Budget Resolutions and Economic Situation

Barry Gardiner Excerpts

Thursday 24th June 2010 Commons Chamber

[The Secretary of State for Energy and Climate Change (Chris Huhne)]

I am delighted to open this day of the Budget debate and I want particularly to do three things in this speech. One is to argue why the Budget strategy—what used to be called the Budget judgment—is an essential and correct response to the balance of risks that the economy faces. The second is to address the question that always arises at this stage of the business cycle, which is from where the jobs are likely to come during the recovery. The third is to outline why, like all other recoveries from deep recessions, we will build a new economy. Indeed, a large part of the answer as to where the jobs will come from are the new low-carbon industries which represent our third industrial revolution. In five years’ time, the outlines of a sustainable and resilient economy will be clear, thanks in part to the route map that we begin to sketch out in the Budget—the carbon price floor, the green investment bank and the green deal.

Let me start with the point about the balance of risks, and pick up where we left off in the last debate, when the right hon. Member for Doncaster North (Edward Miliband) was disparaging me for the “Greek defence” as he put it. This determines the timing of measures to cut the budget deficit. The last time that we debated these issues, the right hon. Gentleman accused me of performing a U-turn on whether there should be cuts in this year. I conceded that we in the Liberal Democrat part of the coalition had changed our minds. I also pointed out that we had done so on the basis of events in international capital markets, which have dramatically raised the risks of our being engulfed in a firestorm. If that were to occur we would not be looking at a proactive plan decided by Government, but at a forced reaction to market pressure, which would be unplanned, unconsidered and deeply damaging.

When I last made that point, the right hon. Gentleman said that there had been no change in circumstance that justified a change in judgment. So I looked up the figures for the key public finance borrowing interest rate: the 10-year bond yield for each of the afflicted economies and for our own. The 10-year bond yield determines the cost at which we finance our own borrowing, but it also sets the tone for interest rates in the rest of the economy. The 10-year yield for the Greek Government on the day the election was called in this country, 6 April, was a little less than 7%; it was 6.98%. It had hovered at or around that level for most of the early part of the year, yet during the general election campaign the Greek bond yield began lurching upwards, reaching a peak of more than 12% the day after our general election.

The right hon. Gentleman mocked my Greek defence and said that the circumstances were so different that we could not possibly be affected. I merely remind him that our Budget deficit is the second highest in the EU and currently higher than that of Greece. It is true of course that Greece has substantially higher public debt to national income ratios than we do, but that is not as consoling a thought as the right hon. Gentleman appears to think. Contagion does not work like that. It is, by definition, irrational and sees similarities even where a cooler mind sees differences.

[Barry Gardiner (Brent North) (Lab)]

Did the right hon. Gentleman have the opportunity to watch and listen to the eminent Japanese economist on “Newsnight” last night, who explained, on precisely this point, that were Britain to be paralleled with Greece, the bond rates in Britain would not be showing a four point spread at the moment and would not be being bought so avidly by British companies and consumers?

[Chris Huhne]

The hon. Gentleman makes a point about the circumstances, but markets travel on expectations. The expectations of what was going on in this country were very clear during the general election campaign: the hon. Gentleman and his friends were about to lose the election. It is precisely the case with the contagion in southern Europe that it spread quickly from Greece to Spain and to Italy. Italy, of course, has a very high public debt to GDP ratio and is clearly in a different category from ourselves. But that is not the case for Spain—one of the most substantial economies in Europe—where the central Government to GDP ratio is actually much smaller than ours. The debt to GDP ratio in Spain was 33% as against 60% in the UK at the beginning of this process. That is the problem that the right hon. Member for Doncaster North and his friends have to answer. It was absolutely clear from the rise in bond yields across southern Europe that we were in the firing line and it would have been completely irresponsible for us not to remove ourselves from it.

--- Later in debate ---

[Dr Alan Whitehead (Southampton, Test) (Lab)]

rose—

[Barry Gardiner]

rose—

[Mark Lazarowicz]

rose—

--- Later in debate ---

[Chris Huhne]

I certainly do not believe that we can rely on achieving the sort of comprehensive approach that I am talking about merely through introducing pay-as-you-save measures. The reality is that there will have to be cross-subsidy, as there already is, but particularly to the fuel poor and to those in homes that are hard to heat and which need solid-wall insulation and so forth. I am afraid that the hon. Gentleman will have to wait for the final proposals in the Bill, but I very much agree that we need a comprehensive set of proposals to deal with the whole of the residential housing sector. Those proposals must cover homes owned by owner-occupiers but also the private rental sector, where many of the worst offenders when it comes to energy inefficiency are to be found. I hope that that is what he will see.

[Barry Gardiner]

I am grateful once again to the right hon. Gentleman. I welcome the measures that he is outlining and we will want to study them carefully, but I am troubled by his suggestion that one element of the coalition agreement was a decision that green taxes should rise as a proportion of the revenues into the Exchequer. I have heard him make the argument, from this side of the House, that green taxes should be used to change behaviour but not as long-term revenue streams on which the Exchequer can depend. I agree with that, but will he explain why that element of the coalition agreement is now seen to fund resource into the future?

[Chris Huhne]

The hon. Gentleman knows, as I do, that the two points that he makes are not as mutually contradictory as he suggests. There is a long history in this country of applying so-called “sin taxes” to alcohol and tobacco, and they have had the very desirable effect of helping to get people off smoking and of cutting their drinking. The success of those taxes is not perhaps as great as many hon. Members on both sides of the House would like, yet I am assured by the latest Red Book documents that the Treasury continues to raise a very substantial amount of money from both tobacco and drink excises.

The reality is that, while green taxes will change behaviour, the responsiveness of behaviour is such that revenue will continue to be raised for a very substantial period. I have to say that, in the present circumstances, that point is likely to commend itself to the Treasury, which always used to follow the motto of Colbert, the finance minister of Louis XIV, who said that the art of taxation lay in plucking the maximum number of feathers from the goose with the minimum amount of hissing. In that context, green taxes certainly are a very justifiable way to pluck the maximum number of feathers.

I shall give way once more, to the hon. Member for Edinburgh North and Leith (Mark Lazarowicz), and then I shall wind up and let the debate make progress.