Budget Resolutions and Economic Situation

Chris Huhne 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.

[Matthew Hancock (West Suffolk) (Con)]

Is the right hon. Gentleman aware that yesterday in the Chamber the shadow Chancellor argued that the problem with Greece, and one of the reasons for what happened there, was that the authorities did not act quickly enough? Does he share my surprise that the shadow Chancellor can combine that with an argument for not acting now here?

[Chris Huhne]

My hon. Friend is absolutely right. There is no doubt that the lessons of history are completely clear. Those countries that grip their problems and deal with them do so in their own time and their own way and in a proactive manner. Those countries that fail to do so end up like Greece and Spain—with socialist Governments—grappling with measures that will be far more severe than anything that we have introduced in this House. I simply remind the right hon. Member for Doncaster North that Lord Keynes, the great Liberal economist who continues to be an economic hero to me, was once famously accused of changing his mind. He splendidly replied, “When the facts change, sir, I change my mind. What do you do?” The right hon. Gentleman’s principal problem today is that the facts have changed and he has not changed his mind. That is precisely the argument.

I would merely remind the right hon. Gentleman of another dictum from a rather great economist—also something of a hero of mine; I should probably be looking towards the Liberal Democrats here—J. K. Galbraith. He served a number of American Presidents, including J. F. Kennedy, and I should point out to the right hon. Gentleman that it was J. K. Galbraith who said that the essence of leadership was for a leader to confront the greatest dangers of the people they aspire to lead. The right hon. Gentleman is not doing that.

[Chris Bryant (Rhondda) (Lab)]

I can fully understand why the Secretary of State feels the need to justify his change of position; he has a lot of voters to try to explain himself away to. I can also understand why he makes the argument that some elements of the economic situation in Europe have changed over the past few months. [Interruption.] No, I can see why he might make that argument, but I do not see why that means he has got to change his principles, because I thought one of his principles was that progressive taxation was better than regressive taxation, and that that was why he had a great big poster about a VAT tax bombshell. It is his principles that we are worried about.

[Chris Huhne]

The hon. Gentleman makes an interesting point, but I would merely commend to him the Institute for Fiscal Studies analysis published today, which looks in particular at the distributional consequences of value added tax. From the tables the IFS has usefully produced—at this point I rather agree with my right hon. Friend the Secretary of State for Business, Innovation and Skills that it would be helpful if we had a PowerPoint presentation pack in the Chamber for the edification of those who seem to be unaware of the evidence—and in particular from the analysis of the impact by decile of expenditure, it is very clear that VAT is not in fact the regressive tax that the Opposition have said. [Interruption.] Please, just look at the IFS distributional impact analysis, as it is made clear there. The reason for that—

[Chris Bryant]

On a point of order, Mr Speaker. “Erskine May” makes it very clear that hon. Members should be able to explain themselves without requiring documents that they then want to present to the House. The right hon. Gentleman has just said that Members should look at some document that he is referring to, but we are not able to do so. Should we not get back to the facts?

--- Later in debate ---

[Mr Speaker]

I fear that we are going to have a flurry of points of order. [Interruption.] No, they are not points of order. I therefore call the Secretary of State.

[Chris Huhne]

Thank you, Mr Speaker. Let me merely assert, until the hon. Member for Rhondda (Chris Bryant) has had the opportunity to check this for himself, that the distributional analysis of changing the main VAT rate produced by the IFS today shows that there is not a regressive pattern to that when looked at by decile of expenditure.

I am very happy to defend this Budget, not least on the basis that, astonishingly, it is the first Budget in which we have a serious distributional analysis of the impact of its measures. We had 13 years of a Labour Government producing Budget after Budget, and on not one occasion in one Red Book was there a section devoted in this way to distributional analysis.

[Edward Miliband (Doncaster North) (Lab)]

Why did the leader of the Liberal Democrats, now the Deputy Prime Minister, say on 7 April 2010 that we should remember that VAT is a regressive tax? How does the Secretary of State square that with the fact that he is seeking to claim from the Dispatch Box today that it is not a regressive tax?

[Chris Huhne]

If VAT is raised right across without the exemptions that we have for food, children’s clothes and books, for example, and without the lower rate on fuel, then it is a regressive tax. It is a standard feature of basic micro-economics that indirect taxes are more regressive than direct taxes, but I ask that Members please look at the IFS analysis, because it seems to me to undermine directly the case that the Opposition are attempting to make.

[Rachel Reeves (Leeds West) (Lab)]

The right hon. Gentleman talks about the IFS numbers on the distributional impact. Does he agree with the following numbers from the IFS? The impact of the measures announced on Tuesday on the incomes of the poorest—the bottom—decile will be minus 2.6%, whereas it will be minus 1.5% for the next two deciles, then minus 1.4%, minus 1.3%, minus 1.1%, minus 0.9%, minus 0.6%, minus 0.6% and minus 0.7%. So the bottom decile will see a reduction in their income of minus 2.6% and the top decile will see a reduction in their income of minus 0.7%. Is that regressive or progressive?

[Chris Huhne]

The hon. Lady clearly did not listen to my earlier answer. When looking at the distributional impact, it is very important, particularly with indirect tax measures, to look at the expenditure effects, not the income effects. The IFS report shows very clearly the enormous distinction between the conventional answer on the distributional impact on income and the answer when we look at the expenditure effects.

The choice for this Government has been clear: either we manage the transition to lower borrowing to sustain the recovery, or we will have those choices yanked from our hands by the markets and we will face force majeure. It is far better to design a fair package, as we have done, than to have an unfair package imposed on us that no one has had the time or thought or energy to design.

No fiscal package responding to a market emergency that I have ever seen has been fair, whatever Opposition Members may say. I spent five years of my pre-political life analysing sovereign risk and sovereign crisis. I was in Seoul before Christmas 1997, in Djakarta at the time of the food riots, and in Bangkok when the authorities struggled with the collapse of the Thai baht, and I never want to see a British Government have to go cap in hand to the International Monetary Fund as those countries did, as Greece is now doing and as the friends of the right hon. Member for Doncaster North had to do in 1976.

Had we run the risk of contagion—of a sharp spike in Government and probably short-term policy interest rates too—the impact on growth would have been severe. The truth is that the course of action that the right hon. Gentleman and his friends recommend—the Micawberish course of hoping that something will turn up—would have put the British economy and British jobs in the international firing line, and no responsible Government would have done that. Frankly, I have enough respect for the intelligence and judgment of the right hon. Gentleman to believe that he would not have adopted that stance if he and his friends had been re-elected.

[Ian Swales (Redcar) (LD)]

Does my right hon. Friend agree that regressive taxes are those that stay the same regardless of people’s income, such as council tax, whereas progressive taxes are those that increase with income, such as value added tax, under which the rich will pay more because they will spend more? [Interruption.] I say that as one of the qualified accountants in this House. [Interruption.]

[Chris Huhne]

Before Opposition Members start chortling away, let me say that my hon. Friend makes a very good point. I would merely remind Opposition Members which Government raised council tax so steeply—the most regressive tax in the entire toolkit. Year after year under a Labour Government it was pushed up and up and up.

Let me now turn to the issue of growth and jobs. At this stage in every business cycle that I have followed, going all the way back to the recovery from the bust that followed the Barber boom in the early ’70s, the cry always goes up, “But where will the jobs come from?” That cry is particularly urgent whenever, as has too frequently happened, Governments are trying to deal with the legacy of past fiscal misdeeds. However, the forecast from the Office for Budget Responsibility is a reasonable central assessment and is similar to independent forecasts. It shows that the biggest impetus to growth this year comes, as is usual at this point in the cycle, from the inventory cycle. Recessions inevitably put businesses under enormous financial pressure. Businesses try to raise cash by cutting output and by meeting the demand for their goods from stocks, but that process has to exhaust itself as those stocks of finished goods run down. More of the demand for those goods then has to be met from output, and businesses once again gear up production. That is where we are today. The inventory cycle is a powerful stimulus. The OBR forecast has it contributing 1.2% of gross domestic product this year.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

Let me take the right hon. Gentleman back to his defence of his party’s volte-face on VAT. He explained that VAT was not a regressive tax because of the range of exemptions from it. Will he tell us what exemptions there are now under the coalition Government that were not there before that make it less regressive than it was before?

--- Later in debate ---

[Chris Huhne]

The hon. Gentleman knows that the exemptions are exactly the same. I merely make a standard point that is made by the IFS every year when analysing the distributional consequences of any financial measures. We can always take individual measures—the hon. Gentleman refers to VAT, but, as my hon. Friend the Member for Redcar (Ian Swales) has mentioned, the distributional consequences of what the Labour Government did with council tax were appalling because it is such an unfair tax—but we must look at the package as a whole. If one looks at the section of the document that describes what the distributional consequences are, one sees that the package as a whole is a fair one.

An important part of the answer regarding where jobs will come from is, of course, from existing businesses as they recover, as I have described. That will in turn feed confidence, consumer spending and investment. However, there is also a deeper answer.

[David Wright (Telford) (Lab)]

Will the right hon. Gentleman give way?

[Chris Huhne]

Let me make a bit of progress with the argument. The deeper answer is the profound change that must take place in our economy over the next 10 years, which will also be a great source of growth, jobs and profit. I am talking about the transition of our economy—the third, or green, revolution—to being powered from low-carbon sources. That is potentially as great a shift as some of the biggest changes in our economic history—from water to coal, from coal to oil and from gas to electricity. With each of those fundamental changes of technology, there was a wave of new investment that powered the recovery of a new and very different economy. We can look at the legacy of the rapid recovery in the 1930s from the point of maximum downturn in 1931. That was one of the fastest periods of British economic growth, with the development of new electrical appliances, other light industries and the suburbs around our major cities.

Let me cite some numbers to give a feel for the scale of the potential transformation that we face as a result of the green revolution. Thanks to the ageing of our energy infrastructure, my Department estimates that we will need £200 billion-worth of new investment in the next 10 years. That scale of investment will have substantial macro-economic consequences for businesses in the supply chain and for all those who work in them. I am pleased that my right hon. Friend the Chancellor announced in the emergency Budget, even though the focus was inevitably on averting a fiscal crisis, two measures that will support that investment. The first was our coalition commitment to remodelling the climate change levy and providing a carbon price floor to encourage low-carbon sources of energy, renewables and others. We will consult on that in the autumn. The second was, of course, the commitment to the green investment bank. We will be looking at the scope of the bank through the autumn and we hope to bring forward proposals on that.

[Toby Perkins (Chesterfield) (Lab)]

A lot of environmentalists were deeply disappointed that there were not more green taxes. Is that just another example of how little influence Liberal Democrat policy has had on what was a classic Tory Budget?

--- Later in debate ---

[Chris Huhne]

I honestly think that the hon. Gentleman is misreading the situation dramatically. We had three announcements; I have mentioned two of them already and I am going to expand on the green deal. It was an emergency Budget, and I would not have expected a substantial programme of reform on green taxes in an emergency Budget that was designed to take us out of the firing line. We have a clear coalition commitment, going forward, to a rise in revenue from green taxes as a proportion of total revenue. That is in the coalition agreement and I have absolutely no doubt that that is what we will see when the full Budget is brought forward in the normal way after the processes of consultation throughout Government.

[Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)]

Even if we accept what the right hon. Gentleman says about the emergency Budget, there was a very carefully costed proposal on air passenger duty in the Lib Dem manifesto—at least my Liberal opponents said that it was carefully costed—which seems to have gone missing. Why has that proposal been replaced by some future discussion in some future commission? Why has it become something that only might happen, if it could, apparently, have added £3 billion a year to the Budget now, at a time when that money is clearly needed by the Government?

[Chris Huhne]

I hope that the hon. Gentleman realises that there will be a consultation on that proposal in the autumn. I have no reason to believe that it will not be brought forward in the normal course of events with ordinary Government announcements. It is part of the coalition agreement and is widely welcomed. I believe that it was in both the Conservative and the Liberal Democrat manifestos, but not everything can be announced on day one. The overwhelming priority for this Budget has been to ensure that we can sustain growth and jobs by removing ourselves from the substantial and real risk of contagion from the financial crisis in southern Europe. That has been the overwhelming priority.

[Duncan Hames (Chippenham) (LD)]

Given my right hon. Friend’s comments on the need to invest in the infrastructure needed for a low-carbon energy future, will he assure me that his Department’s investments in the south-west wave hub will endure and survive the current turbulence associated with the machinery of government of its sponsor body?

[Chris Huhne]

I thank my hon. Friend for that question. Obviously, he knows that we will go through the comprehensive spending review in the autumn, and the normal process is to make announcements when we have been through that, but I have no reason to doubt that the Government’s commitment to the support of infant wave, tidal stream and wind technologies will continue and I am confident that there will be announcements reflecting that priority, which is in the coalition agreement.

[Mark Lazarowicz]

Will the right hon. Gentleman give way on that point?

[Chris Huhne]

I shall give way a bit more, but let me make a little progress. I have been making the argument that the need to replace our ageing energy infrastructure will give enormous impetus to growth in coming years. The other part of the argument has to be about looking at the centrepiece of the Bill that my Department will bring forward later in the year and at what we are proposing on the green deal. That, too, is an enormously significant package that will have genuine macro-economic consequences for the transformation of the economy and the creation of a whole new industry.

[Edward Miliband]

That was not mentioned in the Budget speech.

[Chris Huhne]

The right hon. Gentleman mutters from a sedentary position that that was not mentioned in the Budget speech, but the Budget documents contain a clear commitment in that regard. It is very clearly something that we are proceeding with rather dramatically.

The point that I want to make is that this will be the first genuinely comprehensive attempt to make sure that all of our housing stock is retrofitted. We know that most of the homes that we will be using in 2050 have been built already, so we need a comprehensive way to get carbon emissions from our residential housing sector way down if we are to meet our 80% overall reduction targets.

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

rose—

[Mark Lazarowicz]

rose—

[Chris Huhne]

Before I give way, let me make a couple of points about the economic significance of that approach. First, the potential increase in demand as a result of the creation of new industry will be absolutely enormous if we can get the Bill, the framework and the pay-as-you-save measures right. By way of indication, we would be talking, in practical terms, of 14 million homes that could be insulated with the support of the green deal. Purely arithmetically, if the average cost were £6,500, for example, we would be talking about a market worth literally tens of billions of pounds—£90 billion over a substantial period.

We are talking about creating a new industry that would be genuinely jobs-rich, as it would use skills already present in the construction sector and need unskilled labour as well.

[Dr Whitehead]

Will the right hon. Gentleman give way?

[Chris Huhne]

I will happily give way to my neighbour in Hampshire.

[Dr Whitehead]

I thank the right hon. Gentleman for giving way. He envisages that his green deal will involve insulating and raising the energy rating of 14 million homes in the UK. The previous low-carbon transition plan envisaged that that would be done through the provision of subsidised loft, cavity-wall and other forms of insulation. Has he succeeded in defending the money set aside in his Department for subsidising that, or will he rely on Tesco to do the job instead?

--- 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.

[Mark Lazarowicz]

I am very grateful indeed to the right hon. Gentleman for giving way. I want to leave Louis XIV and return to future technologies, and I was interested in the response that he gave to the hon. Member for Chippenham (Duncan Hames) about support for wave technologies. The right hon. Gentleman will probably know that two of the UK’s leading marine renewable energy businesses have their headquarters in my constituency. Can he assure me that support for marine renewables will be at the centre of his policies for every constituency in the UK, and not just those in the south-west of England? More specifically, will he tell us how the Government’s support for marine renewables will be affected by the Budget that we are discussing?

[Chris Huhne]

Quite properly, the hon. Gentleman wants me to anticipate announcements that will be made by the Government in the normal course of events. I understand that game, as I have played it myself on many occasions. At this stage, however, I can merely tell him that I visited Aberdeen recently for the All Energy conference, where I had interesting and fruitful talks with the marine energy specialists currently testing equipment off Orkney. I am deeply committed, as I believe the Government are, to making sure that what is a genuinely interesting source of potential future prosperity and jobs continues to get the support that it needs to get off the ground.

Obviously, we are in very tough times and have had to cut our cloth to fit our straitened circumstances, but I believe that marine energy offers real opportunities. We have made a number of proposals in that regard, and we will continue to support the sector.

[Chris Bryant]

Will the right hon. Gentleman give way?

[Chris Huhne]

No. I said that the previous intervention would be the final time that I would give way before winding up, and I have given way to the hon. Gentleman before.

By the way, I should add to my response to the previous intervention by saying that we have confirmed some of the grants and soft loans made available, for example, for wind energy.

[Dr Sarah Wollaston (Totnes) (Con)]

Will my right hon. Friend give way?

[Chris Huhne]

I am not going to give way again. I am sorry, but I am going to end up—[Hon. Members: “But it’s a new Member!”] I am sorry, I did not realise that the request came from a new Member.

[Dr Wollaston]

I am extremely grateful to my right hon. Friend for giving way. My constituency is home to Transition Town Totnes, of which he may have heard. It leads the way in looking at climate change and peak oil, and I am sure that the people involved will be very interested to know the size and scale of the projects that will be funded by the green banks. What will be the time scale? When might they be able to start looking forward to making applications?

[Chris Huhne]

I thank my hon. Friend for that intervention. [Hon. Members: “Answer!”] Opposition Members know perfectly well that there are certain processes in Government that we have to go through. We have to consult. We have to make sure not only that we produce decisions at the moment that both Opposition and Government Members would like, but that those decisions are right and have gone through all the normal processes.

However, I want to pick up on one very important point. My hon. Friend mentioned peak oil, something that, especially in the context of Deepwater Horizon in the gulf of Mexico and our exploration west of Shetland, opens up a terribly important point about the whole thrust of what we are intending to do. That is that we have been given a wake-up call to move towards a low-carbon economy even more rapidly than before. That is not merely for climate change reasons but because an economy that is more independent of volatile sources of energy from geopolitically troubled parts of the world is also more resilient to oil price shocks. If the name of the game is not to end boom and bust, as the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) used to promise, but at least to moderate boom and bust, then an important objective for my Department has to be to ensure that that moderation takes place by making energy security a more serious objective and defining energy security not merely in terms of physical interruptions—problems, say, in the straits of Hormuz—but in terms of our ability to withstand price volatility and price shocks.

I think I have gone on far too long—[Interruption.] As the hon. Member for Islington South and Finsbury (Emily Thornberry) says from a sedentary position, and I can agree with her—[Interruption.] Sorry, the hon. Member for Wallasey (Ms Eagle)—I was being barracked. I want to make a key point about the prospect of the move to a low-carbon economy providing us with a new type of economy that will be more resilient to shocks, will be jobs-rich and will provide genuine prosperity, employment and profit for British businesses, including opening up enormous opportunities in export markets. The framework that we have set out enables us to do that, and I commend the Budget to the House.

[Edward Miliband (Doncaster North) (Lab)]

May I start by congratulating the Secretary of State? He is by my reckoning the first Liberal to open a Budget debate in peacetime since 1914. That is a remarkable honour, which we should note today.

[Chris Huhne]

I am delighted to accept the right hon. Gentleman’s commendation, but I should remind him that my right hon. Friend the Secretary of State for Business, Innovation and Skills opened the debate.

[Edward Miliband]

I do not want to be a pedant about this, but he was not the first speaker in the day’s debate. That was the only point that I was making. The Secretary of State can accept my congratulations or not. I also want to congratulate him on something else. Today we have seen the completion of a remarkable political journey by the right hon. Gentleman. Remember the Liberal Democrat leadership election, Mr Deputy Speaker? He was the tribune of the left. He ran to the left of the current leader of the Liberal Democrat party. Today we heard the most remarkable political transformation from left-wing Liberal to Thatcherite. He could be the Reg Prentice of 2010. He could easily qualify as a Conservative candidate at the next election on the basis of the speech that we heard today.

There is a proud tradition here—Reg Prentice, Hartley Shawcross; maybe soon he will join those predecessors. But the problem for the right hon. Gentleman is that in order to complete this political journey, he has to engage in the most remarkable amount of doublespeak, which speaks to the heart of the traditions of liberalism. I come to this House today to praise the traditions of liberalism; he comes to bury them. What is the legacy of John Maynard Keynes? [Interruption.] I know that the right hon. Gentleman does not want to hear it. John Maynard Keynes taught us about the dangers of fiscal austerity at a time of global downturn. This Budget pays no heed to those warnings.

What is the lesson of William Beveridge? It is the principles of social insurance and protecting the most needy. What is the legacy of David Lloyd George? In 1909, 101 years ago, David Lloyd George delivered the people’s Budget. The people’s Budget—I say this as a Labour Member of Parliament—was a remarkable example of showing that one could be fair at a time of fiscal challenge. Nobody could claim that Tuesday’s Budget was anything like a people’s Budget. So I am afraid I give up on the right hon. Gentleman, but there are some Liberal Democrats in the Chamber today, and of course the new tribune of the left is the hon. Member for Bermondsey and Old Southwark (Simon Hughes). I am afraid that we have to put our faith in him as far as this Budget is concerned, because we have to give up on the Secretary of State. [Interruption.] My hon. Friends say he is conning me. I think that we should give him a chance during this debate.

The Conservatives will vote for this Budget at the completion of the Budget debates on Tuesday because they vote for unfair, unjust, unequal Budgets. I say to Liberal Democrats in all candour that they have to make a judgment. If the Budget is akin to the people’s Budget of 1909 and if it shows fairness at a time of fiscal austerity, they should by all means vote for it. But if it is a rerun of Lord Howe’s Budget of 1981, they have a duty to vote against it. I know that power is tempting. The Secretary of State is in power and has been tempted by office, but there are Liberal Democrat Members who are not in office, and they need to examine their consciences between now and next Tuesday. They should ask themselves, “Is this what I came into politics for?” That is the argument that I shall develop in my speech.

[Chris Huhne]

I wish to nip in the bud any temptation for the right hon. Gentleman to make parallels between what my right hon. Friend the Chancellor has announced and what Lord Howe announced in the early 1980s. The right hon. Gentleman says that this Budget is worse, but if he looks at the fiscal tightening set out in the cyclically adjusted budget deficit in the Red Book, it is 0.5% of GDP. The right hon. Gentleman is too young to remember, but the Howe Budget was more than 2%. So this is a very different Budget. We are talking about something that allows growth to continue, and indeed safeguards growth, precisely because it takes us out of the firing line of the southern European crisis.

[Edward Miliband]

I am afraid I disagree with the right hon. Gentleman. The fiscal tightening may be less than the Howe Budget, but he has to look at overall conditions in the world economy. There is a reason why President Obama has written to G20 leaders ahead of the meeting this weekend to warn about the dangers of early exit from fiscal stimulus. President Obama is worried about the world economy. Of course one has to look at fiscal tightening, but one also has to look at conditions in the world economy.

Let me develop my argument. First, let us look at economic growth. There was an honest difference of opinion at the election about economic growth and how we could ensure that growth, which is the surest way of reducing the deficit, could be maintained. The Labour party was on one side of the argument. We said that growth should be maintained by maintaining spending this year. The Liberal Democrats—the Secretary of State admitted this—were also on our side of the argument, and the Conservatives were on the other side of the argument.

The Secretary of State made much play in his speech about Greece—the Greek defence as I called it last time. He said that everything had changed because of Greece. Has the right hon. Gentleman changed his position because he is now in power and must defend a Conservative Budget, or is his change of position genuine? If it is genuine, we should give him credit for that, but I am afraid I have to say to him in all candour that it cannot be a genuine change. Look at the facts. He made great play of the fact that Greek bond yields had gone up from 7% at the beginning of the election campaign to 12% on the day of the election. The question is not whether Greek bond yields went up but what was the impact on the UK. What happened to UK 10-year bond yields between those two dates? Ten-year bond yields went down during that time, so there is no evidence for his claim about contagion.

The right hon. Gentleman must face a hard and uncomfortable truth. I do not blame him for taking the chance of office that he was offered, but he must come clean with us and admit that he has had to accept a macro-economic strategy totally at odds with the one that he went into the election defending.

[Chris Huhne]

rose—

[Edward Miliband]

I will give way to the right hon. Gentleman. Perhaps he will say that because he wants to do good things at the Department of Energy and Climate Change—I do not doubt his good intentions—it was worth paying the price of supporting a Budget that he would have opposed before the election. That is the reality of the situation.

[Chris Huhne]

rose—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. May we have short interventions? The right hon. Gentleman has already made a speech, and there are a lot of Members to follow.

[Chris Huhne]

May I remind the right hon. Gentleman that the former Chancellor of the Exchequer said that the ice always looks most solid just before it cracks? The contagion affected other countries in Europe including, as I cited, Spain, which had a lower central Government debt to GDP ratio than ours, and it is irresponsible to suggest otherwise.

[Edward Miliband]

I would give the right hon. Gentleman more credit if he had been more explicit about all these dangers before the election.

Interestingly, the right hon. Gentleman has been sufficiently concerned about the public finances to put pen to paper. We should take at face value the concern that he expressed at the start of the financial crisis in an interesting article in The Guardian titled “Cameron and Osborne are peddling skewed facts and scaremongering on public finances”. He felt moved to open his article by writing:

“You do not normally expect opposition politicians to leap to the defence of the government of the day, but there is an important national interest in doing so on the key issue of public finances. If David Cameron’s view that the ‘cupboard is bare’ gains ground, not only will policymakers feel more constrained, but we will risk thinking and talking ourselves into a worse downturn.”

He does not even have a blank record to defend, because his record is one of defending us on the public finances—[Interruption.] I do not want to take up too much time, but if he wants to explain away his article, I shall give way to him.

[Chris Huhne]

The right hon. Gentleman really has to take on board my case that while there was no evidence of contagion at the beginning of the election campaign, there was massive evidence by the end of it. I changed my mind when the facts changed. He has not done so, but he should not be proud of that.

[Edward Miliband]

No, at the end of the election campaign the right hon. Gentleman was offered the chance of office—and that is the sad truth of why he changed his mind.

[Chris Huhne]

The right hon. Gentleman recently accused me of not changing my mind because I wanted office when he suggested in a newspaper interview that our negotiating sessions with the Labour party showed that we had somehow become right wing because we were insisting on cuts in this financial year. He cannot have it both ways: either we accepted the cuts for opportunistic reasons because we wanted office; or we are saying that the facts have changed and we need to move the economy away from the risks of contagion from southern Europe.

[Edward Miliband]

The right hon. Gentleman’s defence is becoming even more contorted—I am not sure that even I understand it now. I shall make some progress.

The real problem with the Budget in respect of economic growth is that it ignores the lessons of Keynes. The right hon. Gentleman is defending a Budget that, on the Chancellor’s own figures, will reduce growth by 0.3% next year and lead to 100,000 fewer people in work not just this year, but next year, the year after and the year after that. Even that scenario is optimistic according to independent forecasters such as the Chartered Institute of Personnel and Development, which says that unemployment will go on rising, so there are real dangers in the Budget strategy.

A further problem with the Budget is that it has no plan for growth. The right hon. Gentleman waxed lyrical about green industries, but he can point to nothing in the Budget that will support the green industries of the future. The Liberal Democrats said at the election that they opposed cuts this year, but they are making not only the efficiency savings that the Conservative party promised at the election, but real cuts to regional development agencies, university places and Government support for industries of the future, the most outrageous example of which is the case of Sheffield Forgemasters.

During the debate on the Gracious Speech, I told the right hon. Gentleman that we would hold him to account on the Sheffield Forgemasters decision—and he will be held to account for it. I have to say to him in all honesty that the decision is short-sighted, damaging and wrong. The Labour Government approved a loan to Sheffield Forgemasters—not a grant, a loan. We had money from the European Investment Bank—those people do not throw money at problems when it is not required—and Westinghouse, which was going to order parts for the nuclear power stations that it wants to build in the UK, which will involve one of the only two reactor designs that we are going to have in the UK. The decision was therefore central not only to our economic strategy but to our green strategy. I know that the right hon. Gentleman does not like nuclear power, but prejudice against it will get us nowhere, either economically or in relation to the green industries of the future.

The grant to Sheffield Forgemasters would have given us the ability to make key components for the nuclear industry that currently have to be sourced from outside Britain, but the Government have turned their back on it. The Minister of State, Department of Energy and Climate Change, the hon. Member for Wealden (Charles Hendry), who is in the Chamber, is an honourable guy whom I respect, because he supports nuclear power—that is slightly complicated given his Secretary of State—but during a debate on Tuesday, he said about Sheffield Forgemasters:

“If one went to a bank and said, ‘I need an overdraft because I want to give more money to charity,’ the bank would question the wisdom of that approach.”—[Official Report, 22 June 2010; Vol. 512, c. 26WH.]

Sheffield Forgemasters is not a charity. It has the potential to be at the centre of the green industrial revolution that our country needs. I have spoken to the management of Sheffield Forgemasters, the unions and people in Sheffield, so I know that they are bemused by the Government’s decision.

I was the Minister who, along with Lord Mandelson, signed off the loan—it is not a grant—after we had looked at the arrangements over 18 months in government. It passed a whole set of value-for-money considerations, yet the Government have cut it off. I hope that the Secretary of State can force a reconsideration of the decision—

[Chris Huhne]

rose—

[Edward Miliband]

I have given way to the right hon. Gentleman a number of times, but if he is going to say at the Dispatch Box that he will reconsider the decision, I shall give way, albeit more in hope than expectation.

[Chris Huhne]

Does the right hon. Gentleman really think that an appropriate use of public money would be to ensure that the major shareholders in Sheffield Forgemasters do not have to reduce their equity holdings below 51%? I do not think that it would be.

[Edward Miliband]

That is an extraordinary statement to make on the Floor of the House. A set of commercial negotiations was carried out with Sheffield Forgemasters. The decision was signed off by the permanent secretaries of DECC and the Department for Business, Innovation and Skills as a value-for-money loan, but now the right hon. Gentleman questions that.

The right hon. Gentleman’s explanation is different from that offered by the Chief Secretary to the Treasury, who said that the loan represented value for money, but the Government did not have the money. The Secretary of State is not only wrong to oppose the loan, but confused about the reason why it is not being offered. I am afraid that the Government are hampering the green revolution that we need.

--- Later in debate ---

[Edward Miliband]

I want to be generous to the hon. Gentleman, as a new Member of Parliament, but I fear that he has walked into the most enormous elephant trap. Let me read from the last page of the IFS handout:

“Treasury said that reforms to be implemented between now and 2012-13 progressive, but

—This is mainly because of reforms announced by the previous government

—They only look at reforms to 2012-13—benefit cuts announced yesterday for subsequent years hit the poorest hardest”.

The IFS concludes:

“So likely that overall impact of yesterday’s measures was regressive”.

If the Chancellor wants to bring a new transparency and honesty to the debate, he cannot take credit for measures announced by my right hon. Friend the former Chancellor and say that they are somehow part of his Budget.

[Chris Huhne]

rose—

[Edward Miliband]

The right hon. Gentleman is itching to get back in, but let us be clear. The Chancellor’s words—the words a Chancellor uses in his Budget speech are a grave matter—were:

“It is a progressive Budget.”—[Official Report, 22 June 2010; Vol. 512, c. 180.]

I cannot see how that can possibly be the case, but perhaps the right hon. Gentleman, in his newfound role of defending the Conservative party, can.

[Chris Huhne]

The reality is that it is perfectly legitimate for the Treasury to analyse pre-announced measures as well as the measures that are announced, because a new Government reverse measures that they do not like and confirm measures that they agree with. Look at, for example, the decision to freeze the threshold at which the higher rate of tax begins to be paid. Does the right hon. Gentleman support that measure? It will increase the progressive element by taking more tax from the best-off.

[Edward Miliband]

The doublespeak just gets worse. The Conservatives spend the election attacking the Labour Government for putting up national insurance contributions on employees, then they produce their own Budget which is regressive and unfair, then they realise that that will be pretty damaging for them, so they take credit for a measure that they used to attack. That cannot possibly make sense. The truth is that the Chancellor made a claim in his Budget speech that the Budget was progressive. The Institute for Fiscal Studies, to which the Chancellor referred in his Budget speech, has said clearly that if one looks at the measures announced in the Budget one sees that it is a regressive Budget—and not just regressive, but deeply regressive, because the poorest 10% pay three and a half times more than the richest 10%. However much they may twist and turn with the help of their new friend, the Secretary of State for Energy and Climate Change, who is auditioning to be a member of the Conservative party, it will not help them. People can smell it. People can see through the doublespeak.