Finance (No. 2) Bill

Debate between Bill Esterson and Chris Heaton-Harris

Monday 11th October 2010 Commons Chamber

[Bill Esterson (Sefton Central) (Lab)]

I want to start by discussing some of the comments made by the hon. Member for Watford (Richard Harrington). He talked of total denial among Labour Members about what has happened, but probably demonstrates the same himself on behalf of the Members around him. The figures on unemployment, repossessions and business failures in my constituency this year and over the past two years during the recession are roughly half those on unemployment, repossessions and business failures during the Tory recession of the 1990s. Many Members on both sides of the House will have found that to be the case. The reason for that is the support given to families and businesses during the most severe recession since the 1930s and a decision to look after the human side at a time of greatest peril. I am afraid that that factor is in danger of being missed by this Government.

The decisions taken in this place, which my hon. Friend the Member for Wirral South (Alison McGovern) commented on, affect people’s lives as they go about their everyday business. We need to consider that; this is not just a series of numbers. Some Members on the other side of the House operate as if the cuts in spending and child benefit and the rise in VAT are just numbers, but the effect is very real for millions of people out there, and it is that effect that really counts.

The hon. Member for Watford also mentioned the multiplier effect. I see he is no longer in the Chamber— [Interruption.] He has moved seats; I apologise. The point about the multiplier effect is that it is key to providing the stimulus that will allow the economy to grow and the deficit to be cut. Only by growing the economy can we possibly have any hope of cutting the deficit.

It is the role of Government in a recession to step in and support the economy until the private sector is strong enough to take over. The reality is that, at this stage, the private sector in much of this country is not strong enough to take over, step in and replace the Government in growing the economy. That is why the issue is one of timing: how soon we make cuts and how quickly we can pay off the deficit. That is an important point, alongside the impact on people’s lives.

[Chris Heaton-Harris (Daventry) (Con)]

Does the hon. Gentleman not recognise that the Government can grow the economy only with money already paid to them in tax? We therefore desperately need the private sector to be kicking off, and the Government cannot replace the private sector.

[Bill Esterson]

The hon. Gentleman makes an important point that is often made by Conservative Members, but if the private sector is not strong enough to step in and support the economy, that approach does not work. Only when the private sector is strong enough can it step in and behave in the way that he describes. At this stage, the recovery is so fragile that my concern is that we will follow what has happened in Ireland and slip back into recession unless we get this absolutely right.

It is crucial that the timing is right, which is why the Chancellor is now considering a return to quantitative easing as advocated by the Governor of the Bank of England. It is interesting that the Chancellor is looking at increasing the amount of money in the economy, which is done by borrowing—the other way of doing this. Even the Chancellor recognises that we have to get this decision right at this stage of the economic cycle.

History teaches us many lessons. In the ’30s, and to some extent in the ’80s and ’90s, the then Governments decided to cut hard and fast. What happened was what we have seen in Ireland over the past three years: the economy grew smaller, and it grew harder to pay off the deficit, not easier. The lessons are there for us if we wish to learn from them. I hope that the Government will learn. As I have said, there are signs that the Chancellor is learning some of those lessons.

I also want to talk about the value of investment in capital projects. Tonight, some Members have talked about the way that many projects were implemented over the past few years. As I have shown by referring to low unemployment and low rates of business failure and home repossession, those investments in capital projects—not least the Building Schools for the Future programme—benefited local economies very much by providing work and business for many small and medium-sized enterprises. It is important that we keep that kind of capital spending going, which is why it was so wrong that the Government cut Building Schools for the Future and many other capital programmes when they came to office.

The primary capital programme is another such example, and I raised the playbuilder programme in Education questions earlier today. There are also schemes such as the Thornton relief road in my constituency. Road projects are a great example of how a stimulus can be very effective in a short time, through the multiplier effect, which was mentioned by the hon. Member for Watford, who has now left the Chamber. The way to pay off the deficit is by getting that stimulus in place now until the private sector is strong enough, and not to go back into recession, where the deficit will only grow.

A number of Members have mentioned the role of the banks and how they are operating at present. I have seen that myself as a number of constituents have described the circumstances that they face. Banks have been calling in loans and overdrafts at a moment’s notice, using the small print, which they always reassured business owners they would never do. In some banks, the debt collection department often steps in and threatens business owners with either having to repay at a moment’s notice or pay punitive interest rates. All that goes on without the relationship side of the bank knowing that it is being done. I have already had a number of examples of that in my constituency.

The behaviour of the banks also needs to be tackled, and I am pleased to hear that Members on both sides of the House, having experienced this through their constituents, are determined to take action. However, there is also the issue of the responsibility of the banks for creating the global financial crisis in the first place. We need to tackle that and ensure that it never happens again. We also need to ensure that those responsible for the scale of the crisis through irresponsible lending to people who could not possibly repay their loans and disguising that by using complex financial instruments are made responsible. We must come up with an effective way to deal with that in the long term.

I know that there has been discussion in Government circles of the international banking levy, and I would be interested to hear what Ministers have to say on that issue. My understanding is that they do not propose to go anything like as far as President Obama, but the opportunity should not be missed, because if we can get decent international co-operation on the level of levy that should be brought in, we have a chance of putting the international financial system in a far stronger position for the future, of finding a way to invest back in the global economy, and of ensuring a robust and lasting recovery.

A levy on banking transactions is a far fairer way of tackling the deficit than the kind of cuts being proposed. People to whom I speak in my constituency do not see how cutting child benefit or tax credits, or putting up VAT, will help to cut the deficit; they see it as taking money out of the economy and feel that they are not being supported. That makes them less likely to spend the money that will, ultimately, help businesses to get back on their feet. They do not see why people on middle and low incomes should shoulder the burden of sorting out the financial problems caused by the major financial institutions, and that is why we need to work closely with partners at an international level to sort things out.

I want to talk about why I think that some of the moves made by the Government will make it harder for us to cut the deficit and will, in fact, have the opposite effect to the one that the Government claim for them. As we have heard Members say, scrapping regional development agencies has a clear implication. By going from eight organisations to 58, it seems to me—this is also being said by business leaders, certainly in the north-west—that all we will do is cause duplication, with costs being repeated 58 times instead of eight times. The changes will make economic co-ordination more, not less, difficult. Also, many of the RDAs have a very good track record of generating inward investment. The move will cost more money and be less effective. We see the same kind of mistake being made in the health service with the scrapping of primary care trusts: that will result in the creation of more organisations that do exactly the same job, with a repeat of the costs.

I mentioned the proposals on VAT, which will take money out of the economy at a time when the recovery is still fragile. The VAT cut had the opposite effect, and I do not accept the arguments of Government Members who say that it did not. The VAT cut resulted in an immediate benefit to the economy, because the money saved was generally spent straight away: people had spare change, and they used it. That had an effect at a very local level, in the shops. Of course, VAT increases hit the poorest hardest, and the Prime Minister himself called VAT a very regressive tax when he spoke at Cameron Direct in May 2009. For once, he really did agree with Nick; Nick told the “Today” programme the same thing on 7 April this year.

In my constituency, 40% of jobs are in the public sector. What happens when those jobs are cut? When police officers, teachers or health workers lose their jobs, they stop spending money with those same small businesses that we need to thrive. They stop spending their money not only in the shops, but on builders, plumbers and other tradespeople. That puts pressure on people who are self-employed and who run small businesses, and not just on public sector workers. There will be an effect not just on the public sector but in the private sector, unless we get the approach right at this stage in the cycle.

In conclusion, we need to look to the banks in solving this problem. We need the banks to lend to small businesses, as Members have said, and we need to look to the banks to take responsibility through a global financial levy. The Government need to reconsider many of the approaches that they are taking, because they are going to make things worse; they are going to increase the deficit and make it harder to grow the economy, and their measures will not work in the way that they hope.