Charter for Budget Responsibility and Welfare Cap

David Linden Excerpts

Monday 10th January 2022 Commons Chamber

[John Redwood (Wokingham) (Con)]

Let me return to the subject of the debate, the charter for budget responsibility. I will not follow the Opposition into a debate on the general state of the UK economy, which I am sure we will have other opportunities to discuss.

I see this as the Maastricht rules tribute debate. Every year under the Maastricht treaty, whether under Labour, coalition or Conservative Governments, we used to have a debate. We had to look at the two fiscal rules, which of course both came from the European Union: rule one was that the budget deficit had to be 3% of GDP or less; and rule two was that we had to either be below 60% of GDP with our state debt, or we had to show how we were going to get down to 60% of GDP with spending cuts or tax rises. The UK normally favoured the tax rise route, rather than the spending cut route.

That was characterised by the Opposition parties of the day, once the Conservatives or the coalition were in office, as austerity economics, although they would never accept that the cause of the austerity was the rules designed in Brussels. They would point out, when I made that point, that, “Oh well, because the UK is not a member of the euro there are not the same penalties imposed if the UK fails to comply.” The fact was, however, that the whole UK economic machine—Bank, Treasury and officialdom—believed they were very serious commitments and that, as they were treaty commitments, the UK had to keep to them. So when we finally got out of the EU, I was one of those voices saying to the Government, “Let’s scrap all that. Let’s not have those Maastricht tribute debates”—although I think we had one even after we left—“and let’s have our own UK framework.” That is what we should be debating tonight.

The Government have come up with a charter for budget responsibility, which I welcome, but reading the detail, it has a familiar ring to it. What are the two main rules in the charter? One is that we must keep the budget deficit down to 3% or below. It has been repackaged in relation to investment, but it is basically the 3% Maastricht budget deficit rule. The second rule is that, by the third year, debt should be falling as a percentage of GDP. Of course, our debt is well above 60%, and it will be quite a long time before we get back to 60%, if at all. It is now built into the framework as a regular review item, although it has the extra twist that it is a three-year average, so there is a bit more scope for flexing things.

I think we can do better than this Government. We could come up with an economic framework geared to the modern needs of an independent country, and I would suggest that our charter should embed two great aims of economic policy. The first aim that it should definitely embed is controlling inflation. It is right that the so-called independent Bank of England—this House regularly changes the rules and shows that it is actually in charge of the Bank of England—is charged with the duty of keeping inflation down to around 2% on average. I have no problem with that as a target, but the Government need to adopt it as a target as well, because as Ministers must well know, we cannot do all of the heavy lift through monetary policy—we cannot do it all through interest rates or quantitative easing. We also need to have a sensible fiscal policy.

Above all, the Government, who control such a huge chunk of the economy, need to manage their own affairs well, in terms of productivity, sensible real wage growth and so forth, and they have a duty to follow an anti-inflation strategy for the public sector directly under their control as a back-up to what the Bank and monetary policy are trying to do. I think that we should embed the inflation policy more firmly in the charter and that the Treasury should have to tell us how it is contributing to controlling inflation. It will be very topical this year, because clearly inflation is considerably above where we would all like it to be and there is no immediate sign that it is about to drop down, although I think it will drop down towards the end of the year, unless policy is particularly foolish.

The second criterion or objective that I would put in the charter is a growth objective. Labour made an entirely fair point by saying that what matters is growth. The faster the growth—as long as it is not inflationary—the more we would solve our deficit and debt problems. Our economy and our figures are incredibly sensitive to the growth rate. In the first half of the current financial year, we had very fast growth. It was a recovery phase and things were going fairly well from the covid lockdowns. As always, the OBR and the Treasury completely misjudged what favourable impact growth has, so they overstated the deficit for the first six months of the year by a whopping £50 billion. The deficit tumbled by £50 billion more, with no tax rises. But there was a huge tax rise—it was called tax on growth. More people went to work, and more people earned higher wages, bonuses or salaries. More people spent more money, so there was more VAT. So income tax receipts, VAT receipts and other receipts in the economy greatly outperformed the OBR and Treasury forecast, demonstrating that, if we can go for growth, we will make much better progress on the debt and deficit, which we need to do, than if we go for austerity economics, slowing the economy with tax rises and a too abrupt monetary deceleration.

I urge the Government to look again at whether they can improve on the objectives in the charter, to reflect on it and to see how an independent Britain can have a growth policy. If the Government established a growth target—they would not always hit it, but they could establish it—it would start to inform the actions of every Government Department that has a bearing on the strength of our economy, new jobs and all the rest of it. That is what we want. We want a Whitehall that is positive about Britain, not one that is trying to hold it back. We want a Whitehall that thinks Britain can achieve things—can invest here, have more jobs here and substitute for imports—rather than a negative Whitehall that says, “Gosh, there is too much borrowing, What can we cut? What can we tax? What can we stop?” We want less stopping and more positive going. We want more ability, generated by a growth policy, to show that an independent Britain can produce more of its own energy, grow more of its own food, catch more of its own fish, and make more of its own personal protective equipment and of its own medical requirements.

[David Linden (Glasgow East) (SNP)]

That speech would perhaps have done even better with “Jerusalem” on in the background. The right hon. Gentleman speaks about growing more food, but can he tell me who is going to pick that food from our fields?

[John Redwood]

It will be picked by people paid decent wages, and if that requires wages to go up a bit, I have no problem with that. It will also be picked by the growing mechanisation of agriculture. Our agriculture is not as fully mechanised in a lot of farms as it is possible to do when there are better capitalised farms, like those that have been growing more food elsewhere. How pessimistic that was—why is the hon. Gentleman not proud of the United Kingdom, Scotland or wherever, thinking that we can achieve more and do more? Why do we always have to be stopping people doing things, and saying that nothing is going to work and so let us import all our vegetables from Spain, all our flowers from the Netherlands and all our energy from Russia, Germany or the Netherlands or wherever because we are not able to do it here in Britain? It is just not good enough. We have this huge opportunity. We have a very talented people. We have many natural resources. We have a perfectly good temperate climate for growing most of our own food. So, Government, get on with it. Having a growth target would help energise a Whitehall that still seems to be very disappointed in the country it is trying to govern and seems to be trying to hold it back.

One other thing that the Chief Secretary mentioned in his remarks, which is mentioned briefly in the text we are debating tonight, intrigues me. It says that balance-sheet items are being worked on but have not yet reached a state of development where they can be shared with the rest of us. How long does it take? Why do the officials to the Government not know the asset and net asset position for the country? I believe there are some figures we can get from public sources that show that we do have some guesses about all that, but is it not rather important that when we debate the state of the nation’s finances, we understand the balance sheet as well as the income account and that we know whether the public sector is adding value and long-term wealth or not? If it is, why do we not claim some credit for it? If it is not doing enough of that, we need to ask the difficult questions about the wisdom of the investments, the productivity of the schemes and all the things that go into making that a success.

I did ask the Chief Secretary about a balance-sheet item. I think it actually makes a difference if you have bought in your own debt, because you owe the debt to yourself. I am not asking for anything imprudent to be done. I understand why we have gone through this rather tortured process, as has the European Central Bank and the Federal Reserve Board, and as, for many years, has the Bank of Japan. But we should not then fool ourselves into thinking that we have a worse problem than we have. The fact is that all these countries and currency areas spent a lot of money and created a lot of money to buy in debt over the pandemic, and we have got away with it, with a caveat that we have a little too much inflation. That debt is purchased; it is now both an asset as well as a liability of the state, so it is wrong to think that it is just a liability. The new argument is, “We owe the Bank of England and if the short rates go up, we owe the Bank of England more interest and so forth”. Yes, but it gets the receipt. If we want to do the transaction, the Treasury pays the Bank and the Bank can pay the Treasury back, because the Treasury owns the Bank. If I had bought in my mortgage from a mortgage company, I would probably just forget the whole thing. However, on Bank of England and Treasury logic, every month I would pay interest to myself because I still owe the mortgage, but then I could take that money back and spend it because I own the mortgage company and it is no longer a proper debt.

I think we have to understand that something different has occurred with quantitative easing, and I do not think we should go on doing it. It is normally very inflationary and very dangerous. In the strange circumstances of a covid lockdown in which a huge amount of demand and activity were taken out of the system, we could get away with it; indeed, it was right to do it, and I supported the Government at the time and praised them for the stimulus they offered. However, that has gone, and we now need to have sensible finances. To run those well, I strongly recommend a firm inflation target—inflation is a little too high at the moment, and needs to be taken very seriously—coupled with a much more optimistic growth target, because that is the way to grow the balance sheet and get the debt and the deficit down.

--- Later in debate ---

[David Linden (Glasgow East) (SNP)]

It is a pleasure to follow the right hon. Member for Hayes and Harlington (John McDonnell), and I agree with everything he said. He is right to take aim at the coalition Government. I note that there are no Lib Dem MPs here tonight to defend their role in that Government, particularly in relation to the welfare cap.

In the interests of time, I will focus my remarks largely on the second motion before the House tonight, but I think that this Government will at some point have to confront the blatant contradiction of their mantra on budget responsibility and fiscal discipline and how it correlates with their new buzzword of levelling up. If I understand the Government right, levelling up either means giving more money to the traditional red walls seats at the expense of the traditional Tory shire seats—something the Government deny and have denied off the back of the by-elections in North Shropshire and Chesham and Amersham—or it means spending new money in the old red wall seats, which flies in the face of the fiscal discipline this Government and the Chief Secretary to the Treasury like to talk about. They cannot have both. That is a fact that the Chancellor will need to realise, especially when he has one eye on a Tory leadership race against the Foreign Secretary. I do not know where the Chancellor is tonight. Maybe he is planning his next series of Instagram posts.

I thought it was interesting that the hon. Member for North East Bedfordshire (Richard Fuller) spoke about the importance of adhering to these fiscal rules once they are set in place. Perhaps the Government’s approach will be the same as that of the Secretary of State for Northern Ireland, which is that it is okay to break rules in a very specific and limited way.

I rise primarily to indicate my opposition to the principle of the welfare cap, which I will vote against tonight. We are also being asked this evening to vote on a charter for budget responsibility, but I would like the Government to bring forward a charter for societal responsibility, because it is clear that the contract between Whitehall and the most vulnerable in my constituency has been eroded to the point of breaking down entirely.

Yes, there has been limited devolution of social security powers to the Scottish Parliament, which excites me and gives me hope for the future, not least because we can implement social security policies that are underpinned by dignity, human rights and respect, but the inescapable constitutional reality is that 85% of welfare expenditure and income replacement benefits remains the responsibility of this institution and the British Government.

However, as constituency MPs we know that an arbitrary cap on welfare is neither useful nor adequate, as has been demonstrated by previous breaches of the cap. Quite simply, the welfare cap does not address the fundamental and clear structural issues that leave people relying on social security: issues such as low pay, gender inequality and wider labour market inequality.

I understand that it is easy for me, as an opposition MP, to stand up and pan the British Government’s policy agenda without offering solutions on how we can strengthen the social security net, so I want to set out where the SNP would do things differently. For a start, I think the British Government need to spend less time obsessing over the ideological plaything of a welfare cap and instead fix the fundamental flaws in our social security system. Straightaway, at the stroke of a pen, they could end the sanctions regime and conditionality. They could abolish the five-week wait for universal credit. They could end the bedroom tax in other parts of the UK. They could reinstate the £20 uplift in universal credit. Indeed, they could extend the uplift to the 2 million legacy benefit claimants who were so heartlessly left out in the cold at the beginning of the pandemic, because people with a disability have increased extra costs, and that £20 uplift should have applied to them too. The Chief Secretary to the Treasury spoke earlier about putting arms around people during the pandemic, so I remind him that those 2 million legacy benefit claimants certainly did not feel the embrace of the Government’s hug then.

Before I draw my remarks to a close, I want to focus specifically on the role of the devolved Governments in social security provision and, in particular, offer some thoughts on the Scottish context. I mentioned before that, with limited social security powers, Scotland is already making clear its intentions and priorities when it comes to supporting the most vulnerable and tackling poverty. One such example is the game-changing Scottish child payment rising to £20 per child per week. That equates to an investment of £197 million and will help lift 40,000 children out of poverty in 2023-24. Absolutely, that goes some way towards undoing the damage of years of Westminster actions to undermine and weaken the social security net.

But people in Scotland have to wake up to the fact that fighting poverty and inequality will only be hindered, not helped, by a Government in London who are fixated on a welfare cap and removing vital financial support for the least well off, because in many respects devolution is increasingly having to act as something of a sticking plaster to mitigate the very worst effects of Tory austerity and Westminster’s welfare cuts. Yes, the Chancellor—wherever he is tonight—might be a wealthy multimillionaire who thinks that £20 a week here and there does not make much difference, but for my constituents in Carmyle, Carntyne and Craigend, £20 is an awful lot of money. That £20 can mean the difference between cheap ding dinners and proper nutritious meals for their children that help fuel them to learn and grow healthily.

Yes, devolution in Scotland means doing things differently, with a focus on greater free school meal provisions, abolishing the bedroom tax, or indeed introducing the Scottish child payment. But there are limits to devolution, especially when it comes to the lack of borrowing powers. I believe that tonight’s debate again makes the case for Scottish independence, because Scottish independence means we will not have an arbitrary cap on welfare, thereby capping our ambitions to tackle structural inequality and poverty. Scottish independence is about creating a charter for societal responsibility and looking after the most vulnerable people in our communities.

Tonight’s motions show that Scotland being governed from London, and by London, will not achieve that. It was noticeable that even the Labour Front-Bench spokes-person, the right hon. Member for Wolverhampton South East (Mr McFadden), made hardly any reference to the welfare cap. It is clear that regardless of which party is in power, that will be an issue for people in Scotland. Only independence can tackle poverty and inequalities that are prolonged and perpetuated by an arbitrary Westminster welfare cap, which I will oppose tonight.