Capital Gains Tax (Rates)

Chris Leslie Excerpts

Wednesday 23rd June 2010 Commons Chamber

[Mr Darling]

Our policy, as the hon. Gentleman will know, was to restore the earnings link from 2012. I can see that bringing that forward to a year in which earnings are likely to be very low had a political attraction. I think that was the subject of exchanges at Prime Minister’s Question Time, and it will not have the cash effect that is thought. As for personal allowances, I am in favour of taking people out of tax if at all possible, but the same people who are being taken out of tax will be paying increased VAT.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Further to the intervention of the hon. Member for Crewe and Nantwich (Mr Timpson), will my right hon. Friend expose the nonsense of the supposed council tax freeze announced by the Government and the small amount of money given to local authorities at the 2.5% level? Is not the rug being pulled from under local government through swingeing cuts to grants? How on earth are local authorities supposed to plan ahead and make their budgets? Surely they will not be able to do that until they see the spending review.

[Mr Darling]

I noticed that the spin on Tuesday morning was that council tax was to be frozen in England next year. By the time of the speech, however, the Chancellor was saying that if local authorities did certain things, he would see what he could do to help them, which is not quite the same.

Let me put some questions to the Secretary of State for Business, Innovation and Skills. On the Chancellor’s proposed levy on the banks, will the Secretary of State tell us precisely what the French and German Governments propose to do? I, too, had discussions with my French and German counterparts, but it was not always clear that they were proposing to do precisely what we might have done. Things have clearly developed, and I would like to know what those developments are.

The Chancellor announced measures to help development outside London and the south-east. He mentioned regional funds and other help, so will the Business Secretary give us further details? The Chancellor also mentioned that he wanted to change the approach to pensions tax relief. He made the point that the Labour Government had had a number of discussions; legislation went through on the nod, I think, just before Dissolution. Does the Chancellor’s alternative mean reduced annual allowances? My recollection is that that would affect far more people than we proposed to affect, and is therefore less progressive?

People are right to be concerned about the overall thrust of the Budget in relation to the effect on growth and jobs. Yes, we need to get borrowing down—we all know that—but we must do it in a way that is sensible and will result in us coming through all the problems and being able to grow and secure jobs in the future. The Budget also fails the fairness test. Over the next few weeks and months, we will consider yesterday’s announcement and, equally importantly, the cuts to departmental spending. The Business Secretary’s Department is not protected. Perhaps he will say what the effect of a reduction of a quarter in his budget would be, given that he is responsible for science, universities and business support.

We will return to those big questions. Like all Budgets, this one will be judged in the fullness of time. We are coming through a difficult period, and the action taken by the Labour Government was totally justified. We must be careful not to derail that effort and end up undoing all the work done over the past few years.

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[Vince Cable]

I have answered the question; I do not want to pursue it.

Were the private promoters able to take the project forward, we would be delighted, because as a commercial project it has many attractions. However, the Government could not commit large amounts of money to such a project.

The shadow Chancellor made a series of challenges, which I will take systematically. He asked why we, and I personally, have endorsed austerity policies and especially quick cuts; he asked about the issues around fairness and value added tax, with which I will deal; and he asked about the important economic question of how we get growth emerging from a period of austerity, and I will try to answer that. First, however, let me explain why I changed my mind—for I did change my mind—about the necessity for early action on the budget deficit. Let me describe the sequence of events, because I think that it is quite important.

As the shadow Chancellor knows, because he was still Chancellor then, when the election took place there was, in the background, a major sovereign debt crisis in Europe. The day after the election, when there was a hung Parliament, the then Prime Minister suggested to me, I think for reasons for courtesy, that I talk to some senior officials in the Government and the governor of the central bank about the existing situation, in order to obtain their assessments of what was going on. I did so. The leader of my party talked to the governor, and I have talked to him since.

The advice that I received, uncompromising and unequivocal, was that the incoming Government, whoever they were—we did not know who they would be at the time—would have to act immediately and decisively on the budget deficit, because there was a serious threat to this country. I took that advice, but was left with a nagging question. The former Chancellor was presumably receiving the same advice. What would he have done? Was he proposing to disregard it? The line of policy that he is developing now suggests that he would have liked to disregard it, but was he going to do so, or was he going to be responsible, accept the advice and act on it? Because he is a responsible and serious man, I think he would have accepted it.

We now know, because the figures are becoming clear, that in the current financial year, when, as the shadow Chancellor said, the economy was fragile, he was introducing a fiscal tightening of £23 billion. The new Government have introduced a tightening of £6 billion. The last Government did not announce that fiscal tightening—it emerged in the small print from the Institute for Fiscal Studies—but the shadow Chancellor did it, and he clearly did it with good reason. The problem was that it was never clear what the Government were doing, it was done in a very chaotic way, and some Ministers—including Lord Mandelson, my predecessor—plainly wanted to support the Chancellor and to act in the public interest, and got on with those cuts. When I entered the Department, people such as further education lecturers and scientists were being made redundant as a result of the measures that had already been initiated by the Government in response to the crisis that they knew existed.

[Chris Leslie]

The right hon. Gentleman may well have had his damascene conversion, for who knows what reasons, but does he not owe an apology to the millions of people who thought when they voted Liberal Democrat that they were voting for a pro-growth strategy and against these massive cuts? Should he not apologise to his own electors?

[Vince Cable]

No; we are trying to deal with the problem that the hon. Gentleman and his colleagues left behind.

[Vince Cable]

I know that we were not in the same position as Greece. I was not talking about what the Greeks and the eurozone needed to do; I was talking about what we needed to do, and the advice that we received.

There is an evidence base to look at. It is true that, as the shadow Chancellor said in his speech, the cost of borrowing in terms of bond yields was starting to fall under the last Government. That is because markets are driven by expectations, and they expected a change of Government. Since the election, however, and since this action was taken and announced, the cost to the United Kingdom of borrowing, in terms of bond yields, has fallen by 20 basis points. In Greece it has risen by 170 basis points, or 2% in ordinary language. It has risen by 94 points in Ireland, by 95 in Portugal, and by 65 in Spain. Spain is a serious, big country: we are not talking about tiny, peripheral economies. It is a serious country, which was caught up in the financial firestorm that we have had to head off from here. That was the basis on which we made decisions.

Let me now develop that immediate question into the broader issue of the Chancellor’s Budget and the magnitude of the task that we had to undertake. There is, of course, a difference between the problem of the deficit and the problem of the debt. There is a public debt problem, which is growing rapidly, but as the Chancellor has pointed out and as I have often pointed out myself, it is not greatly out of line with what is happening in many other countries, or with what has happened historically. The real problem for the United Kingdom is the massive level of public borrowing. That is why markets are important. The deficit in the last financial year was 11% of GDP; in the current financial year, it is 10.5% of GDP. That money—£155 billion—must be borrowed. My views on that, on how it should be dealt with, and on the kind of radicalism that is needed had nothing to do with the formation of the coalition. My views were set out a year ago, when I wrote a pamphlet which did, indeed, bear a strong resemblance to what the Chancellor produced yesterday in terms of scale, scope and speed.

Let me tell the shadow Chancellor why I feel strongly about the need to act in such a decisive way in terms of fiscal policy. There are two reasons. First, I saw the disaster unfolding under the last Government, when they were overtaken by a major financial crisis for which they were not prepared and to which they had massively contributed. Of course there is a global problem—we know that—but its impact has been much more serious in this country than elsewhere. That is because the Government allowed household debt, in relation to income, to rise to the highest level in the developed world; because they acted and planned on the assumption that house prices rise for ever, although we know from the evidence that they go up and down roughly every 17 or 18 years, as they have done for the last 300 years; and because they created, encouraged and fostered an almost Icelandic dependence on major international banks, the combined magnitude of whose balance sheets represented 400% of our economy.

The Government allowed that to happen. Some of us warned about the dangers, and they took no notice: they said that we were scaremongering. But the crisis hit them, and, having experienced it once, we on this side of the House are determined that such a financial crisis should not happen again as a result of sovereign risk. That is why we are decisive, and why we feel that we need to act.

[Chris Leslie]

If what the right hon. Gentleman says about the banks is true, why has the Budget been quite so lenient with them? Why has it taken only £1 billion from them, when the rest of the country is having to pay £14 billion as a result of the measures in the Red Book? What will his Department do to prevent the banks from passing even that £1 billion on to their customers?

[Vince Cable]

That was a very strange intervention. It may reflect the fact that the hon. Gentleman—whom I respect a great deal—has rejoined the House following the election, and may not be familiar with the arguments that led up to it. He will know, however, that the last Government were going to phase out their bonus tax. We have reintroduced a stable system of taxation on banks, the incidence of which will increase over time. Of course, many things need to happen to the banking system. We will discuss, as colleagues, how we should deal with such matters as bank lending, on which there is an outrageous record of bank dysfunctionality.

Budget Resolutions and Economic Situation

Chris Leslie Excerpts

Tuesday 22nd June 2010 Commons Chamber

[Malcolm Bruce]

I do not really understand where these people are coming from. I believe in an open, pluralistic democracy and a reformed electoral system, and I believe that, ultimately, we should all recognise that we are all minorities. No one party in the House commands majority support, and that is why we have a coalition. That is what the electorate, effectively, voted to deliver. If we want a democratic, pluralistic system, and if government is to be delivered, we have to recognise that one way or another more than one party will have to work together, either by supply and confidence from the Opposition or in a full-blown coalition.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Will the right hon. Gentleman give way?

[Malcolm Bruce]

No.

Confidence and supply gives the minority Government the freedom and the party providing the confidence and supply the responsibility, and that does not seem to be a good deal. Coalition gives both parties the opportunity to be full playing partners, to inject their own ideas, policies and people and to strike sparks off each other in ways that they could not if the situation were different. Over the past seven weeks, I have been really pleasantly surprised by how many sparks have been provided and by how rigorously a flame of reform has been blown into life as a result of the coalition.

When the Leader of the Opposition reflects on the intemperate tone of her response, she will understand that the people will say, “Those in Labour are substantially responsible for the situation in which the country finds itself, they are in total denial and they have not offered an apology or an explanation of anything that they would do.” Right now, they should just go away, have a leadership competition and let the rest of us get on with running the country and getting it out of the mess in which they left it.

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[Mr Redwood]

I was clear throughout the previous Parliament that I thought Labour’s spending targets were unaffordable, and I said so in the economic policy review that I wrote for the Conservative party at the time. I was strongly opposed to the indiscriminate subsidies and moneys flung at the banks on a scale that defied belief and which I felt was totally unnecessary. I offered an alternative way of saving what needed saving in those banks, for the sake of the general economy and at a much lower cost, so I think that the hon. Gentleman has challenged the wrong person on that issue.

I pay tribute to my hon. Friend the Member for Dewsbury (Simon Reevell). He gave an elegant, traditional and classical maiden speech that bodes well for his representation of the people of Dewsbury. It was funny and detailed; showed a great love of the territory and people he now represents; and showed that he will be a campaigning politician. I also detected just a little conservatism in his attitudes, so I was entirely happy with it and wish him a long and successful stay with us in the House.

The Budget has been little understood by some of the people who have commented on it so far—perhaps that is not surprising because those who speak early do not necessarily manage to read the Red Book quickly enough. I praise my right hon. Friend the Chancellor for producing a Red Book half the length of the Labour Red Book—and, therefore, a lot cheaper and economical—but containing much more useful information. With a short read one can understand exactly what he is trying to do in the measures he is proposing, whereas I used to find it took more than a day to winnow out the truths from the great weight of paper that the previous Chancellors of the Exchequer used to present, because they were always trying to disguise the negatives and highlight and exaggerate the positives.

My right hon. Friend is right to say in his Budget that we can get out of this mess only with a strong and vigorous private sector-led recovery. We need to preside over the creation of a very large number of new private sector jobs, because we need to absorb many of the people languishing on benefits as a result of past policies—almost 6 million people of working age without a job, many of whom would like and need a job. We need to create a much more vibrant private sector that can take them into employment, so that the benefit costs come off the public accounts and those people can start to make a contribution through taxes.

We also need to create many more jobs because the 6 million people currently employed in the public sector are too many. I do not wish to see compulsory redundancies, but I am glad that my right hon. Friends in ministerial office are now imposing freezes on recruitment and allowing recruitment from outside only where it is really necessary. We need to reduce the number of people across the public sector, and I am pleased that we will be showing the way here as well, so that nobody can say that MPs are exempt from the process.

[Chris Leslie]

The right hon. Gentleman is talking about the number of people in public service employment. What sort of reduction does he feel would be acceptable? How many people should no longer be employed in the public sector?

[Mr Redwood]

That has to be judged case by case. I will not play the hon. Gentleman’s silly political game so that he can create a sensational press release immediately after I have given him a suitably large number, and I am not going to give him a suitably small number so that he can say it would not have the necessary impact. Suffice it to say that proper management could deliver more for less across many parts of the public sector, and we can do that without compulsory redundancies; we can do it by sensible management.

My first test for my right hon. Friend’s Budget is: how does it promote private sector-led recovery? I am pleased that he has said that he wishes to cut, through a steady process, the headline rate of corporation tax by rather more, I think, than under the plans when he was in opposition. The receipts pages—pages 40 and 41 of the Red Book—on “Budget policy decisions” show that he will be reducing the tax burden for most of business, and that not all of it will be given back in the form of reduced capital allowances in the way that Labour feared. However, if we add in the banks tax, the corporate sector as a whole will be making a bigger contribution. So the thrust of the Budget is that non-banking businesses will get a modest benefit from the changes and that overall business will have to help to pay for the large amounts of public spending still going on. However, a clear message will be sent to the outside world that we want lower taxes and that we believe in lower tax rates. The lower headline rate is the most beneficial thing that we can do to get people abroad interested in coming here with their companies, investments and new ventures, which is what we need.

I am pleased that the Chancellor has done more for small business. [Hon. Members: “Hear, hear!”] All the evidence shows that small businesses are not only politically popular with my colleagues, as we have just heard, but the main generators of new jobs during an economic recovery. They are more creative and need to take on more people. He has targeted them favourably with both the small business profits tax rate reduction and, for those outside London and the south-east, the generous national insurance reduction—as a Member for a south-east constituency, I would like him to extend that to the rest of the country as well, but I understand his argument that he wishes to concentrate the help on those parts of the country with the most unemployment and the biggest public sector problem.

Overall, the Budget judgment is not to ensure that 80% of the strain is taken by public spending reductions. The idea is that next year 57% of the strain is taken by public spending changes and 43% by tax increases. That is quite high on the tax increase side, which is a little worrying, but it reflects how my right hon. Friend is very reluctant to cut public spending in a damaging way and his understandable wish to get on with Budget deficit reduction.

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[Chris Leslie (Nottingham East) (Lab/Co-op)]

It is an honour to represent Nottingham East, having had a few years out of Parliament from 2005. Although I would encourage Members to treat my contribution today as a maiden speech—following, perhaps, the conventions of treating me gently and with great respect—I suspect that might be twisting the rules on maidens a little bit. I do not know whether one can be a born-again maiden, but I will try to focus today on the measures in the Budget speech.

First, I would like to pay tribute to my predecessor, John Heppell, who served Nottingham East faithfully for 18 years, not only—and perhaps most infamously—as Parliamentary Private Secretary to John Prescott, but for several years in the Whips Office.

Nottingham East is truly a wonderful constituency, ranging all the way from St Ann’s, Sneinton, Mapperley, Sherwood and Carrington to Bakersfield and other parts of the core of Nottingham city, which has some of the poorest parts not only of the city, but of the country as a whole. It is because of my concern about the impact of the Budget on those in my constituency who are among the poorest in the country that I wanted to speak today to signal my deep reservations about the measures announced.

I particularly want to focus on the Chancellor’s taxation measures, but there is also the hidden part of the iceberg beneath the waterline: the 80% public spending reductions. That may harm my constituents most of all. We will not know the full ramifications until the spending review in the autumn, of course, but the Chancellor signalled that there could be a 25% reduction in those departmental expenditure limits that are not in the protected areas of health and international development. To take 25% so quickly out of some of the key budgets in the country such as education, transport, housing, police and counter-terrorism will affect key services, and there will undoubtedly be a major effect on our quality of life, in particular on the least well-off.

I want to challenge some of the Conservatives’ spin and assumptions. I understand where they are coming from. They had to set out the context as best they could to try to soften up the public before they wielded the axe, but I am not convinced that it has worked on this occasion. The notion that the condition that we are in is all the fault of the previous Labour Government is really stretching things too far. Even the right hon. Member for Wokingham (Mr Redwood), who is not at the wetter end of the Conservative party, had to acknowledge that the banks were the root cause of the credit crunch and that it was a global credit crunch that started in America and spread around the world. Yes, the regulators failed, but regulators failed worldwide. He might well be like Mystic Meg in his understanding of the sorts of problems likely to range from the regulation of derivatives all the way through to the gearing ratios that the banks pursued, but the truth is that the then Government had no choice but to take steps to save the banking industry, otherwise the cash machines would not have been working; Had he been in government, he would have done exactly the same thing. It is important to put that on the record.

[Mr Redwood]

The hon. Gentleman should really point out that Australia, China, India and Canada have had much better success at getting their banks and economies through without the kind of crisis that we have had.

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[Chris Leslie]

If the right hon. Gentleman is seriously suggesting that this was not an international credit crunch, I just do not think that is plausible. The House deserves better from him.

[Mr Graham Stuart]

Will the hon. Gentleman give way?

[Chris Leslie]

Let me make a little progress first.

The notion that the debt is solely Government-authored debt has to be rebutted. The problem was not so much about excessive public spending as about tax receipts being drastically reduced because of the recession that came as a consequence of the credit crunch. That is the reality of the situation. The Conservatives try to promulgate the notion that the situation is far worse than expected, but the statistics show that the borrowing requirement is not as difficult as it was a few months ago and that the receipts we now gain from revenues are recovering better than expected.

The notion that debt is out of control was rebutted quite well in today’s edition of The Independent by Sean O’Grady, the economics editor, who illustrated very well that Britain is not Greece. The right hon. Member for Wokingham talked about the difference between euroland and our particular predicament. Although we have difficulties, we also have our own currency and some flexibility. We are not trapped in that currency zone, we have a more diversified economy than others in those areas and our debt has a longer maturity—it is not as short as in other countries. Our national debt might, unfortunately, peak at around the 75% mark, but that is very far from the levels that other countries are talking about.

There is a concentration solely on deficit, rather than on debt, but debt should be the issue at hand as that is the best way of comparing, historically, where we are. At the end of the second world war, Britain had a debt ratio of about 262% of gross domestic product, but the Labour Administration were able to establish a welfare state even with those levels. There is this notion that we are in a dreadful predicament, but the Conservatives have to concoct that urgency and talk about emergencies. There is absolutely no consensus either in the House or among economists more generally that the severity and the austerity that the Government have introduced in the Budget is on a necessary scale.

[Nadhim Zahawi]

The hon. Gentleman speaks as though his Government were not going to introduce any cuts. Is he telling the House that if Labour were on the Government side, they would do nothing about this? As my right hon. Friend the Member for Wokingham (Mr Redwood) has mentioned, Labour suggested during the election that there would be cuts of £40 billion but gave no further detail. Is the hon. Gentleman suggesting that everything was rosy in the garden before and that we should continue as we were?

[Chris Leslie]

No, we have to be mature and grown-up about these issues. It is important to recognise that the best way to address our deficit is to have a pro-growth strategy, because it will be through growth that we generate receipts, so that we can make improvements. If we have to restrain public expenditure, doing so in such a short space of time, with such severity, is an exceptionally risky strategy. In Sweden, and even in Canada—countries the Conservatives keep citing—such changes were made over 10 or 15 years. Yes, they rebalanced and consolidated, but for the Government to do so with such fervour betrays what is really going on in the Conservative party. Ideologically, the Conservatives secretly enjoy the cutting back of public expenditure. They hate state expenditure—they absolutely loathe it. They take a certain kind of masochistic relish in scaling back public expenditure.

[Steve Baker (Wycombe) (Con)]

Does the hon. Gentleman recognise that there is not just one school of economic thinking but at least three? Keynesianism, monetarism and the Austrian school have very different ideas about the rate at which we should cut and about how the economy would recover. Will he at least recognise that in academia there are real differences in economic thinking?

[Chris Leslie]

I could not agree more. That level of maturity is refreshing, but the Chancellor of the Exchequer saying that there was consensus that the measures had to be taken in a particular way shows how the hon. Gentleman departs from his Front-Bench colleagues. I hope he will have the foresight to listen to the differences of opinion and recognise the possibility that austere and harsh public expenditure reductions, as well as some of the tax increases, could have a harmful effect on the economy. We do not know about the individual measures, but we have already heard from my right hon. and learned Friend the Leader of the Opposition about the effect on unemployment, as shown in the forecasts from the so-called Office for Budget Responsibility, appointed while the Conservatives were in opposition.

[Sammy Wilson]

The hon. Gentleman is making some good points, but he takes his argument a little too far when he describes Government Members as economic masochists who enjoy the process. At the end of the day, their constituents will not thank them for unnecessary cuts. There is a good argument to be made, but does the hon. Gentleman not agree that the extent to which he is taking it may diminish his case?

[Chris Leslie]

I hope that the hon. Gentleman is right. Judging from the Conservatives’ reaction—the papers waved in the air when the Chancellor sat down—the enjoyment they took in those harsh—[Interruption.] The hon. Member for Devizes (Claire Perry) calls out, “Pathetic”, but why else would they cheer with such fervour?

[Claire Perry (Devizes) (Con)]

I too welcome the chance to have a grown-up and sensible discussion, but could the hon. Gentleman not do the Tory cuts thing every time we come into the Chamber? Even my seven-year-old finds it rather childish. Of course the Budget will be tough to justify in our constituencies; no one wants to talk to their constituents about public spending reductions, particularly ones that we did not put on the statute book. We have to deal with a legacy problem and I waved my Order Paper because for the first time in 13 years we had a Budget designed not to win votes but to get Britain back on track.

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[Chris Leslie]

The hon. Lady will have to forgive me, but sometimes I get the impression that sign language is the only one she might understand. Cutting back budgets is exactly what she has been doing and she will be voting for it with relish.

[Andrew Bridgen (North West Leicestershire) (Con)]

I assure the hon. Gentleman that Conservative Members would have liked to enjoy Labour’s economic inheritance in 1997.

[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.

[Mr Binley]

In a sense of maturity, will the hon. Gentleman tell me by how much he thinks that the Labour party would have increased VAT if it had still been in government?

[Chris Leslie]

I suspect that it would be far preferable to follow a progressive route, not a regressive one, if taxation needed to be increased.

[Mr Binley]

Answer the question.

[Chris Leslie]

I am answering the hon. Gentleman’s question. There are significant revenue-generating measures, particularly in respect of the wealthiest in society, that should have been taken. The fact is that he will vote to take £12 billion in VAT—three letters that will be tattooed for ever on to the face of his constituency—annually from people, including his constituents, yet the Government have only managed to take £1 billion in revenue from the banking levy. That ratio says it all.

[Lilian Greenwood (Nottingham South) (Lab)]

Does my hon. Friend agree that increasing VAT will also have a significant impact on places such as Nottingham, where large numbers of people are employed in the retail sector, and that it will affect retail jobs? Is he aware that the Centre for Retail Research estimated that increasing VAT to 20% would lead to a reduction of 47,000 retail jobs and 10,000 stores closing?

[Chris Leslie]

I sincerely hope that that does not happen, but I worry that my hon. Friend may well indeed be right. The Government have tried their best to stagger the arrangement by delaying the introduction of the VAT rise, but they had better hope that the recovery is well under way by the time that the increase comes in—I think, in January—because, if there are still difficulties in our economy and they wallop up VAT by such a large amount, we risk a double-dip recession, which would particularly hit those who are in greatest need.

I want to talk about the most pernicious parts of the Budget which affect child poverty and even infant mortality: for instance, the scrapping of the health in pregnancy grant—just stating its name makes me incredulous that the Government have chosen it—in this financial year, from January onwards, coupled with the restriction of the Sure Start maternity grant to the first child from April 2011. I shall be very interested to see whether Government Members will walk through the Lobby with their heads held high to vote on those measures in respect of pregnant women in the greatest need. Coupled with the freezing of child benefit for three years, the shunting of lone parents off income support from next year—something that is also hidden away in the Budget—the abolition of the child trust fund and a couple of other things that the Chancellor spoke about very quickly in his statement, such as reversing the child tax credit supplement for one and two-year-olds and removing the baby element of the child tax credit from next year, which will cost young new families across the country £295 million, that is a phenomenal tax essentially on those who are in greatest need. Taken together, that seems to be one of the most despicable series of changes in the Budget.

[Gavin Barwell]

rose—

[Chris Leslie]

I should like to hear the hon. Gentleman justify those changes.

[Gavin Barwell]

The hon. Gentleman is being very generous in taking interventions. Has he had the chance to look at chart A6 on page 70 of the Red Book, which shows the combined effect of the freeze in child benefits and the indexation increase in child tax credit? It demonstrates that the two changes are extremely progressive when taken together and not regressive, as he tries to argue.

[Chris Leslie]

It is interesting that the hon. Gentleman talks about that table because I have looked at the whole of annexe A of the document, which attempts to suggest that the changes will affect all income levels fairly and that we are all in it together. However, the tables extend only to 2012-13, which is only a couple of years hence. If the hon. Gentleman has a copy of the document in front of him, he will see that page 40 shows that cuts in benefits really start to bite in—guess when—2013-14 and 2014-15. There is more spin in the document than in any Budget document that I have seen before. If the hon. Gentleman would care to table a written question to the Chancellor to ask for the tables to be extended beyond the short period to 2012-13, I would then be more than happy to debate fairness implications.

I would like to raise a few more of the many hidden elements in the Budget. The Budget will levy an extra £455 million of tax on the insurance bills that our constituents pay, such as for buildings and contents insurance, although I do not think that the Chancellor mentioned that in his statement. The Government will also scrap the saving gateway, which was due to be introduced in July. That initiative was designed to encourage the very poorest in society to save for the future, but it is gone as a result of the Chancellor’s generosity. Given that the child trust fund is also being scrapped, we will have no measures to encourage the poorest in society to start the savings habit, so it is a great pity that Government Members will support such policies.

A further hidden element in the Budget is the Government’s announcement that they will cut support for the payment of unemployed people’s mortgage interest by £15 million in this financial year, although that support is given at the point of those people’s lives at which they are in most need.

[Gordon Henderson (Sittingbourne and Sheppey) (Con)]

Is the hon. Gentleman aware that the interest paid by the Government under the existing mortgage interest support regime is fixed at 6.08%, even though many people pay interest at 2%, which means that the Government give them 4% more than they need to? In addition, surely it cannot be right that those payments can cover mortgages of up to £200,000 over two years.

[Chris Leslie]

It can if a person who is made unemployed relies on the mortgage interest support to keep a roof over their head, because they will otherwise be in great jeopardy. The hon. Gentleman might think that people should simply cope with the situation, but I believe that we need to scrutinise the measure much further.

The housing benefit changes announced in the Budget are exceptionally complex, so it is difficult to assimilate their likely impact. However, the reduction of the local housing allowance to the 30th percentile of local rents will distort housing support for the poorest in society.

The hon. Member for East Antrim (Sammy Wilson) talked about the tax credit regime and the reduction in the time period for backdating changes in circumstances from three months to one month. That mean-minded reform is an attempt to claw back money by reducing the period in which people in changeable or almost chaotic circumstances may analyse their position and go through the bureaucratic process of reclaiming their tax credits by submitting correct arrangements. As all hon. Members know, many people will find it difficult to do that within 28 days, and the measure typifies the mean-spirited nature of the Budget.

[Claire Perry]

I am grateful to the hon. Gentleman for giving way again—he is generous with his time. He is eloquently highlighting many of the tough decisions that have to be taken. He seems to be ruling out almost all of the deficit reduction measures that we have proposed, so may I again ask what he or his party would do to get to grips with the deficit?

--- Later in debate ---

[Chris Leslie]

As I have said before, we need a pro-growth strategy. Sometimes we have to spend to save. Investment is exceptionally important at this point in the economic cycle. All borrowing is not evil, as the hon. Lady suggests. [Interruption.]

[Lyn Brown (West Ham) (Lab)]

She should listen to the answer.

[Chris Leslie]

Absolutely—my hon. Friend is right. We need a mature debate about the economy, and the hon. Lady should listen to her hon. Friend the Member for Wycombe (Steve Baker), who said that there are differences of opinion. There is not just one particular view of these things.

There are risks to the economy from completely pulling the rug from under it by doing things such as imposing tax increases that go too far or cutting public expenditure too swiftly or harshly. If the hon. Lady thinks that we can cut public expenditure harshly without any ramifications for the economy, I shall just have to beg to differ.

I have been director of a local government research organisation for the past five years, and something that I suspected would be in the Budget looks as if it may be coming. Capital expenditure will reduce significantly, but many local authorities rely on public borrowing from the Public Works Loan Board, which has a prudential borrowing regime that offers considerable freedom to local authorities as a means of accessing capital for important projects in our constituencies. The Budget document reveals that the tap may well begin to be turned off for local authorities, and discusses monitoring that lending far more closely. Reading between the lines, the implication is that the Government are considering reviewing the prudential borrowing regime. I urge members of the Government, particularly the Under-Secretary of State for Communities and Local Government, the hon. Member for Bromley and Chislehurst (Robert Neill), who helpfully has come into the Chamber especially to hear my contribution, not to change that prudential borrowing framework, because the implications may be severe.

[Gavin Barwell]

I thank the hon. Gentleman for giving way again. He has just made an important point, but I should like to take him back to his reply to my hon. Friend the Member for Devizes (Claire Perry). He said that he wanted a pro-growth strategy. I am sure that everyone in the Chamber wants growth, but does he accept that by definition, growth will not deal with the structural deficit, which is what is there, even when the economy returns to growth. How would he deal with that deficit?

[Chris Leslie]

I disagree. I think it is possible to deal with the structural and cyclical deficits through pro-growth strategy. The fact that the Government’s so-called independent Office for Budget Responsibility has downgraded the growth forecast as a result of measures in the Budget shows that even it has had to admit that there are dangers in their strategy. I hope that they are absolutely confident about this—they seem to be—although I detect that a few Government Members may have doubts and questions in the evening when they are looking at the measures that will be introduced. I hope that they will look at them line by line, and not just hold their noses and vote regardless, especially Liberal Democrat Members.

[Kate Green]

It is absolutely right that the measures need to be examined in great detail to discover their true impact on individuals and families. Is it not the case that the distribution effects go beyond simply looking at income and expenditure deciles to groups that are especially vulnerable to poverty? My hon. Friend will agree that the damage done by linking benefits over the medium term to the consumer price index, and the attack on benefits such as disability living allowance will be particularly harsh for some of the most vulnerable members of society. It is important that we do not take a simplistic view of the impact of the measures but look at their effect on the most vulnerable groups.

[Chris Leslie]

I could not agree more with my hon. Friend, who knows a great deal about these matters. These are stealth cuts from the Government. When they were in opposition, they liked to talk about stealthy measures. Well, these are the stealth cuts. The change from retail price index to the consumer price index is not something that many of our constituents would necessarily notice in the small print, but there are vast reductions affecting them.

There are all sorts of tricks in the Budget, such as linking pensions to earnings—at a time when the Government are going to freeze public sector pay and they know that earnings will be deliberately depressed. With supposed generosity, they can of course link the two at that point in the cycle.

The change to the personal tax allowance was another part of the Liberal Democrat manifesto. It seems that they were not able to fulfil that manifesto pledge, so they have managed to change it a little, but they do not recognise that the people who earn an amount that is below the existing threshold will benefit not at all from the change. We have to think about the very poorest in society, and I urge hon. Members to do that.

[Martin Horwood (Cheltenham) (LD)]

The hon. Gentleman must admit, however, that taking almost 1 million out of income tax altogether must be a good thing for some of the poorest in our society. If he is keen on looking at the small print and for stealth impacts on the poor, he need look no further than the Budgets that we used to get from the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), which included the supposed abolition of the 10p tax rate. That was cheered by Labour Members, because everyone thought that it meant reducing the rate to zero, but it was in fact being doubled.

[Chris Leslie]

This Budget makes the 10p tax rate issue look like a drop in the ocean. Some Members want to look at one particular measure on income, and nobody objects to a personal tax allowance change, but we cannot just look at income tax on its own. The Chancellor has shunted revenue generation from income tax to VAT, and that is a Liberal Democrat strategy. The Liberal Democrats prefer VAT now, we can see that, despite the posters.

[Martin Horwood]

Will the hon. Gentleman give way?

[Chris Leslie]

If the hon. Gentleman is going to apologise for the VAT increase.

[Martin Horwood]

Let us not look at income tax alone. Why do we not look at the comparison between increasing VAT and increasing duties, which the previous Labour Government always used to do? That hits people across the income bands, whereas VAT, although no one likes it to increase, is less regressive because it is not imposed on necessities.

[Chris Leslie]

If the hon. Gentleman feels that every single item of expenditure that has VAT imposed upon it is not a necessity, I must disagree. It is not simply a tax on luxury items, nor is it akin to duties. The VAT yield is astronomical: £12 billion annually, some of which comes from his constituents. We will see what their reaction is to the increase, and I urge them to write to the hon. Gentleman, because they need to convince him on that issue.

A couple of items in the Budget statement were definitely very confusing. Now that the Under-Secretary of State for Communities and Local Government is present, I must say that I am still at a loss to understand quite how the Government’s council tax freeze will work. It sounds superficially plausible to say that the Government will give an amount equivalent to 2.5%—I think that that was the figure when it was last in the Conservative manifesto—to councils that keep their council tax increase below that level in order to reach a zero increase. That guarantee has been reduced from two years to one year, but with one hand they give a little and then, with the other, yank away a great chunk of the grant that local authorities receive.

Local authorities throughout the country will have to pull those two elements together, but how on earth that supposed council tax guarantee is going to work will be a mystery to them. They will delay their budget setting and budget planning until the spending review is clear, because until they know the departmental expenditure limit for the Department for Communities and Local Government, and until they know their grant settlement arrangements, they will be none the wiser about the Government’s plans either on council tax or on how they should set their budgets. I urge hon. Members to speak to their local authority leaders and elected members about that point, because whether or not we agree with the strategy, if we are to believe in local democracy, the technicalities—the operational details of those matters—count a great deal.

[Andrew Bridgen]

The hon. Gentleman talks about the coalition Government’s cuts, but he has forgotten about the biggest cut of all. We are going to cut the deficit, which is a millstone around the necks of current and future taxpayers. That will secure the future of our economy.

[Chris Leslie]

And everyone will live happily ever after—in the rainbow land that the hon. Gentleman inhabits. If he feels that the deficit reduction is the only issue that he needs to worry about, then he is looking at only a very narrow band of the issues that face our economy. Of course we need to have a pro-growth strategy in order gradually, over a longer period, to deal with our debt and deficit strategy, but not at the expense of the poorest in society and of economic growth or employment. The hon. Gentleman may well feel that unemployment is a price worth paying, which was the famous mantra of the Conservatives, but Labour Members do not.

On a technical issue, will Ministers come back at some point to talk about the limit on savings as regards ISAs? There is a suggestion that they are going to be index-linked, but now that we are moving from RPI to CPI in terms of indexation, the Red Book is not clear whether the link will be made on that lower level.

On the weekend before the general election, the Prime Minister appeared on “The Andrew Marr Show”, where he apparently promised to avoid cuts to front-line services, saying:

“But what I can tell you is any cabinet minister if I win the election, if we win the election, who comes to me and says, “Here are my plans” and they involve frontline reductions, they’ll be sent straight back to their department to go away and think again.”

That is what the Prime Minister said only a matter of weeks ago. Unfortunately, Ministers have not been thinking again, but have simply taken the axe to vital services.

In Nottingham, we know that the services people rely on most will be severely hit, and that is only from the £6 billion of changes that have been announced so far. The tidal wave—the tsunami—of spending cuts that is coming in the autumn will be shocking indeed. In Nottingham, we know that £2.7 million is being taken out of education expenditure, with savings from one-to-one tuition, school transport, and provision for special educational needs. We know that £1.2 million is being taken from the working neighbourhoods fund, which includes back-to-work programmes, literacy and numeracy support, and welfare rights advice. That is the front line in Nottingham—cutting by the Conservatives. We know that they have even scrapped the right to see a GP within 48 hours: again, changes to arrangements for which they have no substitute, affecting the front line in Nottingham. They have chopped £350,000 off the road safety budget in Nottingham, as well as the £2 million taken from the transport capital plans. In my constituency, the Conservatives have frozen—I hope that they will reverse this decision and allow the project to go ahead—£5.9 million of housing renewal money for Stonebridge Park, where more than 250 old homes were to be cleared and the same number of family-sized one and two-bedroom units constructed to help to take some pressure off the 15,000 people on housing waiting lists. Again, I fear that that is the front line in Nottingham.

This unholy alliance between the Liberals and the Conservatives—I suppose that one could characterise it as an axis of the axe—will be absolutely to the detriment of my constituents. It makes me concerned about the potential merging of the Liberals and the Conservatives around a right-wing, ideological pole that has shown a clear divide between the parties in this country. I hope that hon. Members on the Government Benches will listen to their consciences, look at the detail in these proposals, recall their election promises—particularly those of the Liberal Democrats on VAT—and vote against this dreadful Budget.

Financial Services Regulation

Chris Leslie Excerpts

Wednesday 16th June 2010 Commons Chamber

[Mr Osborne]

My right hon. Friend is absolutely right. The overall objective is to move away from a process of regulation that is simply about ticking boxes to one where more judgment is exercised and people start to ask those such as Sir Fred Goodwin, “What are you doing with your bank? Is it right that you are taking over ABN AMRO?”, instead of asking him whether he wants a knighthood.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Can the Chancellor explain who will be responsible under these reformed arrangements for the regulation of derivatives—financial instruments that are obviously sometimes very opaque and complex and could present a major risk to our financial system? Is it the Bank of England, the FSA or the Treasury?

[Mr Osborne]

The details of the institutional arrangements will be set out in a parliamentary statement tomorrow. As I said, it is right to allow the institutions involved to conduct their internal procedures, such as speaking to the court of the Bank. I know it is a completely novel idea not to bounce every institution in the country into the decisions the Government take, and actually to allow a proper process to take place, but I happen to believe that that is the right approach. The serious issue of the regulation of derivatives is the subject of intense international debate to try to create a better regulated system—or indeed to provide regulation where none existed—and to provide some central clearing operations for derivatives so that we can avoid some of the systemic risks that built up in recent years.

Office for Budget Responsibility

Chris Leslie Excerpts

Monday 14th June 2010 Commons Chamber

[Mr Osborne]

I am always against unnecessary point scoring. I say this to my hon. Friend: I think the new process is a big departure in how Budgets are put together. It is worth reflecting for a moment on what I did in this statement. I have read out what would normally be the first part of the Budget. Everyone now knows the forecasts and the assumptions behind them. He says that the forecasts were produced with the help of Treasury people, but Sir Alan Budd is an enormously respected independent person, and I do not think his independence can be questioned. We now have a set of accurate national accounts. Indeed, when the OBR is on a statutory footing, I want it to do more work on the true state of the national accounts, with regard to private finance initiative liabilities and the like. The big difference is that I must now fit the Budget to the figures, rather than fit the figures to the Budget.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

I welcome you to the Chair, Mr Deputy Speaker.

Page 11 of the OBR forecast has an illuminating table about the contribution that various elements of spending—in this case, Government investment—make to GDP growth. For 2011, it shows a potential minus 19% effect in one year. Will the Chancellor confirm that his Budget and the spending review will not worsen that contribution to GDP, and will the OBR report on an analysis of the Budget and the spending review in terms of those components shortly after they take place?

[Mr Osborne]

I will set out measures in the Budget, and the hon. Gentleman will have to wait for that. He highlights the point that I was making—that the forecast is based on the plans inherited from the previous Government. It identifies huge spending cuts, but they never told us where those cuts would fall. I am sure that he wants a future in the Labour party, so perhaps he can take a lead over some of the leadership contenders and tell us what those cuts would be.

Oral Answers to Questions

Chris Leslie Excerpts

Tuesday 8th June 2010 Commons Chamber

[Mr Osborne]

Unfortunately, my hon. Friend would have to tell his constituents that interest rates would start to rise and international investor confidence would be lost. Today, one of the credit rating agencies has published a report that makes the observation that the UK’s deficit reduction plan is particularly weak. That is the situation that we have inherited, and we are going to put it right.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Will the Chief Secretary to the Treasury rule out the means-testing of child benefit?

Economic Affairs and Work and Pensions

Chris Leslie Excerpts

Tuesday 8th June 2010 Commons Chamber

[Mr Osborne]

The Public Accounts Committee will, I hope, be very involved in the process, and I want to involve the expertise not only of its current membership, but of my hon. Friend the Member for Gainsborough (Mr Leigh), who chaired the Committee with such distinction during the previous Parliament. I served on the Public Accounts Committee when I first entered the House, and it is perhaps our most effective parliamentary tool for dealing with some of the big issues of public expenditure and value for money. One has only to read its reports on, for example, the big Ministry of Defence procurement contracts over recent years to realise that it has identified a very serious problem and, with the National Audit Office, brings a considerable expertise to solving those problems.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Will the right hon. Gentleman give way?

[Mr Osborne]

I shall give way, but then I must bring my speech to a close.

[Chris Leslie]

At Treasury questions some time ago, I was concerned about items of expenditure that might have met the tests that the Chancellor has set out in the spending review. On some of those tests, will the Chancellor now go where the Chief Secretary to the Treasury could not and say whether he has any plans to means-test child benefit? Many people are quite worried about that.

[Mr Osborne]

I welcome the hon. Gentleman back to the House, but I shall not be drawn down the path whereby new, eager and young—or no longer so young—Members jump up with every cherished item of Government expenditure and pose such questions. The hon. Gentleman will have to wait for the spending review and Budget for a discussion of the whole Government programme, but he should not assume anything from that answer.

The next thing that we will do is bring together, from within the Government and outside, the best people in their fields. We want the best civil servants helping us in that collective effort, not defending their Whitehall Departments. We want the inspirational head teachers, the chief inspectors in the police service and the nurses with new ideas to have their opportunity to put their ideas to us. The remit will be to innovate, to challenge entrenched ways of doing things and to identify the best ideas from throughout the world; and, in order to ensure that the resulting reform programme is achieved, we will establish robust mechanisms to ensure accountability to the public.

Thirdly, the spending review will cover the large, cross-cutting areas of Government spending. We will set out our plans to reform the welfare system and restrain the cost of public sector pay and pensions, and for capital spending we will undertake a fundamental review of spending plans to identify the areas of spending that will achieve the greatest economic returns. Opposition Members should know that we have inherited a capital budget that is set to halve.

Government Spending Cuts

Chris Leslie Excerpts

Wednesday 26th May 2010 Commons Chamber

[Mr Laws]

I have already made it clear that our priority is to protect schools, which is precisely what we have done in the spending statement. I am afraid that there is a basic ideological differences between those on the Labour Benches and those on the Government Benches—we believe in devolving power and giving freedom to people. We do not believe that Government know best, and the previous Administration proved that very effectively.

[Christopher Leslie (Nottingham East) (Lab/Co-op)]

Given that the Chief Secretary is taking more than £1 billion away from local authorities in this financial year, can he give a categorical guarantee that no local authorities will have to issue emergency changes to council tax bills in this financial year? Many people are worried about that.

[Mr Laws]

We certainly do not expect that. I welcome the hon. Gentleman back to this House.