2008 to 2011.

There is more to come, with cuts in housing benefit and tax credits in April. Tax credits played an important role in cushioning people during the recession. They provided a cushion for many people who were put on short working hours and had their incomes cut following the financial crisis. I saw men at Corus being put on short time to save the company, and Corus was able to do that successfully, with the co-operation of the union, because tax credits helped to keep those men’s incomes at a high enough level to prevent them from hitting the poverty line.

On top of those cuts, many people are being badly affected by inflation, which is now running at 5.5% on the retail prices index, which is more indicative of the situation. That is much higher than the Chancellor’s initial forecast. We know that one of the reasons for that is the rise in VAT to 20% in January. When they were in opposition, the Conservatives and the Liberal Democrats promised that they would not raise VAT. It is no wonder that consumer confidence has fallen to record low levels over the last few months, yet this Budget does not offer any help for hard-pressed people who are struggling to cope.

While the increase in personal allowances is to be welcomed, it in no way fully compensates for the previous increases in VAT and other tax rises being implemented. In a sleight of hand, the Chancellor has moved the uprating of tax allowances, as we now know, from the retail prices index to the consumer prices index, which will cost every taxpayer dearly and bring in an extra £l billion to the Treasury by the end of the Parliament—more than covering the increase in personal allowances.

Even the Institute of Directors, not generally given to rigorous criticism of the Conservatives, commented recently that average earnings were falling and that household disposable income faced a big squeeze. It concluded that this was, at best,

“the jobless and joyless recovery”—

not exactly a ringing endorsement of the Chancellor’s policies.

This Budget gave the Government the chance to alter course, to reflect on a vastly changing global situation, to calmly look at the evidence and to realise that the country is not recovering. They talk about rebalancing the economy, and they could have changed their minds and invested in Sheffield Forgemasters rather than leave it hanging in the wind, but that is what they did.

What we have had instead from this Budget is the same old Tories making the same old mistakes and it is the ordinary people who will suffer with their jobs. We have a politically motivated Chancellor who is making cuts now to offer tax cuts at the next election. This is a Chancellor who puts his party and his politics first and the economic situation and prospects for the country last. The Chancellor said this Budget was all about growth, but independent growth forecasts have downgraded the prospects for it. In my opinion, this Budget is a missed opportunity to invest in the UK, to rebalance the economy and to help hard-pressed families all around the country to make ends meet. There is no doubt that the Chancellor’s policies are hurting, but in the end, just as under Thatcher, we will not see them working.

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[Mr Chuka Umunna (Streatham) (Lab)]

Before I make my substantive point, let me make two observations, on growth and employment and on business confidence.

I do not think there is any disagreement between the two sides of the House on the need to reduce our debts. The controversial issue is the time frame within which we should do that. If we want to reduce the deficit, we will obviously need to produce growth and jobs, because people who are out of work do not pay income tax and we have to pay benefit. I believe that the cost of every 100,000 people out of work is about £500 million in benefit payments. According to the latest figures, 4,000 people in my constituency are claiming jobseeker’s allowance. I hope that we can get them back to work very soon.

The Office for Budget Responsibility’s downgrading of the growth forecast has been widely reported, but its revision of its autumn estimate of the number of jobseeker’s allowance claimants has not been commented on. The OBR revised upwards its forecast of the number of JSA claimants in this year and the following four years. For this year, unemployment has been revised upwards, and the number of people claiming JSA has been revised up by 50,000 compared with the autumn forecast. For next year, the forecast has been revised up by 120,000, and for 2013 it has been revised up by 130,000.

[Angela Smith]

Does my hon. Friend agree that such statistics say nothing about the tragedy that unemployment visits on the lives of individuals, and especially on the lives of our young people and on their prospects for the future?

[Mr Umunna]

I absolutely agree. As a former employment lawyer, I am well aware of the huge impact that loss of work has on individuals and their families.

We are entitled to ask why the unemployment forecasts have been revised upwards. That has happened because of sluggish growth, and the OBR’s autumn forecast clearly states that the sluggish growth has been caused in no small part by the extreme fiscal consolidation embarked on by the Government. Therefore, there are more people out of work, claiming benefit and not paying income tax due to the policies of this Government. The OBR has said that.

The Chancellor’s strategy on business confidence and investment is clear. As the Government hack off chunks of the public sector—causing, of course, mass public sector job losses—he says that the private sector will automatically step in to fill the gap, and he foresees private sector growth fuelled by a boom in exports and business investment. Business confidence is key, and since this Government took office confidence has fallen. The latest Institute of Chartered Accountants in England and Wales and Grant Thornton UK business confidence monitor shows a continuing downward trend in business confidence in this country for the fourth consecutive quarter. I sincerely hope that that confidence returns, because the people in the communities I represent in Streatham and parts of Clapham, Balham, Tulse Hill and Brixton will be among those who suffer.