Ed Balls
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Amendment of the Law
Ed Balls Excerpts(13 years, 8 months ago)
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Ed Balls (Morley and Outwood) (Lab/Co-op)
For a fleeting moment, I thought that I was in the wrong debate. It is always interesting to hear proposals put before the House by the hon. Member for Wellingborough (Mr Bone).
Twelve months ago, at the time of last year’s Budget, unemployment was falling, growth was rising, inflation was low and stable, and we were on track to halve the deficit in four years. Indeed, because more people were in work, paying taxes and not receiving benefits, borrowing ended up £12 billion lower last year than was forecast the autumn before. However, there was still a long way to go. Following the biggest global financial crisis of the past century, we were getting back on the right track to get the deficit down and to restore our economy to sustainable growth.
One year on, the economic context for this Budget is radically different. Inflation is up to 4.4%, increasing prices for everyone and threatening a rise in mortgage rates. Unemployment, which was falling, is now rising to its highest level for 17 years. Consumer confidence has seen its biggest fall for nearly 20 years. Our economy, which was growing, has ground to a halt according to the latest figures. Just a few months ago in the autumn, we were told by the Prime Minister, among others, that the economy was out of the danger zone. However, on growth, inflation and unemployment, it appears that we are now re-entering the danger zone.
The question that families and businesses up and down the country will be asking is what changed over the past 12 months. Let me set out for the House what did change over the past 12 months. Yes, commodity prices have gone up. Yes, world oil prices are higher. Yes, we had a bad winter. However, other countries such as America, Germany and France have been similarly affected by higher oil and commodity prices and by bad weather, and their economies are still growing, unlike the British economy. Germany had worse snow than Britain, there was a big freeze in France and the US had the worst blizzards for decades, but their economies grew in the fourth quarter of last year. While our growth forecasts have worsened, theirs have improved. The German economy is forecast to grow more strongly than it was last year, as is the American economy. Growth in the world economy has been revised up. Which is the major economy that is now downgrading its growth forecasts? It is the United Kingdom.
Matthew Hancock (West Suffolk) (Con)
Will the right hon. Gentleman accept and welcome the fact that the British economy is growing faster than the EU average, or will he continue to talk down the economy?
Ed Balls
On the latest figures, the British economy was not growing at all—in fact, it had contracted by 0.6%.
I see the hon. Gentleman’s press releases regularly. They come across my desk two or three times a day. I want to give him some support. [Interruption.] I want to give him some support. The hon. Gentleman has a campaign to reverse the cancellation of funding for a dilapidated school in his constituency following the cancellation of Building Schools for the Future. I am right behind him. He has called for a new pedestrian crossing and to unblock the money for it, which is being blocked by a Tory council. I am with him. He has campaigned to keep his local library open. I am right behind him on that one. He wants to keep Thetford forest safe. Yes, I am with him on that one. He asks how we can deal with the pressures on the voluntary sector. I have to say, I think that he is in the wrong party.
Under Labour’s plan, the economy was set to grow strongly. [Interruption.] I have just given the hon. Gentleman more publicity than he had in three months from all those press releases.
Ben Gummer (Ipswich) (Con)
On the Labour plan, the right hon. Gentleman said this morning on the “Today” programme that we went into the recession with a low deficit. Is an average deficit of 2.9% low in his mind, or was that a mis-speak?
Ed Balls
I do not want to give the hon. Gentleman an economics lesson, but he needs to be able to differentiate his deficits from his debts. The fact is that we went into the downturn with a low deficit. We were borrowing to invest. Our national debt was lower than that of America, Germany, France and Italy, and lower than the national debt that we inherited from the Conservatives. We will not take any lectures from them on fiscal profligacy. Who was it who raised taxes 22 times in the 1990s?
Under Labour’s plan, the economy was set to grow strongly, unemployment was falling, and we were on track to halve the deficit in four years. Everything has now changed. But what changed? The change was the arrival of a new Conservative Chancellor who was determined not to halve the deficit in a Parliament, but to eliminate it entirely with an immediate hike to VAT, the deepest spending cuts our country has experienced in 70 years and the largest spending cuts of any major country in the world. America has a big deficit, but it is cutting it at a steadier pace and keeping its jobs programme in place. Its economy is now growing strongly and unemployment is falling.
Mr Peter Bone (Wellingborough) (Con)
Will the right hon. Gentleman give way?
Jesse Norman (Hereford and South Herefordshire) (Con)
I am not sure quite which hallucinogenic substances are being ingested on the Opposition Benches, but if I may ask a question—
Jesse Norman
Will the shadow Chancellor enlighten us on why WPP left this country under the last Administration, and why it has now returned, as has been announced in the news today?
Ed Balls
I am very pleased that WPP has returned to this country, and I am very disappointed about the 3,500 jobs lost at Pfizer in Kent. That is why we need to be careful about how we proceed.
I have to say that I have never in my life taken a hallucinogenic substance. I am happy to take any intervention from Government Front Benchers on that subject.
Mr Bone
I am grateful to the shadow Chancellor for giving way; he is being extremely generous, as always.
Why should we take any lectures from Labour on unemployment, when every single Labour Government have been kicked out with a higher level of unemployment than when they got into power, and when the last Government doubled unemployment in Wellingborough?
Ed Balls
It is a bit rich to have a lecture from the hon. Gentleman, who used to say that the national minimum wage would cost millions of jobs. We, unlike Members on the Government Benches, do not think unemployment is a price worth paying.
The Chancellor is going too far and too fast, and we are paying the price in lost jobs and lost growth. That is because a vicious circle is now taking hold in our economy. If the economy is not growing and hundreds of thousands of people lose their jobs, then fewer people pay tax, more people claim benefits and it is harder to get the deficit down. By cutting too far and too fast, the Chancellor is not solving the problem, he is making it worse. That was why yesterday, we heard from the OBR that growth had been downgraded for last year, this year and next year; that unemployment was forecast to be higher in every year of the forecast period; and that up to 200,000 more people would be unemployed than the Chancellor said last summer. Our borrowing was coming in £20 billion lower, but the Chancellor has now been forced to revise up his borrowing over the next four years by £45 billion.
The Chancellor said yesterday that he would put fuel in the tank of the British economy. Is not the truth that, as a result of his Budget, it is confidence in the British economy that is now tanking, and he who is running out of fuel?
Mr Brian Binley (Northampton South) (Con)
May I remind the right hon. Gentleman that in the mid-1990s my constituency was 440th in the jobseeker’s allowance list, but that by 2010 it was 132nd? Why should my constituents believe him having seen that record of unemployment under Labour?
Ed Balls
Because a year ago unemployment was falling, and now it is rising. [Interruption.] The Chancellor sits on the Front Bench and says, “This is so bad.” Does he mean growth being downgraded? Unemployment going up? I will take his intervention at any point he wants, but if he does not want to make interventions from the Dispatch Box, maybe he should not be doing it from a sedentary position. [Interruption.] If he wants to intervene, I will allow him. I have made my pledge.
None of what I am saying will come as any surprise to the Secretary of State for Business, Innovation and Skills. He warned of it a year ago. In fact, I remember standing with him on the green on Budget day a year ago, and he said:
“We must not cut Government spending too soon and risk plunging a fragile recovery back into recession. Cuts without economic growth will not deal with the deficit”.
Wise words, and how right he has proved to be. Even after the election, and even after his colleagues decided to bury their worries and go along with immediate spending cuts and a VAT rise, the Business Secretary was still warning of the risks to come. He said on “Newsnight” last May, after the general election, that the speed of the cuts had to be based on the condition of the economy. He said:
“These things will have to be judged at the time of the Budget, and of course I don’t present the Budget personally but I’ll make an input into it.”
He went on:
“Over the course of this Parliament judgments about the speed of cuts have got to take account of the changing conditions that are coming, and that is basic economic policy based on evidence, which is what I’m in favour of…We don’t know what the impact of these cuts will be on employment.”
Wise words again, and he was right. The cuts are too fast and too deep, confidence is tanking and unemployment is up. This Budget was the time to change course, before it was too late. Sadly, the Business Secretary has not been heard.
Dr Thérèse Coffey (Suffolk Coastal) (Con)
Does the right hon. Gentleman not accept that public spending is not actually falling but continuing to rise? The sad thing is that we all have to take our share in bearing more than £120 million a day in interest payments on the debt left behind by the last Government.
Ed Balls
The hon. Lady is right—deficits went up. They went up in Britain, Germany, France, America and all around the world. They did not go up because spending or the national debt was too high in Britain. That is a Conservative myth put about to try to justify the Government’s cuts to police, the national health service and schools. The reason deficits became big was that we had the biggest global financial crisis in 100 years. If we had not let the deficits go up when the tax revenues went down, it would have been not a world recession but a world depression. It was only our actions—here in Britain and around the world—that saved our financial system from disaster. We nationalised the banks, let the deficit go up and got unemployment down—all of which was opposed by the present Chancellor.
Michael Fallon (Sevenoaks) (Con)
If all that is true, can the shadow Chancellor explain why the deficit here was the worst in the G20?
Ed Balls
The hon. Gentleman knows the answer. We went into the downturn with a deficit that was low and covered our borrowing for investment. [Interruption.] It was low. We had low national debt—lower than France, Germany or Japan. We then had a global financial crisis, which hit the American and British economies hard. Our economy had a larger financial services sector than others—that was precisely why we did not join the single currency in 2003—so of course America and Britain were harder hit than other countries by the financially driven recession.
If we had not let the deficit go up, which some hon. Members now seem to think we should not have done, the result would have been unemployment above 3 million rather than it peaking at 2.5 million. The economy would have gone from recession into depression. That is the economics of the situation. The question is, who did a good job of getting the deficit down? We had the deficit coming down, unemployment coming down and growth going up, but a year later we have unemployment going up, inflation going up and the economy ground to a halt. As a result, borrowing will be £45 billion higher, not lower.
John Mann (Bassetlaw) (Lab)
My right hon. Friend may be able to assist me with some statistics that are missing from the Government’s document “The Plan for Growth”. I can see nothing in it about what has happened in the past 15 years. The chart showing growth under the last Government is missing. Similarly, there are no international comparisons showing what is happening to our growth compared with other countries, and what was happening under the last Government.
Ed Balls
The reality was that we had a long period of sustained growth and low inflation, and we reversed the high unemployment of the 1980s and 1990s. We put behind us the instability of the Tory years by making—[Interruption.] If the Chancellor wants to make an intervention, we are still waiting.
The Chancellor of the Exchequer (Mr George Osborne)
Is the shadow Chancellor saying that the last Government abolished boom and bust?
Ed Balls
I noticed that the Chancellor did not choose to intervene with the answer that I was hoping for, but there we are. The fact is, when we came into government in 1997, we made the Bank of England independent and he opposed it.
We had a period of sustained growth and rising employment. The Conservatives said that the national minimum wage would cost jobs, but employment went up. Under the Conservatives child poverty doubled; under Labour it came down.
We had the longest sustained period of investment in the NHS since the second world war, but there was a global financial recession, which affected countries around the world. Who dealt with that? The British people should be thankful that it was not the Chancellor and his friends, because opposing nationalisation of the Royal Bank of Scotland and Northern Rock would have been a catastrophe for the British economy.
Mr Mark Field (Cities of London and Westminster) (Con)
Although the right hon. Gentleman is right to say that there was global downturn, and he also rightly points out that there had been continued growth between 2000 and 2007, in each and every one of those years a deficit was being run up. That is our point—an unsustainable deficit was run up in the good times, before the global crisis began.
Ed Balls
I have studied the Chancellor’s new fiscal mandate. He says that he wants to get the national debt on a downward trend by the end of the Parliament. We had national debt on a downward trend in 1997, 1998, 1999, 2000 and 2001. Before the financial crisis hit, our national debt was lower than the debt we inherited from the Conservatives. [Interruption.] Hon. Members are barracking—but let me answer the hon. Gentleman, because at least he asked a serious question, unlike some of the nonsense we have heard from other hon. Members on the Government side of the House. The second part of the fiscal mandate is to get the budget, excluding investment—the current balance—back into balance by 2015. Yet that is the golden rule.
The golden rule is getting, over the cycle, the current budget, excluding investment, into balance. That never happened in the 1980s and the 1990s, but it happened for a sustained period under Labour. However, it is true that, throughout that period, we borrowed to invest. Of course we did. Our infrastructure—our schools and hospitals—had not been invested in for 20 or 30 years. Throughout the period before the financial crisis, national debt was below the level that we inherited from the previous Conservative Government.
Elizabeth Truss (South West Norfolk) (Con)
Is not it the case that in 1997 Labour cancelled the road-building programme, which would have been an investment in infrastructure?
Ed Balls
If I remember rightly, our mistake was not to reverse the cancellation of the road-building programme that we inherited from the previous Government. We inherited an environment Department that did not want to build roads and a transport Department that had given up asking for transport investment. When we came into government it took time to build schools, because in the previous 18 years so few new schools had been built that local authorities had lost the capacity and the ability to build them. That is the reality.
Ed Balls
I will make a bit more progress before giving way.
Let me return to the Business Secretary, because he was wise to say that those matters should be judged at the time of the Budget, based on the economic conditions. That is why we have argued that the Budget was an opportunity to change course from the reckless cuts. The problem is that the Business Secretary has not been heard. The blinkered Chancellor is ploughing on regardless, oblivious to what happens around him.
The Business Secretary needs to change tack. “Newsnight” is clearly not the way to get his message out. It does not get him on to the front pages; it does not make people listen to him. Why does he not do what he did last time? Perhaps he needs to call in some more young constituents for another candid conversation, another avuncular chat. It worked last time. The Chancellor certainly knew about his views on media ownership and News International. It is a pity he did not also share his thoughts on the risk to growth and jobs from the Chancellor’s reckless cuts.
The Business Secretary knows that the Chancellor is taking a massive and reckless gamble. He knows that it is the wrong thing to do, just as he knows that scrapping the future jobs fund and education maintenance allowances, hiking up tuition fees, raising VAT and cutting benefits for disabled people is wrong. It is one thing to want to be in power, but sacrificing one’s principles and beliefs for power is quite another. They used to call him Saint Vince, the wise economist. He had a reputation for telling it like it is. Why does he not tell us what he really thinks today? He knows that the economic strategy of the Government of which he is now a part is deeply flawed, misguided and unfair.
Lorely Burt (Solihull) (LD)
The right hon. Gentleman is right—the Business Secretary is very wise. He warned the right hon. Gentleman when he was a business Minister with responsibility for the City that there was far too little regulation for the banks. Does he now regret the fact that he said at the time that we should have light-touch regulation for the banks, which eventually proved so disastrous?
Ed Balls
We all look back and say that we should have been tougher on the banks. Of course we should have been. The irony is that the Business Secretary is in government, sitting next to a Chancellor who criticised us in 2005 and 2006 for being too heavy-handed in our regulation of the banks. We were told that too much heavy-handed regulation from Europe was stifling the competitiveness of the City of London. The Conservative party called for light-touch regulation: that was the reality at the time.
As for the Business Secretary’s other regular critique, that we allow too much household debt in our economy, it was interesting to note from looking at the OBR Budget Book last night that household debt as a percentage of income is now forecast to rise next year, the following year, the subsequent year, the year after that and the year after that—five years of household debt as a percentage of income rising every year, while the savings ratio stays low and stable. He is part of a Government that are certainly not delivering what he said was the prospectus for the future.
Mr Edward Timpson (Crewe and Nantwich) (Con)
The shadow Chancellor is keen to tell us what happened to the national debt between 1997 and 2001, but is silent about what happened to it after that. Perhaps he could enlighten us about what happened to the national debt between 2001 and when he left office?
Ed Balls
I have not been silent at all. I said that there was a global financial crisis, which meant that our deficit and our debt rose, as it did in America, France, Germany and Japan. It is a good job that we went into the crisis with a lower national debt than we inherited, and a lower level of national debt than France, Germany, America and Japan. It is a good job that we did not listen to the Conservative party, or our debt would have been higher, our unemployment would have risen and we would still be in a depression.
Jacob Rees-Mogg
Thank you. I am grateful for such widespread support.
May I draw the shadow Chancellor’s attention to page 8 of the Red Book? He referred to private sector debt, which rose from 200% of GDP to 450% of GDP when the Labour Government were in office. That fundamental instability led to our troubles. It was great while debt was rising—it led to full Government coffers—but it got out of control and that is the root cause of the problem.
Ed Balls
As I said, the OBR says that subdued consumption outlook requires households to dip into their savings again in 2011, so the savings ratio continues to fall back from its post-recession peak. It also says that the savings ratio is now forecast to be historically low. Household debt as a percentage of income rises every year from 2010, even though it fell in 2009-10. Those are the facts.
Yesterday we needed a plan from the Chancellor to help hard-pressed families facing the squeeze, to get people back into work and to get our economy growing again. That is what we needed, and that is what we did not get. There was no change to a deficit reduction plan that is faster than that of any other major economy in the world. It pushes growth down and unemployment up. The Chancellor fails to realise that cutting too deep and too fast will make it harder to get our deficit down. He also failed to understand that while he gives the banks a tax cut this year, ordinary families are being hit hard now. It was a smoke-and-mirrors Budget.
Rory Stewart (Penrith and The Border) (Con)
Will the right hon. Gentleman please share his plan and growth strategy with us?
Ed Balls
I will gladly share our plan. First, the economy was strengthening and unemployment was falling—[Interruption.] The Chancellor’s Parliamentary Private Secretary shouts too loudly. Why does he not calm down a little? That may be how they do things in Chelsea and Fulham, but we do not do that in the House of Commons.
Unemployment was falling and growth was rising because we were halving the deficit over the four years. The Chancellor has gone from halving the deficit to trying to get rid of it entirely in four years, by implementing the largest cuts to spending and tax rises of any economy in the world. It is not working. In fact, we heard today that Moody’s, the credit rating agency, is looking at whether it needs to downgrade the British economy because of the threats to growth following yesterday’s Budget.
Secondly, Labour would repeat the bank bonus tax now, raise £2 billion for a second year, and use that to build 25,000 more homes and create 110,000 more jobs for young people who are now not going to get help from the future jobs fund. That was our second plan—and that option was entirely open to the Chancellor, but he chose not to repeat the bank bonus tax, but instead to give a tax cut to the banks.
Thirdly, we would have reversed the rise in VAT on fuel, because the Chancellor’s 1p cut in the Budget—there is still doubt whether that will actually get to motorists—is outweighed by the 3p a litre rise in fuel prices because of the VAT increase that he introduced just a few weeks ago. We cannot blame the Chancellor for the rise in world oil prices resulting from the middle east crisis. He made the right decision not to go ahead with the duty rise, and we would have done the same, given the level of world oil prices. However, the rise in VAT was a complete own goal. It pushed up inflation and prices and cut family budgets. It was a mistake. It was the wrong tax at the wrong time. The Chancellor should just admit that he got it wrong, go to his European partners and say, “Can I reverse this mistake before it’s too late?”
That is our plan, and the Chancellor—[Interruption.] Government Members shout, “Is that it?” but they do not understand the economics of this and the previous Budget. Halving the deficit over four years was ambitious but deliverable. Eliminating the budget deficit in four years means a massive fiscal contraction. Unless we suspend all the laws of economics, assume that no international evidence counts, and believe that fiscal multipliers do not count in our kind of economy, that kind of contraction in fiscal policy and its impact on the public and private sectors is crushing. Only Greece is trying to go faster. We have already seen the biggest fall in consumer confidence for 20 years, and unemployment is up before the cuts have really started to bite.
People are looking to the future and are worried, and the Chancellor is not listening. In his world, that is not a concern. He does not worry about what is happening out there in the real economy but for businesses and families up and down the country, the prospect of rising unemployment year by year, of slow growth last year, this year and next year, and of falling confidence, is a real concern. My advice to the Chancellor is this: take the blinkers off and look at what is actually happening in our economy. It is hurting, but it is not working.
Stephen Hammond (Wimbledon) (Con)
We just heard that the shadow Chancellor’s plan is to halve the deficit over the lifetime of this Parliament. For clarity’s sake, will he tell us what the implications of that would be for the cost of borrowing? What advice has he taken on the yields on 10-year gilts, which would clearly move if we cut borrowing?
Ed Balls
The hon. Gentleman needs to look at what is actually happening to the yield curve, the term structure and long-term interest rates. He will know that before the election, when the previous Government had a plan to halve the deficit over four years, the long-term interest rate level was pretty much identical to the rate now. That is the fact. Our debt maturity is long, our long-term interest rates are low, and there has been no problem getting our gilt auctions away at any point in the last two or three years. The idea that there was some big impending crisis is a myth invented by the Chancellor of the Exchequer and the leader of the Liberal Democrats to justify the biggest and most unfair U-turn on a manifesto that we have seen in the last 100 years of British political history.
Duncan Hames
The shadow Chancellor wants to slow the pace of spending cuts, so will he tell us what spending cuts he wants in the coming year?
Ed Balls
I think the rise in VAT was a mistake, and I think the hon. Gentleman used to agree. I think that spending cuts this year are a mistake, and I think he used to agree with that too. I would halve the deficit over four years, and borrowing would have come in £20 billion lower—[Interruption.] I will answer the question. I set out more detailed spending cuts—in schools—than any other Cabinet Minister at that time. We said we would cut £1 billion from policing, and, for example, that we would go ahead with the disability living allowance gateway reforms. However, the scale and pace of the Government’s cuts are too deep and too fast, which is destabilising our economy. We were right to say, “Don’t make the cuts until the recovery is secure. If you make cuts on this scale before the recovery is secure, what do you end up with? No recovery at all.” That is the situation today.
Albert Owen (Ynys Môn) (Lab)
The shadow Chancellor was right to remind the Liberal Democrats that they once thought that a VAT increase would be a bombshell, but does he also remember the Prime Minister, when he was Leader of the Opposition, saying that VAT was a regressive tax that would hit the poor the hardest, and that he had no intention of increasing it?
Ed Balls
I also remember the Chancellor saying that the Budget was progressive, and it turned out to be regressive, but my hon. Friend is being unfair to Liberal Democrat colleagues. They were not against a VAT rise; they were against a Tory VAT rise. Nick Clegg’s general election leaflets said, “Stop the Tory VAT bombshell,” and he never said, “Stop the Tory-Liberal Democrat VAT bombshell,” so my hon. Friend is being a little harsh on colleagues.
Matthew Hancock
The right hon. Gentleman talks about international evidence, but why should we listen to him rather than to the OECD, the International Monetary Fund, the European Commission and all major business organisations, which support the concept of dealing with our debt?
Ed Balls
The hon. Gentleman needs to be careful with boastful interventions. Let me read out a quotation:
“The measures we have taken have been commended by international bodies such as the European Central Bank, the European Commission, the IMF and the OECD. They have also won the approval of the international markets.”
That is the financial statement of 9 December 2009 from the Irish Finance Minister. He is no longer in office, because he had OECD and IMF approval for a policy that drove unemployment up, growth down, confidence down and the deficit up. Does that not sound somewhat familiar? [Interruption.] If the hon. Gentleman wants to make a third intervention, I shall happily take it, but perhaps he should reflect a little further before he puts out his next press release.
The Chancellor said yesterday that this was not a tax-raising Budget and he did not need to ask for a penny more. However, when we study the details of the Red Book—in table 2.1 on personal tax, the tax cuts from the personal allowance and the tax increases from the switch to the consumer prices index, and changes to national insurance contributions—we find that the tax increases are bigger than the tax cuts. That is the fact. The increase in the personal allowance, which the Liberal Democrats boasted about with such enthusiasm yesterday, is completely crushed by the CPI increase: that is there in the Red Book. The Chancellor said that he would not come along and mislead the House in his Budget, but that is exactly what he did.
We also found out that because the Government changed the indexation of national insurance and the personal allowance, and because many people in our country—disproportionately women—are in part-time work and on low wages, and pay national insurance but not income tax, yesterday was a tax rise for 400,000 of the lowest-paid workers in our country, disproportionately women and part-time workers. That never made it into the Chancellor’s speech, nor did he say that the personal allowance changes were worth £48 a year, but the VAT rise will cost the average family with children £450; that never cropped up in the speech either. Nor did he point out that the upgrading of the GDP deflator—the inflation measure—means that despite the Prime Minister’s promises last year that NHS spending would rise in real terms year by year, it will actually fall year by year. That is another broken promise from the Prime Minister.
Many business people will be asking, “Why didn’t we have a Budget that did a bit more for growth?” It looks as if I was right in Treasury questions on Tuesday when I suggested to the Chancellor that his growth strategy was so flimsy he needed to beef it up, because he has now cut corporation tax by 1p, which is welcome, and is paying for it through measures on tax avoidance, which is also welcome. However, paragraph B.13 of the OBR’s Budget document reads:
“The OBR was notified of the change to corporation tax and the 1p cut in fuel duty…too late to incorporate any indirect effect of these measures in the economy forecast.”
I do not think he told the OBR until the afternoon before. However, it was able to give some clarity. It said that it believed that
“any such effects would have been minimal.”
This growth strategy has been produced with fanfare and much delay, but since publication his own independent auditor, the OBR, has said that it will have no impact on growth and jobs in our economy. Is that not the reality?
An alternative was open to the Chancellor, and it was one that I have set down. He could have decided to follow the American example and cut the deficit at a steadier pace in order to strengthen growth and lower unemployment.
Angela Smith (Penistone and Stocksbridge) (Lab)
Moody’s credit rating agency warned today that the UK’s triple A credit rating could be affected by slower growth. Does that not undermine entirely the Conservative party’s too-fast, too-deep cuts strategy and show that growth is the important aspect of this country’s economic policy?
Ed Balls
I accept my hon. Friend’s point. I was tempted earlier to go down that road, because the fact is that in 2006, 2007 and 2008, the credit rating agencies entirely failed to spot the financial crisis in the first place. The Conservative party and the Liberal Democrats are keen to quote credit agencies when they support their case, but not when they do not support their case. The truth is that the credit agencies failed in the crisis, and quoting them at all is very risky indeed.
As I said, the Chancellor should have adopted our plan for deficit reduction, growth and jobs. He also ought to have adopted our plan to repeat the bank bonus tax for a second year, and used it to give immediate help to young people and jobs, rather than cancelling—in fact abolishing—the future jobs fund. As I have also argued, he should have cut VAT on fuel. That would have been a fairer and more substantial approach. However, the fact is that this year, as a result of the Chancellor’s tax decisions in the Budget, fuel tax will not fall; it will rise by 2p per litre. That is the reality.
The Chancellor should have reversed the VAT rise. That was a big mistake. Two years ago, when we proposed a cut in VAT, which got growth moving and unemployment down, he said, “People won’t notice the VAT cuts.” I am sure that he did not notice them himself, and he probably thinks that people will not notice the VAT rise either. The fact is, however, that with consumer confidence and growth down, and unemployment up, people are noticing what is happening and what he is doing. That is why they are so worried.
Mr Dave Watts (St Helens North) (Lab)
Does my right hon. Friend agree that the Government are yet to spell out how they will ensure that the increases for fuel companies are not passed on to motorists?
Ed Balls
There has been some confusion on this over the past 24 hours. We know from the OBR that it was told of the 1p cut in fuel duty so late that it could not even get it into its economic forecast. The Chancellor realised at the weekend that he was behind the curve, that he was not setting the agenda, that living standards were a rising issue and that Labour was making the case for fuel tax cuts, so he jumped in late with his 1p cut, but he did not have the courage to reverse his 3p rise. That is the reality. Had the Chancellor done things properly—I can give him some advice on this, because I know how to do things properly on North sea oil tax—he would have consulted the oil companies in plenty of time, explained what was happening, made the case, got their agreement, and then announced the policy in the Budget. I think that many of the oil companies did not find out about it until it was announced in the Budget. That was the problem.
Yesterday afternoon the Chief Secretary to the Treasury—as always, he is not here—was on a television programme about the Budget. He was asked, “How will you stop the oil companies simply passing on the cost in consumer prices?” He said that he did not know, but that he would monitor the oil companies closely. That was the problem. The Government did not do the work, and this was cobbled together at the last minute. That is why it has caused so much confusion and consternation in the past 24 hours. He needed a headline and a flourish to his speech, but he did not want to announce that they were cutting the winter fuel allowance—an announcement we would never have had at the end of a Labour Budget—so instead he announced a cobbled-together, last-minute 1p cut in petrol tax.
The Chancellor is not listening.
Mr George Osborne
I can see that the right hon. Gentleman wants to get this point on the winter fuel payment going. Will he confirm, therefore, that I am only following the plan set out in the last Labour Budget on the winter fuel payment?
Ed Balls
A plan was set out in the last Labour Budget for a 1p rise in petrol tax, but the Chancellor reversed it. If he could reverse it on petrol tax, why could he not reverse it on the windfall tax? The fact is that it was not his priority. When we entered government in 1997, what did pensioners get? They got £10 in a Christmas bonus. What did they get from Labour? They got £200, and the poorest pensioners got £300. What did we do? We confirmed in Budgets that we could carry on with the £300 in a sensible and proper way for a period of years. It would have been for the Chancellor to decide in this Budget what then to do, but I can tell hon. Members that a Labour Chancellor would have extended it. Instead, a Tory Chancellor cuts it. That is the truth.
The Chancellor is not listening. He just does not get it. He does not get how hard people are being hit by higher VAT and cuts in local services. He does not get what it means to face the fear or reality of unemployment. For the sake of our country’s future, he needs to think again and start putting jobs first—and he needs to start doing that right now.
Vince Cable
We are sticking very firmly with plan A, because plan A is right. The hon. Gentleman will know that flexibility is built into economic management, primarily through monetary policy, and that is the mix that we will continue.
The shadow Chancellor is right. There is of course concern about a squeeze on people’s living standards, and we are concerned about that no less than he is. The Chancellor has tried to alleviate the problem through action on fuel duty and by lifting the income tax threshold. I would like to spend a few moments looking at the two proposals that the shadow Chancellor has made—he has repeated them today—to deal with the problem. The first proposal turned out to be illegal under European Union law. Like me, he is a good European—we would both like to observe European Union law—and to change that law would have taken roughly five years, which will not provide much relief.
After the fiasco of the shadow Chancellor’s “VAT relief on petrol” idea, his other big idea, which he elaborated on today, was to finance jobs through the tax on bank bonuses. I remind him that he and I have some form on this issue. When the last Government were in power, I was critical of the idea of taxing bank bonuses as I did not think it would work. It is to the credit of the former Chancellor that, through his ingenuity, he made it work. In the year in which the measure operated, he raised £2.5 billion—not the £3.5 billion that is often cited, because that takes no account of the offset in corporation tax. Because of his skill in making the bonus tax work, we have to listen to his advice when he says:
“I think it will be a one-off thing because, frankly, the very people you are after here are very good at getting out of these things and…find all sorts of imaginative ways of avoiding it in…future”.
He has counselled very strongly against a repeat of the bonus tax. He was—to use the word—wise.
There is another reason why I am surprised that the shadow Chancellor has returned to the bonus tax issue. He may remember that back in 2006, when he was the City Minister, a big debate opened in the Labour party when Bob Diamond was having one of his early years of extremely generous bonuses. The deputy leader of the Labour party declared “war” on “fat City bonuses”. She was promptly slapped down by the then City Minister, who reminded us that such pay-outs were good for tax revenues and for job creation. In that particular Labour party debate, I was very much on the side of the deputy leader.
If the previous Government are serious about taxing banks, why did they allow a situation to arise in which only two of the 15 major banks had in place an agreement to stop large-scale tax avoidance? We have now stopped it. Every single bank is now covered by the HMRC code on tax avoidance. Additionally, we have put in place the levy on banks’ balance sheets, raising £10 billion, which is four times as much as the one-off bonus tax would have raised.
Ed Balls
I am concerned by that comment, and I am not sure whether the Chancellor would agree with it. The fact is that hundreds of thousands of people in our country work in financial services, often on low or average earnings of around £20,000 to £25,000 a year. Is the Business Secretary really saying that those jobs are not important, and that job creation in financial services can be dismissed? He is not one of those people who says, “Let the financial sector go to Switzerland”, is he? He is supposed to be the Business Secretary.
Vince Cable
I really do not know what the right hon. Gentleman is talking about. We started by talking about excessive bonuses in one very large investment bank, and he has now extended that to the whole of the financial services sector. Of course that sector is valuable. Of course the jobs and the tax revenue are valuable, but that is not what he was talking about in his ideological dispute with his deputy leader.
Let me return to the right hon. Gentleman’s central message that the Government should abandon, or substantially modify, their fiscal strategy. I shared a platform last week at the London School of Economics with Angel Gurría of the OECD. He was asked what the Government should do. He had a simple message, which was that we should “stick with it”. He is not some pro-coalition politician or right-wing ideologue; he is the head of an organisation representing 25 Governments. Opposition Members should ask themselves—the shadow Chancellor was asked this but he neatly evaded the question—why all the major international institutions, including the International Monetary Fund, the European Commission and the G20, support the strategy that we have adopted. The reason is that they are all painfully aware that we are in an economically dangerous world in which crises of sovereign debt are not very far away.