Budget Resolutions and Economic Situation
David Wright Excerpts(14 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
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.
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.
David Wright (Telford) (Lab)
I congratulate the hon. Member for Staffordshire Moorlands (Karen Bradley) on a genuinely excellent maiden speech. She mentioned 10 pubs that were among some of the highest in Britain. My love of a pint of beer will ensure that I visit her constituency very soon, perhaps over the summer holidays, and avail myself of a pint of bitter—or maybe even two—in each one of them. As a fellow midlands MP, it is a great pleasure for me to welcome her to the House. I was the Government Whip for her predecessor, Charlotte Atkins, to whom she paid worthy tribute. Perhaps I can encourage the hon. Lady to join us in the Lobbies next week, as I used to encourage her predecessor to do, but on the basis of her excellent speech, I think I might have some problems achieving that.
I want to speak about some general issues surrounding the Budget. First, I was struck during the Budget debate over the past couple of days about how the Budget failed to mention the scale of the global downturn over the past three or four years. Anyone listening to the Chancellor would not have believed that the world economy had gone through one of the greatest downturns—indeed, the greatest downturn—since the second world war. This omission amounts to a significant rewriting of history.
I recall visiting the United States when the housing crisis, prompted by the mis-selling of mortgages in the US, was just beginning to take hold. There was real fear on Wall street about the value and confidence of what was then triple A-rated debt. It sent a shockwave around the world, yet we heard no mention of that in what the Chancellor had to say, which I found quite remarkable.
I also found it remarkable that the Chancellor had nothing to say about the decisions taken by the Labour Government to support the economy at the height of the recession. I still believe that those decisions were the right ones to take, supporting the banks during the crisis and cutting VAT—perhaps the Liberal Democrats would like to reflect on that when it comes to the vote next week—to provide a stimulus to the economy. The car scrappage scheme was a particularly successful economic stimulus and was important for companies in my constituency and across the midlands. Quantitative easing was another positive step. During that period, the Conservative party largely got it wrong. It opposed a number of those initiatives, and was particularly slow when it came to supporting bailing out the banks. In large part, it got a number of those decisions wrong.
The crucial question facing us now is the speed at which we pay down the deficit that resulted from the global recession. We are all agreed on that. The risk is that if we take too drastic action, we could find ourselves pushed back into recession. On “Newsnight” last night, which I watched with my cup of tea, an economist, Richard Koo of Nomura Investment in Japan, said that there is a danger that the Budget will take too much cash out of the economy, and made the point that the private sector is deleveraging and might also be tempted to pay down debt. He made the point that, as a result of the Budget, we might find ourselves in a low-growth, low-inflation economic position, as experienced in Japan. At such times, he said, a portion of financial stimulus needs to be sustained, and that should have happened in Japan in the late 1990s. What happened in Japan was that it bumped along the bottom in economic growth. That is a worry.
The Budget envisages a massive shift to private sector investment and exports over the next three years. We should all support that and hope that such a strategy succeeds, but such a significant rise in private sector investment and exports over a three-year period is a tall order, especially if, as the Prime Minister said proudly from the Dispatch Box the other day, economies across Europe are contracting public spending. Several European Governments have withdrawn stimulus from the economy, which is a concern in relation to demand for exports over the coming three to four years. That is why the question of the speed of cuts is crucial.
The Canadian deficit reduction model, which is often cited by commentators in relation to the Budget, was pursued at a time of growth in the economy. I want to see more growth and I want to see the country succeed, as we all should, but my concern is that growth is fragile here. Businesses are concerned about the impact of cuts on levels of demand in the economy. The Shropshire Star, my local paper, did an excellent piece on the Budget—that will get me a good slot in the editorial tonight—and quoted Geoff Parkes, who runs a company in Telford, ASC Finance For Business. I do not know him or pray him in aid of the Labour party’s position, but he had this to say about the Budget:
“The big unknown is the effect of public sector cuts, reduction in tax credits, freezing child benefit and critically the rise in VAT to 20% from January 2011”.
He said that this
“will have an impact on demand in the economy—this means firms will have to compete harder for their share of the recovery”.
He is right: companies will have to compete harder for their share of the recovery. My concern is that we are taking public spending out of the economy too quickly. We need to cushion the impact of the cuts over the next two to three years; otherwise, we might find ourselves in a double-dip recession.
My concern about the Budget is the ideological drive of the Conservative party to reduce the role of the state. This is the kind of Budget that the Conservative party would have introduced whether we had these economic problems or not. The Conservatives have a big society view about the country based on a US small state theme. The headline from the Budget is, “Pain now, more pain later”. The massive spending cuts are pushed away to the autumn, when they can be announced by the Chief Secretary to the Treasury, the Chancellor’s personal human shield. I would not be surprised if the Prime Minister and Chancellor were well away—probably out of the country—when the Chief Secretary stands at the Dispatch Box to announce the savage cuts later in the year. In the meantime, the Budget can be presented as half the story of what needs to happen in our economy.
The Institute for Fiscal Studies has said clearly that if some Departments are to be protected, with perhaps 10% cuts, others will have to bear cuts of about a third. That is an enormous amount to come out of the budget in the next two to three years. I am extremely concerned about the impact that will have on police services in constituencies such as mine, where we will see fewer police officers on the street, fewer community support officers and fewer front-line services. Telford is heavily reliant on civil service jobs: defence jobs, Department for Work and Pensions jobs, and jobs that are reliant on work from the Treasury. I fear that there will be a significant reduction in the number of civil service jobs in Telford, which will have a consequential impact on our economy. I want us to protect those jobs in Telford, and I will fight to protect them. It is important for us to protect our local economy—an economy that relies so much on public sector jobs.
I was disappointed that the Building Schools for the Future programme was not mentioned in the Budget. A significant amount—more than £200 million—has been invested in the renewal of our schools in Telford, but there is currently no security for head teachers, pupils or parents with regard to the future of those schools. Secondary schools such as Wrockwardine Wood arts college, the Phoenix school, Lord Silkin school and Sutherland business and enterprise college are waiting to see whether the Government will proceed with Building Schools for the Future. I shall campaign with local communities to ensure that we complete that programme—a programme that we initiated as a Labour Government, and of which I am incredibly proud.
I believe that the Budget will have a disproportionate impact on the poorest people in the country. The Institute for Fiscal Studies stated clearly today that it believed that it would have a greater impact on the lower paid and the poorest than on anyone else. As our discussion over the past couple of hours has made plain, Labour’s last Budget was progressive and this Budget from the Conservatives is regressive. That has been the focus of the debate.
The core tax rise in this Budget is, of course, the increase in VAT. Before the election, both the Conservatives and the Liberal Democrats said that they had no plans to introduce increases in VAT. This VAT rise is a bombshell. We talked about it during the election in Telford, where it will have a significant impact on families. I shall be in the Lobby next week opposing it. Indeed, I shall be in the Lobby opposing the entire Budget package, because it is damaging to communities such as Telford and damaging to the country. We should oppose it because it is non-progressive—in fact, it is regressive—and I look forward to Liberal Democrat Members joining us in the Lobby to oppose it next week.
Kwasi Kwarteng
The hon. Gentleman will remember that the second rule was that
“public debt as a proportion of national income will be held over the economic cycle at a stable and prudent level.”
The then Chancellor concluded the 1997 report by stating:
“These rules will ensure that borrowing will be kept under firm control.”
Everyone applauded him. He was talking about prudence; he was the Iron Chancellor and very much the hero of the hour. In the same report, he referred to the recession of the early 1990s. His conclusion was that the public sector borrowing requirement rose to a peak at 7% of GDP and he said:
“The Government regards it as important that no similar risks should be taken with fiscal policy again.”
That was the position of the Labour party in 1997, and in 2006 Labour was repeating the same mantra and the same pie in the sky ideas. It was saying that
“public sector net debt is projected to remain low and stable over the forecast period”.
In 2007, it said:
“The Budget 2007 projections for the public finances are broadly in line with the 2006 Pre Budget Report”,
and so on.
David Wright
Will the hon. Gentleman outline what spending he would have cut between 1997 and 2007?
Kwasi Kwarteng
I am merely stating the very prudent rules that the former Chancellor and Prime Minister outlined. All the rules that he set in place in 1997—[Interruption.] The hon. Gentleman asked a question and I want to answer it. All those rules were ripped apart. The PSBR figure of 7% of GDP, which the then Chancellor had thought was a scandal, went up to 12%. According to the very rules that he set, we have failed and been found wanting. It is in that context that my right hon. Friend the Chancellor of the Exchequer introduced his bold and comprehensive Budget on Monday. It was only because we had to do this that the Budget was introduced to this House. It was not part of any ideology or master plan; it was an act of dire necessity.
I thought that the most interesting contribution in the debate was that of my right hon. Friend the Business Secretary, who recalled with a lot of emotion and understanding the experience of 1976. It was exactly that experience, when another Labour Government had bankrupted the country and had to go to the International Monetary Fund, that he was so anxious to avoid. It is in that spirit that the Budget has been introduced to the House and that is why I am very happy to commend this Budget and to go through the Aye Lobby to vote for it on Monday.
Budget Resolutions and Economic Situation
David Wright Excerpts(14 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Dominic Raab (Esher and Walton) (Con)
This is a crossroads Budget; it sets not just the terms of the next fiscal year, but the policy direction that will determine Britain’s economic competitiveness in the years that lie ahead.
The debt crisis was exacerbated, not created, by the banking crisis. The epic challenge we face today is the result of reckless state spending from 1997. In 1999, the OECD calculated that the British state was spending 38% of the nation’s wealth measured by gross domestic product. By 2008, before the crisis and the banking bail-out, it was 48%—an unprecedented rise of 10%. By 2009, as we all know, the state was eating up over 51% of national income. On these OECD figures, the British state spends more than Portugal, Spain and Greece, let alone Germany, and 10% more of our nation’s wealth than in the United States, Canada or Australia.
We have witnessed a seismic shift in the balance of our economy, which has blunted our economic competitiveness. On the World Economic Forum international rankings for economic competitiveness, Britain was fourth in 1998; today we are 13th. UK tax competitiveness has dropped from 11th lowest in the world to 23rd. According to The Economist rankings, the business environment in Britain has plummeted on its international rankings from seventh to 19th place.
For 13 long years, we were told that all that state spending was really investment, so amidst the shrill cry and synthetic outrage from the Opposition, let us remember precisely what their so-called investments really delivered. Britain has fallen on The Economist innovation rankings, we issue fewer patents, and the productivity gap still haunts the British economy, mainly because of the grotesque underlying inefficiencies in the public sector. In 2002, our roads were the 23rd most crowded in the world; today, they are the 17th most crowded, and our car-to-road ratio is up by 23%. Rail usage is up 17% since 2006, but we have almost 1,000 km less track.
Perhaps the greatest failure has been on Labour’s own terms. Despite unprecedented spending on schools, UK students, measured at 15, have tumbled down the OECD PISA—programme for international student assessment—rankings: from eighth to 24th in maths, from seventh to 17th in literacy, and by a similar measure in science. If social mobility remains an issue in Britain today, as Alan Milburn’s report stated last year, that reflects those basic failings in policy, not spending.
The nail in the coffin of the previous Government’s legacy must be this year’s finding by the National Equality Panel that, after their 13 years in power, inequality has just become worse. Their experiment failed, the spending spree is over, and now, in this Budget, Britain must face up to the reality of the mess that the previous Government left behind.
The OECD has predicted that this will be the last year in which developed countries account for more than half global output. The international competition has well and truly arrived, yet Europe lags well behind the United States in terms of levels of economic growth, and is ill equipped to rise to the challenge presented by new competition from Asia and Latin America.
David Wright (Telford) (Lab)
The hon. Gentleman mentioned the expansion of public spending over the past 13 years. One of the things that public spending does during a recession is blunt—a word that he used—the worst impacts of that recession. Can he cite three projects that he would have cut to provide an economic stimulus at the worst point of the recession?