Budget Resolutions and Economic Situation

Bill Esterson Excerpts

Tuesday 22nd June 2010 Commons Chamber

[Chris Leslie]

It is important that we start to look at the measures in the Budget. They did not deal with the waste and inefficiency the Government promised to find. The Government said that waste and inefficiency would form the totality of their public spending reductions. They said they would not hit front-line services. The fallacy of those claims is beginning to show.

[Bill Esterson (Sefton Central) (Lab)]

Does my hon. Friend agree that one of the concerns is that Government Members say that the Budget is about fairness, yet a good degree of the suffering that will be inflicted on people as a result of the cuts will be felt hardest by those who are least able to bear it? In particular, areas such as Merseyside will bear the brunt.

[Chris Leslie]

Absolutely, and the local and regional impact of many of the announcements will become clear over the next few days. It is very difficult to assess the full extent of the impact on our constituents only a matter of hours after the Budget has been delivered, but I shall pick out some of the most pernicious measures announced. Putting up VAT to 20% is undoubtedly one of the most regressive tax decisions ever made by a Government in this country—20% indirect taxation, hitting those people who need to buy some of life’s necessities. Yes, indeed, some things may still be zero-rated, although people should watch this space on that one, because the Liberal Democrats in particular promised that they had no plans to increase VAT—that was a secret tax bombshell—but they then introduced a tax bombshell of that scale.

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[Austin Mitchell]

My constituents care about the jobs, benefits and growth that borrowing can give them. That kind of threat that the hon. Lady describes is not talked of in the fish and chip shops of Grimsby, nor is it part of any realistic assessment of our economic situation. There is no threat to our credit rating. The idea is absolutely ludicrous. In fact, the Office for Budget Responsibility, which is a wholly owned subsidiary of the Bank of England as far as I can see, has said that the borrowing estimates are coming down. We are borrowing less than the Government predicted. We can well bear that total of borrowing—we should bear it; we must bear it—to get the economy growing again, because that is the only way to pay off the borrowing and to reduce the overdraft.

The Government insist on cutting spending, but I am not sure about the scale of unemployment that today’s cuts in spending will produce. The figure might be 100,000, but it might be up to 500,000, because that is how many jobs have been saved by Labour’s expansionary policies and stimulus spending. However, if we increase total unemployment, those people will no longer be paying taxes. They will be receiving benefits and all kinds of public support, which is necessary to support them and their families. That means that the deficit will increase. Therefore, borrowing goes up as a consequence of an increase in unemployment. The only way to counter that is for the Government to spend and borrow to stimulate the economy.

The proof of that point is dramatically demonstrated in British history by the situation from 1931 to 1934. Because of the cuts made in 1931, with the Geddes axe and all that, public sector borrowing increased substantially from 1931 to 1934, because the economy was not growing. From 1934, when the economy began to grow under the stimulus of the housing boom and, later, rearmament, the public sector borrowing requirement as a proportion of GDP came down rapidly and substantially. That indicates my point, as did our experience when we came into government in 1997. The Conservatives seem to forget that, when Labour came to power in 1997, we paid off massive amounts of debt in the first three years, because the economy was growing and we could do so.

That is the solution to our problems. Only growth will allow what we borrow to be paid off. It is no use knocking Britain and saying that we are like Greece, Spain or Portugal. We are not like any of those: our credit standing is not threatened in any way and we can adjust through the exchange rate, because of what our previous Prime Minister did in keeping us out. The only way to reduce borrowing is to get economic growth. I hope that I have made that point sufficiently clear, because I have made it pedantically and at some repetitive length. It does indicate to me that borrowing is not a problem, and the panic created about it is something of a confidence trick. It is a smokescreen to allow the Chancellor to do what he wants to do for his own political motives: cut public services, roll back the state, cut public spending, cut benefits, cut provisions, and weaken the protection of the poor and those on benefit that comes from borrowing and higher public spending. It enables him to implement his own prejudices.

The cuts are supported by untrue claims about what Mrs Thatcher did in the 1980s. Mrs Thatcher was able to get away with those cuts, which destroyed so much of British manufacturing and certainly turned us from a net manufacturing exporter into a net manufacturing importer, because of the cushion of North sea oil. The Norwegians invested the proceeds of North sea oil in the future; what we did was waste them on a process of creative destruction of British manufacturing industry, which left us the weaker at the end of it.

The cuts are also justified by the claims that Canada and Sweden were able to carry successful spending rounds, but in both cases, the spending cuts were across the board with no huge chunks of the public sector being exempted from them. Both were carried out at a time when the world economy—including the American economy—was expanding rapidly, so that sustained the Canadian and the Swedish economies. We are carrying out our spending cuts, however, at a time of growing recession. Our ex-Prime Minister was trying to lead the world—he did lead it successfully—to agree on stimulus spending to get the economy to grow. This Government are joining a chorus of cuts that will deflate European economies and the world economy.

[Bill Esterson]

Has my hon. Friend had the same experience as I did in my constituency when discussing how to deal with the budget deficit? Not one person mentioned to me the issue of sovereign debt, yet every single person I spoke to agreed with our analysis that the deficit should be paid off by growing the economy.

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[Neil Carmichael (Stroud) (Con)]

First, I pay tribute to my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) for an excellent speech on an important subject—regulation and competition in banking—that was worth while and useful to hear. I should like to refer, too, to a comment by the hon. Member for Great Grimsby (Austin Mitchell), about his love of borrowing. Borrowing is not exactly always a bad thing, but there is simply too much borrowing now, and that is what we have to address. We have to remember that £1 in every £4 that we spend is borrowed, which is ridiculous.

The hon. Member for Nottingham East (Chris Leslie) has disappeared, but I want to make two points about his observations. First, he said that we would cut capital expenditure. Actually, we are not doing so. The Chancellor made that perfectly clear, and we must repeat it often, so that people understand that capital expenditure is not going to be cut. Secondly, the hon. Gentleman discussed cuts in Nottingham East in local government and the health service. If he had been in Gloucestershire before the general election, when Labour was in power, he would have noticed that it was subject to cuts, too, in the number of beds in our hospitals. Those cuts, and his cuts, are all about the fact that the Government are facing a situation summed up neatly by the former Chief Secretary to the Treasury, the right hon. Member for Birmingham, Hodge Hill (Mr Byrne), who observed that

“there’s no money left.”

Whichever party, or set of parties, won the general election, there were going to be changes, and I am afraid that we have to face up to the consequences. This is not just a Budget about cuts; it is not just a Budget about being responsible in dealing with those cuts; it is not just a Budget about being fair to everybody, although it certainly is—we are being fair across the board in the amount of expenditure being cut and the changes in taxation; but it is a Budget about growth, and we must remember that. It includes useful tools to encourage small and medium-sized businesses to begin growing again.

[Bill Esterson]

The hon. Gentleman makes the point that we need a Budget for growth, and has just begun to discuss small and medium-sized businesses, and the important role that they have to play. However, does he agree that if we take the stimulus out too fast, it will prevent those businesses from playing the role they need to play in growing the economy again?

[Neil Carmichael]

The point I am making is that we are providing stimulus for small and medium-sized businesses to get going. We are not going to increase national insurance, for example, as the Labour Government would have done, which is a significant step in the right direction. We are introducing a green investment bank, to make sure that small businesses can develop new technology, which is good news and a stimulus. We are going to ensure that there is more business rate relief for small businesses.

All those steps will help small businesses to progress, and it is important that we help them to do so, because, if we are really to protect our economy, we must not just deal with the deficit, although that is important, but ensure that we have growth. That growth will come in large part from small and medium-sized businesses. I know that from my constituency, because I keep being told, “We would like to have a simplified taxation system,” and that is what we will introduce through the Budget; I keep being told, “We would like to see lower corporation tax levels,” and that is what we will introduce through the Budget; and I keep being told, “We would like simpler ways of employing people,” and that is what we will introduce. Those measures will help small businesses to deliver the growth that we need and, through that growth, the increased tax receipts that will further help to reduce the deficit.

It is important to emphasise that aspect of the Budget and, indeed, our whole economic plan, but we are going to go further, with the banking levy, which we have briefly discussed. That will be useful, too, because it sends a signal to banks that they must act more responsibly, and obviously as a levy it is also a money-raising measure. I must emphasise that, if we want to create an economy that can cope with the deficit, we must recognise that the ingredients for growth are important, and that the Budget provides them. It is important also to recognise that, throughout the entire time that I have been in the Chamber this afternoon, Labour Members have not talked about that; they have always talked about cuts. Yes, cuts are here; yes, they are quite serious; and yes, they are going to be painful for some. But, it is better to tackle that problem now in a responsible and planned way than effectively to back off and ignore it, because unless or until we start reducing the deficit significantly we will not be able to produce the growth that this country needs.

[Bill Esterson (Sefton Central) (Lab)]

I have registered in the appropriate place my interest as the director of a small business.

I congratulate the hon. Member for South Northamptonshire (Andrea Leadsom) on her maiden speech. She made some interesting points about the banking system and the need to break up the bigger banks into small banks. Perhaps she will agree that no bank should be too big to fail, as that was one cause of the many problems that we have seen recently.

I should like to discuss the Budget’s likely impact on jobs, businesses and, in particular, my constituency. The Chancellor said that he had a plan to reduce the deficit, yet the Office for Budget Responsibility said that the deficit would have been halved under Labour’s plans. Our plan was to cut spending, but only when the economy was strong enough, and Tory and Lib Dem Members seem to have forgotten a simple rule of economics: the role of government is to intervene in a recession when the private sector is struggling. The evidence from history shows that that works time and again. The time to cut the deficit is once the recovery is strong enough, not when the private sector is still on its knees after the deepest recession since 1931, apart from the one following the war.

The OBR, by the way, is staffed by the same people who wrote the Treasury forecasts. The Tories and Lib Dems have made much of the lower growth rate predicted by the OBR had Labour’s approach continued, but in reality the OBR prediction factored in the market’s reactions on interest rates, which in turn allowed for the £6 billion of spending cuts that the coalition planned. The Financial Times commented that the OBR did not note any fundamental skeletons in the Treasury, so it had taken account of the changes since March’s Budget.

The Chancellor has adopted a programme of austerity. After the war, rationing continued under a programme of austerity. We really were all in it together, unless people bought on the black market, which of course the rich were able to do. For most people, however, it did not matter whether they had money or not, because of rationing: they could not buy things because they were not available. It was austerity based on scarcity. This time it is different. In this kind of recession, austerity hurts only those who are on low or middle incomes.

The increase in VAT will hit people on low incomes, and it will hit small businesses. When Labour cut the VAT rate, we saw a stimulus to the economy. The increase that the Chancellor announced today will have the opposite effect. The cap on housing benefit will also hit those at the bottom most, and reforms to benefits will not provide incentives for people to go into work. Removing tax credits for middle-income families removes a big incentive for many to work, particularly in the south, where middle incomes provide barely enough to get by.

The scale of the cuts is 25% for most Departments. That is a hell of a lot of cuts. It means the loss of front-line jobs, and many people in Sefton, and elsewhere on Merseyside, will suffer as a result.

[Steve Rotheram (Liverpool, Walton) (Lab)]

Does my hon. Friend agree that the real result of today’s Budget announcement will be huge increases in unemployment, which will have a devastating effect on the areas that we represent on Merseyside? That is something that we both predicted before the election, as did our friends on the Liberal Democrat Benches, who now seem to be siding with their friends in government.

[Bill Esterson]

I am grateful to my hon. Friend, who is absolutely right. Before the election, in his constituency and mine, the Lib Dems made much of their opposition to cuts in the current year, saying that it would increase unemployment, hit those on low and middle incomes, and increase homelessness and business failures. They were right to say so. When they changed their tune after the election, they did so purely for opportunistic reasons, not because they are interested in representing the people in the sorts of communities that my hon. Friend and I represent.

[Mr Stewart Jackson (Peterborough) (Con)]

How does the hon. Gentleman account for the fact that in 15 years of economic growth based on the success of the previous Conservative Government, the Government he defended at the election managed to produce social welfare dependency to the extent that more than 5 million people were on social welfare payments, with the corrosive social impact involved in that? Is that something that he defended and lauded to his constituents in Sefton Central?

[Bill Esterson]

I am grateful to the hon. Gentleman for his intervention. In Sefton, unemployment was running at half the level of what it was during the last Tory recession, as were home repossessions and business failures. That, to my mind, is a sign of economic success. Given that, as I said, this recession is the deepest since 1931 apart from the period after the war, that is a measure of the success of Labour’s policies in seeing off the worst effects of the global recession. That is an important difference between what Labour Members see as the way forward and what the coalition is trying to do.

[Mr Russell Brown (Dumfries and Galloway) (Lab)]

The hon. Member for Peterborough (Mr Jackson) refers to 5 million people being on benefits. He tends to forget something that my hon. Friend and I, and other Labour Members, recollect; there is collective amnesia about this. People were driven from being unemployed on to benefits—incapacity benefit or disability living allowance—simply to massage unemployment figures. That is what it was all about during the previous recession, and we are hearing the same thing again.

[Bill Esterson]

I am grateful to my hon. Friend, who is absolutely right. The reason why Labour Members who represent constituencies on Merseyside and elsewhere in the north-west did so well in the election is that people have memories of what Thatcherism meant. As other Opposition Members have said today, this is a Budget of Thatcherism, not one for sustainable growth. That should concern everyone in this country, because the Government are trying to repeat the failed economic policies of the 1980s and early ’90s. My concern is that the cuts that my hon. Friend the Member for Liverpool, Walton (Steve Rotheram) referred to will lead to the unemployment, home repossession and business failures that we saw all too often then, because of the loss of jobs in the public sector and the impact on people with small businesses.

The Liberal Democrats say that this is a Budget for fairness, but how can it be fair that an area such as Merseyside, which has some of the poorest parts of the country, is hit so hard? How can that be anything other than a very unfair way of “sharing the pain”, as coalition Members have rather unfortunately called it?

The review of capital projects, which the hon. Member for Stroud (Neil Carmichael) mentioned, was first announced on 1 January. Unfortunately, the delays in the capital programme have taken out of the economy the stimulus that was following as a result of such projects. That review, announced for October, will mean taking money away from the economy at a time when it would have been most useful to support infrastructure projects and when, as my hon. Friend the Member for Great Grimsby (Austin Mitchell) so eloquently put it, the recovery is fragile. In my constituency, the Thornton relief road is a much-needed bypass that would stimulate the economy by bringing benefits to the construction industry and self-employed traders. I hope that the autumn review will mean a reprieve for a scheme that is much needed by residents and businesses alike.

Although the Chancellor’s announcement that capital totals will not be cut further is welcome, it is bizarre that the capital schemes have been frozen since 1 January. The effect on the construction industry has already been severe. The industry itself says that 50% of construction projects should be publicly funded, as they currently are. The scale of cutbacks as a result of the delays has already had a profound effect, and in the case of schemes such as the Thornton relief road that is having an effect on contractors and subcontractors. They need the certainty of knowing whether the work will go ahead, and the lack of certainty is my concern about the delay.

Self-employed traders in my constituency have told me that trade has been down during the recession, but they are surviving. Unless projects such as the relief road go ahead, more small businesses will suffer. I have mentioned the unemployment figures and the rates of business failure and home repossession, and if we go back into recession, it will be far worse this time because there is not financial support in constituencies such as mine for large capital projects, and because of the level of public sector employment. I therefore urge the Government to bring forward their review of capital projects so that we can have support for the economy now, when it is most needed, in my constituency and across the rest of the country.

The Building Schools for the Future programme is of huge significance in Sefton and elsewhere. Phase 1 was due to start this year in Sefton, but again, the delay in confirming whether the programme will happen is having a huge impact on the children at two schools in my constituency, Chesterfield and Crosby high schools. It has also had a huge impact on contractors and small businesses. The summer holiday is a big opportunity to build schools and carry out the refurbishment and rebuilding work that is part of BSF, but it will be missed this year because of the delay. Projects that were due to start in April cannot now start before November. That will have a profound impact on schools, and businesses, jobs and the wider economy will also be affected.

The Chancellor gave hope when he mentioned the bank levy, but he said that it would raise £2 billion. The VAT rise is estimated to raise £13 billion, while the freeze on housing benefit will yield a further £1.2 billion. What is fair about asking the banks to contribute just £2 billion towards the deficit, while asking those on low incomes, such as pensioners and low income families, to pay far more? The Labour Government rightly bailed out the banks to keep liquidity going in the economy. We had to do that, but, if we are talking about fairness, it is now time to make those responsible for the biggest financial crisis of our age take their fair share.

Cutting free swimming is just mean. It hits the poorest hardest—£3 per child adds up for a family on a low income or a pensioner on a fixed income. What happened to Government commitments to healthy living for young people and pensioners? They did not last when things got tough.

The Chancellor talked about risk and reward, but the reality is that the biggest banks suffer little risk, as the bail-outs show. There are plenty of rewards through bonuses. Those on low and middle incomes have little reward, but face losing livelihoods and homes if the economy goes back into recession. If we really are all in it together, the bank levy should be far higher.

In Sefton, many people work for Departments and many are self-employed. The two are related. The Lib Dem and Tory councillors in Sefton foresaw the scale of Government cuts. They voted for 400 compulsory redundancies and massive cuts in council services, which would hit the most vulnerable, the elderly and the disabled hardest. Labour councillors and the trade unions in Sefton have resisted them so far. If the Government and council cuts go ahead—from Lib Dems and Tories at both levels—thousands of staff will lose their jobs across Merseyside. Those staff will struggle with housing costs and no longer pay into the local economy, hitting local traders. The Budget contained nothing about help for those who face unemployment or struggle with mortgage payments as a result of the proposed measures.

I have mentioned how hard the Budget will hit the area that I represent. The coalition is making a huge mistake by withdrawing the stimulus to the economy this year. The Budget risks pushing the economy back into recession. The deficit can be cut only on the back of a strong economy, which can come only with support from the public sector until the private sector is strong enough to take over.

It is not a Budget for growth. I fear that it will push us back into recession, with misery for people who lose their jobs, homes and businesses.

[Several hon. Members]

rose—

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[Gavin Barwell]

My hon. Friend’s question is almost telepathic, because I was about to say that if the anger was genuine, I would have expected the Opposition Benches to be full throughout the debate, but that has not happened.

[Bill Esterson]

Will the hon. Gentleman give way?

[Gavin Barwell]

I would happily give way but I want to make progress, if I may, given the time limit.

My constituents understand that the problem is due partly to the recession and partly to the previous Government. What they were looking for today is the truth, and for the Government to take the right decisions for the long term rather than chase tomorrow’s headlines. They want the deficit to be tackled without undermining the recovery, and as far as possible in a way that is fair to all sections of society and that protects front-line services. In her response, the Leader of the Opposition seemed to agree with those principles—but then told us absolutely nothing about how Labour would do things differently.

[Bill Esterson]

Last time I checked, I was an Opposition Back Bencher, as are my colleagues sitting next to me. I take exception to comments that suggest otherwise.

[Gavin Barwell]

Some Labour Back Benchers have attended the debate, but the Opposition Benches have hardly been full. The record is fairly clear.

The hon. Member for Leeds West (Rachel Reeves), who is not in the Chamber, said that it is the responsibility of the Conservatives to come up with the answers. It certainly is, and the Chancellor has discharged that today. However, it is the responsibility of the official Opposition to come up with a realistic alternative if they disagree with his measures. The hon. Members for Nottingham East (Chris Leslie) and for Great Grimsby (Austin Mitchell), who are also not in the Chamber, went much further and suggested that we could just grow our way out of the problem. They seemed not to understand that a structural deficit is one that will not disappear as the economy grows.

The key questions that my right hon. Friend the Chancellor had to answer today were: by how much to reduce borrowing, how quickly to do that, and what should be the balance between spending cuts and tax increases. The previous Government planned to dig deeper still into the hole by the end of this Parliament, and my right hon. Friend made the right judgment when he said that we should be in balance by the end of that period, and that we should have started paying off debt by 2014-15.

To the extent that I understand the Opposition’s position, they seem to be saying that we are doing too much too soon, and with too heavy a reliance on spending cuts. There are no risk-free options—it is actually a matter of judgment of the balance of risks—and there is growing evidence that the real risk to recovery is not robust action, but inaction. Anyone who has got into debt could tell us that the longer one leaves the problem, the worse it gets.

We are not going to convince Opposition Members on that point, because they have convinced themselves that Conservative Members take some ideological joy from cutting public services. It is worth putting on the record that that is complete and utter nonsense. I had lymphatic cancer at the age of seven and the NHS saved my life, and I have two children in a state primary school. My constituents want more police officers on their streets, and road maintenance to improve. I have come to this place wanting better public services, but they can be delivered only within a stable financial setting. That is what Conservatives stand for. There is a growing consensus on this point: the Liberal Democrats have shifted their position in the light of recent events in the money markets, and the Governor of the Bank of England, in a press conference on 12 May, said:

“it is very important that measures are taken straight away to demonstrate the seriousness and the credibility of the commitment to dealing with that deficit… I am very pleased that there is a very clear and binding commitment to accelerate the reduction in the deficit over the lifetime of the parliament, and to introduce additional measures this fiscal year to demonstrate the importance of getting to grips with that”—

problem—

“before running the risk of an adverse market reaction.”

The G20 communiqué a couple of weeks ago stated:

“Those countries with serious fiscal challenges need to accelerate the pace of consolidation. We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their…frameworks”.

On the balance between spending cuts and tax rises, Goldman Sachs published a paper on 14 April that reviewed every major fiscal consolidation since 1975 and concluded:

“we find that decisive budgetary adjustments that have focused on reducing…expenditure have…been successful”

and “typically boosted growth”, and that by contrast, those that rely on tax increases

“typically fail to correct…imbalances and are damaging for growth.”

The Office for Budget Responsibility forecasts, based on the Budget, to which the Leader of the Opposition referred, show a slight reduction in growth this year and next compared with previous forecasts; but then, forecast growth is actually stronger as a result of the measures the Chancellor announced today.

On public services, there are many public sector employees in my constituency and they will be rightly concerned about what the Chancellor’s announcement today will mean for them. I welcome the commitment to protect the NHS, which clearly suffers from inflation above and beyond general inflation in the economy. That protection is well justified. I also believe there is the potential to make cuts without damaging the front line. Lord Myners, the former Financial Services Secretary, said in the other place:

“there is considerable waste in public expenditure. I have seen that in my own experience as a…Minister.”—[Official Report, House of Lords, 8 June 2010; Vol. 719, c. 625.]

Between 26 May and 2 June, the Institute of Chartered Accountants in England and Wales interviewed a number of its members, over 80% of whom believed that further efficiency savings were possible. I point out to the Treasury Bench that we must look at welfare payments, as the Chancellor said we would, over the next few months, because a 25% reduction in departmental expenditure is a significant target.

Let me say a few words about fairness. We need to protect not just the poorest but those in lower-paid jobs, who all too often are the group targeted whenever money needs to be raised. In that regard, raising the income tax threshold, thereby taking 880,000 people out of income tax, is a fantastic measure from the Liberal Democrat manifesto—but one that all Conservatives, I think, are happy to support. I also welcome the one-year council tax freeze. My own Conservative-controlled local authority will take advantage of it, and we hope that the Treasury Front-Bench team will find the money to extend it for a second year, as promised in the Conservative manifesto. On being progressive, I draw Members’ attention to chart A2 on page 67 of the Red Book, which shows that the overall effect of the package of measures announced by the Chancellor is progressive.

Finally, I would like to make a moral point, above and beyond the economic arguments I have tried to advance. Over the past few years, we in this country have been living beyond our means. The current generation is imposing a burden on our children and grandchildren. Above and beyond the economic arguments that will take place on the Floor of the House about that, it is morally objectionable to saddle our children in this way with debts they will spend their entire working lives trying to pay off. Although the measures the Chancellor has announced are tough, he told the truth and struck the right balance. There is a stark contrast between that and the Labour party’s complete lack of recognition of the problem, its lack of responsibility and its failure to apologise.