Economic Affairs and Work and Pensions

Debate between Anne McGuire and Stewart Hosie

Tuesday 8th June 2010 Commons Chamber

[Stewart Hosie (Dundee East) (SNP)]

I hope that the clock has not yet started, Mr Deputy Speaker; as the last person whom you will call to speak in your current role, I want to pay tribute to you. You have always been extraordinarily kind and generous to those on my party’s Benches.

Mr Temporary Deputy Speaker, it is a pleasure to follow two totally different maiden speeches, one from the hon. Member for Worcester (Mr Walker) and the other from the hon. Member for Bethnal Green and Bow (Rushanara Ali). They are different people from different constituencies and different backgrounds, but they have a shared determination to see an end to the blockade of Gaza. Many in the House share that determination, and I hope that we will see proper progress in the middle east during this Parliament.

Today’s debate is fundamentally about the economy and I am delighted to take part in the debate on the Gracious Speech today. I should like to comment on much of what the Chancellor said. His description of the economy left to the new coalition Government is well known and the numbers that back it up are equally well known. The deficit was forecast last year to be £173 billion, but this year it is forecast to be £156 billion—still 11%-plus of gross domestic product. UK national debt is sitting at £1.2 trillion on the treaty calculation and is forecast to rise to £1.6 trillion, approaching 90% of GDP by 2014-15.

We know the last Labour Government’s response to this recession—to make real-terms cuts of £500 million for this year to the Scottish budget, before recovery was secured. Against everything that they professed in public, they began cutting the budgets early and weakening the ability of the Scottish Government and others to secure the recovery.

[Mrs McGuire]

Will the hon. Gentleman confirm that the current Administration’s budget in Scotland is double what Donald Dewar’s was when he became First Minister of the Scottish Parliament in 1999?

[Stewart Hosie]

I am delighted to confirm to the right hon. Lady that she seems again to fail to understand what real-terms increases and real-terms inflationary costs mean over the period of the Scottish Parliament. There have been real-terms cuts to the Scottish budget this year.

The Chancellor also confirmed that tackling the deficit and debt was the most urgent issue facing this Government, and they have started with £6 billion of in-year cuts. I am delighted that the Scottish Government have taken the opportunity to defer those cuts this year to avoid in-year cuts, which are extraordinarily damaging as they require budgets to be ripped up and jobs to be shed. What have worried me, however, are the comments and criticisms from Labour’s Scottish Parliament finance spokesman, who criticised the decision to postpone the cuts. Clearly, Labour will condemn the Tory Government here while its finance spokesman in the Scottish Parliament seems to want the Tory cuts this year in Scotland. That is wholly wrong.

The new coalition Government said in their programme that they would

“significantly accelerate the reduction of the structural deficit”

in this Parliament and that the main burden of deficit reduction will be borne by reduced spending rather than increased taxes. I question the logic of that whole approach. The previous Government promised cuts that were deeper and tougher than Margaret Thatcher’s. They promised to take £57 billion out of the economy in a single year—2013-14. They also promised £20 billion or so of tax rises and £40 billion or so of cuts. The accelerated attack on the structural deficit and the smaller contribution made by tax increases clearly indicate further public sector cuts—cuts well in excess of the £40 billion that the Labour Government planned to take out by the time we reached 2013-14.

Labour’s plans for taking £57 billion out of the economy represented approximately 3% of GDP, but this Government’s plans are likely to go very much further. I was concerned that reducing consumption in the economy in a single year to the tune of 3% of GDP would tip the economy back into recession, but I am more concerned that stripping yet more consumption out of the economy and doing it more quickly—before we have properly secured the recovery—would be even more damaging than Labour’s plans.

Remember that at the time of the last Budget, it was only Government consumption, up 2% on the year, that kept the economy afloat. Household consumption was down by 1.9%, business investment was down by 24% and gross fixed capital formation was down by 14%. Even now, following the statement today, we know that household consumption is down by only 0.5% on the year, but business investment is still down by 11% and gross fixed capital formation is down by half that, at 5.7%. This is not the time to cut Government consumption, given that it was up by 3% over the last 12 months and kept the economy afloat.

I do not want anyone to misunderstand me. I was a critic of the deficit and the debt before the recession. I am arguing about how we tackle it now and I believe that we should not go down the route of the Canadian model, which involved 20% cuts in public services over three years. We should look again at the New Zealand model, which gave the flexibility to tackle the deficit and the debt over the medium term. That way we could at least benefit from the huge £50 billion-plus medium-term savings from scrapping Trident and its replacement. I am delighted that Mr Speaker has allowed our amendment covering that matter to be put to a vote later today.

There were, of course, a number of other matters economic in the Gracious Speech—the financial services regulation Bill and the plan to introduce a bank levy, for example. Although it is self-evident that there must be depositor protection and that we must protect against systemic risk from bank failure, not least through the application of proper capital ratios, that is what pillar 1 of the Basel II accord was meant to do. Given that the banking crisis commenced in summer 2007 and that Basel II is not meant to be fully implemented until October-November 2012, I would have thought that it would have made more sense for the incoming Government to push for the early international implementation of Basel II rather than unilaterally implementing a domestic banking levy now. The consequences of such a levy are not at all clear.

The coalition’s programme also said that they would reform the regulatory system and give the Bank of England control over macro-prudential regulation. But that would leave the Financial Services Authority fundamentally in place, and I remember many criticisms from Conservative and Liberal Democrat Front Benchers about the FSA. Surely the Government will continue to recognise that failure of supervision by the FSA was as important as the weakness of the underlying regulation.

There were many other matters economic in the Queen’s Speech and the programme for government, and we will come back to them. I have one final question, and it is about the decision to scrap the child trust fund. Between 2004 and 2008, savings ratios were half those when Labour came to power in 1997. Why are this Government planning to scrap a savings scheme with a 71% voluntary take-up rate?